finshiksha quick company analysis khadim india limited€¦ · • khadim has tie ups with amazon...

Follow YouTube www.finshiksha.com Follow LinkedIn

Join FinShiksha WhatsApp Broadcast

Register for March - FinShiksha Career Progression Series for Free

Pag

e1

FinShiksha

Quick Company Analysis

Khadim India Limited

Disclaimer

The purpose of this document is purely educational in nature. The idea is to help someone kick-start

their analysis on this company. However, this is not to be construed as a recommendation of any sort

on the company or its stock. All information has been sourced from publicly available data such as

annual reports and news items and the veracity of the sources has not been independently

established. Kindly use your judgement while analysing further or using this document.

http://www.youtube.com/finshiksha

http://www.linkedin.com/company/finshiksha

https://goo.gl/Ej8Kpq

https://docs.google.com/forms/d/e/1FAIpQLScDyDK7UbKLYYH0XZgg0qYAhJDzMq2ZMi0FVSHPKx30NHCJXw/viewform?usp=sf_link




Pag

e2

Contents Introduction ........................................................................................................................................ 2

Business............................................................................................................................................... 2

Revenue Drivers .................................................................................................................................. 7

Cost Drivers ....................................................................................................................................... 12

Ratio Analysis .................................................................................................................................... 12

Management’s Quality ...................................................................................................................... 14

Broad Valuation Parameters ............................................................................................................. 14

Introduction

• Khadim India Limited is a manufacturer and retailer of footwear in India. Company sells

product under the brand Khadim’s. Further Khadim’s brand has 9 sub brands namely

o British Walkers

o Lazard

o Turk

o Pro

o Sharon

o Cleo

o Softouch

o Adrianna

o Bonito

• Khadim is the 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.

• Company also had the largest footwear retail franchise network in India in fiscal 2016.

Business

In India, footwear companies operate two types of business models:

• Exclusive retail outlets:

Exclusive retail outlets as the name suggests are the stores exclusively for the sale of a specific

company’s product. It will sell footwear brands of a particular company only. The exclusive stores

can be either directly owned and operated by the company or run and managed by franchises.

• Multi-brand retail outlets:








Pag

e3

Due to intense competition in this segment, companies try to increase their penetration by selling

their footwear through Multi-brand outlets. Multi-brand retail generally refers to selling multiple

brands under one roof. Companies generally sell their product to distributors who in turn sell it to

multi-brand outlets.

Khadim operates under two business segments:

• Retail

• Distribution

Retail segment:

• Retail segment mainly comprises of B2C segment.

• Under this segment company sells footwear through both company-owned/operated (COO)

and franchise stores.

• Between FY2013-18, company has added 378 retail stores, of which 79% expansion was

through franchise model.

• Number of retail outlets added in FY2018 are 89.

• KHDM has the largest presence in East India and remains one of the top three players in South

India.

142 148 162 183

403464

511570545

612673

753

0

100

200

300

400

500

600

700

800

2015 2016 2017 2018

Break up of retail outlests- Owned vs Franchisee stores

Company-owned/operated Franchisee stores Total








Pag

e4

• Khadim plans to add 150 Retail Outlets by FY2020.

• As of June 30, 2017, company had entered into long-term lease, leave and license or business

conducting arrangements for 153 COOs and it operated 15 COOs from properties which are

owned by the company.

• This segments follows asset-light business model as company outsources manufacturing.

Company outsourced nearly 88.9% of product requirement in 2018.

• It has an outsourcing arrangement with around 500 small-scale footwear manufacturers. The

Company added 10 new footwear vendors during FY2018.

• It caters to middle and upper middle-income consumers in metros and Tier 1-3 cities.

• Company has more than half of its retail stores located in tier 3 cities.

• In the retail segment, maximum retail price (“MRP”) ranges from Rs.75 to Rs.3599.

65%

19%

10%

6%

Break up of retail stores region wise

East South West North

20%

13%

16%

51%

Tier-wise Distribution of Retail Stores

Metros Tier 1 Tier 2 Tier 3








Pag

e5

• Company’s focus areas for accelerating growth is Maharashtra and Tamil Nadu. Where it will

enter through flagship COO.

• Store size ranges from 500 to 1000 Sq. feet.

• Competitors in this segment are Bata, Liberty and Metro.

• Khadim has tie ups with Amazon and Flipkart. It could not do a tie up with Myntra because of

disagreement over revenue share.

