Stock Review: Liberty Shoes

As far as the financial performance is concerned, for the past four years it has been lackluster but the stock price has also been lackluster for the past six months. If you see the stock price consolidating in the range of about Rs 100-125, we have seen a bounce in the market and many stocks have doubled. Inspite of that, this stock has stagnated at these levels for a long time. This is mainly because there has practically been no growth in revenues or profitability of the company for the past four years.

This company has got six manufacturing plants, it is a very well-known brand name and it has got a number of brands which are well recognized like Force 10 and Cooler and about a dozen others which when you say Liberty, everybody recognizes these brands. Off late, what we have seen is that given India's strong consumption story, the number of companies which have good visibility, good brand, these companies are getting rerated. Stocks like VIP Industries, Hawkins Cooker and also TTK Prestige, have moved up.

Of course this has to be backed by the financial performance. Without financial performance, the market will not rerate you, but off late, we have been hearing a number of aggressive steps being taken by management, they are talking about opening a 100 more Liberty exclusive stores by March 2011. They currently have about 350 exclusive stores and the product is sold through almost 60,000 retail outlets.

The fact that the management has now become aggressive, they are talking about opening more stores, they are talking about doubling the production levels from about 50,000 to one lakh pairs a day in the next three-years. If it is backed by the financial performance of the company, we may see rerating of the stock from these levels of about Rs 110-115.

Don't see investors losing too much from these levels. Marketcap at current price is close to Rs 200 crore. Given the brand value the company has, the marketcap at Rs 200 crore looks extremely attractive for investment. The caveat here is the rerating will happen only when signs of better financial performance start emerging from the company. Till that time, it may be a stock to accumulate at about Rs 110-115 levels.