Issue Opens 2-Nov-17 Issue Closes 6-Nov-17 IPO...
Transcript of Issue Opens 2-Nov-17 Issue Closes 6-Nov-17 IPO...
November 1, 2017
IPO Review
ICICI Securities Ltd | Retail Equity Research
Khadim India (Khadim’s), incorporated in 1981, is one of the leading
footwear brands in India, positioned itself as an ‘affordable fashion’,
catering to the entire family for all occasions. With 853 exclusive branded
outlets (as on June 30, 2017), Khadim has the second largest number of
retail stores (after Bata) with largest presence in East India and one of the
top three players in South India. Bedside’s its retail stores; Khadim caters
to various multi branded outlets (MBOs) through its strong distribution
business model, consisting of 377 distributors. Apart from its flagship
brand ‘Khadim’, company has nine home-grown sub-brands catering to
premium category. Khadim’s, revenue and PAT in FY13-17 grew at a
CAGR of 10% and 36% respectively.
Key business aspects
Asset light business model for retail segment…
Over the years, Khadim has adopted an asset light business model to
operate its exclusive retail stores with minimal capex requirements. Of the
total 853 exclusive stores, 168 stores are company owned and company
operated stores (COO) and the rest 685 are franchisee operated stores.
Under the franchisee route, inventory, capex and operating costs are
borne by the franchisee owner. Out of the total 289 stores added between
FY13 and FY17, 229 stores were opened through franchisee route. The
company adopts dual strategy where it enters new potential markets
through flagship COO’s and once the brand is well established it further
fortifies its presence in such markets through franchisee route. Going
forward, the company intends to open 70-80 stores annually with 20%
through COO formats while the rest through franchisee formats. The
asset-light approach has enabled Khadim to generate high return ratio for
the retail segment (~27% ROCE).
Premiumisation of brands to enhance profitability …
Apart from its flagship brand ‘Khadim’, the company has nine home-
grown sub-brands catering to retail business. Over the years, company
has constantly focused on increasing the share of sub-brands in overall
retail sales to drive its premiumisation strategy. Share of revenues from
sub-brands to total retail sales has increased from 43% in FY13 to 52% in
FY17. Scaling up the share of sub-brands has resulted in increase in
average selling price (ASP) for COOs from | 375 in FY13 to | 451 in FY17
and higher gross margins for the retail business at 47% in FY17 vs. 43%
in FY13. Gross margin for the distribution business has also increased
from 28.5% in FY13 to 39.2% in FY17 owing to higher share of
premiumised products. Going forward, higher focus on premiumisation
would assist in margin improvement.
Key risks and concerns
Risks associated with expansion into new geographic markets
Higher concentration of operations in East India
Difficulties in attaining desired quantities from outsourced vendors
Reasonably valued at 2.2x MCap/sales & 43.8x P/E (FY17); Subscribe
At the higher end of IPO price brand of | 750, the stock is valued at 2.2x
MCap/sales and P/E of 43.8x on FY17 numbers (post issue). We believe
Khadim is reasonably valued as compared to its peers (Exhibit 23).
Khadim has followed an asset light business model leading to superior
return ratios (17%+RoCE), with debt/equity ratio comfortably placed at
0.6x. Khadim’s constant efforts towards premiumisation of product mix
coupled with asset light expansion plans would further enhance
profitability going ahead. We advise SUBSCRIBE on Khadim.
