Koutons- The way ahead always………..

A friend of mine who is an equity analyst recently mentioned this company to me. Koutons as a brand commands a premium name, but the kind of deep discounts this store has to offer brings it within the reach of a variety of consumers. It is always a good idea to start investing in companies we can easily understand. Names we are familiar with. Being fairly interested in fashion and a shopaholic since childhood I feel it is a nice sector for me to study further.

Business Model Interesting Features

I found this company’s business model interesting for various reasons. It is operating in retailing space which has been fairly sluggish and the company has still produced decent results. This is my first clue that the company must be having a sustainable moat which is allowing it to do well in tough times. Upon researching further I found a number of interesting facts about Koutons.

Koutons has a value based format. It has a tremendous presence outside metros which has given it a first mover advantage there. It has 1400 outlets and a greater portion are in cities other than metros and Tier I. All these factors have helped Koutons create a brand identity which is highly important in the fashion sector.

Koutons operates with a franchise model which allows it to scale operations with less capex. It has started to convert its existing outlets into family stores which is another step in the right direction. Minimal expenditure in this direction will help increase its sales.

Koutons supplies inventory, and the costs of securing retail space, rentals have to be borne by the franchisees. This allows for fast expansion as all the employee costs, rentals are reduced.

The low cost of products, due to the discount schemes that the company runs throughout the year, attracts footfalls.

Financials-

This is a snapshot of the 5 key financial parameters I consider while short listing a company. Green is a safe region and orange requires further probing. Koutons has performed well as far as Net Sales, EPS, BVPS, ROIC are concerned. The Debt/Net Profit ratio is a cause for concern.

Screen-

Upon screening the company I compared it with its peers.

As you can observe Koutons is performing fairly well amongst its competitors.

Future Plans-

Koutons plans to further penetrate the smaller cities this year. Existing smaller stores are being expanded to family-size stores making each store address a wide customer base.

The company is targeting a store count of 2,000 for this year, with a capex of Rs 60 crore. India has a young population with 65% of the population below 35 years of age which is promising for the retail sector company.

I feel the company has a bright future ahead. Anybody has any thoughts or analysis on it please let me know.

References-
MoneyWorks4me

Stocks my only Asset Class in future

Ever since I have started controlling my finances I have been actively studying various types of investments. I began working in March and now that 6 months are over I am taking a hard look at all my investments so far. I had a decent amount in my savings account which I took charge of when I began working. Being a non- finance student I had no idea about taxes, investment options, stocks, PPF,NSC the list goes on. To add to it I moved out of my house to learn how to control all my expenses.

Now that 6 months have gone by it feels like a lifetime. As my mentor told me the other day time is just the difference between 2 events. When your involved in tons of things you feel a lot of time has gone by.Reading,studying, surfing the net, discussing with a number of experienced people has been an eye opener for me.

Lessons learned -

• Money management is a dedicated job. Not necessarily full time but everybody should spend some time managing their money. As I look around me most of the people are working really hard to make money, but very few people are being smart enough to simultaneously allow their earned money to work for them. People complain about lack of time, lack of knowledge and all possible excuses to avoid managing their own money.I have learned this lesson pretty early in my career and I plan to spend a dedicated amount each week planning my investments.

• When I first invested my money I divided it into fixed deposits, stocks, some high risk instruments, PPF and ELSS. I have decided to change this decision. I think this allocation is highly customized for each individual and their goals. I am planning to consolidate most of my investments into stocks. I feel value investing practiced with discipline is indeed the best form of investment. I constantly evaluate my decisions on each investment. To justify any of my stock investments I feel if I can invest 'X' amount in this stock then I should be able to invest '1000X'amount also into the same stock or not invest at all. The first Rule which I like to follow in stock investing is to buy a stock in a company I would like to completely own.Besides I feel that I if I plan to be in the stock market I should at least aim to beat the Fixed Deposits 9-10% p.a. I also feel that only when you have big money at stake do you really learn and take sensible decisions.

So since I am deciding to break my Fixed Deposits and invest in stocks I felt it is a good idea to write about it so that I can remember my thought process at this time.

I would love to hear inputs from all the experienced investors, people who have been in the market much longer than me and have different views on the subject of investing.

