Mumbai: The risk of losing control over Koutons Retail India Ltd, the apparel manufacturer and retailer, has forced its promoters to offer real estate assets in lieu of Koutons shares they pledged with lenders to raise funds.
Davinder Pal Singh Kohli and his associates, the promoters, were forced to do so earlier this month after having pledged almost 60% of their stake at one stage.
Kohli and his associates held a combined 66.63% stake in the company.
“The company wants to offer fresh collateral in the form of property to recover our pledged shares. We are offering real estate valued at about Rs80-100 crore near Delhi and Gurgaon to IFCI,” Kohli, chairman of Koutons, said in a phone interview. IFCI Ltd is a lender to businesses.
Koutons shares closed 1.71% down at Rs408.40 on Monday on the Bombay Stock Exchange. The benchmark index Sensex closed 0.14% up at 14,785.74 points. Ahmed Raza Khan / Mint
Typically, when equity is pledged, borrowers provide assets worth two-three times the loan amount, Kohli said.
Koutons, which was set up in the early 1990s, is a leading apparel maker, exporter and retailer. The company has moved from being a garment manufacturer to a retailer by opening in 2002 its own chain of exclusive brand outlets called Koutons stores.
Kohli says he managed to keep lenders at bay to some extent when he and the other promoters paid Rs30 crore in March to Edelweiss Capital Ltd, one of the lenders, and freed 18% of the pledged equity. Koutons’ debt has been pared down to Rs89 crore. “The money was arranged by the promoters in their personal capacity,” Kohli said.
He said pledging real estate to redeem the pledged shares will free up another 20% of the promoters’ stake. This will bring down the pledged portion of the promoters’ stake to 23%. The entire process will take around 30 days to be completed.
Immediately after its initial public offering in 2007, Koutons went on an expansion drive, raising Rs119 crore in debt against pledged shares in 2008 to fund the move. “We picked up a 51% stake in a processing unit as we anticipated more brands to come in the market and competition to increase. So, to have a control on the back-end, we acquired control of the processing units,” Kohli said.
The company also plans to dilute equity of around 5-6% to fund the expansion, but at an appropriate time, Kohli added. “The time is not apt for an equity offering and it is a bit premature to talk about it,” he said.
In hindsight, said Kohli, the expansion programme was initiated at an inopportune time. It borrowed about Rs89 crore in July-August when Koutons shares were trading at Rs700 per share. After November, Koutons’ stock price almost halved, forcing promoters to top up their shares as surety, Kohli explained.
Koutons owns clothing brands Koutons and Charlie Outlaw for men, Les Femme for women and Koutons Junior targeted at children, and is positioned as a maker of affordable clothing.
But things could look up for Koutons as the industry expects retail stocks to rise further in anticipation of a relaxation of rules governing foreign direct investment in the retail sector when the budget is announced on 6 July, said Kunal Lakhan, a Mumbai-based analyst with KR Choksey Shares and Securities Pvt. Ltd.
Koutons shares closed 1.71% down at Rs408.40 on Monday on the Bombay Stock Exchange. The benchmark index Sensex closed 0.14% up at 14,785.74 points.
“With the reduction of pledged amount (of promoters’ shares), the company doesn’t have to worry as much as they had to worry sometime back because of the quantum of shares pledged,” Lakhan added.
Koutons has around 1,400 stores. In the last one year, it has added at least 185 family stores. At least half of these stores were earlier smaller, 1,000 sq. ft stores, but were expanded into family stores of about 4,000 sq. ft each. The company also shut down at least 185 unviable stores in the last fiscal.
For the quarter ended December, Koutons announced a net profit of Rs13 crore. It has yet to announce its results for the financial year ended March.