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Posted: 29/Aug/2012 at 9:58am
Article appearing in yesterday's businessline newspaper rgdg. Relaxo attached below .......management has talked of reaching 1200 cr. revenue this year which might be a misinterpretation by the correspondent of the newspaper as it seems too ambitious....Realistic will be to expect 1200 cr. in FY14 i.e. next year...
Relaxo Footwear stitches plans for pan-India presence
Mumbai, Aug 28:
Delhi-based regional brand Relaxo Footwear is pulling up its socks to become a national player with a slew of new high profile brand ambassadors.
Having bagged Salman Khan and Katrina Kaif recently for its flip flops and slipper brands such as Hawaii and Flite, it has now decided to rope in Akshay Kumar for its sports shoe brand Sparx (Neil Nitin Mukesh was endorsing it previously) to gain recognition as a national player. Gaurav Dua, Executive Director, Relaxo Footwear, says, “Most footwear brands are regional in nature. Getting in these three high profile brand ambassadors is to help us have a pan-India position. We are still a north India based brand, but expect to have a presence in States such as Maharashtra and Gujarat where these film stars are easily recognisable. We would be spending almost Rs 12 crore on the new endorsers.”
Positioned as a mass brand, Relaxo has been competing with the unorganised players with its ‘economy’ range of footwear. However, for its sports shoe brand Sparx, it has pitted itself against brands such as Nike, Adidas and Reebok. “Our brand Sparx is targeted at consumers who have the aspiration to own big brands but cannot do so. We consider these MNC brands as competitors apart from Indian brands such as Lotto and Sketchers,” says Dua.
Sparx is priced between Rs 1,000 and Rs 3,000, a range that is slightly below the MNC sports shoe brands.
“Our volumes continue to come from the mass market. Slippers are daily need items and are recession-free,’” observes Dua.
As Relaxo enters new markets, it intends doubling its presence in multi-brand outlets from the current 15,000 points of sale. Besides, its 150 exclusive outlets under Relaxo Shoppe would also add another 50. Relaxo Footwear would also be launching e-commerce operations through its company Web site within a month. It intends taking its turnover from Rs 870 crore to Rs 1,200 crore this year.
Ads for a detergent bar, a mobile phone service, a chocolate, a life insurance company, a breakfast food, a quiz show, a 3G tablet and a flip-flops brand—a motley bunch of TV commercials—took the top 10 spots in the Mint-Ipsos-TVAdIndx survey for July.
The ad for Surf Excel bar, the detergent bar made by Hindustan Unilever Ltd, emerged by far the No. 1 commercial for the month in terms of brand awareness, recall and reach.
Vodafone mobile service ads took the second and sixth places on the ad reach index that measures awareness and brand recall among consumers. Commercials for Cadbury Dairy Milk Silk (Nos 3 and 5), the premium chocolate brand from Cadbury India Ltd, Max Life Insurance (No. 4), Kellogg’s Chocos (No. 7), Reliance 3G Tab (No. 8), Kaun Banega Crorepati (No. 9) and Relaxo chappals (No. 10) grabbed the remaining positions.
Not one of the ads that figured in the top 10 of the June ad survey made it to the July list. The July assortment was wider than the June list, in which ads for Reliance Netconnect—the wireless Internet connection for laptops and desktops—clinched four of the 10 spots.
Surf Excel bar also topped the scores in the ad diagnostics index, which measures the softer features of commercials such as likeability, enjoyability and believability. Ads for Aircel Pocket Internet, the mobile phone company’s Internet gateway, and Tata i-Shakti dal, the pulses made by Tata Chemicals Ltd, figured in the ad diagnostics index in the fourth and fifth spots, respectively.
July’s top 10 ads scored 89-56 points on the diagnostics index, compared with 75-58 in the previous month.
The survey polled 754 respondents in the higher income groups in the 18-40 age group in New Delhi, Mumbai and Bangalore.
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Posted: 10/Sep/2012 at 11:16am
One of the most comprehensive and must read report on Relaxo Footwears published today by Sharekhan. It has a put a price target of Rs. 885 on the stock.
Enitre 8 page Report can be downloaded from Sharekhan's site.
