LIBERTY SHOES LTD : INVEST WITH COMFORT !!!

Scrip Code: 526596 / LIBERTSHOE

CMP:  Rs. 279.25; Buy at current levels. Short Term Target: Rs. 305; Medium to Long Term Target: Rs. 400; STOP LOSS – Rs. 256.90; Market Cap: Rs. 475.67 Cr; 52 Week High/Low: Rs. 351.15 / Rs. 86.25.

Total Shares: 1,70,40,000 shares; Promoters : 1,10,62,507 shares – 64.92 %; Total Public holding : 59,77,493 shares – 35.07 %; Book Value: Rs. 80.73; Face Value: Rs. 10.00; EPS: Rs. 7.85; Dividend: 15.00 %; P/E: 35.56 times; Ind. P/E: 35.36; EV/EBITDA: 14.14.

Total Debt: Rs. 109.99 Cr; Enterprise Value: Rs. 578.51 Cr.

LIBERTY SHOES LIMITED: Liberty Shoes Ltd was founded in 1954 and is based in Karnal, Haryana, India. Liberty Shoes Limited is engaged in manufacturing and retailing of footwear and accessories through its retail outlets and wholesale networks in India and internationally. It provides school shoes, sports sneakers, ballerinas, adventure shoes, corporate formal shoes, and relaxed slip-ons. The Company came with an IPO in 1992 with a premium of Rs. 99.00 of face value Rs. 10 at Rs. 109 per share. The company gave bonus shares in October 2005 in the ratio of 1:1. Liberty Shoes Ltd manufactures and sells leather footwear in India and internationally & has worldwide distribution network of 150 distributors, 400 exclusive showrooms and more than 6,000 multi-brand outlets. The company offers its products for men, women, boys, and girls under their brands like Coolers, Footfun, Force 10, Fortune, Gliders, Prefect, Senorita, TipTopp, Warrior, and Windsor. Liberty Shoes Limited markets its products through distributors, exclusive showrooms and multi brand outlets, as well as on online portal. The company has its presence in more than 25 countries, which includes major international fashion destinations like France, Italy and Germany. Liberty Shoes Ltd is locally compared with Bata India Ltd, Mirza International Ltd, Sarup Industries Ltd, Superhouse Ltd, Relaxo Footwares Ltd and globally compared with American Apparel Inc of USA, Carters Inc of USA, Columbia Sportsware Co of USA, Nike Inc of USA, PUMA SE of USA, Arab Cotton Ginning of UAE, Delta Galil Ind of UAE, Malek Spinning Mills Ltd of UAE, Squre Textiles Ltd of UAE, Adidas AG of Europe, LVMH-Moet Vuitton of Europe.

Investment Rationale:

Liberty Shoes Ltd engages in manufacturing and sale of leather footwear in India and internationally. The company’s products for men include unisex sandals and slip-ons; formal footwear; sportswear; and beachwear, casual, and formal footwear in leather and non-leather material. It also offers heels and strappy styles in slip-ons, sandals, and belles for women; sandals, sports shoes, lycra uppers with no laces, and school shoes for kids; and safety footwear & Foot gears for the workforce at construction sites, engineering sites, oil refineries, and healthcare sectors, as well as variety of formal shoes for company executives. In addition, the company provides anti-static, anti-slippage, and non-tearable protective boots as resistant to electrical shock, mechanical crush, chemical corrosion, and heat and cold for electrical, thermal, chemical, and slippage risking professionals, power plant technicians, alkali unit workers, and sports practitioners. India is the world's second largest footwear producing country in the world after China. The per capita footwear consumption in India has gone up from 1.4 pairs per year in 2004 to 2.5 pairs per year in 2013 & it is still much below the average per capita footwear consumption of 5 pairs per year in developed countries. The size of Indian footwear market is around Rs. 26,300 Cr and is expected to reach to around Rs. 38,700 Cr with a CAGR of 15 % by 2015. At present, Men's footware contributes around 60 % of footwear market as against Women's footware share of 30 %. Men's footware market is growing at a CAGR of 10 % & Women's footware market is growing at a much faster CAGR of 20 %. India controls around 15 % of annual global footwear production. Indian footwear retail is mainly unorganized market with around 60 % of market share. The size of the organised sector which was around Rs. 7,500 Cr in 2010 increased to Rs. 10,000 Cr in 2011, posting a growth at a CAGR of 30 % every year since 2008. The market is expected to reach Rs. 17,500 Cr by 2015 growing at a CAGR of 19 % p.a. Nearly 90 % of India's export of footwear goes to European Countries and the USA. The European countries and the USA are major consumers for the Indian footwear. India produces more of gents' footwear while the world's major production is women's footwear. The future growth of the footwear industry in India will continue to be market-driven and oriented towards EU and US markets. With technology and quality of the footwear improving year after year, Indian Footwear industry is poised for a global revolution worldwide. Liberty has increased its presence across the globe with a primary focus on the African market and will also look into increasing its foothold in the existing markets. And with growing foot ware markets Liberty will surely be among the ones to get benefited.

