@J2EE - Agree that management has walked the talk. But what needs to be looked into is the composition of this 500 Cr revenues.
)- What % of the growth of around 135 Cr (FY13 revenues was 365 Cr) is due to growth of the erstwhile business and what comes from the merger of the retail subsidiary? Same thing on the PAT.
)- Is this one time phenomenon or the efforts done (you mentioned about operational efficiencies using TOC, improved merchandising etc.) will yield ongoing improvements?
)- I read somewhere (moneycontrol) that the merger will save around 9-10 crores of license fee which the erstwhile entity used to pay to the retail entity. So, will it be more of profits improving owing to such arrangements of there will be sustainable growth (I know I am a bit repetitive here). If this 9-10 Cr figure is right then it will be a positive trigger as this amount is close to 70-80% of FY14 PAT. They can comfortable show a 100% jump in PAT in the next year.
Would like to hear your thoughts on the points above. Thanks.
On a side note, I usually drive by a Liberty store near my home (Whitefield, Bangalore) and I hardly see any customer there. I will go and talk to the store guy in the near future and update.
Can I request the valuepickrs to do a bit of scuttlebut and share.
The detailed breakup is not known but my assessment based on earlier standalone results is that 8.5% of the total revenue is from the merged entity.
I do not think that 9-10 cr licence fees would be saved as that amount would be saved when all the subsidiaries are merged. From LRR merger should save around 3.5 cr of licence fees if I am not wrong, which again in my view is very substantial as it directly adds to the bottomline. Coupled with operational synergies and lower raw material costs, Liberty should improve its EBITA margins next year too.
Management was saying in last nov, that they are seeing increase footfalls in their stores but as you rightly pointed out we should independently verify it.
Please note, that I am a firm believer of aa “extremely” concentrated portfolio and therefore, Liberty forms a major chunk of my holding. So take everything in perspective.
Furthermore, The stock broke out of a 5 yr consolidation which ideally should not be ignored and it can give manifold returns even if the company grows marginally. In this case, all indications are that the company is on a high growth path.
The interview looked really good. The C.E.O is really confident. I believe the bottomline growth will surely outpace topline growth. He is saying that he is seeing 20%+ increase in footfalls. This is pretty huge number. One should independently verify it.
Secondly, can anyone quantify the licence fees that Liberty would save by merging LRR with itself?
Its never a bad time to enter a good stock but you should know that 326-330 are lifetime highs and when it approaches that zone, it could consolidate there for quite a bit of time and may also come down a bit. If you are ok, with such a thing one could enter now or else wait for a close above 330 for a couple of days and then take entry. Today’s volumes were pretty huge, not sure if something’s cooking up that we are not aware of.
“It’s only when the tide goes out you will know who’s swimming naked” - warren buffet
chew on these facts :
1). Adesh gupta was arrested in 2007 for bullying and threatening senior executives who wanted to quit. They were locked up for 2-3 days
2). He was sentenced to six months imprisonment for unfair labour practices
3). the company is paying royalty to privately owned partnerships of the promoters.
4). Company pays very little taxes -
One of my biggest learnings is that a person who treats his employees/any of the stakeholders like dirt, will inevitably do the same to minority shareholders (out of mind, out of sight and go and squeeze).
Think of Infosys, Tata group - most companies treat employees well and a company that cannot even ensure minimum fair practice expected by law, is going to be not trustworthy in the long term.
It’s a rising tide - so a lot of these are getting overlooked.
1). Did not know about this, but I guess this looks more like immature thing.
2). The case is not decided yet. I hope you know the details of the case. I would suggest you to read more about it. In my opinion it was a misguided action.
3). Its coming out of it. Read the scheme of amalgamation. I hope you talking about this only.
4). Why do you say they are not paying taxes. Look at their AR. Its all mentioned there.
There are many cases of transformed managements. The gentleman has become ambitious after watching Bata. This is good for us. Agreed, there would be short comings, but in bull market, these minor things get overlooked. If you are not convinced of the story, you should not touch it. Having said this, its already doubled from recommended price and the outlook is very bullish. I am still invested.
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Thanks J2EE Professional. Dolly Khanna holds Liberty Shoes too. I think I will wait it out for a couple of days and enter this stock.
1). The issue is not whether this is minor or not - why did the company not mention this in the annual report 2008 as a material event ?
2). No comments
3). I am not talking about the amalgamation of Liberty Retail. The company’s trademarks and fixed assets are still owned by two partnership firms -Liberty Enterprises (LE) & Liberty Group Marketing Division (LGMD) which are charging Rs. 6-7 Cr. every year which is going to the promoter’s pockets. This agreement has been again renewed in 2013. Is’nt this not great governance ?
4). If he has become ambitious after watching bata, why is the trademark and the brand not in the company’s name ? Bata holds all the trademarks, patents and the brands including store designs. Why would he charge his own company a flat fixed fee of a few crores and hold the trademark in his own name ? The irony is liberty shoes picks up the tab for Hritihik Roshan’s bills and the brand equity resides in the partnership. Will Infosys be the same if the brand Infosys belonged to NRNM in his personal capacity and he charged a royalty every year to shareholders for it ?