Khadim India Ltd
Price band | 745-750
Rating matrix
Rating : Subscribe (Apply)
Issue Details
Issue Opens 2-Nov-17
Issue Closes 6-Nov-17
Issue Size (| Crore) 543
Fresh Issue 50
Offer for Sale 493
Price Band (|) 745-750
No of Shares on Offer (crore) 0.7
QIB (%) 50%
Non-Institutional (%) 15%
Retail (%) 35%
Minimum lot size (No. of shares) 20
Objects of issue
Amount
a) Repayment of all or a portion of term loans
and working capital facilites availed | 40 crore
b) General corporate purposes | 10 crore
Shareholding pattern (at upper price band: | 750)
Pre-Issue Post-Issue
Promoter & promoter group 66.2% 59.7%
Public 33.8% 40.3%
Financial Summary
| Crore FY14 FY15 FY16 FY17
Total Revenue 478.1 460.2 534.5 621.2
EBITDA 49.6 13.7 52.4 65.8
EBITDA Margin (%) 10.4 3.0 9.8 10.6
PAT 12.1 (18.7) 25.2 30.8
EPS* 6.7 (10.4) 14.0 17.1
* Considering post equity dilution
Valuation Summary (at upper price band: | 750)
(x) FY14 FY15 FY16 FY17
P/E 111.2 -71.9 53.5 43.8
Price/Sales 2.8 2.9 2.5 2.2
Research Analyst
Bharat Chhoda
Cheragh Sidhwa
Page 2 ICICI Securities Ltd | Retail Equity Research
Company Background
Khadim India (Khadim’s), incorporated in 1981, is one of the leading
footwear brands in India, positioned itself as an ‘affordable fashion’,
catering to the entire family for all occasions. Khadim’s operates through
two distant business verticals, retail and distribution, each having its own
customer base, sales channel and product range. Its retail business
operates through exclusive retail stores catering to middle and upper
middle income consumers in metros and Tier I-III cities, who primarily
shop in high street stores and malls for fashionable products. As for the
distribution business is concerned, it operates through a wide network of
distributors catering to lower and middle income consumers, who
primarily shop in multi brand outlets (MBO’s) for functional products.
Exhibit 1: Sales mix trend
82.6 84.8 80.7 77.8 73.5
14.9 12.5 16.2 19.221.7
0.0
20.0
40.0
60.0
80.0
100.0
120.0
FY13 FY14 FY15 FY16 FY17
%
Others Distribution Retail
Source: DRHP, ICICIdirect.com Research. *Only footwear revenues
Retail business:
The retail business contributed 73.5% of the total revenues in FY17. With
853 exclusive branded outlets (as on June 30, 2017), Khadim has the
second largest number of retail stores (after Bata) with largest presence in
East India and one of the top three players in South India. Of the total 853
exclusive stores, 168 stores are company owned and company operated
stores (COO) and the rest 685 are franchisee operated stores (which are
further categorised as EBO’s, BO’s and FRM). Under the franchisee route,
inventory, capex and operating costs are borne by the franchisee owner.
As for the COO’s are concerned, majority of the retail stores are leased
with rental expenses in the range of 5.8-6.5%.
In the retail business, the product range primarily focuses on fashionable
footwear that are targeted towards middle and upper middle income
consumers in metros and Tier I-III cities, who primarily shop in high street
stores and malls. For FY17, the products for the retail business were
priced in the range of (MRP) | 75 to | 3599. The company presently
promotes nine-home grown brands which are ‘Pro’, ‘Lazard’, ‘Softouch’,
‘Cleo’, ‘British Walker’, ‘Turk’, ‘Sharon’, ‘Bonito’ and ‘Adrianna’. These
sub-brands contributed 52% of the overall retail sales.
Due to the fashion oriented nature of the footwear retail business
requiring lower volume per SKU, a significant portion of the products sold
through the exclusive stores are sourced from the outside vendors, who
are able to deliver small quantities of premium high quality products. For
FY17, 85.6% of the products sold in the retail business were outsourced.
Over the years, the company has rationalised its vendor base from 182
vendors in FY13 to 107 vendors as at June 30, 2017.
Page 3 ICICI Securities Ltd | Retail Equity Research
Exhibit 2: Retail segment: Revenues and gross margin trend
305.2
358.1
332.2
402.1
456.5
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
FY13 FY14 FY15 FY16 FY17
| c
rore
40
41
42
43
44
45
46
47
48
%
Revenue Gross Margins
Source: DRHP, ICICIdirect.com Research
Exhibit 3: Store operating metrics
Source: DRHP, ICICIdirect.com Research
Exhibit 4: Format-wise revenue and profitability break-up
Retail Breakup (FY17) COO EBO BO FRM
Revenue (| crore) 240.2 174.8 28.0 13.4
% of sales (retail) 52.6% 38.3% 6.1% 2.9%
Gross Margins (%) 51.6% 40.8% 43.3% 48.5%
Store level cost (%) 22.3%
Store level EBITDA (%) 29.4%
Source: DRHP, ICICIdirect.com Research. Since company does not bear any operating cost for franchises, gross
margins of company from its franchises is equal to store level EBITDA at company’s level.