Outlook and Valuation:

Liberty Shoes Ltd is the second largest foot ware manufacturer in India after BATA. It offers its products under the brand names: Diva, Coolers, Fortune, Force 10, Gliders, Windsor, Senorita, Tiptopp, Footfun, Prefect, Warrior, Freedom, and Workman brand names. The company markets its products through distributors, exclusive showrooms, and multi-brand outlets. The company is amongst the top 5 manufacturers of leather footwear of the world producing more than 50,000 pairs a day using a capacity of more than 3 lakh square feet of leather per month. The company has its presence in more than 25 countries, which includes major international fashion destinations like France Italy and Germany, is its worldwide distribution network of 150 distributors, 400 exclusive showrooms and more than 6000 multi-brand outlets. Two years back Liberty decided to go for the franchisee retail model in order to tap on the local market knowledge of the franchisee and use that as a base for strengthening and broadening its retail network. Its model had ROI of 25 % with breakeven period of One year. Today Liberty has around 400 exclusive franchisee showrooms in large, medium and small cities including 15 cities of Middle East. Liberty has emerged as one of the most successful Indian franchisee chains of the current times. Liberty was recently recognised developing the best business model for franchising across industries in the country as well as for demonstrating excellence through the successful operation of satisfied franchisees over a sustained period. On Financial side, Liberty Shoes Ltd reported streamlined Q2FY15E results. The company has restated previous year figures to include Liberty Retail Revolutions Ltd, the recently merged retail subsidiary. It reported Net sales which were lower by 2.8 % at Rs. 143.8 Cr. Domestic sales grew 35.3 % yoy to Rs. 134.3 Cr in Q2FY15 and exports grew 14.7 % yoy to reach Rs. 15.74 Cr. The company has mentioned that it has completed major portion of the institutional order of Rs. 48 Cr which was missed last quarter. The balance order would be completed by Q3FY15E. During the quarter, the company added 16 new exclusive stores in Company Owned & Company Operated (COCO) & franchise format. Sales in own stores grew by 20 % yoy to Rs. 20 Cr in Q2FY15 against Rs. 17.3 Cr in Q2FY14. The company plans to add 80 to 100 more exclusive stores in franchise and COCO format in FY15E. As company has higher proportion of low margin institutional orders led pressure on operating margins. EBITDA margin stood at 6 % in Q2FY15 against 7.5 % in Q2FY14, contraction of 1.53 % bps. EBITDA of the company grew by 5.1 % yoy to Rs. 8.6 Cr in Q2FY15 from Rs 8.2 Cr in Q2FY14. Liberty’s Adj. PAT stood at Rs. 2.70 Cr in Q2FY15 against Rs. 2.00 Cr in Q2FY14, an increase of 34.7 % yoy. Liberty On half yearly basis, the net sales grew by 10.7 % yoy to Rs. 245.4 Cr in H1FY15 from Rs. 221.6 Cr in H1FY14. Domestic sales grew 9.6 % yoy to Rs. 229.1 Cr in H1FY15 from Rs. 209.10 Cr in H1FY14. Exports stood at Rs. 27.2 Cr in H1FY15 against Rs. 20.70 Cr in H1FY14, implying growth of 31.7 % yoy. Adj. PAT stood at Rs. 6 Cr in H1FY15 against Rs. 5.3 Cr in H1FY14, growth of 13.6 %. PAT growth was higher than EBITDA growth due to higher other income and decline in interest cost. At the current market price of Rs. 279.25, the stock P/E ratio is at 28.20 x FY15E and 16.62 x FY16E respectively. Earnings per share (EPS) of the company for FY15E and FY16E are seen at Rs. 9.90 and Rs. 16.80 respectively. One can ‘BUY’ in this particular scrip with a target price of Rs. 305.00 for Short term and for the Medium to Long term investment it could be Rs. 400.

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	362.90	483.50	580.80	741.00
NET PROFIT (₹ Cr)	5.80	13.40	16.80	28.60
EPS (₹)	3.40	7.90	9.90	16.80
PE (x)	92.70	40.10	31.90	18.80
P/BV (x)	3.90	3.90	3.50	3.00
EV/EBITDA (x)	20.10	14.80	12.00	9.30
ROE (%)	4.00	9.60	11.60	17.40
ROCE (%)	8.20	11.90	13.80	17.50

I would buy LIBERTY SHOES LTD for Medium to Long term for target of Rs. 400.00 and for the Shorter term the target would be Rs. 305.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 256.90 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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