Mentioning below the brief investment idea of Sharekhan, however, it will be advisable to read the entire 8 page report...
Market cap – Rs816 crore
Enviable position present in the lucrative footwear segment: Relaxo footwears Ltd is present in the Indian organized footwear market which is growing at a CAGR of 15-18% over the last 5 years and is expected to continue to grow in the similar range for the next 5 years time frame. The company is present in this lucrative consumption segment with four top of mind recall brands- viz, Hawaii, Sparx, Flite and Schoolmate catering to different target audience across the socio economic as well as demographic strata. Its flagship brand Hawaii enjoys leadership positioning in the rubber slipper market, particularly in north, while its other brands also command significant segment share, visible from the fact that the company with its 29.5% CAGR growth over FY08-12 has outgrown the industry.
Well heeled distribution setup complimented by its growing network exclusive outlets: Relaxo primarily sells its products via distributors, who in turn take the same to the retailers on a Pan India basis. Over the years the company has developed strong distribution network for its products, with an array of over 700 distributors, making the products & brands available in over 46,000 retail touch points on a pan India basis. At present around 90% of the revenue comes from this mode of distribution. Apart from this twofold distribution led model, Relaxo also sells directly to the customers; through its company owned retail shop offering called “ Relaxo Shoppe”. At present, it owns 154 outlets (Relaxo Retail Shoppe) exclusively for its branded footwares contributing around 7% to the sales, and further plans to enhance revenue from this segment by targeting 25-30 stores in each of the next three financial years. To further enhance its brand reach and drive volume growth, Relaxo is undertaking aggressive brand building initiatives, under which it has roped in leading bollywood actors (viz- Salman Khan for Hawaii, Akshay Kumar for Sparx and Katrina Kaiff for Flite).
Soft raw material price outlook to drive margins and earnings going forward: Three raw materials viz- Raw rubber, EVA and synthetic rubber together constitute 55-60% of the total raw material cost. In the last two years, the prices of raw rubber and EVA had seen considerable increase, impacting the gross margin and the consequently operating and net earnings. Off late the prices have cooled off and are currently ruling at their 24 month low, and the outlook for the same is expected to be soft. Sharekhan believe this would act to the advantage of Relaxo driving up the gross margins and earnings. Sharekhan expect considerable improvement in the operating margin for FY13 and FY14. With new strategies in place and raw material prices on the softer track we expect it to deliver a CAGR of over 22% topline and close to 34% earnings growth over FY12-14.
Consistent robust financial performance leading to re-rating of multiples: Recommend Buy: Relaxo Footweas has emerged as an attractive investment opportunity in the domestic consumption-oriented plays due to its growing scale of operations, strong brand positioning and consistent healthy financial performance. In addition to steady growth in volumes and higher blended realization due to favorable product mix, the company is likely to benefit from the softening of the key raw material prices (read rubber) and is a potential re-rating candidate. Thus, Sharekhan recommend 'BUY ' rating on the stock with target price of Rs885.
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Posted: 10/Oct/2012 at 11:15am
One of the most comprehensive Research Report on Relaxo Footwear released by Anand Rathi on 5th October 2012 which covers almost all aspects -- a must read -- Target price put is Rs. 960Entire 12 pages report can be downloaded from my ****** account. Excerpts are provided below for quick ref. :
Building pricing muscle; initiating with Buy
Relaxo Footwear (Relaxo) is second largest in the organised segment of Indian footwear, accounting for 7-8% share. It is currently focused on building pricing power by revamping key brands, Sparx and Flite.
Over FY12-15, we expect revenue and EPS to post CAGR of 23% and 39%, respectively, and margins to expand 250bps. We initiate coverage with Buy, at a price target of 960
Rising volumes, improving value mix.
Relaxo is currently focused on growing revenues from its premium brands - Flite and Sparx. Towards this, the company has already set up a manufacturing unit for polyurethane – a key chemical used in making its shoes – which will commence production from Q3FY13. This, together with rapid network expansion, will aid revenues to post 23% CAGR over FY12-15.
Embarking on major brand revamp. The company has roped in three leading Bollywood stars for its brand endorsements. This marketing strategy is applicable across segments, from low-cost Hawaii to premium Sparx. It would build pricing power, raise market share (especially in East, West) and increase direct reach to customers through stores across India.
