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The Federation of Universities

Koutons Retail India Limited
As the retail sector is experiencing a boom in India, we are happy to be part of the success story and in the process strengthen our base. Our business strategy is to have our presence in the fashion-conscious consumers neighborhood and serve his fashion needs with our trendy range of products. Mr. D P S Kohli, Chairman of Koutons Koutons Retail India Limited (KRIL) is an apparel manufacturing and retail company. It is into the business of designing, manufacturing and retailing apparel under the brand names Koutons and Charlie Outlaw. KRIL has a network of 999 exclusive brand outlets with 18 in-house manufacturing and finishing units and 14 warehouses across India. It annually manufactures 12.36 million and finishes 22.92 million pieces of apparel. On September 18, 2007, KRIL tapped the capital market through public issue of 3,524,439 equity shares with a face value of Rs.10 each. It includes a fresh issue of 2,607,897 equity shares and an offer for sale of 916,542 equity shares by the selling shareholders. It also comprises about 50,000 equity shares reserved for its employees. The KRIL issue, priced in a band of Rs.370 to Rs.415 a share, was made through a 100% Book Building Process. It was over subscribed by 45.21 times; and on the first day of listing at National Stock Exchange (NSE) the scrip closed at Rs.584 per share registering a rise of Rs.169 or 40.72% against the issue price of Rs.415.

Industry Overview
Indian retail industry is regarded as the most attractive market for global retail investment according to A.T. Kearneys Global Retail Development Index, 2006 wherein the Indian retail sector has topped the list of most attractive markets in the world for the third consecutive year (from 2004 through 2006). It is the fifth largest retail destination globally. The fast growing economy, favorable demographics, rising consumer incomes, changing lifestyles and infrastructural developments like emergence of new shopping malls led the Indian retail sector to reach crest. Till the last decade, the retail sector was generally unorganized with small vendors dominating the major share of the industry. However, the scenario is changing fast and the industry is turning towards organized retailing.
Table 1: Growth of India Retail : 2004 to 2006 Retail Segments Value 2004 Value 2005 (Rs. in (Rs. in Billion) Billion) 6,150 6,285 800 885 435 476 350 414 320 364 330 340 287 157 109 98 31 29 9,805 Indian Retail Market Value 2006* CAGR (Rs. in 2004-2006 Billion) (%) 6,422 2 980 11 520 9 492 19 415 14 364 351 328 187 119 115 34 33 10,360 10 3 14 19 9 18 10 14 6

Food & Grocery Clothing, Textiles & Fashion Accessories Jewellery Catering Services (F & B) Consumer Durables, Home Appliances/ Equipments Pharmaceuticals 300 Furnishings, Utensils, Furniture-Home 330 & Office Entertainment 250 Mobile Handsets, Accessories & Services 130 Footwear 100 Books, Music & Gifts 82 Watches 28 Health & Beauty Care Services 25 Total 9,300 Source: India Retail Report by Images & F&R 2007.

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Organized Retail
The Indian retail sector is currently estimated at USD270 billion. Organized retail increased from USD6.2 billion in 2004 to USD8 billion in 2005. The market size of the organized retail at current prices is worth Rs.550 billion. Given below is the organized pie of the Indian retail sector wherein clothing and accessories take the major share with 39%. Figure 1: The Organized Retail Pie 2006

Source: India retail Report by Images & F & R 2007. Of late, organized retail has recorded a remarkable growth. The high growth in this sector is due to strong economic growth in the country, coupled with favorable demographics, easy availability of credit, supply of real estate, shift in lifestyle patterns etc. In addition to the existing players, major and giant companies like Reliance, Bharti (a joint venture along with Wal Mart) and Aditya Birla Group have announced to invest in this sector and this will act as a channel to the growth. Table 2: Growth of Organized Retail : 2004 to 2006 Organized Retail Retail Segments Clothing, Textiles &Fashion Accessories Food & Grocery Footwear Consumer Durables, Home Appliances/ Equipments Catering Services (F & B) Furnishings, Utensils, Furniture-Home & Office Watches Mobile Handsets, Accessories Jewellery Books, Music & Gifts Entertainment Pharmaceuticals Health & Beauty Care 22 11.1 8.4 8.5 8.0 6.5 5.5 1.5 6.7 39.6 6.5 2.0 9.8 2.6 1.8 6 26 13.5 11 11 11.5 9.5 7.3 2.2 356 7.6 43.5 7 2.3 11.7 3.3 2.2 7.6 3.6 32 15.5 15 14.5 14.5 13.5 9.5 3.5 475 9.1 45.6 8 2.8 12.6 4.1 2.6 10.6 4.6% 20.6 18.2 33.7 30.6 34.9 44.1 31.4 52.9 34.8 20 5.7 24 5.8 34 6.9 30.8 25 7.8 32 8.8 43 10.4 31.2 Value 2004 (Rs. in Billion) 109 29.5 25 CAGR Value Value % % % 2005 2006 2004Organized Organized Organized (Rs. in (Rs. in 2006 in 2005 in 2006 in 2004 Billion) Billion) % 13.6 0.5 25.0 140 35 33 15.8 0.6 30.3 185 50 45 18.9 0.8 37.8 30.3 30.8 34.2

Total 280 3.0% Source: India Retail Report by Images & F&R 2007. 2

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The Relocation of Apparel Manufacturing from West to East

Apparel manufacturing has been slowly moving from western countries to Asian countries due to cost competitiveness. India also did away with quotas as a result of which the Indian textile industry opened to the world; retailers are now allowed to source their necessities from the most competitive dealer. Asian countries like India, Bangladesh, Indonesia and China have the advantage of low labor costs, which has added to their brisk growth.

