Footwear companies scout for PE funding

Aiming to expand their footprint across the country, several domestic footwear companies are knocking on the doors of private equity investors, reports, CNBC-TV18’s Farah Bookwala.

According to sources, Kolkata-based footwear retailer and manufacturer, ‘Khadim’s’ is in advanced talks with PE houses to raise Rs 80-100 crore. The company derives 70 percent of its sales from the Eastern region and wants to expand in other markets now. ‘Khadim’s’ forayed into footwear retailing in 1993 and currently has second largest number of exclusive outlets in India after Bata, and the largest number in Eastern India. The company has over 630 exclusive retail outlets including 105 owned stores. It also has a wide reach through 528 exclusive dealers across India with another 385 non-exclusive outlets. Footwear is the main business of the company and 87 percent sales come from this business. In FY13, ‘Khadim’s’ made an EBIDTA of Rs 50 crore on the back of revenues of Rs 420 crore. The company has also forayed into other retail formats including a large format store chain called Khadim’s Khazana and jewellery retailing through Khadim’s Egaro. Mumbai-based ‘Catwalk’ shoes is also scouting for PE funding. Earlier this year, a proposed deal with India Value Fund to raise Rs 100 crore fell through because of differences over key deliverables. Now, promoter Asif Merchant told CNBC-TV18 that he is in talks with a global PE player to raise an undisclosed sum. ‘Catwalk’ will divest a 27 percent stake, which will increase to 51 percent in tranches over 5 years, he says. The company aims to use the funds to make ‘Catwalk’ into a national brand and to retire its 40-crore rupee debt. Catwalk shoes are currently available at 400 point of sales, including 40 company-owned stores. Merchant says it is not possible to achieve a pan-India presence and scale without firm handholding by a like-minded PE player. Bangalore-based Sara Soule is also in talks with fund houses to raise 125 crore rupees, say sources. Sara Soule is a contract manufacturer of soles and shoes, which supplies to brands such as Bata, Clarks, Kenneth Cole, Espirit and Hush Puppies. Sources say the funds will help Sara Soule expand its core manufacturing business and provide a fillip to its front-end retailing venture, ‘Ruosh’. ‘Ruosh’ currently has 13 stores across Bangalore, Hyderabad, Chennai, Pune, Mumbai and NCR. Sara Soule is a profitable company despite its small size. The company made a Profit After Tax (PAT) of Rs 10 crore in FY13 on sales of 250 crore rupees. Earlier in April, Kishore Biyani’s Futures Ventures picked up a 33 percent stake in KFC shoemakers, which manufactures shoes under the brand ‘Tresmode’. Analysts say footwear companies are an attractive proposition for investors in these times. Pinakiranjan Mishra, national leader- retail practice, EY, says: “There is huge headroom for growth. There’s plenty of opportunity. These domestic companies have been fairly successful in the last few years and they have built a good business model. What they are probably lacking is capital for growth and talent infusion so that the business becomes larger and more professional. And that's the role that PE companies play; so that they can build the company to a certain scale and size."
But while most companies are seeking PE funding, Mumbai-based ‘Metro’ Shoes wants to take more bold strides. Metro—which is confident of clocking a 25 percent sales growth in 2014 over last year—says it hopes to float an IPO after  2 years to aid its expansion strategy. Metro clocked revenues of Rs 680 crore in FY13. MD Rafique Malik says he is confident this will grow to Rs 850 crore in FY14. Sources say the IPO – if it fructifies – will allow current investor Rakesh Jhunjhunwala to exit his investment. Jhunjhunwala had picked up a 15 percent stake in 2007 in the company. ‘Metro’ Shoes currently has over 160 stores. It aims to grow this number to 420 by March 2015. Emails sent to Khadim’s and Sara Soule did not elicit any response.