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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