Khadim India's Q4FY19 results (Neutral) - Weak FY19, execution in FY20 a key monitorable...
Q4FY19 result highlights
- Reported net sales increased by 5% yoy to Rs 2.1bn (est:Rs1.97bn). EBITDA decreased by 48% yoy to Rs 93m (est:Rs155m), PAT declined by 88% yoy to Rs12m (est: Rs72m).
- Retail business revenues decreased by ~4% yoy to Rs1.2bn while distribution business sales increased by 21% yoy to Rs556m. The quarter also had institutional order of ~Rs300m.
- Retail gross margins increased by 170bps yoy to 42.8% while Distribution business gross margins dipped by 150bps yoy to 29.9%.
- Gross margins decreased by 70bps yoy/840bps qoq to 33% on account of adverse mix (higher growth in distribution business, decline in retail business and execution of institutional order.
- Staff cost increased by 4% yoy and other expenses grew by 32% yoy owing to store expansion and higher discounts. EBITDA declined by 48% with a margin contraction of 460bps yoy/250bps qoq to 4.5%.
- Interest cost increased by 81% yoy, other income was down 58% yoy, depreciation was up 17% yoy. Further higher tax rate resulted in PAT declining 55% yoy.
Key positives: Healthy growth in COO stores & distribution business
Key negatives: Weak margins
Impact on financials: Factoring weak performance & lower margins, we have cut FY20E earnings by 27% & introduce FY21E estimates
Valuations & view
Overall FY19 performance for Khadim was weak compared to peers, especially in 2HFY19, impacted by weak footfalls and muted franchisee sales. Adverse mix, higher input cost and higher fixed costs further impacted the overall profitability for the year. Khadim has initiated steps (plans to increase brand spends, appointed new brand ambassadors, appointed consultant for range management, team restructuring & investing behind talent pool) to correct the issues/challenges faced in FY19, the benefit for the same is expected to kick in from 2HFY20E. While valuations are inexpensive compared to peers, the performance too has been below peers in FY19. Going forward overall execution of the renewed strategy will be the key monitorable. Maintain neutral rating on the stock.
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.
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