Khadim India Ltd - IPO Note - Angel Broking

Established in 1981, Khadim Indian Ltd (KIL), a leading footwear brand has emerged as the third largest retailer in the Indian market. The company has a strong presence in eastern India and has positioned itself as an affordable brand. It has 853 branded exclusive retail stores in 23 states and one Union Territory. KIL has manufacturing facilities at Panpur and Kasba (in West Bengal) and 4 distribution centers across India.

Positives: a) Leading footwear brand, offering affordable fashion across various price segments; b) Asset light model leading to higher operating leverage; c) Experienced Promoters supported by professionally qualified, experienced and entrepreneurial management team.

Investment concerns: a) Despite consumption business, the company had reported huge losses in FY2015; b) KIL's ~67% revenue comes from East geography mainly from Kolkata, which poses geographical concentration risk for the company.

Outlook & Valuation: In terms of valuations, the pre-issue P/E works out to 42.2x its FY2017 earnings (at the upper end of the issue price band), which is slightly lower compared to its peers like Bata. However, Bata has strong presence across India with well-established brand and its entire revenue comes from retail business. On other hand, KIL's most of the revenue comes from East geography mainly from Kolkata and retail revenue is only 70% and balance from distribution business.

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.

Source : Equity Bulls

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