I have always been a fan of turnaround stories, be it SKS, Hawkins (2004) or singer india. Liberty Shoes Ltd, is one such stock. Liberty is among the top 5 largest producers of shoes in the world with a production capacity of 50000 pairs per day and second largest in India, behind Bata. Around last year the management decided to do a major shakeup in business and strategy and appointed an external consulting agency to do a complete overhaul of business and business processes. As a part of this they also appointed Hritik Roshan as their brand ambassador. In the last six months they have been launching some unique and high end products e.g. their signature collection etc. They have also show very good increase in exports in the last six months.
All this has resulted in great growth in the first six months of the present financial year. In the first six months income has grown 42% and profits have grown 150%. This performance is expected to continue in the remaining half of the present fiscal. The promoter of the company was recently on CNBC TV18, where he declared that the present fiscal would see around 500 cr topline and his body language was excellent. This interview was given in the last week of December and that obviously means that sep-dec quarter must have been a cracker to have this confidence to declare a target of 500cr (on their new website they have mentioned that their vision is to do 1000cr of sales). The bottomline is also expected to keep pace as the rubber prices have fallen quite a bit.
Valuations: Right now with a market cap of just 250cr its trading at around 0.6 times its last year sales while something like bata trades at more than 3 times the sales. As per the promoter Other than working capital debt, the company is debt free. Considering that there would be substantial increase in sales and profit, the valuation will catch up with Bata. Liberty Shoes is currently at a situation where Bata was 5 years back. Liberty has a production capacity of 50000 pairs per day. Company is selling its products via marketing network comprising of 150 distributors, 450 exclusive showrooms (to be 500 by end of this FY )and more than 6000 multi brand stores. In addition to this ,company having strong presence in all major online stores.
Recently management hinted their plan to consolidate the business under the listed entity in effort for value creation. Also, its retail arm Liberty Retail Revolution merged with the company which is planning to add 100 new stores every year .At present it is running more than 450 show rooms .It seems all the efforts of management started to show positive results. As an icing on cake, the stock recently broke out after consolidation of more than five years. When this happens and is aided by earning expansion, the stock normally goes up by 5-10 times in next three years. At present market cap of 250 cr (149 rs), I advocate a buy with a target of 500rs in the next two years.
P.S: I have vested interest in the stock and is a major component of my core portfolio.