Revenues from the retail segment grew at a CAGR of
10.6% over FY13-17 with gross margin expansion of 435
bps to 47%
Page 4 ICICI Securities Ltd | Retail Equity Research
Exhibit 5: Stores by city type FY17
Metros & Mini
metros
18%
Tier I
13%
Tier II
15%
Tier III
54%
Source: DRHP, ICICIdirect.com, Research
Exhibit 6: Geographical break-up of stores as on 30th June 2017
North
7%
South
18%
East
66%
West
9%
Source: DRHP, ICICIdirect.com, Research
Exhibit 7: Average Ticket size (|) (For COO’s)
555
576
624
520
540
560
580
600
620
640
FY15 FY16 FY17
|
Source: DRHP, ICICIdirect.com, Research
Exhibit 8: Sub- brands contributed 52% to overall retail sales
Source: DRHP, ICICIdirect.com Research
Page 5 ICICI Securities Ltd | Retail Equity Research
Distribution business:
Since 2015, company has focused on its distributions operations as a
separate business vertical. Through this model, the company caters to
lower and middle income customers who shop in MBOs. The products
are sold under its Khadim brand (sub-brands are not sold through
distribution model) which mainly consists of synthetic leather. For FY17,
the products were priced in the range of (MRP) | 30 to | 500. It has a
distribution network of 357 distributors and a sales team of 39 members.
The distribution business contributed 21.7% of the total revenues in FY17.
Due to high volume of products per SKU sold through the distribution
business and for better control over cost, a significant portion of products
sold through the distributors are manufactured by the company at its own
manufacturing facilities and through contract manufacturing facilities.
Khadim has two owned manufacturing facilities in West Bengal (installed
capacity of 2.34 crore pairs) and two outsourced manufacturing facilities
for which the raw material is supplied by Khadims. Also, Khadims has
established relationships with large to number of vendors for
procurement of raw materials to reduce any risk of supplier
concentration. Khadim has 33 major raw material suppliers with no single
supplier contributing more than 15% of its total raw material
procurements.
Exhibit 9: Distribution Segment: Revenues and gross margin trend
55.1 52.7
99.2
134.7
66.8
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
FY13 FY14 FY15 FY16 FY17
| c
rore
20.0
25.0
30.0
35.0
40.0
45.0
%
Revenue Gross Margins
Source: DRHP, ICICIdirect.com Research
Revenues from the distribution segment grew at a CAGR of
25.0% over FY13-17 with gross margin increasing from
28.5% in FY13 to 39.2% in FY17
Page 6 ICICI Securities Ltd | Retail Equity Research
Industry overview
The domestic footwear market in India is projected to grow at a CAGR of
15% to reach US$ 12.6 billion by FY 2020 from US$ 7.2 billion in FY16.
The key drivers for the footwear segment will be: a) increased adoption
owing to versatility in usage, and b) shift from unbranded to branded.
Exhibit 10: Domestic footwear industry market size
5.5
7.2
12.6
0
2
4
6
8
10
12
14
FY14 FY16 FY20P
US
$ B
illion
15% CAGR
Source: DHRP, ICICIdirect.com Research
Segment per se, the market is currently dominated by men’s segment
with ~54% market share, while women and kid’s segment contribute
37% and 9% respectively. Going forward, women and kid’s segment is
expected to outpace men’s growth. Growth in women’s segment will be
driven by increasing number of working women and increasing
disposable income. Also, women are not loyal to particular brand and
change their fashion trend with specific occasion, which will drive volume
growth. Kid’s market is growing rapidly with increasing number of
working parents resulting in higher spending on kids. Also, with the
advent of activity based learning in schools, different shoe types are
needed for varied different activities. Men, women and Kid’s segment are
expected to grow at a CAGR of 12%, 18% and 20% respectively in FY16-
20E.
