Liberty Shoes Ltd. (LSL)
Transcript of Liberty Shoes Ltd. (LSL)
(Wholly owned subsidiary of Bank of Baroda)
Exhibit 1: Financial summary (Rs mn)
Year end: March FY13 FY14 FY15E FY16E FY17E FY18E
Net sales 3,620 4,839 5,550 6,510 7,635 8,716
Growth (%) 1.29 33.67 14.70 17.29 17.29 14.17
Operating margin (%) 8.3 8.5 8.6 9.1 9.4 9.4
PAT 54 133 148 190 268 331
Adjusted PAT 58 135 148 190 268 331
EPS (Rs) 3.4 7.9 8.7 11.1 15.7 19.4
P/E(x) 24.9 18.7 30.0 23.4 16.6 13.4
ROE (%) 4.3 9.8 10.7 12.9 16.3 17.6
ROCE (%) 8.2 11.1 12.4 12.2 13.8 14.7
Debt/equity (x) 0.8 0.8 0.8 1.0 0.9 0.8
Source: Company, BOBCAPSe
$Com panyName$
Liberty Shoes Ltd. (LSL)
Forefront of Emerging Markets ; initiate with BUY
We initiate coverage on Liberty shoes Ltd. (LSL) with a BUY rating
and a price target of Rs.388 implying 49%upside. LSL, second
largest footwear brand company in India, is turning to strong growth path. It has shown healthy growth in FY14, in spite of having a
slowdown in the economy. We expect that the revenue /Earnings to
grow at ~16% /~26% CAGR over FY14-18E respectively. It is driven by strong volume growth, big portfolio with healthy product mix and
reduction in excise duty burden.
Portfolio of Strong Brands: Liberty is famous as a family footwear brand and has a big portfolio with ten brands (i.e. Coolers, Fortune, Warriors,
Windsor, Senorita, Tiptop, Gliders, Force10, Footfun and Perfect). It caters to
all genders and age groups. LSL is one of most trusted brand in the footwear and have touched the lives of over 6 crore customers with over 5000 styles.
We believe that the company will be able to fulfill the ever increasing demand,
which would have a positive impact on volume growth.
Deep penetration to increase volume growth: The Company is planning
to open about 100 stores each year. 60 new stores would be franchise-owned,
while 40 stores would be company-owned specially in tier II, tier III cities with focus on southern region which includes Kerala, Telangna, Andhra Pradesh,
Kerala and also in Gujarat where the potential for growth is significant. We
expect that the volume would grow at a 15% CAGR over FY14-18E.
Margin expansion led by volume growth and restructuring: We believe
that LSL would grow at CAGR ~16% over FY2014-18E (likewise its previous
year growth over…). Margins would expand on account of strong volume growth, better product mix, reduction in excise duty from (12% to 6% on
leather product >Rs 1000) and less royalty payment due to restructuring of
group companies.
Rising trend of ROE & ROCE: We expect that the ROE and ROCE of the
company is likely to reach at 17.6x from 9.8x and 14.6x from 11.1x
respectively. This indicates the optimum efficiency of operations and would help the company to get better returns going forwards.
Valuation & recommendation: We expect the company’s revenue
/earnings to grow at ~16%/~26% CAGR over FY14-18E respectively. This is due to volume growth, aggressive retail expansion and margins expansion. At
CMP of Rs 261, the stock is trading at around 23x FY15E PE. We value the
Company at P/E of 20x to arrive at our price target of Rs.388 (49% upside).
Akanksha Tripathi | [email protected] | +91 22 6138 9383
Price Price Target Up/Down (%)
Rs. 261 Rs.388
Bloomberg Code Reuters Code
LBS IN LIBS.NS
Share Holding (%) As on 31st Dec. 2014
Promoters 64.92
FII 0.00
DIIs 0.07
Stock Data
Nifty 8,586
Sensex 28,260
52 week high/low 351/148
Maket Cap (Rs. bn) 4.4
Price performance (%) 1M 3M 6M 1Y
Absolute -12.7 -0.8 -14.5 72.4
Relative to Sensex -8.9 -3.5 -20.9 46.5
Relative Performance
49%
50100150200250300
Ap
r-1
4
May
-14
Jun-
14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan-
15
Feb
-15
Mar
-15
BSE Sensex Liberty Shoes Ltd.
