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IPO Note: Khadim India Ltd.

Issue Snapshot

Company Name Khadim India Ltd.

Issue Opens November 02, 2017 to November 06, 2017

Price Band Rs. 745 to Rs. 750

Bid Lot 20 Equity Shares and in multiples thereof.

The Offer

Public issue of 19,332,346 Equity shares of Face value Rs. 10 each, (Comprising of fresh issue of

666,667 Equity Shares* (Rs. 50 cr) and Offer for Sale of 6,574,093 Equity Shares (Rs. 493.06 cr*) by

Selling Shareholder).

Issue Size Rs. 539.77 – 543.06 Crore

IPO Process 100% Book Building

Face Value Rs. 10.00

Exchanges NSE & BSE

BRLM Axis Capital Limited and IDFC Bank Limited

Registrar Link Intime India Private Limited

Industry: Footwear Reco: Subscribe Date: November 02, 2017

1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Issue Break up

Issue Size Allocation Equity Shares*

QIB 50% 3,620,380

HNI 15% 1,086,114

RII 35% 2,534,266

Total Public 100% 7,240,760

*Based on higher price band @ Rs. 750

Company Highlights

Khadim India Ltd. (KIL) is one of the leading footwear brands in India, with a two-pronged focus on retail and distribution of

footwear. It is the second largest footwear retailer in India in terms of number of exclusive retail stores operating under the

‘Khadim’s’ brand, with the largest presence in East India and one of the top three players in South India, in fiscal 2016. KIL

also had the largest footwear retail franchisee network in India in fiscal 2016. Company is selling its products under flagship

brand “Khadim’s” and nine home grown sub-brands. KIL provides affordable fashion across various price points for the

entire family, supported by strong design capabilities that have helped company create and grow sub-brands leading to

premiumisation.

Company’s core business objective is ‘Fashion for Everyone’, and it believes that Company has established an identity as an

‘affordable fashion’ brand, catering to the entire family for all occasions. As at June 30, 2017 and March 31, 2017, it

operated 853 and 829 ‘Khadim’s’ branded exclusive retail stores across 23 states and one union territory in India,

respectively, through retail business vertical. Further, it had a network of 377 and 357 distributors in the three month period

ended June 30, 2017 and fiscal 2017, respectively, in distribution business vertical. During fiscal year 2017, Khadim

commenced the Institutional Business and supplied products directly to several institutions, including certain government

departments in the states of West Bengal and Tamil Nadu.

Objects of the Offer

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the

Selling Shareholder. (up to 722,000 equity shares by Siddhartha Roy

Burman and up to 5,852,093 equity shares by Fairwinds Trustees Services

Private Ltd.)

Fresh Issue

Prepayment or scheduled repayment of all or a portion of term loans

and working capital facilities availed by the Company (Rs. 40 cr.); and

General corporate purposes

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21008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Khadim has manufacturing unit at Panpur and Kasba in West Bengal. Further, they also manufacture products through

facilities located at Amgachia, West Bengal and Bahadurgarh, Haryana, for which raw material is supplied by Khadim,

catering primarily to their Distribution Business. As at June 30, 2017, they procured raw materials, including PVC, leather,

rubber, EVA, PU and other compounds from 33 major suppliers. Khadim has 4 distribution centers across India, located at

Bantala and Titagarh in West Bengal, Chennai in Tamil Nadu and New Delhi.