• Company also sells accessories including socks, shoe polishes and brushes, leather belts,

wallets and laptop bags, hand bags and clutches along with its footwear, in its exclusive retail

stores. Company’s net revenue from sale of accessories accounted for 6.19% of retail business,

in fiscal 2017.

• There was a decrease in foot fall in 2019Q1. Company has appointed Nielson to be on ground

and understand the reasons for drop in footfalls.

Distribution

• Distribution segment mainly comprises of B2B segment.

• Khadim started tracking distribution business as a separate business vertical since fiscal 2015.

• Distribution business operates through a wide network of distributors catering to lower and

middle income consumers in metros and Tier I - Tier III cities, who primarily shop in multi-

brand-outlets (MBO).

• Khadim’s distributors are mainly located in East India.

291

348 338357

455

20%

-3%

6%

27%

-5%

0%

5%

10%

15%

20%

25%

30%

0

50

100

150

200

250

300

350

400

450

500

2014 2015 2016 2017 2018

Number of distributors

Number of distributors Year on year change in number of distributors








Pag

e6

• Company manufactures products for this segment.

• Khadim manufactures injected poly-vinyl chloride (Injected PVC), direct injection process (PVC

DIP), EVA (ethylene-vinyl acetate), Hawai, stuck on and polyurethanes (PU).

Source: Khadim India Ltd.’s red herring prospectus (RHP)

• Manufacturing of footwear is a mix of in-house and contract manufacturing.

• Presently company have two owned manufacturing facilities located in Panpur and Kasba and

two outsourced manufacturing facilities located in Amgachia and Bahadurgarh, for which the

raw material is supplied by the Company.

72%

7%

10%

11%

Region wise break up of distributors 2018

East South West North








Pag

e7

• The two plants has an installed capacity of 32.2 million pairs with 75% utilisation in FY18.

• Company has 27 major vendors for raw materials procurement (in FY18) with no single vendor

supplying >10% of total raw material procurement

• During the Financial Year 2017-18, around 2.4 million pairs of footwear were produced by the

company as against 1.85 million pairs in the financial year ended on March 31, 2017, resulting

an overall growth of around 30% in production.

• Company has four distribution centres across India, located at Bantala and Titagarh (catering

exclusively to distribution business) in West Bengal, Chennai and New Delhi. Company has

also entered into agreements with a carrying & forwarding agent (C&F) in Patna, Bihar for

warehousing.

• Distribution centres at Bantala and New Delhi also serve as purchase hubs for products

purchased by the company from outsourced vendors, with respect to retail business.

• Competitor for this segment are Relaxo, Paragon, VKC and Ajanta, among others.

• In this segment, maximum retail price (“MRP”) ranges from Rs.64 to Rs.999.

• Product portfolio in the retail business is higher in value compared to the products which are

distributed through our distribution business.

Other business:

• The Company is also engaged in the business of institutional sales and export of footwear.

• Company commenced the institutional business and supplied products directly to several

institutions, including certain government departments in the states of West Bengal and Tamil

Nadu.

• Sales from institution business was 56 crore in 2018 as against 17 crore in 2017. Company

conducted institutional business in the states of West Bengal, Tamil Nadu and Uttar Pradesh.

• Company is engaged in exporting footwear to countries including United Kingdom, France,

Spain, Ghana and United Arab Emirates.

Revenue Drivers

• Company’s revenue has grown at a CAGR of 12% from 425 crore in 2013 to 749 crore in 2018.

• In 2018 company’s revenue grew by 21%.

• This was mainly due to increase in revenue from retail business by 11%, distribution business

showed a growth of 36%, and other income showed a rise of 85% in 2018 vis-à-vis previous

year.

• Both revenue from retail business and distribution business was driven by increase in number

of retail stores and distributors by 12% and 27% respectively.








Pag

e8

• The share of distribution business in the total revenue is continuously increasing. The share of

other business reduced drastically in 2016 as company sold its jewellery business in 2016.

72% 75% 73% 67%

15%19% 21%

24%

15% 6% 6% 10%

0%

20%

40%

60%

80%

100%

120%

2015 2016 2017 2018

Distribution of revenue- segment wise

Retail business Distribution business Others

26% 24% 24% 24%

58%53% 53% 55%

0%

20%

40%

60%

80%

2015 2016 2017 2018

Number of stores and revenue from company operated stores

% of total stores Contribution to revenue

74% 76% 76% 76%

42%47% 47% 45%

0%

20%

40%

60%

80%

2015 2016 2017 2018

Number of stores and revenue from Franchisee stores

% of total stores Contribution to revenue








Pag

e9

• It is important to note that although the share of COO in the total number of stores is 24% but

its contribution to the revenue from retail business is 55%.