Exhibit 11: Men’s segment dominates the market
3.9
6
2.7
5.2
0.6
1.4
0
2
4
6
8
10
12
14
FY16 FY20P
US
$ B
illion
Men Women Kid
54%
37%
9%
48%
41%
11%
12% CAGR
18% CAGR
20% CAGR
Source: DRHP, ICICIdirect.com Research
Page 7 ICICI Securities Ltd | Retail Equity Research
Branded footwear market which currently has a market share of 42% is
expected to grow at a CAGR of 20% in FY16-20E to account for 50% of
the overall market share. The growth will be driven by penetration of
existing brands such as Bata, Khadim etc. in Tier 2 and smaller cities.
Growth will also be driven by the increasing reach of mid and economy
brands to Tier II/III Indian cities and shift of consumers from unbranded
products to branded with increase in disposable income, better
availability of product and increasing health consciousness. The mass
footwear segment driven by chappals and sandals too, is witnessing
consumers adopting branded products owing to strong distribution
network of brands like Khadim, VKC, Paragon, Relaxo etc.
Exhibit 12: Branded footwear market to account for 50% market share by FY20
3.0
6.3
4.2
6.3
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY16 FY20P
US
$ B
illion
Branded Unbranded
42%
58%
50%
50%
20% CAGR
11% CAGR
Source: DRHP, ICICIdirect.com Research
Page 8 ICICI Securities Ltd | Retail Equity Research
Khadim’s Strategies
Expanding geographical footprints in western India and northern India
Over the years, Khadim has an established strong presence in East and
South India through its exclusive retail network. In the last few years, its
presence in West and primarily in Uttar Pradesh in North India, has also
witnessed sustained growth. Going forward, the company intends to
continue expanding its geographical footprints in markets across west
India, south India and in Uttar Pradesh in North India through flagship
COO’s and further strengthen its presence in such markets through
franchisee route. In order to execute this strategy, the company
undertakes detailed micro-mapping which includes analysis with respect
to customer profile, purchasing habits, competition, average footfall and
major upcoming developments before entering new markets. For the
distribution business, the company has a network of 377 distributors,
spread across East (291), South (25), North and west (61). Company
intends to continue to penetrate in the existing markets and increase the
distribution networks in new markets.
Continue to focus on asset light model led growth
Over the years, Khadim has adopted an asset light business model to
operate its exclusive retail stores with minimal capex requirements. Of the
total 853 exclusive stores, 168 stores are company owned and company
operated stores (COO) and the rest 685 are franchisee operated stores.
Under the franchisee route, inventory, capex and operating costs are
borne by the franchisee owner. Out of the total 289 stores added between
FY13 and FY17, 229 stores were opened through franchisee route. The
company adopts dual strategy, where the company enters in new
potential markets through flagship COO’s and once the brand is well
established it further fortifies its presence in such markets through
franchisee route. Going forward the company intends to open 70-80
stores annually with 20% via COO formats while the rest through
franchisee formats. The asset-light approach has enabled Khadim to
generate high return ratio for the retail segment (~27% ROCE). For the
distribution business, which has comparatively lower return ratio than the
retail business, the company is planning to adopt an asset light model of
manufacturing by engaging contract manufacturing, thereby restricting
investments in real property and buildings. The contract manufacturer will
own and operate the factory on their premises, while the company will
only provide necessary machinery and moulds to manufacture products.