Margin expansion on the cards:
Margins are likely to expand 250bps owing to: (a) falling raw material prices, especially of EVA and rubber (more than 50% of RMC); (b) freight costs stabilising at 3% of sales with new warehouses; and c) reducing third-party purchases.
Valuation. We assign a one-year-forward PE of 13x and derive target price target of
960. It has historically traded at 6-17 PE.At the CMP of
725, the stock trades at PE of 15.1x FY13e and 9.9x FY14e EPS of 48.1and `73.6 respectively. Risk: Rise in input costs
Rising volumes and better value mix
Relaxo is focused on increasing revenue from high-margin products, especially Flite and Sparx. To expand volumes and enhance value mix, it is setting up a manufacturing unit for polyurethane (PU) - a key chemical used for making its shoes - likely to commence production from Q3FY13. Also, it is enhancing its distribution network by increasing the number of retail outlets in East and West India to capture volumes.
Value mix to enhance further
Sparx and Flite together accounted for 35% and 51% of volume and value, respectively, of distributor category in FY10. This has steadily risen to 42% and 60% in FY12. We believe concerted efforts towards growing revenues from the two brands, supported by massive distribution, will grow value mix even further in future.
Capacity expansion on track
In FY11 and FY12, volume growth in Flite and Sparx (shoes) was a steady 1% and 15% and 45% and 26% respectively, whereas Relaxo’s overall revenue growth in FY12 was 25.4%. Management took the right decision in expanding both Flite and Sparx capacities in FY11, by 44% and 23%. Considering the steady growth in sales volumes, we believe the company would again have to increase capacity in FY14. After declining volume growth in FY11, rising exports in FY12 led to Hawaii volumes growing marginally. Also, we believe that the expanded capacities would help curtailing imports of Sparx (shoes) from China. Overall, we see 24% and 26% revenue growth in Flite and Sparx, respectively, over FY12-14e (see
PU capacity enhanced
At Bahadurgarh, Haryana, Relaxo is setting up a manufacturing unit for PU footwear, the fastest-growing segment. It is already selling, on a small scale, PU-Flite (formal and fashionable footwear with additional features: light weight, longevity and skid resistance). Expansion in this category would increase overall volumes and improve market share. It is incurring capex of
700m and commercial production is likely to start in Q3FY13. We believe this segment is likely to lead to an asset-turnover ratio of 3-4x and help the company improve both value mix and revenue.
Expanding distribution to match increasing demand
In the past, Relaxo’s operations were concentrated in North and North- East India, with a distribution network primarily in the North. Rising footwear consumption has, however, led the company broaden its distribution network to eastern and western India. Today, the company has a strong network of more than 46,000 distributors all over India and 154 retail outlets. These retail outlets go a long way in enhancing Relaxo’s brand image, the effect of which will trickle down to margins
Brands undergoing major revamp
The company has roped in three leading Bollywood stars for its brand endorsements. This marketing strategy is applicable across segments, from low-cost Relaxo Hawaii to premium Sparx. It would build pricing power, raise market share (especially in East, West) and increase direct reach to customers through stores across India. As large as 4-5% of sales has been allotted to advertisement.
New marketing strategy across categories
Relaxo has ramped up its marketing strategy for all categories (Relaxo Hawaii – low cost, and Flite and Sparx – premium), targeting all age groups. It has recently roped in Bollywood stars (Salman Khan, Akshay Kumar and Katrina Kaif) to endorse Relaxo Hawaii, Sparx and Flite .This is likely to broaden recognition of its brands all over India against earlier perceptions of the company being largely a northern and north-eastern player. This would push its volumes and enhance its value mix. We believe this measure is likely to increase its market share (7-8%of organised segment) in all segments as well as in the overall footwear market.
Focused on retail store expansion
Relaxo is increasing the number of its retail stores ‘Relaxo Shoppe’, dealing directly with end-customers, to enhance its brand image and increase sales.
It has 154 stores (FY12, 149 stores) currently and is in the process of adding 25 more this year . We believe greater volumes and value would be added if more stores are opened in East and West India, where its revenue is fast increasing every year.
