Buy Khadim India; target of Rs 692: Dolat Capital

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Dolat Capital's research report on Khadim India

Khadim’s results came below our estimate at all levels. The revenue growth in retail business was at 1.6% - below the company’s target of 10-14% primarily due to – (1) 7% decline in footfalls (2) deceleration in SSSG and (3) no price hikes during the quarter. The distribution business posted mere 3% sales growth due to low brand visibility. The company did not gain any institutional contract during the quarter, also resulted in overall decline in sales. Going ahead, the company plans to regain its lost momentum with (1) increase in penetration (2) higher distribution reach (3) Incremental spends on brand building and (4) New launches. In addition, margins would improve slowly with softening crude oil prices and high price new launches in the ensuing quarters. In addition, increase in SSSG to 5-7% and acceleration in distribution business to +20% is likely to increase operating leverage for the company. In the long run Khadim’s sales growth would remain strong vs peers, mainly due to lower penetration, increasing reach, better economic offerings and ongoing store additions.

Outlook

However, in the ensuing quarters, the company would have to battle against a very strong base and increased competition. Valuing Khadim at 23x FY21E EPS (50% discount to BATA) to arrive at a TP of ` 692. Maintain Buy.

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