Khadim India IPO Opens: Is It Worth Investing At Share Price Band Of Rs. 745 to 750?

Khadim India IPO Opens: Is It Worth Investing At Share Price Band Of Rs. 745 to 750?

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Khadim India IPO will end on November 6
Khadim India has exclusive retail stores operating under brand Khadims
Khadim India IPO opens from November 2 to November 6
KIL public offer comprises a mix of offer for sale and fresh issue
New Delhi: Khadim India IPO, that opened on Thursday and will close on November 6, is a mix of offer for sale and fresh issue. The public offer has been made at a price band of Rs. 745 to Rs. 750 per Khadim India share. The issue would constitute fresh issue worth Rs. 50 crore and offer for sale worth Rs. 493 crore (at upper band). The company will dilute 3.9% of its post-offer paid-up equity share capital.
Khadim India is one of the largest footwear brands in India that focuses on retail and distribution of footwear. The company has exclusive retail stores operating under “Khadim’s” brand. The company has the largest presence in East India and one of the top three players in South India, in fiscal 2016.

It has 853 branded exclusive retail stores in 23 states and one Union Territory. It has manufacturing facilities at Panpur and Kasba (in West Bengal) and 4 distribution centers across India.

Khadim India shares allotment and listing

Finalization of Khadim India allotment will take place on November 10 and the shares will be listed on stock exchanges (BSE and NSE) on November 14.

Khadim India Financials

Khadim India’s net sales for the 2016 and 2017 fiscal years hit Rs. 535 crore and Rs. 621 crore, respectively, and earned the net profits of Rs. 25 crore and Rs. 31 crore, respectively.

Khadim India IPO – What Brokerages Say

In terms of valuations, the pre-issue P/E works out to 42.2x FY 2017 earnings (at the upper end of the issue price band), which is slightly lower compared to its peers such as Bata. However, Bata has strong presence across India with well-established brand and its entire revenue comes from retail business.

On other hand, Khadim India’s most of the revenue comes from Eastern India mainly from Kolkata and retail revenue is only 70% and balance comes from its distribution business. “Despite these 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,” says Angel Broking.

Khadim India has adopted asset-light and less capital-intensive business model to operate its exclusive retail stores. While expanding into new markets it enters through flagship COOs and further augment presence in such markets through franchisees.

“Between FY13 and FY17, out of 289 exclusive retail stores added by KIL, 229 were operated on a franchisee model. Moreover, it takes the premises on lease from which it operate its COOs,” says Motilal Oswal in an IPO note released on November 2.

Risk Factors

If the company is able to successfully execute its competitive growth strategies, it will pose an upside risk. Higher than expected store addition and increase in new geographical reach could pose an upside risk for the company, says Angel Broking.

Motilal Oswal flags five concerns on Khadim India.

First, the company is exposed to risks associated with expansion into new geographic markets. Any inability to expand into new geographic markets or penetrate existing markets may adversely affect its business.

Second, KIL may not be able to obtain sufficient quantities or desired quality of finished products from outsourced vendors in a timely manner or at acceptable prices, which could adversely affect its retail business and its business.

Third, the company relies on franchisees with respect to retail business and on its distributors with respect to distribution business. Any failure to maintain relationships with such third parties could adversely affect its business.

Fourth, the land and premises for its Registered and Corporate Office, several of its COOs, manufacturing facilities and distribution centers, held by the company is on lease or leave and license or tenancy agreements which remain the risks to business.

Fifth, its inability to maintain an optimal level of inventory in its stores may impact its operations adversely.