• Although KIL has a pan-India presence, a significant part of its revenue comes from the East

markets (~70%), followed by South (~17%).

• In 2018, company earns more from sub brands as compare to Khadim’s brand.

• Company’s revenue per distributor has increased by a CAGR of 26% from 2015 to 2018.

• Khadim’s revenue per retail store is around 66 lakhs per retail store per year in 2018 which is

far below the revenue per store of BATA at 169 lakhs per retail store.

• One of the reason behind this difference is Khadim’s average selling price of footwear is much

lower than BATA.

52% 50% 48% 48%

48% 50% 52% 52%

0%

20%

40%

60%

80%

100%

2015 2016 2017 2018

Distribution of Revenue- Brand wise

Khadim's brand Sub brand

19

29

36 39

-

10

20

30

40

50

2015 2016 2017 2018

Revenue per distributor (in lakhs)








Pag

e10

*As per company’s reports

Reasons for growth

• India is the second largest global producer of footwear after China accounting for 13.6% of

global production of 20.6 billion pairs in 2016. However, India’s share in global exports is just

1.5% compared to China’s share of 67.7% in 2016 thus presenting room for growth

opportunities.

• India is also the second largest footwear consuming country in the world. Domestic footwear

market at retail price is expected to increase from US $ 7.2 Billion in 2016 to US $ 12.6 Billion

in 2020.

451

533

122

442

562

124

0

100

200

300

400

500

600

Khadim* BATA Relaxo

Company's average selling price of a footwear

2017 2018

11693 11322 11116

2579 2698 2797854 927 971

0

5000

10000

15000

2014 2015 2016

Main footwear producing countries

China India Vietnam








Pag

e11

Source: http://www.abicalcados.com.br/midia/relatorios/relatorio-setorial-ingles-2018.pdf

• Per Capita consumption of footwear in India is below Global average. In certain developed

countries like United States per capita footwear consumption is at 7.2.

Source: https://www.hdfcbank.com/assets/pdf/privatebanking/Sector-Update-Footwear-

Sector-June-2018.pdf

• Organised footwear as a percentage of footwear industry will increase from 26% in 2016 to

30% in 2020. This will be primarily driven by increasing disposable income of consumer and

higher spending on lifestyle products, leading to shift from unbranded to branded play.

(source: Khadim RHP)

• In July, 2018 the GST Council revised taxes for footwear priced from Rs.500 up to Rs.1000 from

18% to 5% which will affect company in positive way.

• The government has approved a Rs.2600 crore special package over the next three years for

development of footwear sector.

3032 3108 3201

2479 2590 26882315 2447 2339

0

500

1000

1500

2000

2500

3000

3500

2014 2015 2016

Main footwear consuming countries

China India United States

1.7

3

5

0 1 2 3 4 5 6

India

Global average

Developed Nations

Per Capita consumption of footwear (FY17)





http://www.abicalcados.com.br/midia/relatorios/relatorio-setorial-ingles-2018.pdf

https://www.hdfcbank.com/assets/pdf/privatebanking/Sector-Update-Footwear-Sector-June-2018.pdf

https://www.hdfcbank.com/assets/pdf/privatebanking/Sector-Update-Footwear-Sector-June-2018.pdf




Pag

e12

Cost Drivers

• Important costs for company is cost of material consumed, Purchase of stock in trade and

employee benefit expense.

Cost as % of sales FY 15 FY 16 FY 17 FY 18

Cost of Materials Consumed 13% 14% 17% 18%

Purchases of Stock-in-Trade 55% 46% 45% 45%

Employee Benefits Expense 10% 8% 9% 9% Other expenses 19% 19% 21% 19%

• Raw materials consumed primarily consists of packing materials, natural rubber, Ethylene-

vinyl acetate (EVA) compound and Polyvinyl chloride (PVC) compound.

• Most of the raw materials consumed are crude oil derivatives hence company’s margins are

affected by high crude oil prices.

• The cost of material consumed has increased primarily on account of growth of distribution

business.

• Purchase of stock in trade expense is mainly on account of retail segment.

• Footwear industry being a labour intensive industry is expected to have a high employee

benefit expenses. This is lower when compared to BATA India where employee benefit

expense is 11% of total sales.

• Other expenses mainly consists of rent, advertising expenses and Freight Charges, Transport

and Delivery.