View

Khadim India Ltd. (KIL) is one of the leading footwear brands in India, with a two-pronged focus on retail and distribution of

footwear. The company is second largest footwear retailer in India in terms of number of exclusive retail stores operating

under the ‘Khadim’s’ brand, with the largest presence in East India and one of the top three players in South India, in fiscal

2016. KIL operates through two distinct business verticals, retail and distribution, each with its predominantly own

customer base, sale channels and product range. Retail business constituted 73.5% of the net revenue from operations for

FY17 while the rest is accounted from distribution business. Sales from the retail business is primarily through 853

‘Khadim’s’ branded exclusive retail stores of which 168 are company owned and operated outlets (“COO”), 685 are

franchisee operated stores (which are further categorised as exclusive branded outlets (“EBO”), branded outlets (“BO”) and

franchisee run and managed outlets (“FRM”)), as of June 2017. However, geographically across India, East accounts for

66.59% of the retail stores, followed by South (17.58%), West (9.03%) and North (6.80%). KIL counts middle and upper

middle income consumers in metros (including mini-metros) and Tier I – Tier III cities as the primary customers for the

retail business and promotes nine home-grown sub-brands of ‘Khadim’s’, which are, ‘Pro’, ‘Lazard’, ‘Softouch’, ‘Cleo’,

‘British Walker’, ‘Turk’, ‘Sharon’, ‘Bonito’ and ‘Adrianna’, with varied product offerings and merchandise category. In this

business model, KIL’s product range focuses on across a large range of merchandise categories, including but not limited to

leather and non-leather sandals, slippers, boots, ballerinas, stilettos, moccasins and sports shoes. The product portfolio in

the retail business is higher in value compared to the products offered through distribution business. Within the

distribution business, KIL cater to the middle income customers in urban, Tier I – Tier III cities, who shop in MBOs. The

products offered under the distribution business are primarily ethylene-vinyl acetate (“EVA”), Hawai, injected poly-vinyl

chloride (“ Injected PVC”), polyurethanes (“PU”), PVC – direct injection process (“PVC DIP”) and stuck on products, under

the ‘Khadim’s’ brand. A significant portion of products sold through distributors are manufactured by KIL’s own

manufacturing facilities and through contract manufacturing facilities while 85.6% of the products sold through retail

business are procured from outsourced vendors. KIL’s manufacturing facilities operated at ~73% capacity utilization as of

FY17. The retail business earns higher gross margin of 46.89% while distribution business earns margins of 39.19%, as of

FY17.

KIL’s revenues, EBITDA and net profit grew at a CAGR of 10%, 11% and 36% between FY13 and FY17. The cashflow from

operations have been comfortable for KIL over the years. The company earns EBITDA margins of 10.3-10.6% and net profit

margin of ~5%, except for FY15, when the company reported losses. This was largely due to adoption of policy to identify

dead stock and liquidate them. Further, prior to company’s focus on distribution as a separate business vertical, there were

certain existing designs that were not in sync with the market which were also liquidated which impacted financial results

in FY15. Reluctance of KIL’s franchisees to offer discounts, resulted in inventory pile-up, display of old stock in stores and

lower secondary sales. KIL stopped fresh sales and waited for the stocks and inventory levels to be rationalised, resulting

in a decline in revenues during FY15 without a corresponding decrease in fixed costs. Besides, KIL commenced the winding

down of jewelry retail business and discontinued large format retail business during FY15. Going ahead, company wants to

follow asset light business model (through franchisee mode) and expand in other regions where its presence is limited. KIL

competes with brands including Bata, Liberty and Metro, among others in retail business. Further, with respect to

distribution business, KIL compete with brands including Relaxo, Paragon, VKC and Ajanta, etc. Indian footwear market is

expected to grow at a CAGR of 15% over FY16-20 and there are a handful of organized players that are going to benefit

from government’s focus on the leather industry. KIL’s offer comprises of offer for sale of Rs 493 crore and fresh issue of

Rs 50 crore which will be utilized for portion of term loans and working capital facilities. Post issue, the debt-equity ratio

would come down to ~0.2x and RoE to improve further. At the higher price band, the issue is priced at 43.9x (post issue

FY17 EPS), which is at 33% discount to Bata India. Considering the brand presence (within East India), strong focus of

government towards the sector by providing tax and financial incentives, limited organized players and comfortable

financials, we advice to “SUBSCRIBE” to the issue from a long term perspective.

