Khadim India’s IPO: Here’s All You Need To Know

Khadim India Ltd. will launch its three-day initial public offer today as an Anil Ambani-led private equity fund and promoter Siddhartha Roy Burman sell shares in the footwear maker and retailer.

The company plans to raise Rs 543 crore by offering 72.4 lakh shares at Rs 745-750 apiece. Bulk of the proceeds will come from an offer for sale by Fairwinds Trustees Services Pvt Ltd., part of the Reliance Alternative Investments Fund, and Burman. The company will also issue new shares to repay debt. The promoter holding will fall to 60 percent post listing.

The private equity investor will completely exit the company, making five times its investment in four years.

Business

Khadim India is the second largest footwear brand by exclusive retail stores in India after Bata India Ltd. The company runs most of its stores as franchises and doesn’t necessarily own them. It operated 853 Khadim’s branded exclusive retail stores, of which 80 percent were franchises as of June 30.

The company generates majority of its revenue from retail and distribution. The share of distribution has increased over the years.

It has two manufacturing units in West Bengal and four distribution centres across India. Most of its stores and distributors are in east and south India.

Financial Highlights

• Khadim India’s net worth stood at Rs 192 crore for the quarter ended June, translating into a book value of Rs 107 apiece after issuing new shares.
• Revenue grew at an annualised rate of 10 percent and net profit rose at 13 percent in five years to March.
• Revenue and net profit for the quarter ended June stood at Rs 178 crore and Rs 7 crore, respectively.
• The company has not declared any dividend in the last four financial years.
• Earnings before interest and tax margin was 8 percent in the year to March, showing an improvement compared to the last two years.

Peer Comparison

It competes with listed rivals like Bata India Ltd. and Relaxo Footwears Ltd.

Khadim’s net profit has grown faster than peers, but margins remain muted due to an asset-light model. The comparable growth rate for Bata India was not available as the company changed its accounting year.

Khadim India’s return ratios also lagged that of peers.

It had a total debt of Rs 118 crore as of March 31 and a comparatively higher total debt-to-equity. Its biggest rival Bata India is debt-free.

Valuations

Earnings per share for the year to March, after issuing new shares, comes to Rs 17.1 at the upper end of the price band. Its shares will trade at 44 times its earnings at that price, according to BloombergQuint’s calculations. That’s cheaper than its peers.

Brokerage Take

KRChoksey

• Rate the IPO ‘Subscribe’
• Khadim well positioned in terms of better pricing, branding and networking as compared to its peers
• Expect robust expansion in top line and bottom line with an optimistic view.

Angel Broking

• Recommend a ‘Neutral’ rating on the issue.
• Despite positives and lower valuations compared to Bata, the current valuation for Khadim is fully factored in.
• It doesn’t provide further upside for investors.