Source:-Bloomberg
Sector: FOOTWEAR
6th April, 2015
Initiating coverage
BUY
Liberty Shoes Ltd. | 6 April 2015
| Equity research | 2
(Wholly owned subsidiary of Bank of Baroda)
The Indian Footwear Industry
Emerging Indian footwear industry is a fastest growing market driven by fashion awareness
increase in organized retailing, fast urbanization, and increase in disposable income of the
middle-class, increasing working women and youth population. India is the second largest global
producer of footwear after China, accounting for 13% of global Footwear production of 16 bn
pairs. The Indian Footwear Industry is highly fragmented. There are nearly 4,000 units engaged
in manufacturing footwear in India. The industry is dominated by small scale units contributing
nearly 55% of total production.
There is a shift in trend of unorganized market to organized market with the increase in urban
population, changing lifestyle, rising brand consciousness and transformation in the buying
potential of the Indian customer specifically in the youth. It has transformed from being a highly
unorganized market to an emerging organized retail Industry.
Exhibit 2: Indian footwear Market composition
Unorganized, 55%
Organized, 45%
Source: Industry, BOBCAPSe
Exhibit 3: Indian footwear market segment
Men, 55%
Women, 30%
Kids, 15%
Source: Industry, BOBCAPS
Footwear – Global Scenario and India’s share
The global import of Footwear (both leather footwear as well as non-leather footwear) has
increased from US$ 81.47 bn in 2007 to US$ 103.38 bn in 2011, growing at a CAGR of 6.13%.
Exhibit 4: Growing share of India in total global footwear industry-
(in MN US $) 2007 2008 2009 2010 2011
Global import of Footwear 81477.88 88822.8 78453.08 91614.94 103385.24
India's export of Footwear & Uppers 1489.35 1534.32 1507.59 1758.67 2079.14
% Share of India 1.82% 1.72% 1.92% 1.91% 2.01%
Source: Industry, BOBCAPS
Liberty Shoes Ltd. | 6 April 2015
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(Wholly owned subsidiary of Bank of Baroda)
Exhibit 5: Growing Indian market share globally
1.5%
1.6%
1.7%
1.8%
1.9%
2.0%
2.1%
2007 2008 2009 2010 2011
Source: Industry,BOBCAPS
Footwear exports has increased from US$ 102.37 mn in 1982-83 to US$ 2055.93 mn in 2012-13
Exhibit 6: India’s Footwear Export Growth over the last Four Decades
102
423 625
2,056
-
500
1,000
1,500
2,000
2,500
1982-83 1992-93 2002-03 2012-13
USD
Mn
Source: Industry, BOBCAPS
Liberty Shoes Ltd. | 6 April 2015
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(Wholly owned subsidiary of Bank of Baroda)
Investment rationale
Changing lifestyle and increasing purchasing power:
Current Indian population is approx. 1.28bn, and the size of domestic footwear industry in India
is approx. Rs.340 mn. Indian footwear market has not even covered half of the population yet
and the footwear Industry has grown at a CAGR of around 15% during 2012-2014. we expect
Indian industry to grow at same pase.
Key driver of volume growth are – 1) Increasing work force, and rising disposable income of the
urban middle-class consumers, 3) increase in the no. of working women and purchasing power,
4) upsurge in middle class population in non-metro cities, 5) change in consumption habits like
separate formal and casual wear, moving towards organized retailing and 6) desire for branded
footwear as the Indian consumer has become more conscious and demanding in their choice and
preference 7) increasing per capita consumption in India (currently the per capita consumption
of footwear is 1 as compared to 4-6 in neighbouring Asian Countries and 6-8 in the developed
European markets.)
Exhibit 7: Revenue contribution from different regions
North, 45%
South, 35%
Others, 20%
Source: Company, BOBCAPS
Deep penetration to fuel growth: Company is planning to open about 100 stores each year.
60 new stores would be franchise-owned, while 40 stores would be company-owned. In FY 14,
northern India had contributed around 45% of the sales while around 35% of the total domestic
sales were contributed by Southern India, sales in southern regions have shown good potential.