Growth Drivers
Changing Demographic Profile India has the youngest consumer profile compared to countries like USA, UK, and Japan etc. More than 65% of the Indian population is below the age of 35 years and 54% is below the age of 24 years while in Europe and Japan young population is on the decline. In the US, there is positive growth in the young population mainly due to immigration. In India, the composition of population is shifting more towards the 20-49 year age group. People in this age group mostly are working and have high purchasing power; and they have both the ability and willingness to spend. Therefore, demographic change is considered a key factor for higher consumption. Having a high consumption population directly boosts the retail sector. Besides, workingwomen population in India has increased tremendously. Also, consumer lifestyles and preferences have also positively affected the consumption patterns in India. According to the India Retail Report by Images & F&R 2007, an increase in the nuclear families will result in 3% to 4% increase in aggregate spending over the next five years. Figure 2: Share of Population by Age Group

Source: India Retail Report by Images &F&R 2007.

Rising Income Levels

Rise in income levels added huge number of house holds to the consuming class. The number of households recorded a remarkable growth of 100% from the year 1995 to 2005. In the year 1995 the number of households was 40 million and by the end of 2005 it increased to 80 million. Wherein the number of high-income group increased from 5.5 million in 1995 to 18 million in 2005 and the mass affluent increased from 18 million in 1995 to 31 million in 2005. The growth of the organized retail is a result of increase in the nuclear family structure, a growing number of educated and employed women (which also increases disposable income), media proliferation and growing consumerism. Figure 3: Growth in Income (Million households)

Source: FICCI KPMG Report 2006.

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Consumer Spend
The key-factors affecting the consumer spend are: younger population, increasing disposable income with higher aspirations and feel good aspect. According to the AC Nielsen Online Omnibus Survey of 2005, India is considered the highest category of Aspiration Index in Asia besides China, Indonesia and Thailand. Private consumption, directly influences retail industry, which grew at 7% in 2005-06 from 6.28% in 2004-05, says the India Retail Report by Images & F&R 2007. Now-a-days, consumers are more brand conscious and they look out for products with design and quality. One of the important drivers in the Indian apparel and clothing segment is people are willing to spend on branded and mainstream fashion items.

Urbanization
Organized retail business is more in metros than in tier 1 and tier 2 cities. It is expected that in the next 10 years there is going to be tremendous growth in the metros sector; as a result, the target audience for organized retail is going to be the urban population. Organized retail is more successful in west and south India due to regional variation that ranges from differences in consumer buying behavior to cost of real estate and taxation laws according to the FICCI KPMG Report 2005. Many companies like Nokia, Pizza Hut, Ford, Reebok, and Adidas are concentrating more in tier II cities as there is an increase in awareness of organized retail in these cities. This is eroding the difference between the metros and the tier II cities in terms of urban aspirations. Figure 4: Organized Retail as a Percentage of FMCG Sales by City (%)

Source: FICCI KPMG Report 2005.

Retail Space
The main obstacle in the development of organized retail is the quality retail, i.e., the retail space. Currently in India, there are operational shopping centers with approximately 22 million sq ft space. By the end of the Year 2007, it is expected to grow phenomenally with over 375 shopping centers/malls covering 90 million sq. ft. space as per Images Yearbook Volume III, 2005. This additional retail space is expected to add Rs.300 billion of business to organized retail. According to the Images Yearbook Volume III, 2005, the whim of shopping may go up to 40% of total mall shopping and it may become expensive as the awareness and sensitivity of brands will be heightened.

Mall Culture
The emergence and brisk development of malls in India is considered as the key mechanism in the retail sector growth. By the end of the year 2007, the mall space is expected to grow approximately to 90 million sq. ft. according to the Images Yearbook Volume III, 2005. Figure 5 (a) Current Total Built-up Area (%) (b) Projected Mall Space Zone Wise (Projection till end 2007)

Source: FICCI KPMG Report 2005. 4

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Retail Formats preferred in India

According to the KPMG retail survey, in India the specialty and supermarket format have the most potential to grow followed by hypermarkets. People will mainly focus on these as they visit shops for specific purpose. This is a result of increase in the percentage of working women and dual income families. Figure 6: Fastest Growing Formats in India (%)

Source: FICCI KPMG Report 2005.

Indian Apparel Market

In India, apparel and accessories retailing is the largest segment of organized retailing and constitutes Rs.550 billion (USD12.4 billion) which is 39% of the total organized retailing business. According to the India Retail Report by Images & F&R 2007, for the year 2004, the organized apparel and accessories retail market accounted for 13.6% of the total sector, which is valued at Rs.109 billion. This has recorded a growth rate of 30.3% during 2005-06 whereas the organized retail has steadily grown to 18.9% in 2006. Figure 7: Indias Clothing, Textiles, Faison Accessories Market (Rs. in billion)

Source: India Retail Report by Images & F&R 2007. According to the India Retail Report by Images & F&R 2007 the trends in the Indian Apparel Market are: In India, Malls are one of the chief growth drivers of apparel retailing and the organized retail spaces offer large areas to fashion products. Existing apparel brands and retailers recognize the potential of smaller towns to explore and expand their retail network. The average retail presence was 30% in 2005, which increased to 145% in 2006. The apparel retailers and Brands have recorded 84% growth in the opening up of new outlets for the year 2005; this increased to 113% by 2006.

