Report

Khadim India's Q1FY19 results (Outperformer) - Weak start…revenue trajectory to improve

Q1FY19 result highlights

  • Net sales increased by 8.7% yoy to Rs 1.9bn (est:Rs1.9bn). EBITDA decreased by 1% yoy to Rs 166m (est:Rs180m), PBT increased by 1.5% yoy to Rs115m. PAT was flat yoy at Rs74m (est: Rs89m)
  • Retail business net revenue growth was flattish largely impacted by higher base (1QFY18 had higher growth due to pre-GST sales) while distribution business sales increased by 24% yoy.
  • Gross margins improved by 120bps yoy Retail gross margins increased by 80bps yoy while distribution gross margins declined by 260bps yoy.
  • Staff cost and other expenses grew by 16% & 17% yoy respectively. Negative operating leverage resulted in EBITDA declining by 1% with a margin contraction of 80bps yoy to 8.8%.
  • Interest cost declined by 30% yoy aided by reduction in debt, other income was down 6.5%, depreciation was up 13% yoy. Tax rate was up 120bps yoy resulting in flattish PAT on yoy basis for the quarter.

Key positives: Healthy growth in Distribution business. Expansion in gross margins

Key negatives: Lower retail growth. Contraction in Retail & distribution EBITDA margins

Impact on financials: We have cut FY19/20E earnings by 1% each.

Valuations & view

Khadim’s 1QFY19 revenue growth was largely in line; however weakness in distribution gross margins and higher A&P spends resulted in earnings growth being below expectations. Going forward, we expect retail revenues to return to double digit growth trajectory aided by upcoming festive season demand and continued store expansion. Further, reduction in GST rates (for retail sale price of Rs1,000/pair) as well distributor additions will drive distribution segment revenues. This coupled with improved mix, lower discounting and leverage benefit will drive a 28% earnings CAGR over FY18-20E. At 22xFY20E earnings, stock trades at steep discount (~45%) to the two larger listed peers. Going forward, with improving demand environment, execution will be the key monitorable and improvement in the same, we believe, will drive the overall rerating for the stock. Maintain Outperformer

Underlying
Khadim India

Khadim India Limited is an India-based footwear retail company. The Company is primarily engaged in the business of manufacturing and retail business of footwear, leather accessories and other lifestyle products. The Company offers leather and non-leather sandals, slippers, boots, ballerinas, stilettos, moccasins and sports shoes. The Company offers various categories of footwear, including Hawai, poly vinyl chloride (PVC), ethylene vinyl acetate (EVA), polyurethane (PU), direct injection process (DIP), stuck on and school shoes under the Khadim's brand. The Company offers its products under the brands, such as Pro, Lazard, Softouch, Cleo, British Walker, Turk, Sharon, Bonito and Adrianna.

Provider
IDFC Securities
IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions,  both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement  amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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