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31008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

(In Rs. Cr) FY13 FY14 FY15 FY16 FY17 Q1FY18

Cash flow from Operations Activities 30.2 38.1 4.5 49.9 30.9 19.0

Cash flow from Investing Activities (26.4) (28.0) 10.9 (11.2) (18.8) (11.6)

Cash flow from Financing Activities (5.2) (10.8) (13.1) (33.6) (18.6) 27.2

Net increase/(decrease) in cash and cash equivalents (1.4) (0.6) 2.3 5.0 (6.5) 34.6

Cash and cash equivalents at the beginning of the year 3.1 1.7 1.1 3.4 8.4 1.9

Cash and cash equivalents at the end of the year 1.7 1.1 3.4 8.4 1.9 36.5

Source: RHP

Comparison with listed industry peers

Financial Statement

Cash Flow Statement

(In Rs. Cr) FY13 FY14 FY15 FY16 FY17 Q1FY18

Share Capital 12.1 12.1 17.3 17.3 17.3 17.3

Net Worth 103.6 73.8 129.2 154.4 185.2 192.3

Long Term Borrowings 50.8 29.1 16.9 7.1 0.2 0.0

Other Long Term Liabilities 15.8 17.4 15.6 15.7 15.6 15.6

Short-term borrowings 119.4 78.0 105.0 97.6 104.0 136.7

Other Current Liabilities 105.9 202.8 78.9 77.5 104.9 142.8

Fixed Assets 159.4 161.9 151.0 144.4 136.2 139.9

Non Current Assets 40.7 21.1 26.9 30.3 29.6 30.2

Current Assets 195.4 218.1 167.7 177.6 244.0 317.3

Total Assets 395.5 401.1 345.6 352.3 409.8 487.4

Revenue from Operations 423.0 478.1 460.2 534.5 621.2 178.4

Revenue Growth (%) 13.0 (3.8) 16.2 16.2

EBITDA 43.4 49.6 13.7 52.4 65.8 16.7

EBITDA Margin (%) 10.3 10.4 3.0 9.8 10.6 9.3

Net Profit 8.9 12.1 (18.7) 25.2 30.8 7.1

Net Profit Margin (%) 2.1 2.5 (4.1) 4.7 5.0 4.0

Earnings Per Share (Rs.) 1.8 10.0 (12.0) 14.6 17.8 4.1

Return on Networth (%) 9.0 16.0 (14.0) 16.0 17.0 4.0

Net Asset Value per Share (Rs.) 21.4 60.8 74.7 89.3 107.0 111.1

Source: RHP, Ashika Research

Name of the companyOPM(%)

D/E(x)

RONW(%)

P/E(x)

P/BV(x)

Market Cap(Rs. Cr.)

Khadim India 10.6 0.2* 13.1* 43.9* 5.7* 1347.4*

Bata India 12.2 0.0 13.8 66.5 5.2 10424.9

Relaxo Footwear 14.3 0.4 22.7 60.3 9.6 6607.2

Liberty Shoes 7.9 0.9 4.0 70.1 1.8 430.0

Source: RHP, Ashika ResearchNote: Khadim fig. are calculated based on post issue diluted and higher price band. All Fig. are of FY17

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41008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

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Name Designation Email ID Contact No.

Paras Bothra President Equity Research paras@ashikagroup.com +91 22 6611 1704

Krishna Kumar Agarwal Equity Research Analyst krishna.a@ashikagroup.com +91 33 4036 0646

Partha Mazumder Equity Research Analyst partha.m@ashikagroup.com +91 33 4036 0647

Arijit Malakar Equity Research Analyst amalakar@ashikagroup.com +91 33 4036 0644

Kapil Jagasia Equity Research Analyst kapil.j@ashikagroup.com +91 22 6611 1715

Tirthankar Das Technical & Derivative Analyst tirthankar.d@ashikagroup.com +91 33 4036 0645

Research Team