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Sunday, October 7, 2012

Liberty Shoes Stock Analysis: Leader in Shoe Manufacturing and Strong Brand!

Liberty Shoes is one of the top Shoe Manufacturing and Retailing company in India, and stands among top 5 Leather Manufacturing firms in the world. Liberty Shoes is a 50 year old firm and now boasts of top Indian Shoe brands such as Coolers, Gliders, Fortune, Senorita, Footfun etc. The firm produces more than 50,000 shoe pairs per day and retails them through 400 exclusive company showrooms.

Liberty Group compromises of three firms - Liberty Shoes, which is the listed entity, Liberty Retail Revolutions, which is a chain of high end showrooms across the country and Liberty Whiteware - manufacturer of sanitary-ware. The group boasts of combined turnover in excess of Rs 600 crores per annum, with Liberty Shoes turnover in the range of Rs 330 crores for year 2011-12. The firm   is also Marketing and Brand aware and has roped in top Bollywood star - Hrithik Roshan - as its brand ambassador. Branding is what differentiates a run of the mill Shoe company from another premium Shoe Brand with sustainable pricing power.

Looking under the hood, Liberty is a play on Indian consumption story and has a annual revenues of Rs 330 crores in year ending Mar,12 which is showing a rising trend from Rs 258 crores in year 2008. Liberty is a low debt company, and fuels most of its expansions through its internal accruals and free cash flows. Liberty has a decent Book Value of Rs 87 per share which is comparable to its current market price of Rs 115 per share. Thus price to BV is a decent 1.32. Compare this to valuations for Bata India, which has Price to BV ratio of more than 11.

Comparing to its peers, Liberty Shoe is available at a paltry market Cap valuation of 195 crores only, despite having a set of great brands and 50 year history of good performance. Compare this to Bata India valuations of Rs 6000 crore market cap and Liberty turns out to be a hidden gem waiting for its valuation to be discovered and re-rated. Especially, when most of the stocks in India consumption story are heavily overpriced like Bata, Titan etc.

Another strong point of this stock being a good promoter shareholding with no dilutions, leveraging etc.

Looking at technicals, Liberty has the habit of lingering long in a narrow price range of Rs 80 to Rs 110. Currently it is above this range and trying to come back to this range again. Making a purchase within this range would be suitably low risk entry and once stock breaks above this distribution range, it can again see its 2007 highs of Rs 300 or so, thus a possible 3X bagger in making.  

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