Advertising costs to be held in check
Despite signing up three huge Bollywood stars at
120m, we believe that advertising expenditure would not cross 4-5% of sales. The benefits would be substantial in comparison with the costs.
Margin Expansion on Cards
Relaxo is taking steps to rationalise costs and improve margins.
Margin expansion is likely to come through: (a) falling raw material prices, especially of EVA and rubber (more than 50% of RMC); (b ) stabilising freight at 3% of sales by opening warehouses in West and East India (since sales and revenue are increasing there); and (c) reducing third-party purchases by expanding capacity. All these would yield margin expansion of 250bps over FY12-15e.
Two-year low input costs to boost margins
Raw material costs formed ~54-55% of sales, except in FY11 and Q1/Q2FY12 when they were 60-61%. Rubber (15-16% of RMC), the major component of Relaxo Hawaii, peaked in Q2FY12 and has come off 22-23%. This, we believe, would add to margins .EVA (100% imported item, 27-30% of RMC), largely used in Flite, peaked in Q4FY12 and has now dropped 22-23% from. The rise in raw material prices is passed on to end consumers but with a lag of 3-4 months. Ahead, we do not see prices of the above raw materials rising more then 5% annually. With its increasing pricing power, Relaxo’s margins are likely to further improve.
We expect the FY14 EBIDTA margin to improve 150bps over FY12.
Freight costs to stabilise despite wider operations in East, West
Relaxo has nine manufacturing plants, seven in Bahadurgarh (Haryana) and one each in Bhiwadi (Rajasthan) and Haridwar (Uttaranchal). At present, 53-55% of sales arise in North India and most of its distribution network is located here, restricting freight costs to 3.5% of sales. Ahead, freight costs are likely to stabilise at 3% despite its all-India operations as it is putting up four warehouses .Capital expenditure for the warehouses, to be opened one at a time, is likely to be
200m in the next two years.
Third-party-purchase costs likely to come down
Third-party purchases are largely of the high-value Sparx, imported from China. With minor expansion in Sparx (4,000 pairs a day) and surplus capacity in Relaxo Hawaii, we expect outsourcing (as percent of sales) to come down and settle between 4% and 5% in the next two years, against 10-11% in the past few years (table). Margins in the high-value Sparx produced by the company are higher than in those outsource
We expect Relaxo to report 23% revenue growth over FY12-15, led by growth in volumes and value. EBIDTA margin is likely to improve 250bps to 13.5% in FY15e. With free-cash generation, we believe gross debt is likely to come down from 1.0x in FY12 to 0.4x. Ahead, return ratios are likely to further improve with working-capital efficiency and a better margin.
Revenue to register 23% CAGR over FY12-15e
On the launch of the Sparx and Flite brands in FY06, sales grew 24% over FY07-12. Ahead, we expect 23% revenue CAGR during FY12-15, led by 20% and 23% CAGR in Flite and Sparx respectively. Moreover, we expect enhanced revenue growth from retail outlets and exports. We believe the company’s focus on brand building is likely to improve its value mix, helping revenue growth.
Margin expansion to help robust net profit growth
The margin is likely to expand 150bps to 13.5% over FY12-15e due to a) better pricing power through brand-building, b) increasing value mix especially of Sparx and Flite from 60%in FY12, c) freight-cost rationalisation on opening four warehouses in west and east India and d) low prices of raw material, especially of rubber and EVA, which are at oneyear lows. We do not expect any rise in raw material prices in the next 1-2 years due to rising capacities (of the raw materials) and a drop in demand from other industries such as autos. The margin expansion is likely to help net profit grow 39% over FY12-15e.
Return ratios to improve further
We expect the RoE to improve further, from 26% in FY12 to 29.2% in FY15 on the better asset-turnover ratio and value mix, resulting in robust net profit growth. We expect the RoCE also to improve, from 19.2% in FY12 to 24% in FY15.
Free cash-flow to improve further
On the expansion of its PU-Flite plant in Bahadurgarh at
`700m, Relaxo is likely to generate more than
`1bn in free cash. This free-cash generation would arise from better operational flows and efficient working capital. It would reduce the debt-equity ratio from 1x to 0.4x.