Financial Track Record- Net Sales

This post is a part of a series of posts on basics to study a company’s financial standing. Please read the introduction to get the overview Financial Track Record.

The easiest and most common parameter used to study a company is the Net Sales of a company. Net Sales of the company is the main source of income of the company. If it increases the profit of the company increases which makes it able to protect itself from inflation and competition and the company grows with a good rate.

However just looking at the mere figure of Net Sales is not enough. What we need to understand is the year on year growth of Net Sales of the company.

To pick out a financially strong company we must be patient enough to look at the past ten year data of the company. By studying the year on year growth for the last ten years we can understand whether the company is cyclical or whether it has been strong enough to withstand economic downturns.

Usually people just look at current quarter results and react to it by buying and selling stocks. What is most important is consistency in performance. I follow a criterion that a company for the last ten years should have maintained 12% and above year on year compounded growth rate. You will be surprised that there are many companies which have actually maintained such performance, but are still getting missed.

Here are the Net Sales of 2 companies below- Click on the images to view

Company A-

Company B-

As you can see the company A has been quite consistent with its Net Sales and should definitely be considered for further studying rather than company B.

However Net Sales is just one parameter there are several other factors to be studied before finally investing in a company for long term. It should just be used as a convenient factor to weed out bad companies and spot potential gems.

Next post- ROIC

References-

MoneyWorks4me

Rule #1 by Phil Town

Financial Track Record

When I first started investing in stocks I had no idea where to begin. Whether I should start following the news, listen to tips from friends, when do I buy when do I sell? There were endless questions in my mind. One advantage which my generation has is the Internet which provides a mountain of data on almost every topic you want to delve into.

Now came the mammoth task of sorting out all this data to extract information which maybe of use to me in my investing decisions. After making several mistakes in my first month itself I decided it was time I developed a strategy suitable for me to invest without any stress and make some good profits.

I started reading a couple of books on value investing, material which primarily dealt with fundamental analysis of stocks. At the same time since I had started working at MoneyWorks4me I was getting a very good idea about a lot of financial terms which I had run from throughout my MBA.

After a large number of arguments, brain storming and reading, I finally accepted a few parameters to consider while evaluating a company.

This post is going to be the first of many other posts on this topic. I feel each and every parameter needs extensive discussion and analysis so I will write about an overview of studying a financial track record in this post and elaborate on each parameter in the subsequent posts.

In fundamental analysis the first thing that I would like to consider is the financial strength of a company. It gives me a good idea about its past, its management, its ability to withstand competition and many other things.

Power of 5 factors to determine the financial track record of a company-

Net Sales- Well the first thing to look at and the easiest thing to understand is Net Sales. Simply put sales are the top line of a company. Each year a business will publish sales which will allows us to make a comparison with its previous year’s sales. It helps us determine the growth of a company. The most important thing here is to calculate the rate at which sales have grown. I like to look at 10 year data for this factor and to observe the trends and year on year growth.

ROIC- It is the rate of return a business makes on the money it has invested in itself every year. It is a measure which tells us how effectively a company uses the money invested in its operations. It is also an indicator of how well the Management team is using the money invested in its operations. A strong ROIC is one of the first indications that the managers of this business are on the side of its owners, a factor which is very important.

EPS- This figure tells me about the profit a company is making per share. Often known as the bottom line, it gives an investor confidence to see the earning per share growing each year. The EPS growth rate is also a figure used in doing valuations of a company. Based on its projected earnings we can arrive at a current worth of a company.

BVPS- This figure tells me what is the business is worth once it has cleared off all its liabilities.It is a factor which is different for various industries. Some industries may have a higher book value if they own real estate machinery etc. However some may hold it in the form of intellectual property. The important thing to judge over here is the growth rate which should be similar. It tells me whether a company is growing its business or developing new products. It tells me about the long term prospects of a company.

Debt/Net Profit – This ratio tells me about the ability of a company to clear out its debt on the basis of the net profit the company is generating. You will be amazed to see the value of this ratio for some of the companies popularly traded. If this factor is greater than 3 it needs to be studied further.

Well this was a very brief introduction to these 5 factors I will be writing about each in great detail in my next posts.

References-

MoneyWorks4me

Rule#1 by Phil Town

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