Analysts positive in Khadim India IPO recommendations but upside limited


Khadim India IPO opens today for subscription and the Kolkata-based shoe retailer has received positive to neutral ratings from analysts. Priced in the range of INR745 – 750 per share, the IPO aims to mobilize up to INR543.05 crore. Include in the IPO is an Offer For Sale (OFS) by private equity firm Fairwinds which is selling its entire shareholding in the company. Here is a quick look of analyst views and Khadim India IPO recommendations.

Ajcon Global has a subscribe rating on the IPO and has cited several reasons behind the positive view. “At the upper end of the price band of Rs. 750, the IPO is valued at a P/E of 44x which is at a slight discount to peers in listed space like Bata and Relaxo Footwear at 50x. With due consideration to factors like a) a leading footwear brand offering affordable fashion across various price segments, b) strong design capabilities to maintain seasonal trends and leading premiumisation through sub brands, c) two – pronged market strategy that straddles efficiently across retail and distribution models, d) extensive geographical reach and penetration across East and South India, e) asset light model leading to higher operating leverage, f) scope for high growth and penetration in other markets, we recommend “SUBSCRIBE” to the issue,” said its research report.

Read Also: Khadim India IPO Review: Best foot forward?

Another positive view has come from which 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 | 750, the stock is valued at 2.2x MCap/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.

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 `745-750 a share, the issue carries a post-proceeds valuation of ~43.8x FY17 earnings of ~`307.6m. 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,” opined the brokerage house in its research note on the IPO.

Adding further to positive Khadim India recommendations, Asit C Mehta said it finds the public offer 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 to SUBSCRIBE the issue from a long term perspective,” said Asit C Mehta’s IPO note.

Read Also: New India IPO recommendations: Analysts paint different scenarios

Prospects of the shoe retailer are bright, although full exit by Fairwinds is a dampener, feels Choice Broking. “On valuation front, KIL 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.

Not all Khadim India IPO recommendations are positive

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.

Another Neutral rating came from Way2Wealth which similarly feels the prices fully factor in the near-term triggers. “At the offer price band of `745-750/- the issue is commands a P/E of ~43.6x its FY17 estimated diluted EPS of ~`17.18/-& 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,” said the research house in its report.

While Khadim India IPO recommendations are not unanimously positive, analysts have pointed out that pricing isn’t aggressive (similar to what we said in our review). Nevertheless, the market is unlikely to reward the IPO (and investors) for reasonable pricing if it doesn’t find value. This is where grey market movements can offer insights about possible listed gains, if any. Head to this page to check more!


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