Initiation: Poised to clean up – the emerging ASOS of India

Koovs sells affordable western fashion online in India. It has an established customer base of half a million active users and has been growing brand recognition rapidly. It has achieved the highest net promoter score (NPS) across its vertical. Its success will come on the back of the growing Indian economy breeding millions of online shoppers. Having spent a few days with Koovs in Delhi, we believe all the ingredients are in place; only the pace is uncertain. To exploit this opportunity, Koovs needs to raise a substantial amount of capital.

• Strategy: Koovs has been honing its digital strategy: it now has 1.9 million followers on Facebook and 0.5 million on Instagram. It has a new, flexible tech platform and takes 80% of its orders through its mobile app. The success of its work is measured in the high NPS and 40% repeat customer orders.
• Setback: The 2016 demonetisation punctured the hyper-growth of India’s online businesses but it has begun to recover strongly in the past six months. We have every reason to believe that India’s retail e-commerce business will multiply many times over from here.
• Valuation: Conventional valuation metrics are unhelpful. We take our forecast EBITDA for Dec-22, apply a Boohoo /ASOS multiple and discount the value back to today. Even at a 25% discount, the EV comes out at £357m including the funds to be raised. The current price is a poor indicator of the inherent value.
• Risks: The company needs to raise more finance; it has been diligently preserving cash but it needs ca.£50m to flourish. 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.
• Investment summary: Before the new capital is raised, Koovs is a short-dated call option on the financing happening. Once the money is raised, it is an exciting way to play the last big world 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.