Khadim India Limited IPO Review & Peer Analysis

Khadim India Limited IPO
Khadim IPO (Khadim India Limited IPO) plans to raise approximately Rs 540 crore through the issue of fresh shares (Rs. 50 crores) and offer for sale (Rs. 490 Crores). Khadim India Limited is one of the leading footwear brands in India, with a two-pronged focus on retail and distribution of footwear.with the largest presence in East India and one of the top three players in
South India.

Khadim IPO (Khadim India Limited IPO) Details
Issue Details
Issue Period Thursday, Nov 2, 2017 – Monday, Nov 6, 2017
  Issue Closes On: Monday, November 6, 2017
Issue Size Fresh Issue of Equity shares aggregating upto Rs.50 Cr
  + Offer For Sale of upto 6,574,093 Equity shares
Issue Size ( Rs. Cr) Rs.539.77 – 543.06 Cr
Price Band Rs. 745 -750
Bid Lot 20 Shares and in multiple thereof
Issue Structure :  
QIB 50% of the offer ( 3,620,379 – 3,622,616 Shares ) (Rs.269.88~Cr – Rs.271.53 Cr)
NIB 15% of the offer ( 1,086,114 – 1,086,785 Shares ) (Rs.80.97Cr – Rs.81.46 Cr)
Retail 35% of the offer ( 2,534,266 – 2,535,832 Shares ) (Rs.188.92Cr – Rs.190.07 Cr)
Application for 1x Retail 1,26,713
BRLMs Axis Capital, IDFC Bank 
Registrar Link Intime India Pvt. Ltd.
About Khadim India Limited
  • Khadim India was promoted by Siddhartha Roy Burman and Knightsville Pvt Ltd in 1981 as a wholesaler and distributor of branded basic utility footwear. The company started retail operations in  1993.
  • Khadim India Limited operates in two  business verticals of retail and distribution. Our distribution business
    complements our retail business and enables us to achieve a deeper market penetration for our products.
  • Khadim India Limited 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.Khadim India Limited is also the largest footwear retail franchisee network in India in fiscal 2016.
  • Khadim India Limited has a wide network of Khadim’s branded exclusive retail stores, which constitute it main channels of sale, of which 168 and 162 are  company owned and operated outlets (“COO”), and 685 and 667 are franchisee operated stores. 
  • Khadim India Limited Distribution of sales through different channels is depicted below:
  • Khadim sales breakup
    Khadim India: Channel wise Distribution of Sales
  • In it  retail business, the r Company presently 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.
  • The company caters to the middle income customers in urban, Tier I – Tier III cities, 
  • The products its  distributes through 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.
  • Presently, Khadim has 2 Owned Manufacturing Facilities and 2 Outsourced Manufacturing Facilities.
Financials in Brief:
(Rs. In Cr)
  Q1 (Fy17-18) 2017(12) 2016(12) 2015 2014
Revenue from Operations  178.54 621.73 535.11 461.84 478.14
Revenue Growth (%) 16.19% 15.86% -3.41%
Profit Before Tax 10.84 40.71 25.82 -19.11 18.3
Net Profit  7.11 30.76 25.24 -18.66 12.15
Net Profit Margins 4% 5% 5% -4% 3%
EPS  4.11 17.78 14.59 -11.98 7.02
Face Value 10 10 10 10 10
Share Capital 17.3 17.3 17.3 17.3 17.3
Reserves 174.96 167.86 137.1 111.86
Net worth 192.26 185.16 154.4 129.16
Net Asset Value (Rs.) 111.14 107.04 89.26 74.66
RONW(%) 3.70 16.61% 16.35%
ROE   18,1% 17.80%  
ROCE   13.80% 9.60%  
IPO Price 750      
PE Ratio 42.18
Post Issue Equity Capital 17.97
PE on Post Issue Equity 43.82
Price / Book Value 7.01
CAGR Sales 3 yrs 9.15%
CAGR NP  3 Yrs 36.29%
Market Cap  1347.75
Market Cap/Sales  2.17
Khadim India IPO : Comparison with Peers
Khadim Bata Relaxo Liberty Sreeleathers
Revenue (cr) 621.73 2467.20 1739.80 497.40 99.60
Net profit (cr) 30.76 158.75 122.97 6.54 13.40
Net profit Margin 4.95% 6.43% 7.07% 1.31% 13.45%
Price 750.00 813.35 584.70 270.15 185.50
Face Value 10 5 1 10 10
Equity Capital (cr) 17.30 64.26 12.01 17.04 25.16
NAV 107.04 103.11 50.4 94.9 87.68
EPS 17.78 12.35 10.24 3.84 5.33
Market Cap (cr) 1297.50 10453.17 7022.25 460.34 466.72
PE 42.18 65.85 57.11 69.00 34.83
P/B 7.01 7.89 11.61 2.85 2.12
Mcap/sales 2.09 4.24 4.04 0.90 4.69
ROCE 17.20 16.00 25.70 8.50 9.60
RONW 16.60 12.00 22.80 6.30

