Joined: 07/Nov/2011
Location: India
Online Status: Offline
Posts: 306
Posted: 07/Nov/2012 at 9:21am
Footwear options: Liberty or Versace for Hrithik Roshan?
Thursday,Nov 08, 2012
Daniel J Boorstin has rightly remarked that “A sign of a celebrity is that his name is often worth more than his services”. Marketers have acknowledged this fact and have roped in popular faces to create instant brand awareness, credibility and aspirational value. In a country like India that is celeb crazy, associating with a celebrity makes a substantial impact on the purchasing behaviour. But what if there is a mismatch between the celebrity and the brand, what happens if a celebrity endorses one brand and is found using the other?
In a chase to capture ‘India’s most saleable face’, brands sometimes do not endorse with the right celebrity in a right way and at the right time. Brands should wake-up and understand that the consumers have started understanding the tricks of these dream-weavers and cannot be fooled by showing Salman wearing Relaxo, Hrithik dancing to the tune of Liberty or Katrina flaunting her Flite slippers.
One can understand the concept of strength, attitude and style that suits Salman’s persona for endorsing Relaxo but who wears a ‘chhapal’ to climb buildings and slide on the snow. We are very sure that not even Salman does that and prefers his pair of Gucci and not Relaxo.
Katrina’s vibrant and unconventional style can make her a perfect fit for Flite and the moment she steps into her pair of Flite slippers, everything around her changes to match the color of her Flite. But has the paparazzi ever spotted this enticing lady in Flite slippers? Wonder what makes her say that the most challenging part of doing a campaign is that it’s actually so real. However, the reality is that she will always like to flaunt her pair of Jimmy Choo or Christian Louboutin.
Style debonair Hrithik is the face of Liberty and it makes sense for the brand to bring the actor on board with his immense sense of style and connection with the youth. Hrithik might say that the collection is superbly stylish and comfortable; however, the blue-eyed boy in reality creates a fashion statement with his pair of Versace or Salvatore Ferragamo.
When Virat Kohli says ‘Think on your feet’ for Red Chief shoes, depicting heroism and ruggedness yet comfort of Red Chief, it makes the shoe brand the best buy. But will Virat ever wear Red Chief shoes for running, is a question that haunts us.
This makes us ponder over innumerable questions such as are brands adopting the right path by investing in celebrities for footwear brands? Do these heartthrobs actually wear the brands endorsed? Have we approached the era of shortage of creative ideas? Can the sale of a product be affected by celebrities performing dare-devil stunts or doing a silly dance?
Harish Bijoor, brand expert and CEO, Harish Bijoor Consults said, “I don’t believe any of these celebrities use any of the brands that they endorse. It goes not only for footwear but also soaps and soft drinks. There is a certain lack of creativity and integrity in the entire brand endorsement process but we have to be realistic because this is the way the world is.”
He further added, “Brands are doing this because they need establishment of quick awareness levels from celebrities. These brands would otherwise take 50 years to build that brand equity but they build it in just 50 days by using a celebrity.” He thinks it is a very intelligent use of money because the kind of salience that a brand brings is excellent and that salience is brought by a star.
He also said, “If a star has a lot of positive strokes then the same gets accrued to the footwear brand as well. In small towns, film stars are not only worshipped but people actually (aspire to) live like them. So people love the brands being endorsed by a star – be it a ‘chappal’ or a ‘dhoti’. If you take normal people, it will take a lot of time to build the brand but if you focus on a star, it builds the brand in very less time.”
However, he feels, celebrity endorsement is not enough and one needs to get the distribution, local advertising, the local point of purchase and the local events right.
Ramanujam Sridhar, Founder CEO, Brand Comm said, “Celebrity endorsements instantly build awareness and lots of people notice that but there is always a question of moving from awareness to purchase. It works and everybody seems to be adopting this. It seems like a rat-race and if one brand is using it then the others feel that they might be left out, so they also use it.”
