Khadim India Ltd. - Ashika Groupoldwebsite.ashikagroup.com/Admin/Uploadipo/Khadim India...
Transcript of Khadim India Ltd. - Ashika Groupoldwebsite.ashikagroup.com/Admin/Uploadipo/Khadim India...
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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 [email protected] +91 22 6611 1704
Krishna Kumar Agarwal Equity Research Analyst [email protected] +91 33 4036 0646
Partha Mazumder Equity Research Analyst [email protected] +91 33 4036 0647
Arijit Malakar Equity Research Analyst [email protected] +91 33 4036 0644
Kapil Jagasia Equity Research Analyst [email protected] +91 22 6611 1715
Tirthankar Das Technical & Derivative Analyst [email protected] +91 33 4036 0645
Research Team