Khadim is a mid level player in footwear and the issue is priced lower than valuations enjoyed by Bata and Relaxo both of which have considerable Brand value and have relatively premium products. Khadim is more focused on middle income and smaller cities.

Khadim IPO: Objectives of the Issue

The Company proposes to utilise the Net Proceeds from the fresh issue  towards funding of the following objects:
1. Prepayment or scheduled repayment of all or a portion of term loans and working capital facilities availed by the Company
2. General Corporate Expenses

Khadim IPO: Rationale for Investment
  • Khadim India Limited has a pan India presence and operates in 23 states. It is   is strong in east India and south India which account for ~67% and ~17% of its retail stores.
  • Khadim India Limited has a strong brand image with about 10 home grown brands which includes its flagship brand ‘Khadim’s’. 
  • Khadim India Limited  has focus on mass market. About 84% of its products are sold in the mass and economy segments with ~70% of its stores located in tier-II and -III cities.
  • The company has a asset light model and while it has two manufacturing plants in West Bengal , it  outsources 86% of its production.
  • The company has developed In house design capabilities and attempts to enjoy premium through its sub-brands.
  • Focus on Affordable pricing and mass segment will help the company  to garner market share of the unorganized segment of footwear industry which may get accelerated with GST.
Concerns: Khadim IPO 
  • The footwear industry is highly competitive with large presence of Large cap players. 
  • Other than East and South India, Khadim’s brand visibility in other parts of the country is low
  • The company has not paid any dividend in last four financial years.
  • Khadim has debt of the order of Rs. 118 Crore.
Assessment: Khadim IPO 
  • Indian footwear market is expected to grow at a CAGR of 15% over FY16-20. This growth is likely to be driven by rising share of women’s footwear. 
  • Khadim with a strong brand, retail presence, franchise  & distributors network and thus has good growth potential.
  • Khadim India is  the second largest footwear retailer in India in terms of number of exclusive retail stores operating under their brand name though the concentration is more in East India and in South India,
  • Khadim IPO is coming at time when GST is expected to  lead to the shift to organized operators and Government Policies are likely to be favorable to the sector. 
  • Khadim has high level of Debt ~ Rs. 118 croe while leaders like Bata in this space is debt free. 
  • Khadim’s topline and Bottom line has shown good growth, OPM  in range of 10% and at upper end of the price band of Rs.750 the stock is valued at 43.82x of its FY17 earnings on the Post issue Equity. As the the valuations are on par with peers taking into account all factors, there may not be enough left on the table for investors.
  • The possibility  of IPO giving no Listing gains does exist.
  • I will watch the response to the Khadim IPO issue on Day 2 and Day 3 and may put in 1-2 application in case their is good response. With many high priced IPO issues, investors are wary of paying a heavy premium and listing of recent issues has been lacklustre. 
  • 06/11/2017: Even though Relaxo has come out with good results, Iam avoding Khadim IPO for the moment. Only caveat is any surprise last minute interest from QIBs  & HNIs though at this stage issue seems to be struggling badly.
  • Watch this space for further inputs if any on the Khadim IPO. 

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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