They are planning to expand especially in tier II, tier III cities and southern region which includes
Kerala, Telangna, Andhra Pradesh, and Kerala and also in Gujarat where the potential for growth
is significant. We expect that the volume would grow at 15% CAGR over FY14-18E.
Exhibit 8: Volume to grow at 15% CAGR over FY14-18E
0
5
10
15
20
25
FY13 FY14 FY15E FY16E FY17E FY18E
No in
mns
Source: Company, BOBCAPSe
Liberty Shoes Ltd. | 6 April 2015
| Equity research | 5
(Wholly owned subsidiary of Bank of Baroda)
Reduction in royalty payment and reduction in excise duty: Big positive: Liberty has
benefited from reduction in excise duty as 33% of the revenue comes from leather footwear
with MRP above Rs.1,000. (In the current Budget excise duty has been reduced from 12% to
6% for the shoes above Rs.1,000 made out of leather.) Hence, there is a huge saving in
terms of excise duty for the company.
Liberty pays nearly 2% of its revenues as royalty to its group companies for using the Liberty
brand. The company hopes some reduction in royalty payment due to restructuring of two of
its group companies i.e. Liberty Enterprises and Liberty Group Marketing division (restructured
during FY15). We believe that the consolidation will not only help reduce outflow of royalty
fee and improve bottom line but will also smoothen the path for independent growth of
business.
Decreasing raw material prices: The sharp decline in crude oil prices has also added to
the strong leap in Liberty Shoes. A lot of raw materials used to make leather footwear are
derived from crude oil. The price of these raw materials have come down and fall in the raw
material cost has offset the increase in labour cost and led to improvement in margins.
Wide range of product to strengthen brand equity: Liberty has touched the lives of
over 6 cr. customers led by strong brand equity and the wide range of products. Liberty is
famous as a family footwear brand and caters to all age groups with the understanding of
consumer needs and lifestyle. It has over 5000 styles, with new variations every season.
Today, even the youth in smaller towns are gradually turning towards lifestyle and allied
products. We expect that the new designs and wide range of products would help the
company to constantly increase its customer base while meeting the changing lifestyle needs
of its customers.
Exhibit 9: Target Segments
Brand For Price Range (In Rs.)
Coolers, Fortune, Warriors, Windsor
Men
(300-2500) (800-4000) (900-2000)
(1000-2500)
Senorita Tiptop
Women (450-2000)
(300-2000)
Gliders, Force 10
Men/Women (150-2000) (500-2000)
Footfun Perfect
Kids (150-1000) (500-800)
Source: Company, BOBCAPS
Global presence and new associations: Liberty is the first Indian brand to have a Liberty
retail outlet in Europe way back in 1986. Liberty manufactures under its own name and also
for some leading global brands across the world. This expands its footprint across 75
countries globally.
Recently Liberty has entered with the US-based multinational Disney for launching a new
brand into under the latter's Avenger animation series. With a top brand and the long-term
association with a popular name like Disney. Liberty is likely would penetrate deeper the
global markets.
Exhibit 10: Revenue mix of the company
Export, 9%
Domestic, 91%
Source: Company, BOBCAPSe
Liberty Shoes Ltd. | 6 April 2015
| Equity research | 6
(Wholly owned subsidiary of Bank of Baroda)
Financial performance
Exhibit 11: Revenue is likely to grow at 15.8% CAGR over FY14-18E
-
2,000
4,000
6,000
8,000
10,000
FY13 FY14 FY15E FY16E FY17E FY18E
Rs
mn
Source: Company, BOBCAPSe
EBITDA to grow at 18.8% CAGR with ~90 bps expansion over FY14-18E: EBITDA grew
at 17.27% CAGR in FY10-14 and we expect it to grow at 18.82% CAGR over FY14-18E. This is
mainly led by increasing volume growth, decreasing in raw materials price, restructuring of group
companies and reduction in excise duty. We believe, EBITDA to reach Rs 817 mn in FY18 with
expansion of ~90 bps over FY14-18E.
