(Wholly owned subsidiary of Bank of Baroda) Exhibit 1: Financial summary (Rs mn) Year end: March FY13 FY14 FY15E FY16E FY17E FY18E Net sales 3,620 4,839 5,550 6,510 7,635 8,716 Growth (%) 1.29 33.67 14.70 17.29 17.29 14.17 Operating margin (%) 8.3 8.5 8.6 9.1 9.4 9.4 PAT 54 133 148 190 268 331 Adjusted PAT 58 135 148 190 268 331 EPS (Rs) 3.4 7.9 8.7 11.1 15.7 19.4 P/E(x) 24.9 18.7 30.0 23.4 16.6 13.4 ROE (%) 4.3 9.8 10.7 12.9 16.3 17.6 ROCE (%) 8.2 11.1 12.4 12.2 13.8 14.7 Debt/equity (x) 0.8 0.8 0.8 1.0 0.9 0.8 Source: Company, BOBCAPSe Liberty Shoes Ltd. (LSL) Forefront of Emerging Markets ; initiate with BUY We initiate coverage on Liberty shoes Ltd. (LSL) with a BUY rating and a price target of Rs.388 implying 49%upside. LSL, second largest footwear brand company in India, is turning to strong growth path. It has shown healthy growth in FY14, in spite of having a slowdown in the economy. We expect that the revenue /Earnings to grow at ~16% /~26% CAGR over FY14-18E respectively. It is driven by strong volume growth, big portfolio with healthy product mix and reduction in excise duty burden. Portfolio of Strong Brands: Liberty is famous as a family footwear brand and has a big portfolio with ten brands (i.e. Coolers, Fortune, Warriors, Windsor, Senorita, Tiptop, Gliders, Force10, Footfun and Perfect). It caters to all genders and age groups. LSL is one of most trusted brand in the footwear and have touched the lives of over 6 crore customers with over 5000 styles. We believe that the company will be able to fulfill the ever increasing demand, which would have a positive impact on volume growth. Deep penetration to increase volume growth: The Company is planning to open about 100 stores each year. 60 new stores would be franchise-owned, while 40 stores would be company-owned specially in tier II, tier III cities with focus on southern region which includes Kerala, Telangna, Andhra Pradesh, Kerala and also in Gujarat where the potential for growth is significant. We expect that the volume would grow at a 15% CAGR over FY14-18E. Margin expansion led by volume growth and restructuring: We believe that LSL would grow at CAGR ~16% over FY2014-18E (likewise its previous year growth over…). Margins would expand on account of strong volume growth, better product mix, reduction in excise duty from (12% to 6% on leather product >Rs 1000) and less royalty payment due to restructuring of group companies. Rising trend of ROE & ROCE: We expect that the ROE and ROCE of the company is likely to reach at 17.6x from 9.8x and 14.6x from 11.1x respectively. This indicates the optimum efficiency of operations and would help the company to get better returns going forwards. Valuation & recommendation: We expect the company’s revenue /earnings to grow at ~16%/~26% CAGR over FY14-18E respectively. This is due to volume growth, aggressive retail expansion and margins expansion. At CMP of Rs 261, the stock is trading at around 23x FY15E PE. We value the Company at P/E of 20x to arrive at our price target of Rs.388 (49% upside). Akanksha Tripathi | [email protected] | +91 22 6138 9383 Price Price Target Up/Down (%) Rs. 261 Rs.388 Bloomberg Code Reuters Code LBS IN LIBS.NS Share Holding (%) As on 31st Dec. 2014 Promoters 64.92 FII 0.00 DIIs 0.07 Stock Data Nifty 8,586 Sensex 28,260 52 week high/low 351/148 Maket Cap (Rs. bn) 4.4 Price performance (%) 1M 3M 6M 1Y Absolute -12.7 -0.8 -14.5 72.4 Relative to Sensex -8.9 -3.5 -20.9 46.5 Relative Performance 49% 50 100 150 200 250 300 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 BSE Sensex Liberty Shoes Ltd. Source:-Bloomberg Sector: FOOTWEAR 6 th April, 2015 Initiating coverage BUY
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(Wholly owned subsidiary of Bank of Baroda)
Exhibit 1: Financial summary (Rs mn)
Year end: March FY13 FY14 FY15E FY16E FY17E FY18E
Net sales 3,620 4,839 5,550 6,510 7,635 8,716
Growth (%) 1.29 33.67 14.70 17.29 17.29 14.17
Operating margin (%) 8.3 8.5 8.6 9.1 9.4 9.4
PAT 54 133 148 190 268 331
Adjusted PAT 58 135 148 190 268 331
EPS (Rs) 3.4 7.9 8.7 11.1 15.7 19.4
P/E(x) 24.9 18.7 30.0 23.4 16.6 13.4
ROE (%) 4.3 9.8 10.7 12.9 16.3 17.6
ROCE (%) 8.2 11.1 12.4 12.2 13.8 14.7
Debt/equity (x) 0.8 0.8 0.8 1.0 0.9 0.8
Source: Company, BOBCAPSe
$Com panyName$
Liberty Shoes Ltd. (LSL)
Forefront of Emerging Markets ; initiate with BUY
We initiate coverage on Liberty shoes Ltd. (LSL) with a BUY rating
and a price target of Rs.388 implying 49%upside. LSL, second
largest footwear brand company in India, is turning to strong growth path. It has shown healthy growth in FY14, in spite of having a
slowdown in the economy. We expect that the revenue /Earnings to
grow at ~16% /~26% CAGR over FY14-18E respectively. It is driven by strong volume growth, big portfolio with healthy product mix and
reduction in excise duty burden.