The major share in the Indian Apparel Market is taken by mens wear with 42% value followed by womens wear with 34% value amounting at Rs.3,03,800 million. Kids segment decreased from 18% to 17% due to the increase in the practice of ready-to-wear branded uniforms. The uniforms segment includes kids, men and women for customers above 14 years of age. 5

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Source: Images Yearbook Volume III 2005. Figure 9: Growth of Indian Apparel Market ((Value & Volume) 2005)

Source: Images Yearbook Volume III 2005.

Ready to Wear/Tailored Segment

In earlier days, tailor-made garments were in demand among Indian masses. However, the trend is slowly but surely shifting. Indian apparel industry has gone through four different phases: Phase 1 (Pre-90s): During this period, tailor-made apparel was in demand. Phase 2 (1990-1995): During this stage, ready-to-wear apparel was introduced. Phase 3 (1995-2000): This was the era of Brands. Phase 4 (2000-2004): This was the phase of Retail. 2005 onwards: Categories rule. The key reason for the growth of ready-to-wear market lies in the softening of Government Regulations like: a. b. c. The reservation that readymade garments should be produced only by small-scale industry is removed. Excise duty on readymade garments is removed. Tax on branded garment manufacture is reduced and the tax structure is simplified with various states implementing the Value Added Tax. Figure 10: Proportion of Readymades in Different Customer Segments (%)

Source: Images Yearbook Volume III 2005. 6

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Branded/Unbranded/Private Labels
The readymade garment segment can be divided into branded and unbranded garments. When a manufacturer or marketer makes conscious efforts to promote his brand, it is known as a Branded store; for example, Koutons Retail India Limited, Madura Garments Peter England, Arvind Brands Newport, ITCs Wills Classic, and Raymonds Park Avenue among others. In India, many foreign brands have successfully established their presence. They entered India through tie-ups with domestic companies like Benetton or taking license for brands like Allen Solly and Arrow brands or by Cash and Carry wholesale trading route like Metro or by retailing through franchisee channels like Tommy Hilfiger, Marks and Spencers, Speedo, Umbro etc. Private labels across the world contribute around 17% percent of retail sales and this is growing at 5% per annum. They provide products at low cost to customers and also provide high margins to the retailers. This strategy is adopted globally, including India. Some private label brands like John Miller, Bare, Stop, and Splash have done considerably well in the market; this was achieved with the implementation of uniform tax structure across the country. According to the survey conducted by AC Nielsen, 56% of their survey respondents in India considered private labels as good alternatives to manufacturer brands. This growth can also be witnessed in the areas of groceries, home care besides in clothing and apparel. Figure 11: Proportion of Branded in Different Categories (%)

Source: Images Yearbook Volume III.

Competition
The Indian branded apparel segment consists 23 major players. Following is the ranking of major brands, which is based on the number of outlets: Table 3 No. of Outlets* Players Raymond Ltd. Koutons Retail India Ltd. Pepe Madura Garments Ltd. Arvind Brands Ltd. Provogue India Ltd. Madura Garments Ltd. Levi Strauss India Pvt. Ltd. Personality Ltd. ITC Group Arvind Brands Ltd. Brand The Raymond Shop Koutons & Charlie Outlaw Pepe Peter England Lee Provogue Allen Solly Levis Weekender Wills Lifestyle Wrangler 2005-06 332 206 58 21 53 75 24 65 50 40 NA 2006-07 380 500 NA 22 71 100 NA 115 60 55 35 Cities* 2005-06 167 NA 27 12 NA 24 16 NA NA NA NA 2006-07 174 221 NA NA 71 27 NA 29 25 30 23 7

TTT No. of Outlets* Players Brand 2005-06 29 28 22 NA 21 NA 30 15 35 NA 5 2006-07 NA 26 25 15 22 15 50 15 NA 9 7

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Gini & Jony Pvt. Ltd. Gini & Jony TCNS Clothing Pvt. Ltd. W Madura Garments Ltd. Van Heusen Raymonds Ltd. Be: Madura Garments Ltd. Louis Phillipe Madura Garments Ltd Trouser Town Span Clothing Pvt. Ltd. Spykar Madura Garments Ltd. SF Jeans Kewal Kiran Enterprise Killer Arvind Morjani Brand Tommy Hilfiger Pvt. Ltd. Celebrity Fashion Indian Terrain Source: India Retail Report Images & F&R 2007. *Projected

