Shortly after its deal with Hindustan Times, Koovs Plc (LON:KOOV) has announced an even more important tie-up with a major Indian partner: Future Lifestyle Fashions Ltd (FLFL), part of The Future Group, will take a 29.9% strategic stake in Koovs, providing not only financial firepower but all the major synergistic benefits possible from one of India’s largest fashion retailers. Simultaneously, Koovs has announced an additional £10m equity raise at 15p per share. With the capital and the partners, Koovs now has the substantial platform on which to build India’s leading fashion e-tailer and has financially de-risked the whole venture.
The deal: Koovs will issue 57.9m shares to FLFL at 10p per share, raising £5.8m. It will also look to raise a further £10m from selected investors at 15p per share. The capital raised fulfils the conditions of the HT Media deal. If the full £10m is raised, FLFL will subscribe for further equity, taking its stake up to 29.9%.
The benefits: FLFL is a huge, nationwide bricks-and-mortar fashion retailer. It is also a vertically integrated business manufacturing its own brands, as well as selling well-known international labels. With Koovs leveraging FLFL’s scale and distribution, this should improve its revenue and margins much faster.
Valuation: Once the deal completes, the equity case moves from being an option to a soundly-based proposition. We previously estimated that the current EV of a future successful Koovs could be ca.£357m, including the funds to be raised. This deal completely transforms Koovs’ prospects, in our opinion.
Risks: Once refinanced, we see the two key risks being slower uptake of e-commerce in India than we forecast and damaging discounting by Koovs’ indirect competitors. Koovs also needs to manage the relationship with FLFL successfully to optimise its benefits.
Investment summary: Once the deal is completed and the money raised, Koovs plc becomes an exciting way to play the last big world retail market to move online. The prize, if it gets it right, is a billion-pound company and more. It is likely to be a bumpy, exciting ride, but investors have the reassurance of a highly experienced management team in charge, and the backing of two major Indian corporations straddling both retail and media.