Premiumisation of product offerings to enhance margins
Apart from its flagship brand ‘Khadim’, company has nine home-grown
sub-brands catering to retail business. Over the years, company has
constantly focused on increasing the share of sub-brands in overall retail
sales to drive its premiumisation strategy. Share of revenues from sub-
brands to total retail sales has increased from 43% in FY13 to 52% in
FY17. Scaling up the share of sub-brands has resulted in increase in
average selling price (ASP) for COO’s from | 375 in FY13 to | 451 in FY17
and higher gross margins for the retail business at 47% in FY17 vs. 43%
in FY13. For the distribution business, company had earlier primarily
focused on distribution of basic Hawai, PVC, EVA and PU footwear.
However since 2015, company has started introducing premiumisation
versions of product offerings in Hawai, PVC and PU. Going forward
company intends to increase the ASP of its products by focusing on
distribution of premium products and upscale its product mix.
Page 9 ICICI Securities Ltd | Retail Equity Research
Key financials: Story in charts
Exhibit 13: Revenue trajectory- CAGR of 10% in FY13-17
423.0
478.1 460.2
534.5
621.2
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
0 FY14 FY15 FY16 FY17
| c
rore
Source: DRHP, ICICIdirect.com, Research
Exhibit 14: EBITDA growth- CAGR of 11% in FY13-167
43.4
49.6
13.7
52.4
65.810.3 10.4
3.0
9.8
10.6
0
10
20
30
40
50
60
70
FY13 FY14 FY15 FY16 FY17
| c
rore
0
2
4
6
8
10
12
%
EBITDA EBITDA Margin
Source: DRHP, ICICIdirect.com, Research
Exhibit 15: Net profit- CAGR of 36% in FY13-17
8.912.1
-18.7
25.2
30.8
-30
-20
-10
0
10
20
30
40
FY13 FY14 FY15 FY16 FY17
| c
rore
Source: DRHP, ICICIdirect.com, Research
Exhibit 16: Return ratio trend
16.4
(14.5)
16.3 16.6
21.5
(2.2)
13.9
17.2
(20.0)
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
25.0
FY14 FY15 FY16 FY17
%
RoE RoCE
Source: DRHP, ICICIdirect.com, Research
Exhibit 17: Net working capital days
56.9
63.8
53.9
59.8
48.0
50.0
52.0
54.0
56.0
58.0
60.0
62.0
64.0
66.0
FY14 FY15 FY16 FY17
No. of
days
Source: DRHP, ICICIdirect.com, Research. Calculated on net sales
Exhibit 18: Debt/Equity ratio trend
1.5
0.9
0.7
0.6
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
FY14 FY15 FY16 FY17
(x)
Source: DRHP, ICICIdirect.com, Research
FY15 was a challenging year for the company owing to e-commerce
disruptions negatively impacting the revenue growth. Consequently, in
order to liquidate the unsold stocks, company had to provide higher
discounts, thereby hampering the margins for FY15.
Page 10 ICICI Securities Ltd | Retail Equity Research
Objects of issue
The offer consists of a fresh issue and an offer for sale (OFS) with a total
issue size ranging from | 539.8 crore to | 543.1 crore. The company
intends to raise | 50 crore at a price band of | 745-750 leading to a fresh
issue of 6.67-6.71 lakh shares.
Objects of fresh issue:
The details of the proceeds of the fresh issue are summarised below:
a) The company intends to utilise | 40 crore of the net proceeds towards
prepayment or scheduled repayment of all or a portion of term loans
and working facilities availed by the company.
b) General corporate purpose, which includes payment of issue
expenses and other general expenses (| 10 crore).
Exhibit 19: Repayment of working capital and term loans
Name of the Lender Nature of facility
Sanctioned
Amount
Rate of interest
Amt outstanding as on
1st Oct 2017
Amount to be
repaid
| crore | crore | crore
Axis Bank Term Loan 6.56 12.2% 1.9 1.9
Axis Bank Cash Credit 6.0 11.3% 4.3 2.1
HDFC Bank Short term 35 9.8% 30 30
ICICI Bank Demand Loan 6.0 11.9% 6.0 6.0
Total | 40.0
Source: DRHP, ICICIdirect.com Research
Offer for sale (OFS):
The OFS consists of 66 lakh equity shares amounting to | 493 crore.