Koutons History
On 25th November 1994, the company was incorporated under the Companies Act, 1956, as Charlie Creations Private Limited. With effect from 7th February 2006, the name of the company changed to Koutons Retail India Private Limited. Later when the company was converted into a public limited company, the name was finally changed to Koutons Retail India Limited with effect from 27th June 2006. This company was incorporated mainly to takeover M/s. Charlie Creations, which was a partnership firm between Mr. B S Sawhney and Ms. Amarjit Kaur. In this regard, the company entered into an agreement with the partnership firm on 2nd January 1995 to acquire the assets and liabilities of the firm as they appeared on the firms balance sheet as on 31st December 1994. Assets and liabilities of the firm included plant, machinery and fixtures the firm possessed, cash in hand, debts payable to the firm, stock-in-trade, consumable stores, immovable plant and machinery, trademarks, design and licenses owned or obtained by the Firm, benefits accruing to the partners of the Firm from all contracts, pending, subsisting or under execution, the loan taken from the Bank of Baroda, and all other statutory dues or liabilities. The total consideration for the acquisition was Rs.5,85,000 and the partners of the Firm had undertaken not to carry on the same business either personally or in association with any third person without the companys previous written permission. The other key objects of the company mentioned in the Memorandum of Association besides the takeover of the firm are as follows: i. To continue the business as the manufacturers, importers and exporters, wholesale and retail dealers in the area of clothing and wearing apparel for men, women and children in every kind of garments, and their nature and description includes shirts, bush shirts, pajama suits, vests, underwear, suits, pants, workmens cloths, uniforms for the Army, Navy, Air force and other personnel, foundation garments for ladies dresses, brasseries, maternity belts, knee caps, coats, panties, nighties etc. To continue the business as the manufacturers, importers and exporters, wholesale and retail dealers in the area of all kinds of fabrics, hosiery goods of every kind, nature and description of men, women and children. These include vests, underwears, socks, stockings, sweaters and laces.

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0001-01 To continue the business as the manufacturers and dealers in the area of all kinds of carpets, durries, mats, rugs, namdas, blankets, shawls, tweeds, linens, flannels, all other woolens articles and worsted materials.

The major events of the company are as follows: Table 4 Major Events Year Milestone 1994 The Company was incorporated as Charlie Creations Private Limited with the main objective of inter alia acquiring the business of the M/s. Charlie Creations. 1997 The Company diversified its business by introducing non-denim trousers in the existing product range of denim apparels. Awarded the title Best Menwear (Casual) Collection by Apparel Exporters and Manufacturers Association. 1998 The Company launched the brand Koutons. Award received for best display of denim clothing from CMAI-Ashima Group. 2000 Award received for Outstanding Domestic Sales from Clothing Manufacturers Association of India. 2002 The first exclusive brand outlet under the Koutons brand was opened. 2003 Mr. DPS Kohli was awarded the title of Entrepreneur of the Year by the Institute of Trade and Industrial Development. 2005 Nominated for the Brand of the Year-Mens Casual Wear (Large) by the Clothing Manufacturers Association of India. 2006 The Company was converted into a public limited company and consequently its name was changed to Koutons Retail India Limited with effect from June 27, 2006. The Company re-launched the brand Charlie Outlaw. On October 5, 2006 104 Charlie Outlaw exclusive brand outlets were opened. UTI Venture Funds Management Company Private Limited subscribed to 852,500 Equity Shares. Argonaut Ventures subscribed to 575,000 Equity Shares. Awarded the title Most Dynamic Brand of the Year 2006 by LYCRA Images Fashion Awards. Awarded the title Value Retailer of the Year 2006 by Star Retailer-The Consumer Way. Nominated for the Chain Store of the Year at Apex Award, 2006 by the Clothing Manufacturers Association of India. Nominated for the Brand of the Year-Mens Casual Wear (Large) at Apex Award, 2006 by the Clothing Manufacturers Association of India. 2007 Passport India Investments (Mauritius) Limited subscribed to 600,000 Equity Shares at Rs.350 per Equity Shares Mr. DPS Kohil was awarded the title of UDYOG VIBHUSHAN for Excellence in Industrial Performance by the institute of Trade and Industrial Development. * The Company has issued 18,229,000 Equity Others by way of a bonus insurance on February 14, 2007 in the ratio of 1.2. Source: Adopted from Companys Financial Report.

Koutons Business Overview

Koutons is an integrated apparel manufacturing and retail company in India. It is into the business of designing, manufacturing and retailing apparel under the brand name of Koutons and Charlie Outlaw. It has a network of 999 exclusive brand outlets across India as on August 20, 2007. After the partnership firm, M/s. Charlie Creations was formed it established a manufacturing unit in Delhi in the year 1993; this unit had a capacity to produce about 20,000 pieces of apparel annually. By August 20, 2007, it had 18 in-house manufacturing/finishing units and 14 warehouses across India. The finishing capacity of the company increased from 3,000,000 pieces of apparel annually as on March 31, 2005 to 22,920,000 pieces of apparel annually as on March 31, 2007. The manufacturing capacity too has increased from 600000 pieces of apparel annually as on March 31, 2005 to 12360000 pieces of apparel annually as on March 31, 2007. It entered into 9

