Khadim India IPO opens today, analysts say valuations reasonable

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Mumbai: As the initial public offering (IPO) of Khadim India Ltd opens for subscription on Thursday, analysts say the issue is reasonably priced. The footwear retailer with a price band of Rs745-750 apiece is aiming to raise Rs543 crore through the share sale, which will close on 6 November.

According to ICICI Securities Ltd, at the higher end of the price brand of Rs750, the stock is valued at 2.2 times market capitalisation to sales and price to earnings of 43.8 times on FY17 numbers which is reasonably valued as compared to its peers. “Khadim has followed an asset light business model leading to superior return ratios, with debt and equity ratio comfortably placed at 0.6 times. Khadim’s constant efforts towards premiumisation of product mix coupled with asset light expansion plans would further enhance profitability going ahead,” it said in a note on 1 November.

Angel Broking Pvt. Ltd said even though valuation of Khadim India is slightly lower compared to its peers like Bata, its current valuation for this company has fully factored in the price, which doesn’t provide further upside for investors. “Despite consumption business, the company had reported huge losses in FY2015. Its 67% revenue comes from East geography mainly from Kolkata, which poses geographical concentration risk for the company,” the brokerage firm said in a note issued on 1 November.

Net proceeds from the fresh issue will be utilized for prepayment or scheduled repayment of all or a portion of term loans and working capital facilities availed by the company.

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.

Due to lower quantity and high-quality products, the company outsources its production to vendors and procures 85% of its requirement from them. The company caters to customers who shop at multi-brand outlets (MBOs) through distribution network. It has manufacturing facilities at Panpur and Kasba (in West Bengal) and four distribution centres across India.