Exhibit 12: Improving EBITDA margin
8
8
9
9
10
0
200
400
600
800
1000
FY13 FY14 FY15E FY16E FY17E FY18E
%
Rs.
mn
EBITDA EBITDA Margin (%)
Source: Company, BOBCAPSe
Exhibit 13: PAT to grow at 28.3% CAGR over FY14-18E
-
1.0
2.0
3.0
4.0
0
100
200
300
400
FY13 FY14 FY15E FY16E FY17E FY18E
%
Rs.
mn
PAT PAT Margin (%)
Source: Company, BOBCAPSe
Driven by strong volume growth, aggressive retail expansion and shifting trend from unorganized to organized retailing
Liberty Shoes Ltd. | 6 April 2015
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(Wholly owned subsidiary of Bank of Baroda)
We expect that, with the strong volume growth and earnings growth, the company can expand
its retail outlets through internal accruals.
Exhibit 14: Decreasing Debt/Equity Ratio
0.0
0.2
0.4
0.6
0.8
1.0
1.2
FY13 FY14 FY15E FY16E FY17E FY18E
x
Source: Company, BOBCAPSe
We expect that the ROE and ROCE of the company is likely to reach at 17.6x from 9.8x and
14.6x from 11.1x respectively. This indicates the optimum efficiency of operations and would
help the company to get better returns going forwards.
Exhibit 15: Rising ROE & ROCE
0
5
10
15
20
FY13 FY14 FY15E FY16E FY17E FY18E
%
ROE ROCE
Source: Company, BOBCAPSe
Liberty Shoes Ltd. | 6 April 2015
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(Wholly owned subsidiary of Bank of Baroda)
Key Risk
Upswing in raw material prices: A lot of raw materials used by the footwear industry are
derived from crude oil. In the case of a surge in crude oil prices, company’s cost-effectiveness
might get vulnerable.
Globally Competitive Business Environment: Company operates in a globally competitive
business environment. With ever increasing competition from the local players as well as global
giants in the Footwear Industry with deep pockets, maintaining the existing market share and
leadership position in organized retail footwear industry is a major challenge.
Labour Price: Footwear industry is a labour intensive industry. If wages go up, the company's
margins are hit. Minimum wages go up by 10-15% per year. Labour costs are around 10% of the
maximum retail selling price.
Liberty Shoes Ltd. | 6 April 2015
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(Wholly owned subsidiary of Bank of Baroda)
Valuation
We believe that Liberty Shoes, supported by numerous growth triggers, is a good investment
option. We expect the revenue/EBITDA to grow at 15%/18.8% CAGR over FY14-FY18E
respectively due to significant volume growth and strengthening of the distribution networks, pan
India.
The company is turning towards a strong growth path and we believe that it would be one of the
forefront company in emerging footwear market. LSL gave impressive performance in FY14 as
compared to past years as the revenue grew by 34% and PAT grew by 146%.
At CMP of Rs 261, the stock is trading at around 23x FY15E PE. We value the Company at P/E of
20x to arrive at our price target of Rs.388 (49% upside).
Exhibit 16: Peer Comparison – Key financials & margins
Sales PAT EBITDA Margin EPS
(RS) (Rs mn) FY15E FY16E FY17E FY15E FY16E FY17E
BATA INDIA 22011 1727 15.43 15.63 15.05 34.90 45.03 45.00
LIBERTY SHOES 4839 133 8.59 9.08 9.38 8.70 11.15 15.72
RELAXO FOOTWEARS 12118 656 12.47 12.67 12.97 14.74 19.56 25.93
Source: Bloomberg, BOBCAPSe
Exhibit 17: Peer Comparison – Key valuation matrix
Price Mkt.cap P/E (X) ROE(%)
(RS) (Rs mn) FY15E FY16E FY17E FY15E FY16E FY17E
BATA INDIA 1095 703647 31.38 24.32 24.3 22.4 24.4 25.00
LIBERTY SHOES 261 44474 30.00 23.41 16.60 10.7 12.9 16.3
RELAXO FOOTWEARS 660 39600 44.77 33.74 25.4 24.5 24.8 24.88
Source: Bloomberg, BOBCAPSe
Exhibit 18: PE Chart
0
10
20
30
40
Apr-
11
Jul-11
Oct
-11
Jan-1
2
May-
12
Aug-1
2
Nov-
12
Mar-
13
Jun-
13
Sep
-13
Dec
-13
Apr-
14
Jul-14
Oct
-14
Jan-1
5
x
Forward PE Averageg PE
Avg of last 5 yrs = 20x Current PE = 23x
Source- Bloomberg
Liberty Shoes Ltd. | 6 April 2015
| Equity research | 10
(Wholly owned subsidiary of Bank of Baroda)
Company Profile
Liberty Shoes Ltd (LSL), incorporated in 1986, is the second largest footwear company in India.