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fabricating agreements with various manufacturing units for whom they supply for stitching certain apparel. In order to give high quality apparel to its customers, Koutons has adequate amenities to its credit for product testing, apparel development, design studio and sampling infrastructure to manufacturing and finishing facilities. The brand Koutons played a key role in the success of the business and its sale increased from Rs.516.32 million for fiscal 2005 to Rs.3,726.91 million for fiscal 2007. For the fiscal 2006 and 2007, this brand generated 99.11% and 92.34% sales respectively to its total income. This brand has been positioned in the middle to high fashion segment and it offers a wide variety of mans wardrobe for the 22-45 years age group. It includes formals, casuals and also party wear. The company has recently reinvented and re-launched its old premier brand Charlie as Charlie outlaw. This brand has been positioned in the fashionable and contemporary segment, which is also value-for-money brand. It offers casual outfit for the fashion conscious youngsters within the age group of 14 to 25 years. The company has marketed its products across India through its own network of distributors till fiscal 2002. But in order to improve its marketing efficiencies, the company has initiated the model of retailing on a consignment basis through exclusive franchisee stores and its first exclusive store was started in the year 2002 and by August 20, 2007, the brands Koutons and Charlie Outlaw was sold on a total floor area of approximately 482,966 sq. ft. and 360,738 sq. ft. respectively. The companys total income and restated profit after taxes for the years ended March 31, 2003, 2004, 2005, 2006 and 2007 are summarized as follows: Table 5 Particulars Year ended March 31, 2003 223.18 4.32 Year ended March 31, 2004 317.53 8.82 Year ended March 31, 2005 581.46 19.29 Year ended March 31, 2006 1,583.85 131.98 (In Rs. Million) Year ended March 31, 2007 4.036.17 344.87

Total income Profit after tax

Source: Adopted from companys financial reports.

Competitive Strengths
In India, many apparel manufacturers and retailers operate through a combination of retailing with exclusive outlets, national chain stores and multi brand outlets. Their supply is managed directly and through distribution agents. Koutons operate through a model of marketing its apparel directly through a series of exclusive brand outlets. As a result, they are independent of external marketing forces, which affect the national chain stores, multi brand outlets and other intermediaries. This helps the company to focus on its own strategies and efforts in order to maintain the quality and satisfy customers without any meddling of external agency. This model also helps the company to improve the brand equity and to recall the value of its brands. It also permits the company to carry out line extensions as the company controls the shelf space on each of the exclusive brand outlets. The brands Koutons and Charlie Outlaw have a wide network of exclusive brand outlets spread across the metros, tier I and tier II towns of India. Towards the end of August 2007, the brands Koutons and Charlie Outlaw were sold through 566 and 433 exclusive brand outlets respectively. The company has an established network in north/north western India for the brand Koutons and is planning to expand its network in western and eastern India. The company opened exclusive brand outlets in southern India and plans to mark its presence there. It has also executed letters of intent/MoUs with many developers to book various locations where it plans to open its exclusive brand outlets. The company has the flexibility to hedge against the fashion trends at a given point of time from metros to tier II towns as it has a wide range of exclusive brand outlets in metros, tier I and tier II towns in the various regions in India. Koutons Retail India Limited is an integrated apparel manufacturing and retail company. It has an entire value chain of manufacturing and retailing. One of its key strengths is its in-house finishing facilities and rigid quality controls. The company gets its raw materials through intermediaries 10

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who in turn obtain it from various markets. They also utilize broad logistics and supply chain management systems to retain maximum flexibility. This enables the company to meet its requirements in an efficient manner without relying on any one vendor, factory or country. The company has also achieved standardization in quality control systems through a centralized purchasing system, which helps them to be consistent in the quality of apparel it manufactures and markets. It has a sourcing team, which closely monitors its suppliers and provides strict quality assurance analysis. This helps the company to consistently maintain the apparel quality for its customers. The company is in a good position to take advantage of the dynamics of apparel manufacturing and retail sectors in India as it has sourcing expertise, capabilities and relationships. Koutons Retail India Limited is a High Fashion Value for Money brand. Its brand Koutons is positioned in the middle to high fashion segment, whereas Charlie Outlaw is positioned as casual brand targeted at fashion conscious youngsters. The company provides value for their customers money and positions its apparel at a reasonable price and volume sales. It believes that the fashion and style statements are not only limited to high-income segment but there is an unexplored market in the middle-income segment, which is by nature both brand conscious and emphasizes on value-for-money. The company considers this middle-income segment as the fastest growing segment in the Indian apparel industry with an increasing level of disposable income. This Company has a group of designers and merchandisers. It also has a supportive staff of 40 professionals, which includes assistant designers and technical designers. It has designer teams for each apparel segment so that each designer team has specialized skill sets. The apparels are designed with the intention to attract the targeted customers and the latest trends across the world. Latest trends include fashion, fabric, wearability, stitch, embellishments and also pricing. The inhouse designing staff designs Koutons apparel. Marketing and merchandising teams of the company go along with the fashion developments across world and blends them with the creativity of professionally qualified designers working for the company in order to create a distinct style statement at affordable prices. A team of experienced and professional managers manages the company. It mainly focuses on different aspects of the apparel industry such as design, merchandising, manufacturing, sourcing, marketing, quality control, logistics and finance. The companys promoters and management have considerable experience in apparel sector. The company also has second level of major executives who have the capacity to create and face the challenges in course of growth within the company and the apparel sector. The major growth factor in the business is to identify the optimal locations for exclusive brand outlets and to manage logistics. The proactive and aggressive approach of the companys management team in addition to above factors has led the company grow from 74 exclusive brand outlets as on 31st March 2005 to 999 exclusive brand outlets by 20th August 2007 wherein 566 exclusive brand outlets were of Koutons and 433 exclusive brand outlets were of Charlie Outlaw. Koutons has a wide range of products that include shirts, non-denim trousers, denims, suits, blazers, T-shirts, cargos, Capris, sweaters etc. It manufactures and retails wide range of mens apparel through its exclusive outlets. It is also in the process to launch a variety of apparel for women and children. In the fiscal 2005, the company launched ultra lightweight fabric and in the fiscal 2006 it launched compact cotton to its existing portfolio of apparel. Koutons caters to the diverse needs of its various customers through its wide range of apparel portfolio. In addition to this, the portfolio helps the company to consolidate and establish its presence across different regions. The Company has state-of-the-art information flow system in order to maintain records relating to sales and inventory and integrate key workflows. The company maintains its sale records and store inventories based on specially used computer applications, which help the company to maintain the mirror images of the database at its head office and its stores all over India. The pool of incremental data of new transactions updates daily transactions at both the sides i.e. at head office and branches. As a result, the company head office has complete control on the stock and sales on 11