Fairwinds Private Equity which currently holds 34% stake in Khadims will
sell 58.5 lakh shares. Promoter Siddhartha Roy Burman will offload 7.2
lakh shares.
Page 11 ICICI Securities Ltd | Retail Equity Research
Key risks and concerns
Delay or default in payment from franchisees & distributors may impact
profits
The company’s operations involve extending credit for periods of time,
ranging typically from 30 to 75 days, to its franchisee operated stores and
our distributors, and consequently, it faces the risk of the uncertainty
regarding the receipt of these outstanding amounts. If the distributors and
customers delay or default in making payments in the future, company’s
profits margins and cash flows could be adversely affected.
Risks associated with expansion into new geographic markets
Expansion into new geographic regions, including different states in India,
subjects the company to various challenges, including those relating to
the lack of familiarity with the culture, consumer preferences, regulations
and economic conditions of these new regions. Language barriers,
difficulties in staffing and managing such operations coupled with, the
lack of brand recognition and reputation in such regions may also affect
company’s ability to expand into newer geographic regions.
High dependence on outsourcing may lead to difficulties in attaining
desired quantities from outsourced vendors
Khadim relies on outsourced vendors for manufacturing of finished
products including accessories sold through its retail business. In FY17,
85.60% of total products sold through its retail business were procured
from outsourced vendors. Further, some of its products distributed
through the distribution business is also procured from outsourced
vendors. Thus, any shortfall or disruption in supply of products from the
outsourced vendors, or insufficiency in the quality and consistency of the
products supplied, would result in shortfall in supply, lower stock in
stores and /or lower sales.
Higher concentration of operations in East India …
Although Khadim’s geographical footprint has reached 23 states and one
union territory, its exclusive retail stores has historically been
concentrated in East India. As at June 30, 2017, 66.59% of its exclusive
retail stores catered to East India. Further it has two manufacturing
facilities in West Bengal. Any adverse development that affects the
performance of the stores or manufacturing facilities in the eastern region
could have a material adverse effect on the business, financial condition
and results of operations.
Page 12 ICICI Securities Ltd | Retail Equity Research
Financial Summary
Exhibit 20: Profit and Loss Statement
(Year-end March) FY13 FY14 FY15 FY16 FY17
Net Sales 423.0 478.1 460.2 534.5 621.2
Growth (%) 13.0 (3.8) 16.2 16.2
Total Raw Material Cost 279.7 314.1 312.4 336.0 371.4
Gross Margins (%) 33.9 34.3 32.1 37.1 40.2
Employee Expenses 36.4 42.2 46.1 45.3 55.2
Other Expenses 63.5 72.4 88.0 100.9 128.9
Total Operating Expenditure 379.6 428.6 446.5 482.2 555.5
EBITDA 43.4 49.6 13.7 52.4 65.8
EBITDA Margin 10.3 10.4 3.0 9.8 10.6
Interest 24.3 25.6 19.2 14.6 13.5
Depreciation 8.3 10.6 19.2 16.3 15.9
Other Income 2.7 4.9 5.5 4.3 4.3
PBT 13.5 18.3 (19.2) 25.8 40.7
Total Tax 4.6 6.1 (0.4) 0.6 10.0
Profit After Tax 8.9 12.1 (18.7) 25.2 30.8
Source: DRHP, ICICIdirect.com Research
