Please refer to important disclosures at the end of this report
1
Established in 1981, Khadim Indian Ltd (KIL), a leading footwear brand has
emerged as the third largest retailer in the Indian market. The company has a
strong presence in eastern India and has positioned itself as an affordable
brand. It has 853 branded exclusive retail stores in 23 states and one
Union
Territory
. KIL has manufacturing facilities at Panpur and Kasba (in West
Bengal) and 4 distribution centers across India.
Positives: a) L
eading footwear brand, offering affordable fashion across various
price segments; b) Asset light model leading to higher operating leverage; c
)
Experienced Promoters supported by professionally qualified, experienced and
entrepreneurial management team.
Investment concerns: a) Despite consumption business, the company had
reported huge losses in FY2015; b) KIL’s ~67% revenue comes from E
ast
geography mainly from Kolkata, which poses geographical concentration risk for
the company.
Outlook & Valuation: In terms of valuations, the pre-
issue P/E works out to 42.2x
its FY20
17 earnings (at the upper end of the issue price band), which is slightly
lower compared to its peers like Bata. However, Bata has strong presence across
India with well-established brand and its entire
revenue comes from retail
business. On other hand, KIL’s most of the revenue comes from East geography
mainly from Kolkata
and retail revenue is only 70% and balance from distribution
business.
Despite the above positives factors and lower valuations compared to Bata, we
however, believe that the current valuation for this company is fully factored in the
price, which doesn’t provide further upside for investors.
Hence, we recommend
Neutral rating on the issue.
Key Financials
Y/E March (Rs cr)
FY2014 FY2015 FY2016
FY2017
Net Sales 478 460 535
621
% chg
13.0
(3.8) 16.2
16.2
Net Profit 12 (19) 25
31
% chg
36.3
(253.6) (235.3)
21.8
OPM (%)
10.4
3.0 9.8
10.6
EPS (Rs)
7.0
(10.8) 14.6
17.8
P/E (x) 106.8 (69.5) 51.4
42.2
P/BV (x)
17.6
10.0 8.4
7.0
RoE (%)
16.5
(14.4) 16.3
16.6
RoCE (%)
21.6
(2.2) 13.9
17.2
EV/Sales (x)
2.9
3.1 2.6
2.2
EV/EBITDA (x)
27.7
102.3 26.4
21.1
Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end
of the price band
NE
UTRAL
Issue Open: Nov 2, 2017
Issue Close: Nov 6, 2017
QIBs
50% of issue
Non-Institutional
15% of issue
Retail
35% of issue
Promoters 60%
Others 40%
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: `18.0cr
Issue size (amount): *`540cr -**543cr
Price Band: `745-750
Lot Size: 20 shares and in multiple
thereafter
Post-issue implied mkt. cap: *`1,338
cr -
**`1,347cr
Promoters holding Pre-Issue: 66.2%
Promoters holding Post-Issue: 59.7%
*Calculated on lower price band
** Calculated on upper price band
Book Building
Fresh issue: `50cr
Issue Details
Face Value: `10
Present Eq. Paid up Capital: `17.3cr
Offer for Sale: **0.66cr Shares
Amarjeet S Maurya
+022 39357600, Extn: 6831
amarjeet.maurya@angelbroking.com
Khadim India Ltd - Steps behind peers
IPO Note |
Retail
Nov 01, 2017
Khadim India Limited | IPO Note
Nov 01, 2017
2
Company background
Khadim Indian Ltd was established in 1981 and since then it has emerged as the
third largest retailer in the Indian market. The company has a strong presence in
eastern India and has positioned itself as an affordable brand. It has 853 branded
exclusive retail stores in 23 states and one Union territory. The company, through
its stores in malls and high street places, targets middle and upper middle class
customers looking for fashionable footwear. Also, through its retail chain in tier I
and tier II cities, it targets lower and middle income groups. This is categorized
under retail business and contributes ~70% to the revenue.
Due to lower quantity and high quality products, the company outsources its
production to vendors and procures ~85% of its requirement from them. The
company caters to customers who shop at multi-brand outlets (MBOs) through
distribution network. It has manufacturing facilities at Panpur and Kasba (in West
Bengal) and 4 distribution centers across India (as at 30th Jun 2017). Khadim is
promoted by Siddhartha Roy Burman who has 34 years of experience with the
Company and has been instrumental in the growth of the business.
Issue details
Khadim India’s IPO is a mix of Offer for sale and fresh issue. The issue would
constitute fresh issue worth of `50cr and Offer for sale worth of `493cr (at upper
band). The company will dilute 3.9% of its post-offer paid-up equity share capital.
