Khadim India hits primary market with IPO. What are brokerages saying about the issue?

Moneycontrol News

Footwear retailer Khadim India will open its initial public offering (IPO) Thursday and it expects to raise Rs 543 crore. The price band of the IPO is between Rs 745-750 per share. It will open for subscription from November 2-6.

The issue comprises fresh issue of equity shares aggregating up to Rs 50 crore besides an offer for sale of up to 65,74,093 equity shares by the existing shareholders.

Net proceeds from the issue would be utilised towards payment of loans and for general corporate purposes.

Axis Capital and IDFC Bank are the book running lead managers to the issue.

Brokerages largely recommend subscribing to the issue, while some have highlighted pricing in of future growth of the company.

Read More: Khadim India IPO: If the shoe fits you, wear it!

ICICI Securities | Subscribe

The brokerage house highlighted the stock is valued at 2.2x MCap/sales and P/E of 43.8x on FY17 numbers (post issue). It believes Khadim is reasonably valued as compared to its peers and 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,” it said in the report.

SPA Research | Subscribe

The brokerage said with a large untapped market and increase in segmental demand across the geography, the company has substantial growth prospects through expansion in new and existing geographical locations (in Tier II and Tier III cities).

“Affordable pricing across its sub-brands will help the company garner market share of the unorganized segment of footwear industry. Although, high competition and restricted entry into new geographies could present a challenge for the company's expansion plan, we believe affordable pricing, the asset light model and large distribution network of the company would contribute towards sustained growth and improvement in margins and asset turnover ratio,” the report added.

Further, it said at the upper price band of INR 750/share, the issue is valued at a PE of 43x with FY17 adjusted EPS of Rs 17.4. We recommend to subscribe to the issue as a high risk high return long term investment, they added.

Ajcon Global | Subscribe

The brokerage recommends subscribing to the issue on 5 factors.

a) A leading footwear brand offering affordable fashion across various price segments

b) Strong design capabilities to maintain seasonal trends and leading premiumisation through sub brands

c) Two – pronged market strategy that straddles efficiently across retail and distribution models

d) Extensive geographical reach and penetration across East and South India

e) Asset light model leading to higher operating leverage

f) Scope for high growth and penetration in other markets

Angel Broking | Neutral

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, it said,

“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,” the report added.

But, it believes that the current valuation is fully factored in the price, which doesn’t provide further upside for investors. So, it has a neutral rating on the issue.

KRChoksey | Subscribe

KRChoksey expects expansion of topline and bottomline going ahead, thus with the optimistic view on the company and its financials, it recommends subscribing the issue.

SMC Research

SMC Research highlighted that the firm is looking at premiumization of its sub-brands, which have surpassed the parent brand in terms of revenue, to boost growth and margins.

“The company has bright prospects ahead as India’s footwear business is expected to grow as population and income growth will continue. With GST implementation, organized footwear segment is expected to grow with faster speed. A long term investor may opt the issue,” the report added.