Relaxo Footwears Ltd

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About the Company

Relaxo Footwears is a market leader in the Footwear Industry. The company has ‘state of the art’ manufacturing facilities at Bahadurgarh (Haryana), Bhiwadi (Rajasthan) and Haridwar (Uttarakhand). The company manufactures over 600,000 pairs of footwear every day.

Q4 2022 Updates

Financial Results & Highlights

Detailed Results:

1. The performance of the company has been bad with revenues growing -6.6% YoY in Q4.
2. FY22 revenues were good with 12.4% YoY growth.
3. EBITDA margin for the quarter dropped to 15.9% in Q4FY22 from 21.8% in Q4FY21.
4. EBITDA margin for FY22 dropped to 15.7% from 21% the previous year.
5. The number of pairs sold during the quarter were 4.2 Cr vs 5.7 Cr the previous year.
6. The average realisation per pair stood at Rs 164 in Q4FY22 vs Rs 129 in Q4FY21.
7. The company’s customer reach currently stands at 60,000+ retailers; 650 distributors and 394 EBOs with exports to 30 countries.
8. The company’s Net Debt stands at INR  -156 crore. The company’s net worth has grown to INR 1760 crore at the end of FY22.

Investor Conference Call Details: 

1. Revenue during the quarter was mainly affected due to Omicron variant and GST rate hike from 5% to 12% w.e.f. Jan’ 22 on footwear priced below Rs 1000. 
2. The company also faced subdued demand due to high inflation.
3. The growth in revenues during the year is achieved mainly due to calibrated price hikes taken to mitigate the impact of high raw material prices.
4. As of March ’22 the company has 394 EBOs which contributed to 7% of FY22 revenues.
5. Exports crossed the 100 crore mark for FY22 contributing to 4% of the total revenues.
6. The company took price increases in the range of 25% during the year across all categories of products.
7. The SPARX brand has done very well in e-commerce platform and growth rate for e-commerce platform was more than 40%.
8. Total exposure of online channel to the company was 11.5% of sales for the year.
9. The was huge working capital increase this year mainly due to inventory reasons.
10. The management states that 17% EBITDA margins are achievable for FY23.
11. The mix between different brands is following: Hawai and Bahamas – 25%, Flite – 37.5% and SPARX at 37.5%. Within SPARX 60% were shoes and 40% were sandals.
12. The management does not have any intent to spend in the south and is expanding capacity in the north.
13. In FY23, the company intends to spend 100 crores in capex on mainly backend operations.
14. The company has around 650-680 distributors and has added 10% during the year.
15. The company currently has 400 articles and 12,257 SKUs.
16. The company has 50 to 60 days of inventory out of which 30% is raw materials and remaining is WIP and finished goods.
17. More than 25% of sales for SPARX come through the online channel.
18. North contributes to 50% of the company’s sales, East contributes 18%, West 18% and 13% from South.
19. The open to closed footwear sales ratio of the company currently stand at 80:20 from previous 85:15.
20. The company has ventured into new channels and mediums this year like Udaan and Ajio which currently contribute to less than 1% of sales.
21. The management does not have any future price hike plans and shall wait for RM prices to stabilize.
22. The management states that this time the company and the industry faced very fast and severe inflation which wasn’t the case as compared to 2010 periods. Therefore, the company had to take 4 price hikes during the year which had never happened before.

Analyst’s View:

Relaxo is one of the most recognizable names in the footwear industry in India after Bata. The company has been doing well with its offbeat model of focusing on distributor network and wholesale operations as compared to other players in the market like Bata and Khadims, all of whom sell directly to customers through multi-brand outlets and exclusive franchise stores. The company has seen a bad quarter in Q4 with fall in sales and PAT due to margin fall amid the inflationary environment. The Sparx brand continues to do well for Relaxo in the ecommerce space. Although the company has undertaken 4 price hikes since the start of the year, it has been unable to mitigate the impact of inflation. It remains to be seen what is in store for the company and the industry in general in terms of inflation and how will it affect the consumption trend in the Indian market going froward. Nonetheless, Relaxo seems like a good investment option for anyone looking to put money on the theme of rising consumption and footwear.

Q4 2019 Updates

Financial Results & Highlights

Detailed Results

1. 1. The performance of the company has been average with revenues growing 15.6% YoY and 18% for Q4 and FY19 periods.
   2. The operating margin for the current has improved QoQ as witnessed by the rise in QoQ profits but has declined YoY with profits staying stagnant or falling in YoY terms.
   3. This was mainly due to rising raw material costs in current quarter which is expected to soften in the near future.
   4. The company also saw reserves rise to Rs 1093 Cr from Rs 749 Cr last year.
   5. FY19 saw the company increase their PPE assets to Rs 800 Cr from Rs 469.8 Cr last year.
   6. The company has reduced their long term borrowings to zero from Rs 39 Cr last year.

Investor Conference Call Highlights

1. The management maintains that the increase in employee costs seen in the current year have been due to addition of new capacities and the expansion of the selling department.
2. The company shall continue to stay concentrated on driving revenues using volumes and they will keep their prices competitive to pursue this strategy.
3. The company expects the high raw materials to soften in the near future thus allowing the suppressed margins to come to normal levels.
4. In their product range, Sparx and Flite have been growing the fastest.
5. The company took competitive price action in Hawaii range while they have kept others at the same level.
6. The company is very aggressive with their Flite product particularly the PU version which is their fastest growing segment. Thus the company has kept margins lower to sustain this growth and capture market share. The company expects margins to rise later in the near future as PU prices fall.
7. The company’s inventory days have risen as they have made a conscious decision to keep more material at hand.
8. The capex guidance for the next 2 years to around Rs 80 Cr for each year.
9. The onset of GST should be good for the industry as it pushes the shift from unorganized to organised brands for this industry and its consumers.
10. The total contribution of retail sales to total sales is only 7% currently and is expected to grow steadily in the future. All the retail sales for the company occur through the online sales mechanism.
11. The company has around 45000 to 50000 outlets within its distribution reach.
12. The management expects that the company can deliver double digit value growth in FY20 but similar growth in volumes is going to be hard.
13. The company does not have any plans to launch new brands for the next 3 to 4 years. They are focussing on expanding their current brands at the moment.
14. The current capacity utilization at the company’s plants is greater than 70% and this is expected to rise in the coming months.
15. The management expect the company to outpace the segment growth which has been around 10%-11% in the past few years.
16. The company manufactures 95% of all products in-house. Only for some products where they get better price for procurement do they opt for outsourcing.
17. The company has spent 4% each year on ad spending. The management want to maintain this level of advertising spending.
18. The additions to PPE this year has been in additional capacity in the Hawaii and Flite PU divisions.
19. The fastest growing region for the company is the South where the company has seen good growth through online sales particularly ecommerce sites like Flipkart and Amazon. The highest selling brand in this region in Sparx.
20. The company has received good response on their EBO expansion and the franchisee route. The company currently has 330 EBO Stores as of end of Q4FY19.

Analyst’s View

Relaxo is one of the most recognizable names in the footwear industry in India after Bata. The company has been doing well with its offbeat model of focusing on distributor network and wholesale operations as compared to other players in the market like Bata and Khadims, all of whom sell directly to customers through multi-brand outlets and exclusive franchise stores. Relaxo has established itself firmly with its resident model and is now looking to expand into the franchisee model as well. Along with growth in the new sales channels of EBOs and online sales, the company is also looking to expand capacity slowly and steadily each year. Keeping all this in mind, Relaxo seems like a good investment option for anyone looking to put money on the theme of rising consumption and footwear. However, valuation appears to be too stretched for any margin of safety.

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