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daily basis. It installed a state-of-the-art enterprise resource planning system developed by Ramco Systems in August 2006 and it started its operations from April 2007. This system provides complete usage of current resources through its strength in financial postings and analysis. Inventory management of the company is also benefited with this conception of a detailed virtual warehouse with bins and sections along with a logistics solution.

Koutons Strategy
KRIL is planning to maintain and strengthen its position in the existing exclusive brand outlets. It also plans to introduce its apparel to new geographic areas and consumer segments, which are less familiar with its apparel. The brand Koutons has been established well in the north/north western India; therefore, the company is planning to expand its network in western and eastern India. It has also opened the brand Koutons exclusive brand outlets in southern India. In addition to this, for the brand Charlie Outlaw, it launched exclusive brand outlets in northern and northwest region. With the launch of new stores and with expansion of existing exclusive brand outlets, company intends to make its presence all across India. The key strategy of Koutons is to establish and increase its in-house manufacturing facilities in order to control its manufacturing costs and the quality of the apparel manufactured. The company has a manufacturing capacity of 12,360,000 pieces of apparel and finishing capacity of 22,920,000 pieces of apparel annually. It proposes to establish a new integrated manufacturing facility and also proposes to expand the finishing and manufacturing capacity of its existing in-house manufacturing facilities. It has plans to start a new integrated manufacturing facility in about 13,000 square meters of land, which the Haryana Urban Development Authority has allotted it in Gurgaon. It also gave purchasing orders for plants and machinery to increase its finishing and manufacturing capacities in the existing units. Increase in manufacturing capacity will also help the company to improve its economies of scale and which in turn will enhance the price competitiveness of its apparel. The main focus of the company is to provide a complete range of menswear for the middle to high fashion segment at affordable prices. It formulated its strategy accordingly and positioned its brand in its targeted market, which is India. Indian market is different from many other advanced country markets because it has a rapidly growing population and a demographic profile of a young population. The brand Koutons is targeted for the 22 to 45 years age group whereas the brand Charlie Outlaw is targeted for the 14 to 25 years age group in the Indian market. It is concentrating more on the fast growing segment of branded fashion wear for the youngsters. The company is even planning to strengthen its position by capitalizing the growing young population, which has increased spending capacity. It also intends to continue to expand the range of our product lines, thereby capitalizing on the name recognition and popularity of our brands. It launched womans wear under the brand name of Les Femme and childrens wear under the brand name of Koutons Junior. It also plans to continue to undertake line extensions, which are within the sphere of its core competence. The company plans to market aggressively its brands to customers and franchisees in order to improve its brands recognition. It took strategic decisions to mainly focus on branded apparel by marketing it through exclusive branded outlets. Brand marketing includes advertisements in print and broadcast media, direct marketing to customers through billboards, event sponsorships, celebrity sponsorships, special event advertisements and advertisements in selected periodicals. In addition to this, the company even plans to continue trade shows and events throughout the country. The basic principle of the company is to provide quality apparel at affordable prices. In order to improve its operating margins and cost structure, it has plans to consolidate its manufacturing and distribution operations, to reduce its selling, general and administrative costs, and to actively seek efficient sources of production either through internal sources of supply or through outsourcing. It plans to identify efficient manufacturing operations and improved raw material sourcing. In addition to this, it also plans to maintain and enhance a low cost infrastructure and a flexible supply chain. 12

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The Company also has plans to acquire complementary product lines and businesses so as to attain attractive opportunities, to increase revenues and also to enhance earnings in its core operating units over the long-term. In addition to the acquisitions to improve its in-house manufacturing capacities, the company is also looking to acquire and merges with other companies to have synergic effects in the areas of designing, manufacturing and retail operations. The company plans to follow this strategy in a systematic manner to make it a possible one. It also plans to assess its portfolio and intends to rationalize specific assets overtime as part of the active management of its brands. The Company was into the export of garments till the Fiscal 2005. But it stopped the export of apparel in order to concentrate more on the present business model of establishing its exclusive brand outlets throughout India. There is a considerable demand for the companys apparel outside India and it plans to enter overseas market as a business thrust which is a part of its strategy.

