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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.
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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:
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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
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• 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
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• 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
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• 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
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• 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.
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• 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
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• 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)
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*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
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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)
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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.
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• 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.
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• 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