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Khadim India IPO: Should you subscribe? - IndiaNotes.com
Khadim India IPO: Should you subscribe?
Way2wealth | Published: 02 Nov, 2017  | Source : IndiaNotes.com


Business Overview


A leading footwear brand, offering affordable fashion across various price segments – Khadim India Ltd is a 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 FY2016. They also had the largest footwear retail franchisee network in India. The biggest strength of ‘Khadim’s’ brand is product offering, which is ‘affordable fashion’ for the entire family for every occasion. 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 affordable footwear products for men, women or children, across age groups. In this segment, maximum retail price (“MRP”) ranged from `77 to `3,599, in the three-month period June 30, 2017.



Strong design capabilities to maintain seasonal trends and leading premiumization through sub-brands – Khadim India has a detailed design process pursuant to which it creates designs for consumers across diverse segments for various seasons and festivals and continued market research enables to understand the changing needs of the consumers. Strong in-house design capabilities have enabled to create and grow sub-brands organically, through the development of premium products, to cater to existing customer base. It continues to target consumers and provide affordable fashion through ‘Khadim’s’ brand, sub-brands which help to target and retain aspirational customers, especially given the significant years of brand equity. Sub-brands including ‘Pro’, ‘Lazard’, ‘Softouch’, ‘Cleo’, ‘British Walker’, ‘Turk’, ‘Sharon’, ‘Bonito’ and ‘Adrianna’, have varied merchandise categories and cater to men, women or children, by providing affordable and fashionable footwear for a variety of occasions. Revenue from all sub-brands as a percentage of retail footwear business revenue was at 51.21% in June-2017.


Two-pronged market strategy that straddles efficiently across retail and distribution models – The company operates through two distinct business models, retail and distribution, each with its own customer base, sale channels and product range. Retail business operates through company owned or franchised exclusive retail stores, catering to middle and upper middle-income consumers in metros, Tier I – Tier III cities, who primarily shop in high street stores and malls for fashion oriented products. On the other side, distribution business operates through a wide network of distributors catering to low and middle-income customers in metros and Tier I – Tier III cities, who primarily shop in MBOs for functional products. Both business verticals complement each other, as each of them predominantly have separate product ranges, target audience and channels of sale. Also, given the different business profiles, it helps de-risk with regard to dependence on any one business. Giventhe ability to straddle between both the retail and distribution markets, Khadim India isable to capitalize on growth potential, and target the Indian branded retail footwear market, which is proposed to grow at a CAGR of 18%, and the branded footwear distribution market which is proposed to grow at 23% by FY2020.


Strategy Going Forward


- Expand geographical footprint in western India and certain markets in northern India and further penetrate markets in south India.

- Continue to focus on as asset light model led growth.

- Premiumization of product offering to increase average selling price and gross margins.


VALUATION


At the offer price band of Rs745-750/- the issue is commands a P/E of ~43.6x its FY17 estimated diluted EPS of ~Rs17.18/-& 2.2x it post issue market cap /sales. We believe the stock is currently pricing in all near-term triggers and hence are NEUTRAL on the issue.

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