Currently manufacturing 50,000 pairs a day. They have 400 exclusive showrooms across India
and have a presence in more than 25 countries, including France, Italy and Germany. Worldwide
it has a distribution network of 150 distributors and more than 6000 multi-brand outlets.
Manufacturing plants are located at Karnal (Haryana), Dehradun and Roorke (Uttarakhand) and
Poanta Sahib (Himachal Pradesh).
Exhibit 19: Journey
Source: Company, BOBCAPS
Exhibit 20: Share holding pattern
Promoter, 64.9%
FII, 0.0%
DII, 0.1%
Others, 35.0%
Source: Company, BOBCAPS
1964* Brand Liberty was born.
Got 1st export order
2014* Moving
with a vision to be a Rs.1, 000 Crore Company
1954* A small shop manufacturing 4 pairs a day.
1982* Liberty
brought world class products to domestic
market.
1995* With 10 sub brands
serving all kinds of consumers.
2003* with a
consumer centric strategy,
Liberty started serving customers
2010*
Revolutionized their supply chain for
excellent manufacturing strength.
Liberty Shoes Ltd. | 6 April 2015
| Equity research | 11
(Wholly owned subsidiary of Bank of Baroda)
Exhibit 21: Liberty’s top brands
Source: Company, BOBCAPS
Exhibit 22: Management details
Adesh Kumar Gupta CEO & Executive Director
Adarsh Gupta Executive Director
Shammi Bansal Executive Director
Sunil Bansal Executive Director
Vivek Bansal Independent Director
Adeesh Kumar Gupta Executive Director
Satish Kumar Goel Non-Executive Director
Raghubar Dayal Independent Director
Source: Company, BOBCAPS
Liberty Shoes Ltd. | 6 April 2015
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(Wholly owned subsidiary of Bank of Baroda)
Exhibit 23: Income Statement
Y/E Mar (Rsmn) FY13 FY14 F Y15E FY16E FY17E FY18E
Net sales 3,620 4,839 5,550 6,510 7,635 8,716
Growth (%) 1.3 33.7 14.7 17.3 17.3 14.2
COGS 1,796 2,532 2,934 3,441 4,036 4,608
Staff Cost 460 580 672 788 924 1,055
R&D Cost (79) 1 2 2 3 3
SG&A Cost 1,142 1,316 1,466 1,687 1,956 2,233
EBITDA 301 410 477 591 716 817
Growth (%) (2.3) 36.2 16.2 24.0 21.2 14.2
Depreciation 104 111 128 150 178 201
EBIT 197 299 348 441 538 616
Other income 2 3 4 4 4 5
Interest paid 143 161 196 207 207 207
Extraordinary/Exceptional items
(4) (2) - - - -
PBT 53 140 156 237 335 414
Tax (1) 8 8 47 67 83
Minority interest - - - - - -
PAT 54 133 148 190 268 331
Non-recurring items 4 2 - - - -
Adjusted PAT 58 135 148 190 268 331
Growth (%) (28) 133 10 28 41 24
Source: Company, BOBCAPSe
Exhibit 24: Balance Sheet
Y/E Mar (Rsmn) FY13 FY14 F Y15E FY16E FY17E FY18E
Cash & Bank balances 147 71 95 64 91 118
Other Current assets 2,263 2,625 2,510 2,918 3,305 3,765
Investments 0.04 0.04 0.04 0.04 0.04 0.04
Net fixed assets 1,004 985 1,007 997 959 898
Goodwill 102 9 9 9 9 9
Other non-current assets - - - - - -
Total assets 3,516 3,690 3,621 3,988 4,364 4,790
Current liabilities 931 1,052 715 833 971 1,111
Borrowings 1,149 1,149 1,361 1,441 1,441 1,441
Other non-current liabilities
68 106 149 170 202 229
Current/Non-current liabilities
2,148 2,308 2,225 2,444 2,613 2,781
Share capital 170 170 170 170 170 170
Reserves & surplus 1,197 1,212 1,226 1,373 1,581 1,838