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Annexure I The Issue

Equity Shares offered: Issue: Which comprises of : Fresh Issue Offer for Sale Of which: Employee Reservation Portion Therefore, Net Issue to Public (Net Issue) QIB Portion: 50,000 Equity Shares 3,474,439 Equity Shares At least 2,084,663 Equity Shares (allocation on proportionate basis) out of which 5% of the QIB Portion or at least 104,233 Equity Shares (assuming the QIB Portion is 60% of the Net Issue) shall be available for allocation on a proportionate basis to Mutual Funds only (Mutual Funds Portion), and the balance Equity Shares (assuming the QIB Portion is 60% of the Net Issue) shall be available for allocation to all QIBs, including Mutual Funds. Not less than 347,444 Equity Shares (allocation on proportionate basis). Not less than 1,042,332 Equity Shares (allocation on proportionate basis). 27,943,500 Equity Shares 2,607,897 Equity Shares 916,542 Equity Shares 3,524,439 Equity Shares

Non-Institutional Portion: Retail Portion: Equity Shares outstanding prior to the Issue:

Equity Shares outstanding post the Issue: 30,551,397 Equity Shares Source: Adopted from Companys Financial Report.

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0001-01

Annexure II Statement of Restated Profit and Loss Account

For the year ended A. Income Sales: Of products traded by the Company Of products manufactured by the Company Other Income Total Income B. Expenditure Materials consumed, manufacturing expenses & cost of goods sold Payment to & Provision for Employees Administrative & General expenses Selling expenses Interest & Financial charges Miscellaneous expenditure written off Total Expenditure 31.03.2003 31.03.2004 31.03.2005 (Rupees in million) 31.03.2006 31.03.2007

210.49 12.69 223.18

27.96 282.71 6.86 317.53

46.36 533.09 2.01 581.46

174.18 1,409.26 0.41 1,583.85

603.60 3,420.37 12.20 4,036.17

160.52 6.99 7.13 32.89 7.42 0.02 214.97

207.55 10.55 12.04 58.21 13.83 0.02 302.20 15.33 3.72 11.61 2.67

375.66 22.64 18.15 114.71 15.52 0.04 546.72 34.74 4.24 30.50 10.97

922.43 31.86 41.34 332.01 34.37 0.05 1,362.06 221.79 10.36 211.43 75.17

2,163.14 76.20 86.23 993.91 149.06 1.84 3,470.38 565.79 39.67 526.12 161.95

C. Net Profit Before Tax, 8.21 Depreciation and Prior Period Items (A B) 2.66 D. Depreciation E. Net Profit before tax and 5.55 Prior Period Items (C D) Income tax Provision 1.09 Tax Paid/Provisions Written back for the previous years 0.01 Deferred Tax Liabilities 0.13 FBT Provision Prior Period expenses Profit After Tax 4.32 Profit Brought Forward from Previous year 15.55 Add: Deferred tax liability for earlier year written back Less: Bonus Shares Issued during the year Profit Carried Forward to Balance Sheet 19.87 Source: Adopted from Companys Financial Report.

0.12 8.82 19.87 0.13 28.82

0.24 19.29 28.82 0.12 29.68 18.55

0.57 2.14 1.57 131.98 18.55 0.24 150.77

17.27 2.03 344.87 150.77 207.24 288.40 15

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0001-01

Annexure III Statement of Restated Assets and Liabilities

(Rupees in Million) For the year ended 31.03.2003 31.03.2004 31.03.2005 31.03.2006 31.03.2007 Assets Fixed Assets- Gross Block 31.80 36.60 51.88 137.08 505.98 Less: Depreciation 13.70 16.31 20.33 30.69 70.36 Net Block 18.10 20.29 31.55 106.39 435.62 Less: Revaluation Reserve Net Block after adjustment 18.10 20.29 31.55 106.39 435.62 for Revaluation Reserve B. Investments C. Current Assets, Loans and Advances Inventories 105.16 146.99 191.67 977.32 3,738.40 Sundry Debtors 50.29 43.17 51.97 81.58 203.92 Cash & Bank balances 4.63 4.97 28.09 21.42 172.57 Other Current Assets Loans & Advances 9.16 17.89 74.87 172.95 509.85 Total of C 169.24 213.03 346.60 1,253.27 4,624.74 D. Current Liabilities and Provisions Sundry liabilities 75.40 62.61 118.21 582.00 1,114.69 Provisions 5.60 11.97 18.22 62.66 205.41 Total of D 81.00 74.58 136.43 644.66 1,320.10 E. Net Current Assets 88.24 138.45 210.17 608.61 3,304.64 (C D) F. Total Assets (A + B + E) 106.34 158.74 241.72 715.00 3,740.26 G. Liabilities and Provisions Loan Funds Working Capital Loans 50.28 86.31 110.83 282.41 1,522.82 Secured Loans 6.49 7.76 22.16 43.39 101.52 Unsecured Loans 16.26 22.40 41.82 186.78 469.96 Total of G 73.03 116.47 174.81 512.58 2,094.30 H. Deferred Tax Liability 0.13 0.12 0.24 2.14 19.42 Net worth (F G H) 33.18 42.15 66.67 200.28 1,626.54 Net worth Represented by: Shareholders Funds Share Capital 9.89 9.89 47.39 49.90 273.44 Share Application Money 3.55 3.55 1.05 (Pending Allotment) Share Premium Account 1,070.94 Reserves and Surplus 19.87 28.82 18.55 150.77 288.40 Less: Revaluation Reserve Reserves (Net of 19.87 28.82 18.55 150.77 288.40 Revaluation Reserve) Less: Miscellaneous 0.13 0.11 0.32 0.39 6.24 expenditure (not written off) Total 33.18 42.15 66.67 200.28 1,626.54 Source: Adopted from Companys Financial Report. A. 16

