Is Koovs really ‘the Asos of India’ or will it end up another flash in the pan?
With e-commerce business Koovs drifting lower in recent weeks, we ask whether the so-called ‘Asos of India’ is worth a punt at 14.2p now the next stage of its aggressive growth strategy is backed by considerable funding.
What is it?
Koovs is an online clothing retailer that sells affordable fashion aimed at twenty-somethings in India. Since listing in 2014, it has accrued an established customer base of half a million active users and around 2.4m social media followers, including 1.9m on Facebook and 500,000 on Instagram.
The business, which has been dubbed ‘the Asos of India’, is taking advantage of the country’s growing economy, which has created a young generation of online shoppers. Its links with Asos don’t stop their either- the firm is backed heavily by Lord Waheed Alli, former chairman of the UK e-commerce success story. Alli owns a 19.21pc stake in the business worth around £4.8m at today’s share price.
Koovs often receives top customer ratings and said in June that it had outperformed all other e-commerce portals across six customer experience parameters. This year has also seen it boost its profile through several tie-ups with Bollywood stars, sportsman, and designers.
What has it been doing?
In March, Koovs revealed plans to ask investors for £50m of further investment to fund its acceleration plans. Although the firm argued that putting this money towards marketing and brand would majorly boost sales, investors were less than impressed, and more than 40pc was wiped off its shares in one session.
In April, things started to look up again for Koovs when its shares jumped 57pc on the news that it had secured interim funding of £1.5m through a loan from Lord Alli. This backing gave it enough cash to last until August as it continued to look for potential sources of growth capital.
The firm took a significant step forward in June when it announced a two-year, £24m deal with strategic partner HT Media Limited, one of India’s largest media companies and owner of the Hindustan Times. The agreement, which led shares to rise by 88pc, will see it acquire four £6m tranches of media and advertising services from HT over 24 months. Of each instalment, £4.2m is covered by issuing new shares to HT and £1.8m is paid in cash, requiring Koovs to carry out an initial cash raise of at least £6m.
The deal set the ball rolling for Koovs’ funding plans, and in July it announced that Future Lifestyle Fashions, part of India’s largest retail group, had subscribed for up to a 29.9pc stake in its shares. On announcing the deal, Koovs issued Future Lifestyle with a 24.8pc stake in its share capital for c.£5.8m cash and opened a subsequent bookbuild to raise up to £10m at 15p per share, conditional on shareholder approval. Alli invested £1.5m while Future Lifestyle conditionally agreed to take its stake to 29.9pc within six months.
Should I invest?
Since jumping to c.24p on the deal with Future Group, Koovs’ shares have drifted back down to 13.4p. With the possibility of more news flow on the immediate horizon related to its strategic growth plans, this price could prove to be an exciting entry point.
As always with companies that are planning a significant growth period based around macro conditions, there is a risk that Koovs’ growth plans will take longer than expected or not take place at all. Indeed, it is perhaps a little concerning that in its last trading update the firm said H1 gross sales were flat at £7.9m. That being said, this was likely down to its focus on conserving cash as it looked for growth capital- future results will, of course, give a better picture of the company’s direction.
Despite its high cash burn, there are several factors now in the business’s favour. Firstly, and perhaps most importantly, Koovs now has the financial footing needed to take its aggressive growth plans forward, something that had majorly concerned investors earlier this year.
Secondly, the interest of large institutions like HT Media and Future Lifestyle is nothing to be sniffed at – these businesses would not part with such large amounts of cash if they didn’t see at least some potential. The involvement of Lord Alli is also worth acknowledging– the incredible success of ASOS alone shows the value of his e-commerce experience Finally, Koovs will provide AIM investors with an attractive, rare opportunity to directly play India’s growth story. Indeed, as Jason Streets, an analyst at research and consultancy business Hardman & Co said in June:
‘Koovs will be 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 a major Indian digital media player.’
