Khadim India's Q2FY20 results (Neutral) - Weak performance, recovery to be gradual.
Q2FY20 result highlights
- Net sales decreased by 2% yoy to Rs2.2bn (Rs2.3bn), EBITDA decreased by 18% yoy to Rs154.5m, reported loss came in at Rs15m vs PAT of Rs86.9m in base quarter.
- The IND AS has positive impact of ~Rs75m on EBITDA. Adjusting for the same, comparable EBITDA declined by 58% yoy to Rs79m.
- Gross margins declined by 10bps yoy to 37.9%. Retail gross margins were down 160bps yoy to 44.3% (one month of EOSS in 2QFY20). Distribution gross margins were up 250bps yoy to 27%.
- Staff cost increased by 2% yoy, adjusted other expenses (adj IND AS benefit of Rs75m) increased by 17% yoy, largely on account of higher adspends (up ~60% yoy). Adjusted EBITDA margins declined by 450bps yoy to 3.8%.
- Retail sales were flat yoy. COO sales grew by ~11% yoy while franchisee sales declined by ~13% yoy as company continued to tighten credit. Secondary sales grew by 4% in active EBO’s
- Distribution sales decreased by 1% yoy, impacted by floods in Bihar/Assam and high base effect.
Key negatives: Weak revenue & margin performance.
Impact on financials: Factoring weak performance, we cut FY20/21E EBITDA (IND AS) by 15%/10%.
Valuations & view
Khadim reported weak results due to adverse weather in its key markets, which coupled with higher adspends & negative operating leverage impacted the overall profitability for the quarter. While Khadim has initiated steps (increase in brand spends, appointed consultant for range management, & investing behind talent pool) to correct the issues/challenges faced in FY19, the benefit for the same is yet to be seen. Hence overall recovery is likely to be more gradual. While valuations are inexpensive compared to peers, the earnings delivery continues to remain below peers. Given the competitive activity from leading players and higher dependence on East market, which is seeing challenges, earning visibility remains low. Hence despite, cheap valuations (29x/16x on Ex IND AS FY20/21E EPS), we maintain Neutral rating. Going forward, key strategic initiatives by the new CEO & execution of the same will be the key monitorable.
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.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.