Exhibit 1: Pre and post-IPO shareholding pattern
No of shares (Pre-
issue)
%
No of shares (Post-
issue)
%
Promoters
11,446,438
66.2%
10,724,438
59.7%
Others 5,852,093
33.8%
7,240,760 40.3%
17,298,531
100.0%
17,965,198
100.0%
Source: Source: RHP, Note: Calculated on upper price band
Objects of the offer
The net proceeds from the fresh issue are proposed to be utilized towards the
following objects:
Prepayment or scheduled repayment of all or a portion of term loans and
working capital facilities availed by the Company (`40cr)
General corporate purposes
Khadim India Limited | IPO Note
Nov 01, 2017
3
Investment Rationale
A leading footwear brand, offering affordable fashion across various price
ranges
The company 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. We believe that the biggest strength of ‘Khadim’s’ brand is its product
offering, which is ‘affordable fashion’ for the entire family for every occasion. KIL’s
comprehensive product range offers a wide variety of designs and styles, and
caters to various customer segments across a wide range of price points, by
providing 105 affordable footwear products for men, women and children across
age groups.
Extensive geographical reach and asset light model leading to higher
operating leverage
The company had a wide network of 853 exclusive retail stores across 23 States
and one Union Territory in India, as at June 30, 2017. In terms of retail business, in
order to ensure pan-India presence, the company has adopted scalable and asset
light model, which is a less capital intensive business model to operate the
exclusive retail stores.
Experienced promoters supported by professionally qualified, experienced
and entrepreneurial management team
We believe that KIL would benefit from the vision, strategic guidance, experience,
skills and relationships of several key members of the management team,
including individual Promoter and Chairman and Managing Director, Siddhartha
Roy Burman, who has an overall experience of 34 years with the Company and
has been instrumental in the growth over the last three decades.
The company also actively recruits professionally qualified individuals from
renowned institutions or organizations in India for important management and
executive roles. Further, this helps the company in attaining and maintaining
quality across operations, which gives us a competitive advantage, especially vis-
à-vis smaller and regional players.
Moreover, the company’s employees have been an important factor in our
success
Khadim India Limited | IPO Note
Nov 01, 2017
4
Outlook and Valuation:
In terms of valuations, the pre-issue P/E works out to 42.2x its FY2017 earnings (at
the upper end of the issue price band), which is slightly lower compared to its
peers like Bata. However, Bata has strong presence across India with well-
established brand and its entire revenue comes from retail business. On other
hand, KIL’s most of the revenue comes from East geography mainly from Kolkata
and retail revenue is only 70% and balance from distribution business.
Despite the above positives factors and lower valuations compared to Bata, we
however, believe that the current valuation for this company is fully factored in
the price, which doesn’t provide further upside for investors. Hence, we
recommend Neutral rating on the issue.
Key Risks
If the company is able to successfully execute its competitive growth
strategies, it will pose an upside risk to our view.
Higher than expected store addition and increase in new geographical
reach could pose an upside risk for the company.
Khadim India Limited | IPO Note
Nov 01, 2017
5
Income Statement
Y/E March (` cr)
FY2013
FY2014
FY2015 FY2016 FY2017
Total operating income
423
478
460 535 621
% chg
13.0
(3.8)
16.2
16.2
Total Expenditure
380