My intention is to have a healthy argument and to bring out facts. Sure, it has doubled in price and it might double again - but we all know several stocks that fell 95 % from their highs.
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“It’s only when the tide goes out you will know who’s swimming naked” - warren buffet
chew on these facts :
1). Adesh gupta was arrested in 2007 for bullying and threatening senior executives who wanted to quit. They were locked up for 2-3 days
2). He was sentenced to six months imprisonment for unfair labour practices
3). the company is paying royalty to privately owned partnerships of the promoters.
4). Company pays very little taxes -
One of my biggest learnings is that a person who treats his employees/any of the stakeholders like dirt, will inevitably do the same to minority shareholders (out of mind, out of sight and go and squeeze).
Think of Infosys, Tata group - most companies treat employees well and a company that cannot even ensure minimum fair practice expected by law, is going to be not trustworthy in the long term.
It’s a rising tide - so a lot of these are getting overlooked.
As per my understanding, Liberty Shoes would be the owner of the brand and would not be paying any franchise fees. Listen to yesterday’s interview also where he mentioned about the bottomline boost that would come after the restructuring (and no topline boost) you will understand that he’s talking about those partnership firms (also I believe the company communicated this in a newspaper interview, but dont remember exactly).
I am pretty confident that the prices would easily double from these levels also in next 18-24 months. After Satyam I do not trust any management - mr. murthy also brought his son in the company in-spite of stating that no family member would every join the company.
I am not claiming that Liberty management is sage, but its not corrupt either. Clearly they have understood the perils of related party transactions and therefore, this re-structuring is going on. The way they have communicated their results, its clear that these guys have an eye on their market cap. They have never ever communicated their results so well before. Full marks to their Management consultants who have made them realize the importance of transparency.
Their dividend announcement, their communication with the markets etc re-enforces my faith in the company. Clearly, this company is not for very safe investors, but for people with my kind of risk profile, its a clear winner.
J2EE professional,
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2). No comments
3). -Liberty
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1). Did not know about this, but I guess this looks more like immature thing.
2). The case is not decided yet. I hope you know the details of the case. I would suggest you to read more about it. In my opinion it was a misguided action.
3). Its coming out of it. Read the scheme of amalgamation. I hope you talking about this only.
4). Why do you say they are not paying taxes. Look at their AR. Its all mentioned there.
There are many cases of transformed managements. The gentleman has become ambitious after watching Bata. This is good for us. Agreed, there would be short comings, but in bull market, these minor things get overlooked. If you are not convinced of the story, you should not touch it. Having said this, its already doubled from recommended price and the outlook is very bullish. I am still invested.
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Thanks J2EE Professional. Dolly Khanna holds Liberty Shoes too. I think I will wait it out for a couple of days and enter this stock.
Anybody attended AGM ? Would be greatful to get Q&A responses from CEO in this forum. Few positive things CEO Adesh Gupta spoke about in an interview with CNBC. Below is the link:
I thinks, Raghu’s above mentioned concerns (especially 3 &4 ) are addressed. How much Liberty Shoes has to pay to these partnerships firms remain to be seen. I guess, Market is waiting for this event.
I would think those concerns are addressed only depending upon the merger ratio - I am surprised to also know that the other companies only control the distribution network and the brand. Thus far, the listed company was just a contract manufacturer and both these were charging Rs. 10-12 Cr. in total to the company which one could argue, has been a loss to minority shareholders (at least 20x the lost profit - Rs. 250 Cr. in Mcap).
My check with trade also says that a lot of liberty’s capacity is for B2B institutional business which has little or no brand pull - eg., police.
It seems like we do not know the split between B2C and institutional and how the split is faring.
I would be keen to know that and the merger ratio before passing any judgement.
Yes - I am quite surprised that they kept the brand and distribution network out of the listed company for so long and took out Rs. 10-12 Cr. in profits every year for themselves without any expenses. So the listed company pays for hrithik roshan’s campaign and flourishes the brand that it has to buy back now at a steep price.
Also, what’s important is the fine print in the merger - if there are any fixed assets/intangibles kept out of this. i hope there are no rentals/side agreements with promoters again for sales/distribution/use of premises etc.
I was looking at 2013 Annual Report(as 2014 AR is not issued yet), Could not figure out the payment made to hrithik Roshan’s campaign. How did you come to know about the payment made to Hrithik Roshan by Liberty Shoes(listed company)?
yes, and that is the reason it was never given the kind of PE it could have been given. When the transfer happens, there would be a fixed amount paid to get them…there would no other side agreements etc. We need to see what kind of amount is paid to acquire them.
by merger ratio you mean what they would be paying to acquire the subsidiaries right?
Got it from a press release a while back - liberty shoes picks up the tab for promoting the brand although the brand is owned by a partnership company owned by promoters.
