Liberty Shoes Ltd.|Q2FY15 Result Update | Disappointing performance on bottomline; downgrade to HOLD with revised target price of Rs 336 :IndiaNivesh

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 Liberty Shoes Ltd reported disappointing Q2FY15E results. The company has
restated previous year figures to include Liberty Retail Revolutions Ltd, the
recently merged retail subsidiary. Net sales were lower by 2.8% at Rs 1438
mn against our expectation of Rs 1479 mn. Domestic sales grew 35.3% yoy to
reach Rs 1343 mn in Q2FY15 and exports grew 14.7% yoy to reach Rs 157.4
mn. The company has mentioned that it has completed major portion of the
institutional order of Rs 480 mn which was missed last quarter. The balance
order would be completed in 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 reach Rs 200 mn in Q2FY15 against Rs 173 mn in Q2FY14.
The company plans to add 80-100 more exclusive stores in franchise and COCO
format in FY15E.
 As expected, higher proportion of low margin institutional orders have led to
pressure on operating margins. EBITDA margin stood at 6% in Q2FY15 against
7.5% in Q2FY14, contraction of 153 bps (INSPL expectation: 7.5%). EBITDA of
the company grew by 5.1% yoy to reach Rs 86 mn in Q2FY15 from Rs 82 mn in
Q2FY14 (INSPL exp: Rs 111 mn, missed by 22.3%). Adj. PAT (adjusted for minor
exceptional items) stood at Rs 27 mn in Q2FY15 against Rs 20 mn in Q2FY14,
an increase of 34.7% yoy. However, this is far below our expectation of Rs 40
mn, disappointing by 33.2%.
 On half yearly basis, the net sales grew by 10.7% yoy to reach Rs 2454 mn in
H1FY15 from Rs 2216 mn in H1FY14. Domestic sales grew 9.6% yoy to reach
Rs 2291 mn in H1FY15 from Rs 2091 mn in H1FY14. Exports stood at Rs 272
mn in H1FY15 against Rs 207 mn in H1FY14, implying growth of 31.7% yoy.
EBITDA of the company grew by a meagre 1.7% yoy to reach Rs 179 mn in
H1FY15 from Rs 176 mn in H1FY14. EBITDA margin contracted 65 bps to reach
7.3% in H1FY15 from 7.9% in H1FY14. Adj. PAT stood at Rs 60 mn in H1FY15
against Rs 53 mn in H1FY14, growth of 13.6%. PAT growth was higher than
EBITDA growth due to higher other income and decline in interest cost.
Estimates Revision
Taking into consideration the H1FY15 performance, we are revising our estimates
downward. Though topline disappointment has been lower, profitability has been
grossly below our expectation. We have revised sales estimate downward by 6%/
7% for FY15/FY16E. We do not expect the company to outperform FY14 EBITDA
margin of 8.2% in FY15E. Hence we have revised our EBITDA margin expectations
to 8.2% in FY15E. However, we expect the benefit of synergies of merger with retail
subsidiary to kick in FY16E resulting in higher EBITDA margin of 8.8%, though lower
than our earlier expectation of 9.1%. We have revised our EPS downward by 27% /
16% for FY15E / FY16E to stand at Rs 9.9 / 16.8 respectively.

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http://www.indianivesh.in/Admin/Upload/635488731863135000_Liberty%20Shoes_Q2FY15%20Result%20Update.pdf