In the last few years, the stock has traded in the one-year-forward P/E range of 6x-17x. Brand recognition helps increase pricing power and improve revenue, as well as raises market share. We believe Relaxo’s focus is to increase the revenue value-mix, which would help to better margins. All this is likely to improve RoE from 26% to 32.5% over FY12-14e and help get higher multiples. The stock is at a discount over 50% to Bata India and we believe that, with Relaxo’s improving brand image, return ratios and growth ratios, the discount will narrow faster. At TP of
`960, the stock trades at a P/E multiple of 13.0x and 10.8x FY14e and FY15e EPS of73.6 and 89.2respectively.
Volatile raw material prices. Raw material cost was 54-55% of sales except in FY11 when it was over 60%. Key raw materials are rubber, EVA (ethyl vinyl acetate) and synthetic rubber. Inability to pass on the increase in raw material costs because of competition may lead to
pressure on margins.Any rise in prices of rubber (15-18% of RMC), used in Relaxo Hawaii and shoes, would lead to pressure on margins in those categories. Any rise in prices of EVA (28-33% of RMC), used in Flite and shoes, would put pressure on margins in Flite.
Competition may lead to pricing pressure.
Competition comes from all branded manufacturers, unorganised to high-end. The Hawaii brand primarily faces competition from the unorganised market in northern India; therefore, pricing has to be done considering this.
Sparx shoes face competition from premium brands; any drop in prices by the competition would lead to a fall in the prices of Sparx, and would dent margins
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Posted: 18/Oct/2012 at 4:03pm
October 2012 Print and Television Media Schedule for all three brands -- Hawaii, Flite & Sparx released....
Co. continues to market all brands aggressively which should help in it getting good discount in media deals because of clubbing of slots as also should enable its sales to be more robust than its peers in festive season....Q3FY13 and Q4FY13 should be good ones.....
Price Update of Key Raw Materials as at 17th October 2012 :
EVA - INR 107-108 per kg. (sellers keen to seal even November contracts at this rate signifying weakness ahead)
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Posted: 27/Oct/2012 at 12:53pm
Relaxo Chairman Mr. Ramesh Dua's AGM speech released, can be downloaded from company's website. He seems quite bullish amidst recessionary environment and is confident of crossing 1000 cr. revenue mark this fiscal. If Q2FY13 is good then in all probability, company should start trading at minimum 1xFY13e sales post results with a mcap of 1000 cr. + as Q3Fy13 and Q4FY13 are bound to be robust because of festive quarter and seasonal qrtr. respectively.
Discl. - I have Relaxo as part of my core portfolio and my views have to be taken in that regard.
Company has also released good trendy collection ahead of festive season as is evident from the catalogues of its key brands recently published. This should enable the company to remain ahead of the peers and grab an even larger marketshare. Catalogues can be accessed from company's website.
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Posted: 30/Oct/2012 at 12:36pm
board will meet next week on Monday, 5th November 2012 to
announce Q2FY13 results. Given below are the conservative estimates
for Q2FY13 :
since we are already past 1HFY13, its prudent to introduce here the
Q3FY13e and Q4FY13e as well as entire FY13e numbers for Relaxo so
asto judge the fortunes of this promising company in a better way.
numbers are immune to raw material price fluctuations as already one
month for Q3FY13 has passed as also there is normally one and a half
quarter inventory kept at company level ahead of festive (Q3FY13) and
busy season (Q4FY13). Rubber prices are still soft and EVA prices are
at its lowest with no significant improvement insight because of
sluggish Chinese demand.
Q4FY13, unless there is any sharp run-up in key raw material prices
(more than 25 % - Rubber = INR 225 /kg + from current INR 180 /kg ;
EVA = INR 138 /kg + from current INR 110 /kg), margins should be
better than our estimates as we have taken a very conservative
approach and even not assumed any significant benefit out of ground
activation of company's key brands planned from Q3FY13-end. We have
adopted an approach of incorporating all possible reasonable
negatives and omitting any significant positives while basing our
estimates purely based on ground-level feedbacks, dealer checks and
indications received from media and brand tracking industry sources.
below are our Q3FY13, Q4FY13 as well as entire FY13 estimates for
Relaxo Footwears Ltd. :
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