Exhibit 21: Balance Sheet
(Year-end March) FY13 FY14 FY15 FY16 FY17
Equity Capital 12.1 12.1 17.3 17.3 17.3
Reserve and Surplus 91.5 61.7 111.9 137.1 167.9
Total Shareholders funds 103.6 73.8 129.2 154.4 185.2
Total Debt 170.2 107.1 121.9 104.7 104.2
Deferred Tax Liability 8.3 9.2 7.0 6.4 5.8
Non Current Liabilties 7.6 8.2 8.6 9.3 9.9
Source of Funds 289.6 198.3 266.6 274.8 304.9
Net Block 151.1 159.4 148.9 143.5 133.0
Capital WIP 8.3 2.5 2.1 0.9 3.1
Net Fixed Assets 159.4 161.9 151.0 144.4 136.2
Investments 0.0 0.0 0.0 1.1 0.0
Inventory 143.0 114.0 113.8 100.9 114.4
Cash 10.0 31.5 12.4 19.4 16.6
Debtors 22.0 57.1 24.1 34.9 77.2
Loans & Advances & Other CA 20.4 15.5 17.4 21.4 35.7
Total Current Assets 195.4 218.1 167.7 176.6 243.9
Creditors 77.4 96.5 57.4 56.8 89.8
Provisions & Other CL 28.5 106.2 21.5 20.6 15.0
Total Current Liabilities 105.9 202.8 78.9 77.5 104.9
Net Current Assets 89.5 15.4 88.8 99.1 139.1
LT L& A, Other Assets 40.6 21.0 26.8 30.2 29.6
Other Assets 0.0 0.0 0.0 0.0 0.0
Application of Funds 289.6 198.3 266.6 274.8 304.9
Source: DRHP, ICICIdirect.com Research
Page 13 ICICI Securities Ltd | Retail Equity Research
Exhibit 22: Key ratios
(Year-end March) FY14 FY15 FY16 FY17
Per share data (|)
EPS 6.7 -10.4 14.0 17.1
Cash EPS 12.6 0.3 23.1 26.0
BV 41.1 71.9 85.9 103.1
Cash Per Share 17.5 6.9 10.8 9.3
Operating Ratios (%)
EBITDA margins 10.4 3.0 9.8 10.6
PBT margins 3.8 -4.2 4.8 6.6
Net Profit margins 2.5 -4.1 4.7 5.0
Inventory days 87 90 69 67
Debtor days 44 19 24 45
Creditor days 74 46 39 53
Return Ratios (%)
RoE 16.4 -14.5 16.3 16.6
RoCE 21.5 -2.2 13.9 17.2
Valuation Ratios (x)
P/E 111.2 -71.9 53.5 43.8
EV / EBITDA 29.0 105.0 27.4 21.8
Market Cap / Revenues 2.8 2.9 2.5 2.2
Price to Book Value 18.3 10.4 8.7 7.3
Solvency Ratios
Debt / Equity 1.5 0.9 0.7 0.6
Debt/EBITDA 2.2 8.9 2.0 1.6
Current Ratio 1.1 2.1 2.3 2.3
Quick Ratio 0.5 0.7 1.0 1.2
Source: DRHP, ICICIdirect.com Research
Page 14 ICICI Securities Ltd | Retail Equity Research
Valuation
At the higher end of IPO price brand of | 750, the stock is valued at 2.2x
MCap/sales and P/E of 43.8x on FY17 numbers (post issue). We believe
Khadim is reasonably valued as compared to its peers (Exhibit 23).
Khadim has followed an asset light business model leading to superior
return ratios (17%+RoCE), with debt/equity ratio comfortably placed at
0.6x. Khadim’s constant efforts towards premiumisation of product mix
coupled with asset light expansion plans would further enhance
profitability going ahead. We advise SUBSCRIBE on Khadim.
Exhibit 23: Peer comparison (FY17)
Sales Market P/E Mcap/Sales RoCE RoNW
Company | crore Cap (| crore) (x) (x) (%) (%)
Bata 2,467.2 10,537.0 66.3 4.3 16.0 12.0
Relaxo 1,739.8 6,960.0 56.6 4.0 25.7 22.8
Liberty 497.4 451.6 69.0 0.9 8.5 4.0
Sreeleathers 99.6 503.2 37.6 5.1 9.6 6.3
Khadim 621.3 1,347.4 43.8 2.2 17.2 16.6
Source: Company, ICICIdirect.com Research
Page 15 ICICI Securities Ltd | Retail Equity Research
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Subscribe: Apply for the IPO
Avoid: Do not apply for the IPO
Subscribe only for long term: Apply for the IPO only from a long term investment perspective
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
Page 16 ICICI Securities Ltd | Retail Equity Research
Disclaimer
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