429
446
482
555
Raw Material
280
314
312 336 371
Personnel
36
42
46 45 55
Others Expenses
64
72
88 101 129
EBITDA
43
50
14
52
66
% chg
14.2
(72.3)
280.9
25.6
(% of Net Sales)
10.3
10.4
3.0
9.8
10.6
Depreciation&
Amortisation
8
11
19 16 16
EBIT
35
39
(5)
36
50
% chg
11.0
(113.9) (763.4)
38.3
(% of Net Sales)
8.3
8.2
(1.2)
6.7
8.0
Interest & other Charges
24
26
19 15 13
Other Income
3
5
6 4 4
(% of PBT)
19.9
26.8
(29.0)
16.7
10.6
Share in profit of Associates
-
-
-
-
-
Recurring PBT
14
18
(19)
26
41
% chg
35.3
(204.4) (235.2)
57.6
Tax
5
6
0 1 10
(% of PBT)
34.1
33.6
2.3
2.2
24.4
PAT (reported)
9
12
(19)
25
31
Extraordinary Items
-
-
-
-
-
ADJ. PAT
9
12
(19)
25
31
% chg
36.3
(253.6) (235.3)
21.8
(% of Net Sales)
2.1
2.5
(4.1)
4.7
5.0
Basic EPS (Rs)
5.2
7.0
(10.8)
14.6
17.8
Fully Diluted EPS (Rs)
5.2
7.0
(10.8)
14.6
17.8
% chg
36.3
(253.6) (235.3)
21.8
Source: RHP, SH - Share Holder
Khadim India Limited | IPO Note
Nov 01, 2017
6
Exhibit 2: Balance Sheet
Y/E March (` cr)
FY2013
FY2014 FY2015
FY2016 FY2017
SOURCES OF FUNDS
Equity Share Capital 12
12 17
17 17
Reserves& Surplus 92
62 112
137 168
Shareholders Funds
104
74
129
154
185
Minority Interest -
-
-
-
-
Total Loans 170
107 122
105 104
Deferred Tax Liability 8
9 7
6 6
Total Liabilities
282
190
258
266
295
APPLICATION OF FUNDS
Gross Block 187
204 215
219 216
Less: Acc. Depreciation 36
45 66
75 83
Net Block
151
159
149
143
133
Capital Work-in-Progress
8
2 2
1 3
Investments
0
0
0
1
-
Current Assets
236
239
195
207
274
Inventories 143
114 114
101 114
Sundry Debtors 22
57 24
35 77
Cash 10
31 12
19 17
Loans & Advances 55
30 37
44 50
Other Assets 6
6 7
8 15
Current liabilities 113
211 88
87 115
Net Current Assets
123
29
107
120
159
Deferred Tax Asset -
-
-
-
-
Total Assets
282
190
258
266
295
Source: RHP
Khadim India Limited | IPO Note
Nov 01, 2017
7
Exhibit 3: Cash Flow Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016 FY2017
Profit before tax
14
18
(19)
26
41
Depreciation
8
11
19
16
16
Change in Working Capital
(9)
(4)
(8)
(3)
(30)
Interest / Dividend (Net)
1
0
(2)
1
1
Direct taxes paid
(3)
(4)
(3)
(3) (9)
Others
20
17
17
13
12
Cash Flow from Operations
30
38
4
50
31
(Inc.)/ Dec. in Fixed Assets
(312)
(86)
(146)
(92)
(182)
(Inc.)/ Dec. in Investments
286
58
157
81
163
Cash Flow from Investing (26) (28)
11
(11) (19)
Issue of Equity
0
0
0
0
0
Inc./(Dec.) in loans
2
(6)
1
(2) (1)
Dividend Paid (Incl. Tax)
0
0
0
0
0
Interest / Dividend (Net)
(8)
(5)
(14)
(32)
(18)
Cash Flow from Financing
(5)
(11)
(13)
(34) (19)
Inc./(Dec.) in Cash
(1)
(1)
2
5
(7)
Opening Cash balances
3
2
1
3
8
Closing Cash balances
2
1
3
8
2
Source: Company, Angel Research
Khadim India Limited | IPO Note
Nov 01, 2017
8
Exhibit 4: Key Ratios
Y/E March FY2013 FY2014
FY2015
FY2016 FY2017
Valuation Ratio (x)
P/E (on FDEPS) 145.5 106.8 (69.5)
51.4
42.2
P/CEPS
75.5
57.1
2,485.4
31.2
27.8
P/BV
12.5
17.6
10.0
8.4
7.0
Dividend yield (%) 0.0 0.0
0.0
0.0
0.0
EV/Sales 3.4 2.9
3.1
2.6
2.2
EV/EBITDA
33.6
27.7 102.3
26.4
21.1
EV / Total Assets 5.2 7.2
5.4
5.2
4.7
Per Share Data (Rs)
EPS (Basic) 5.2 7.0 (10.8)
14.6
17.8
EPS (fully diluted) 5.2 7.0 (10.8)
14.6
17.8
Cash EPS 9.9 13.1
0.3
24.0
27.0
DPS 0.0 0.0
0.0
0.0
0.0
Book Value
59.9
42.7
74.7
89.3
107.0
Returns (%)
ROCE
12.8
21.6 (2.2)
13.9
17.2
Angel ROIC (Pre-tax)
13.3
26.2 (2.3)
15.1
18.3
ROE 8.6 16.5 (14.4)
16.3
16.6
Turnover ratios (x)
Asset Turnover (Gross Block) 2.3 2.3
2.1
2.4
2.9
Inventory / Sales (days) 123 87
90
69 67
Receivables (days) 19 44
19
24 45
Payables (days) 67 74
46
39 53
Working capital cycle (ex-cash) (days)
76 57
64
54 60
Source: Company, Angel Research
Khadim India Limited | IPO Note
Nov 01, 2017
9
Research Team Tel: 022
-
39357800
E
-
mail: research@angelbroking.
com Website:
www.angelbroking.com
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