Shareholders' funds 1,367 1,382 1,397 1,544 1,751 2,009
Minority Interest - - - - - -
Total liabilities 3,516 3,690 3,621 3,988 4,364 4,790
Source: Company, BOBCAPSe
Liberty Shoes Ltd. | 6 April 2015
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(Wholly owned subsidiary of Bank of Baroda)
Exhibit 25: Ratio analysis
Y/E Mar FY13 FY14 F Y15E FY16E FY17E FY18E
Per share data (Rs)
EPS 3.4 7.9 8.7 11.1 15.7 19.4
CEPS 9.5 14.4 16.2 19.9 26.2 31.2
DPS - 1.8 2.0 2.5 3.5 4.4
BV 80 81 82 91 103 118
Profitability ratios (%)
Gross margins 37.7 35.7 35.0 35.0 35.0 35.0
Operating margins 8.3 8.5 8.6 9.1 9.4 9.4
Net margins 1.6 2.8 2.7 2.9 3.5 3.8
Valuation ratios (x)
PE 24.9 18.7 30.0 23.4 16.6 13.4
P/BV 1.1 1.8 3.2 2.9 2.5 2.2
EV/EBITDA 8.1 8.6 11.4 9.2 7.6 6.7
EV/Sales 0.7 0.7 1.0 0.8 0.7 0.6
RoE 4.3 9.8 10.7 12.9 16.3 17.6
RoCE 8.2 11.1 12.4 12.2 13.8 14.7
Source: Company, BOBCAPSe
Exhibit 26: Cash Flow Statement
Y/E Mar (Rs mn) FY13 FY14 F Y15E FY16E FY17E FY18E
Profit after tax 54 133 148 190 268 331
Depreciation 97 93 128 150 178 201
Chg in working capital (16) (198) (180) (268) (219) (291)
Total tax paid 1 (5) - - - -
Net Extra-ordinary income 4 2 - - - -
Cash flow from operations 139 26 96 72 227 241
Capital expenditure (81) (75) (150) (140) (140) (140)
Change in investments - - - - - -
Acquisition of Goodwill (94) 94 - - - -
Cash flow from investments (175) 19 (150) (140) (140) (140)
Free cash flow (36) 44 (54) (68) 87 101
Issue of shares - - - - - -
Net inc/dec in debt 90 0 212 80 - -
Dividend (incl. tax) - (30) (33) (43) (60) (75)
Other financing activities (4) (88) (100) 0 (0) 1
Net Extra-ordinary income (4) (2) - - - -
Cash flow from financing 86 (118) 78 37 (60) (74)
Inc/(Dec) in Cash & Bank bal. 46 (75) 24 (31) 27 27
Source: Company, BOBCAPSe
Liberty Shoes Ltd. | 6 April 2015
| Equity research | 14
(Wholly owned subsidiary of Bank of Baroda)
Disclaimer
BUY. We expect the stock to deliver >15% absolute returns.
HOLD. We expect the stock to deliver 5-15% absolute returns.
SELL. We expect the stock to deliver <5% absolute returns.
Not Rated (NR). We have no investment opinion on the stock.
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Sales and Dealing Team
Purvesh Shelatkar – Senior Vice President & Head Equity +91-22-6138 9330 [email protected]
Anil Pawar – Senior Manager – Dealing +91-22-6138 9325 [email protected]
Sachin Sambare – Manager– Dealing +91-22-61389331/33 [email protected]
Ashwin Patil – Executive – Dealing +91-22-6138 9326 [email protected]
Research
Vaishali Parkar Kumar – Analyst – Agri & Auto +91-22-6138 9382 [email protected]
Padmaja Ambekar – Analyst +91-22-6138 9381 [email protected]
Akanksha Tripathi – Analyst +91-22-6138 9383 [email protected]
Rishabh Mehta - Associate +91-22-6138 9384 [email protected]
UTI Tower, 3rd Floor, South Wing, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051. India.
Ph.: +91.22.6138.9300 || Fax: +91.22.6671.8535 ||
Email: [email protected]|| Web: www.bobcaps.in
NSE SEBI No. (CASH): INB231304537
NSE SEBI No. (DERIVATIVES): INF231304537
BSE SEBI No. : INB011304533