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0001-01

Annexure IV Restated Cash Flow Statement

(Rupees in million) For the Year Ended 31.03.2003 31.03.2004 31.03.2005 Cash flow from Operating Activities Net (Loss)/Profit before 5.55 11.61 30.50 tax but after exceptional/extraordinary items Depreciation 2.66 3.72 4.24 Interest & Financial 7.42 13.83 15.52 Charges Interest Income (0.22) (0.18) (0.08) Other Income (Profit)/Loss on Sales of 0.01 Fixed Assets Miscellaneous Expenditure 0.17 0.44 0.04 written off Deferred Revenue 0.02 0.02 0.04 expenditure written off Provision for Bad & Doubtful Debts Provision for Gratuity & 0.11 0.36 0.48 Leave Encashment Exchange Fluctuation Gain Operating Profit before 15.71 29.81 50.74 working capital changes Adjustments for changes in working capital: (3.86) 7.13 (8.81) (Increase)/Decrease in Sundry Debtors (Increase)/Decrease in other Receivable (Increase)/Decrease in Inventories Increase/(Decrease) in Trade and Other Payables Cash generated from Operations Taxes (Paid)/Received (Net of TDS) Prior Period (Expenses/Income (Net) Extraordinary/Exceptional Item Net Cash from Operating Activities 25.58 (9.29) (1.11) 0.04 (10.36) (9.68) (20.81) (1.75) (22.56) 50.73 23.35 (8.65) 1.15 15.85 430.94 (197.39) (37.47) (0.57) 4.26 (231.17) 516.47 (1,895.74) (159.18) 42.45 (2,012.47) (3.11) (43.61) (6.23) (41.84) (24.64) (44.67) 31.03.2006 31.03.2007

A.

211.43

526.12

10.36 34.37 (0.05) (0.07) (0.27) 0.05 0.55 256.37

39.67 149.06 (4.10) (0.07) 1.47 1.84 1.80 2.94 (7.95) 710.78

(29.61) (69.44) (785.65)

(124.13) (237.78) (2,761.08)

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TTT For the Year Ended 31.03.2003 31.03.2004 31.03.2005 B. Cash flow from Investing Activities Purchase of Fixed Assets (6.16) (6.30) (15.59) Proceeds from sale of 0.39 0.09 Fixed Assets Miscellaneous Expenditure (0.10) (0.26) not written off Proceeds from sale of Chit 1.05 1.03 0.80 fund Purchase of Chit fund (1.51) (1.98) (25.98) Interest Received 0.17 0.14 0.07 (Revenue) Net cash used in Investing (6.55) (6.72) (40.87) Activities C. Cash flow from Financing Activities Proceeds from fresh issue of Share Capital (Including Share 3.55 5.32 Premium) Net Proceeds from Long 7.18 7.41 33.82 term borrowings Net Proceeds from Short 14.44 36.04 24.52 terms borrowings Interest paid (7.42) (13.83) (15.52) Interest income Net Cash used in 17.75 29.62 48.14 Financing Activities Net Increase/(Decrease) in Cash 0.84 0.34 23.12 & Cash Equivalents (A + B + C) Cash and Cash Equivalents at 3.79 4.63 4.97 the beginning of the year/period Cash and Cash Equivalents at 4.63 4.97 28.09 the end of the year/period 31.03.2006

0001-01 31.03.2007

(85.20) (0.12) 20.43 (15.51) 0.01 (80.39)

(368.90) (7.69) 19.76 (2.68) 0.96 (358.55)

1.46 166.19 171.57 (34.37) 0.04 304.89 (6.67)

1,087.24 341.31 1,240.41 (149.06) 2.27 2,522.17 151.15

28.09 21.42

21.42 172.57

Notes: i. In this statement, Interest Income is shown net of TDS. ii. Investment shown in cash flow statement has been included in other receivable in the Balance Sheet of respective year. iii. Cash and cash equivalents consists of cash in hand and debit balances with bank and FDRs. iv. Chit Fund transactions have been included in the Balance Sheet for the respective years under the head Other Receivables/Other Payables. v. Advance money paid for properties is included in Other Receivables. Inflow from the sale of properties is shown as proceeds from sale of Investment in the respective year of sale. The Profit/(Loss) on sale of properties is treated accordingly from/to the Net Profits Before Tax. vi. Details of Tax Paid: 31.03.2003 31.03.2004 31.03.2005 31.03.2006 Advance Tax Paid for the year Tax paid for Previous Year 1.1 0.01 1.75 7.5 1.15 8.65 31.5 5.97 37.47 31.03.2007 115.00 44.18 159.18

Total 1.11 1.75 Source: Adopted from Companys Financial Report. 18