Ratio Analysis

• Company’s overall EBITDA margin has reduced in 2018 due to deterioration in EBITDA margin

of distribution business from 9.9% in 2017 to 9.4% in 2018.

• The company’s PAT margin are quite stable at 5%. However company’s PAT margins are

inferior when compared to 8% profit margin enjoyed by BATA.

Profitability Ratios 2015 2016 2017 2018

Operating Profit Margin 3.0% 10.6% 11.1% 10.1%

EBIT Margin -1.2% 7.6% 8.6% 8.0%

Net Profit Margin -4.1% 4.7% 4.8% 5.1%

Segment wise gross margin

Retail business 45.36% 45.63% 46.42% 45.12%

Distribution business 24.36% 38.71% 36.57% 35.09%

• Company has no long-term borrowings as on 31st march 2018.

• In 2018 company reduced its short term borrowing by 34% mainly out of the funds it received

from IPO which it conducted in November 2017.

• Company’s interest coverage ratio has improved and company’s debt to equity ratio has

reduced continuously which is a positive sign.








Pag

e13

• Company’s debt instruments are ICRA (A) rated.

Stability Ratio 2015 2016 2017 2018 Interest Coverage Ratio 0.28 2.77 3.94 4.86

Debt Equity Ratio 0.9 0.7 0.6 0.3

Long term debt equity ratio 0.13 0.05 0.00 0.00

Cost of debt 16% 14% 13% 18%

• Khadim’s business is highly working capital intensive on account of high level of inventory

required to be maintained to ensure ready availability of stock for distributors and retailers.

• Company extends credit for periods of time, ranging typically from 30 to 75 days, to franchisee

operated stores and distributors.

• Its receivable days have continuously increased due to steep competition in the footwear

segment. Company in order to increase its revenue is giving increased credit period to its

distributors and franchisees.

• Company also enjoys a 2 month credit period from its suppliers as company has many small-

scale suppliers.

• Company’s working capital as a percentage of sales is increasing indicating company requires

more funds to fund its working capital business.

Efficiency Ratios 2015 2016 2017 2018

Inventory days 90 69 67 62

Receivable days 19 24 45 62

Payable days 46 39 53 63

Cash conversion cycle 64 54 60 60

Working capital as a percentage of sales 17.48% 14.76% 16.39% 16.55%

• Company’s return ratio are affected primarily due to Initial public offering.

• Company conducted an IPO in November 2017, through which it received 50 crores as

proceed from fresh issue which increased its Equity. Thus affecting return ratio.

Return Ratios 2015 2016 2017 2018

Return on Equity -14.4% 16.5% 16.2% 14.1%

Return on Capital Employed 9.6% 35.3% 37.5% 28.2%

Asset turnover ratio 1.33 1.54 1.53 1.53

• Company’s cash flow from operating activity as a percentage of net profit is reduced from

198% in 2016 to 37% in 2018 this is mainly due to stagnant depreciation cost and reducing

finance cost which are added back to net profit as well as increasing trade receivables and

inventories which are deducted from the net profit to arrive at operating cash flow.

• Company’s cash flow from investing activity is negative indicating company is investing in

CAPEX.








Pag

e14

• Company’s cash flow from financing activity is been negative till 2017 indicating company is

paying back its borrowing. In 2018 due to proceeds from IPO company has a positive cash flow

from financing activity.

Cash flow 2015 2016 2017 2018

Net cash flow from operating activities 5 50 31 14

Net cash flow from investing activities 11 -11 -19 -6

Net cash flow from financing activities -13 -34 -19 40

Management’s Quality

• Company has 6 board of directors out of which 3 are independent

• Promoters holding as on 31st march 2018 is 59.7%. Promoter Siddhartha Roy Burman directly

holds 8% and 48.64% through knightsville private limited in Khadim.

Particulars Shareholding as on 31st March 2018

HSBC global investment funds 4.95

Sundaram mutual fund A/C sundaram smile fund 4.03

IDFC premier equity fund 4.01

Franklin India smaller companies fund 3.23

Sundaram alternative opportunity fund 2.78

• Management’s remuneration as a percentage of net profit is 10% in FY18.

Broad Valuation Parameters

• Market capitalisation- 865 crore as on 11th March 2019

• PE- 22

• Price to sales- 1.15

• Market cap per retail outlet- 1.12 crore





finshiksha quick company analysis khadim india limited€¦ · • khadim has tie ups with amazon...

Documents