Service Global Footwear looks to replicate SLM success in synthetic footwear

August 03, 2026 (MLN): Service Global Footwear Limited (PSX: SGF) looks set to move further into positive territory as it accelerates growth in its core footwear business through a new synthetic footwear joint venture, while offering investors a discounted route to Service Long March Tyres Limited's (SLM) growth story.

SGF is now focused on accelerating growth in its non-leather/synthetic footwear business. Building on the success of its joint venture with a Chinese partner in SLM, which facilitated technology transfer and strengthened operational expertise, SGF is trying to replicate this success story.

The company has entered into a joint venture with Golden Star Footwear Group, a leading Chinese footwear manufacturer, to establish Service Athletic Global Footwear (SAGF).

A 'BUY' stance has been maintained on the stock with a June 2027 SOTP-based target price of Rs159/share, offering a capital upside of 39% from the current price of Rs114.8, according to a research note issued by Insight Securities.

SLM has emerged as a remarkable growth story, delivering exceptional operational and financial performance since commencement of operations.

SLM's revenue grew at a CAGR of ~75.9% during FY23-FY25, primarily on the back of volumetric growth, while the company also maintained healthy margins, resulting in a sharp improvement in profitability.

SLM reported profit after tax (PAT) of Rs10.0bn in FY25, compared to a loss after tax of Rs0.5bn in FY23.

While SLM was recently listed, it is trading at a rich valuation of a CY26F P/E of 12.6x. In this backdrop, SGF offers a discounted proxy to play SLM's growth story, as SGF's current valuation does not fully capture SLM's worth.

Based on the LDCP, SGF's ~17.4% stake in SLM is worth Rs32.1bn, while SGF's own market capitalization stands at Rs23.7bn.

This implies a significant holding company discount, with the market effectively assigning no value to SGF's core footwear business. SLM is currently trading at a CY26 forward P/E of 12.6x, compared with SGF's forward P/E of 7.8x.

SLM's growth is expected to continue as the company enters the Passenger Car Radial (PCR) tyre segment, with an initial capacity of ~2.0m tyres expected to commence commercial production in January 2028, rising to ~2.5m tyres in FY29 and ~3.0m tyres in FY30.

Additionally, SLM plans to expand its existing Truck and Bus Radial (TBR) tyre capacity from ~2.0m tyres to ~2.6m tyres by FY30.

SAGF will manufacture non-leather/synthetic footwear, a segment in which SGF currently has no presence and which accounts for ~85% of the global footwear market, according to management. SGF holds a 51% stake in the venture, while Golden Star Footwear Group owns the remaining 49%.

The project will be built in three phases. Phase I is expected to commence operations in 3QCY26 with an investment of $6.5m and an initial production capacity of 2.0m pairs annually, which will increase to 5.0m pairs in phase II and 10.0mn pairs in phase III.

Key risks to the valuation thesis identified by the brokerage include currency appreciation, weak demand amid a global economic slowdown, an abrupt increase in raw material prices, and changes in the regulatory environment.

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