Portfolio of Strong Brands: Liberty is famous as a family footwear brand and has a big portfolio with ten brands (i.e. Coolers, Fortune, Warriors,
Windsor, Senorita, Tiptop, Gliders, Force10, Footfun and Perfect). It caters to
all genders and age groups. LSL is one of most trusted brand in the footwear and have touched the lives of over 6 crore customers with over 5000 styles.
We believe that the company will be able to fulfill the ever increasing demand,
which would have a positive impact on volume growth.
Deep penetration to increase volume growth: The Company is planning
to open about 100 stores each year. 60 new stores would be franchise-owned,
while 40 stores would be company-owned specially in tier II, tier III cities with focus on southern region which includes Kerala, Telangna, Andhra Pradesh,
Kerala and also in Gujarat where the potential for growth is significant. We
expect that the volume would grow at a 15% CAGR over FY14-18E.
Margin expansion led by volume growth and restructuring: We believe
that LSL would grow at CAGR ~16% over FY2014-18E (likewise its previous
year growth over…). Margins would expand on account of strong volume growth, better product mix, reduction in excise duty from (12% to 6% on
leather product >Rs 1000) and less royalty payment due to restructuring of
group companies.
Rising trend of ROE & ROCE: We expect that the ROE and ROCE of the
company is likely to reach at 17.6x from 9.8x and 14.6x from 11.1x
respectively. This indicates the optimum efficiency of operations and would help the company to get better returns going forwards.
Valuation & recommendation: We expect the company’s revenue
/earnings to grow at ~16%/~26% CAGR over FY14-18E respectively. This is due to volume growth, aggressive retail expansion and margins expansion. At
CMP of Rs 261, the stock is trading at around 23x FY15E PE. We value the
Company at P/E of 20x to arrive at our price target of Rs.388 (49% upside).
Total liabilities 3,516 3,690 3,621 3,988 4,364 4,790
Source: Company, BOBCAPSe
Liberty Shoes Ltd. | 6 April 2015
| Equity research | 13
(Wholly owned subsidiary of Bank of Baroda)
Exhibit 25: Ratio analysis
Y/E Mar FY13 FY14 F Y15E FY16E FY17E FY18E
Per share data (Rs)
EPS 3.4 7.9 8.7 11.1 15.7 19.4
CEPS 9.5 14.4 16.2 19.9 26.2 31.2
DPS - 1.8 2.0 2.5 3.5 4.4
BV 80 81 82 91 103 118
Profitability ratios (%)
Gross margins 37.7 35.7 35.0 35.0 35.0 35.0
Operating margins 8.3 8.5 8.6 9.1 9.4 9.4
Net margins 1.6 2.8 2.7 2.9 3.5 3.8
Valuation ratios (x)
PE 24.9 18.7 30.0 23.4 16.6 13.4
P/BV 1.1 1.8 3.2 2.9 2.5 2.2
EV/EBITDA 8.1 8.6 11.4 9.2 7.6 6.7
EV/Sales 0.7 0.7 1.0 0.8 0.7 0.6
RoE 4.3 9.8 10.7 12.9 16.3 17.6
RoCE 8.2 11.1 12.4 12.2 13.8 14.7
Source: Company, BOBCAPSe
Exhibit 26: Cash Flow Statement
Y/E Mar (Rs mn) FY13 FY14 F Y15E FY16E FY17E FY18E
Profit after tax 54 133 148 190 268 331
Depreciation 97 93 128 150 178 201
Chg in working capital (16) (198) (180) (268) (219) (291)
Total tax paid 1 (5) - - - -
Net Extra-ordinary income 4 2 - - - -
Cash flow from operations 139 26 96 72 227 241
Capital expenditure (81) (75) (150) (140) (140) (140)
Change in investments - - - - - -
Acquisition of Goodwill (94) 94 - - - -
Cash flow from investments (175) 19 (150) (140) (140) (140)
Free cash flow (36) 44 (54) (68) 87 101
Issue of shares - - - - - -
Net inc/dec in debt 90 0 212 80 - -
Dividend (incl. tax) - (30) (33) (43) (60) (75)
Other financing activities (4) (88) (100) 0 (0) 1
Net Extra-ordinary income (4) (2) - - - -
Cash flow from financing 86 (118) 78 37 (60) (74)
Inc/(Dec) in Cash & Bank bal. 46 (75) 24 (31) 27 27
Source: Company, BOBCAPSe
Liberty Shoes Ltd. | 6 April 2015
| Equity research | 14
(Wholly owned subsidiary of Bank of Baroda)
Disclaimer
BUY. We expect the stock to deliver >15% absolute returns.
HOLD. We expect the stock to deliver 5-15% absolute returns.
SELL. We expect the stock to deliver <5% absolute returns.
Not Rated (NR). We have no investment opinion on the stock.
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