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Jun 25, 2012, 02.39 PM IST
Ashish Chugh, author of Hidden Gems is bullish on Liberty Shoes and TVS Motor.
Ashish Chugh, author of Hidden Gems is bullish on Liberty Shoes and TVS Motor . "Lower level of about Rs 95-100 provides a good opportunity for the long-term investor to accumulate Liberty Shoes. I think over a period of one to two years the stock can hugely outperform the market,” he adds.
TVS Motor, he says, could be looking good from a shorter term perspective primarily on account of under valuation, but the concerns are that Honda on its own has become aggressive in the Indian markets. "One has to watch out for the new launches which Honda is doing. That is going to impact not just TVS Suzuki, but the other players also," he adds.
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Below is the edited transcript of his interview with CNBC-TV18’s Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: You have picked up Liberty Shoes. What is the story there?
A: Liberty Shoes is a play on India’s consumption story. When you talk of footwear, two companies straightaway come to your mind, Bata and Liberty. Bata is the largest player in the sector. Liberty maybe is the second largest, not in terms of sales or profitability, but in terms of brand recall.
Now, if you talk of Liberty, this company has got six manufacturing units and produces about 50,000 pieces of footwear a day. The company claims to be amongst the top five manufacturers of leather footwear in the world. The company has about six thousand multibrand outlets and 350 exclusive Liberty stores. Some of the sub-brands of Liberty are Force 10, Coolers, Fortune, Gliders, Senorita in various product segments. All brands have good brand equity and a good brand recall.
If you look at the financials of the company, FY12 sales were about Rs 332 crore, roughly up by 10% over the same period last year. Profit after tax declined to about Rs 7.5 crore from about Rs 10 crore for FY11.
Now, this company has got plans to aggressively add number one manufacturing capacity and also increase its presence in the southern markets through appointing more distributors and also opening exclusive Liberty stores there. In a recent development, this company has merged Liberty Retail revolution, which is a retail arm of the company, with Liberty Shoes Limited.
Now, this company has been suffering on the profitability front. If you see the operating profit margin of Bata , Bata does close to 15% operating margins whereas Liberty does just about 7-8%. Bata has sales revenue of about Rs 1,500-1,600 crore and commands a marketcap of Rs 5,500 crore.
Liberty does about Rs 325-350 crore of sales revenue and has a marketcap of just about Rs 170 crore. So, the point to be noted here is that even though Bata maybe bigger from Liberty in terms of sales by four times, the marketcap of Bata is roughly up more than 30 times that of Liberty. This is primarily on account of the fact that the debt is higher, but the margins are lower.
Now, if you see the resale price movement of the stock, the stock had gone to a high of about Rs 125 last month. After that, it was shifted to the trade to trade category and fell to about Rs 95-100. So, when a stock trades in that trade to trade category, many short-term investors are really not interested in the stock. But I think a lower level of about Rs 95-100 provides a good opportunity for the long-term investor to accumulate stock of Liberty. I think over a period of one to two years the stock can hugely outperform the market.
Action in Liberty Shoes
May 25 2013, 16:36
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