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 2019 Updates

Financial Results & Highlights

                                                                Standalone Financials (In Crs)
  Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 637 550.95 15.62% 554.24 14.93% 2305 1953 18.02%
PBT 78.7 82.2 -4.26% 56.9 38.31% 267.98 243.62 10.00%
PAT 54.4 53.46 1.76% 35.6 52.81% 175.44 161.07 8.92%

Detailed Results

    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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