Footwear retailer Khadim India opened its Rs 543-crore initial public offer (IPO) today. The company is selling fresh equity shares aggregating up to Rs 50 crore and up to 65,74,093 equity shares under offer for sale by the existing shareholders with the IPO price band fixed at Rs 745-750 per share. The company's promoter Siddhartha Roy Burman would sell 7.22 lakh equity shares, while Fairwinds Trustees Services would offer 58,52,093 scrips.
The IPO will remain open for subscription till November 6, the company said. 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. The company was incorporated in 1981 and for several years it was involved in wholesaling and distribution of basic utility footwear. It entered into the retail business in 1993. As on June 30, 2017, it has 853 retail store outlets in across 23 states and one union territory in India.
On Wednesday, the firm raised Rs 163 crore from anchor investors. Franklin India, UTI Mutual Fund, HSBC Global Investment Fund and IDFC Mutual Fund are among the anchor investors, according to a regulatory filing.
We look at what brokerages said about the IPO.
Angel Broking has a neutral view on the company's maiden public offer as it feels full valuations are captured in the current price. "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," said analyst Amarjeet S Maurya.
Way2Wealth feels the prices fully factor in the near-term triggers. "At the offer price band of Rs 745-750, the issue commands a P/E of 43.6x its FY17 estimated diluted EPS of 17.18/ and 2.2 times its post issue market cap /sales. We believe the stock is currently pricing in all near-term triggers and hence are NEUTRAL on the issue," said the research house in its report.
Asit C Mehta
The public offer is attractive for the long term. "Khadim India is the second-largest footwear retailer in India in terms of number of exclusive retail stores operation. With 74% of footwear market is largely unorganized and now GST in place, we believe, this provides a significant headroom for organized players to capture the market share. Further, we believe growing youth aspiration, rising disposable income, easy availability, increasing urbanization coupled with expanding distribution reach, and strong brand recall augur well for footwear companies such as Khadim India. At the upper price brand of Rs 750, the company's stock trades at 42.4x its FY17 EPS of Rs 17.7, which is fairly priced. Hence, we recommend SUBSCRIBE the issue from a long term perspective," said the brokerage in a note.
Prospects of the shoe retailer are bright, although full exit by Fairwinds is a dampener, says Choice Broking. "On valuation front, Khadim India is demanding a P/E valuation of 43.8x as compared to peer average of 62x. On other valuation metric front too, it is trading at a discount to the peer average. Given lower EBITDA margin and asset turnover ratio; and relatively higher debt equity ratio, we feel that demanded valuation to be reasonable. Moreover, through this IPO, the PE investor Fairwinds Trustees Services Pvt. Ltd. is fully diluting its 33.8% equity stake in the company. This can be one of the negative sentiments for retail investors. Thus considering the above observations, we assign a "SUBSCRIBE" rating for the issue," said the brokerage house.
Anand Rathi cited high degree of competition and large unorganized market as key risks but has, nevertheless, advised investors to subscribe to the IPO. "At the issue price of Rs 745-750 a share, the issue carries a post-proceeds valuation of 43.8x FY17 earnings of 307.6 m. Considering other listed footwear manufacturers such as Bata, Relaxo, Mirza, etc., and their valuations, we believe Khadim with a strong brand, franchise network and good growth potential warrants a Subscribe," said the brokerage house in its research note.
ICICIdirect.com believes Khadim India's asset-light business model places it in a position to boost profitability in the coming years. "At the higher end of IPO price brand of Rs 750, the stock is valued at 2.2 times Market Cap/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," said the brokerage house's IPO note.
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