He stated that celebrities don’t wear the brands that they endorse. “If a celebrity in the West was to endorse a brand, then he has to use it. But here we don’t have such restrictions. Indians feel that a celebrity has come to entertain them in the context of a product that he/she is endorsing, so they don’t analyse it too much like a customer in the West.”
He added, “In a low-involvement and cheap product like a pair of ‘chappals’, if one sees the image of Katrina, he/she might go and buy it unlike a product which is expensive. Hence, celebrity endorsement for expensive products is a waste of time.”
On the shortage of creative ideas, he said, “Clients and agencies are doing very lazy work and their scripts are very ordinary for a brand that has celebrity endorsements unlike a normal commercial where a script has to be really good.” According to him, “Celebrity endorsement, very often, tends to be a lazy strategy and many clients are unfortunately moving to this strategy.”
It will be fair to conclude that in India, celebrity endorsements for a relatively less expensive brand certainly helps in creating brand awareness and increasing sales whether the celebrity uses it or not.
Delhi-based footwear firm, Relaxo plans aggressive capacity expansion and brand revamping to boost the topline and is racing to cross Rs 1,000 crore mark in revenues in the current financial year, supported by new initiatives.
The company has been clocking consistent growth over the past several years. Its revenues and profits have recorded CAGR of about 30 per cent and 32 per cent respectively, resulting in 20 per cent plus return on equity (ROE) over the past five years. It clocked net sales of Rs 860 crore and net profit of Rs 40 crore in 2011-12.
“Going forward, the company is committed to continue expanding manufacturing capacities, product and brand portfolio and market presence. The company is inching closer to cross Rs 1,000 crore revenue milestone in the current financial year. In this direction, a series of initiatives are being taken by the company to revamp and manage our next level of growth,” Ramesh Kumar Dua, managing director of the company said.
The company is planning a capex of Rs 60 crore for establishing a PU (polyurethane) footwear plant and this project is likely to be completed by the end of this financial year. With this plant, the company’s total capacity will go up by about 30,000 pairs per day, taking the total capacity to about four lakh pairs per day. It has already launched Flite-PU fashion range of footwear and that have reported to have well received among footwear buyers.
In addition, it is also planning to build a warehouse with an investment of Rs 25 crore. Further, the company has also lined up a plan to open 25-30 retail stores (Relaxo Shoppe) every year in an attempt to expand the direct reach to customers, build the brand and increase in sales. At present, the number of exclusive stores stands at 158, up from 149 at the end of FY2012. This year, the total number of stores is expected to touch about 175. These exclusive outlets contributed Rs 61 crore to the total revenues of the company. Relaxo’s flagship brands are Hawaii, Flite, Sparx and Schoolmate and these are catering to different categories of customers.
“The company is promoting its brands aggressively to increase their visibility. For that, it has roped in three Bollywood stars for the endorsement — Salman Khan to endorse Hawaii, Katrina Kaif to endorse Flite and Akshay Kumar to endorse Sparx. This is expected to help the company to maintain its market share in the mass segment through Hawaii brand and further penetrate the lower and upper-middle class segment through existing products and upcoming launches of Flite and Sparx brands,” said Tejashwini Kumari, analyst at Angel Broking.
Relaxo competes with both branded as well as the unorgansied market. Hawaii, the mass product faces stiff competition from the unorganised market. On the other hand, Sparx faces competition from branded shoes.
The company has a strong foothold in the slippers market and a very wide distribution channel of 50,000 distributors and retailers across the country. However, its 158 company-owned outlets are spread only in north — Delhi, Rajasthan, Gujarat, Haryana, Punjab, Uttar Pradesh and Uttarakhand. It has seven factories – five in Bahadurgarh (Haryana) and one each in Bhiwadi (Rajasthan) and Haridwar (Uttaranchal).
Joined: 07/Nov/2011
Location: India
Online Status: Offline
Posts: 306
Posted: 08/Nov/2012 at 3:31pm
Relaxo
Footwears Ltd. [ NSE – RELAXO
; BSE – 530517 ] declared its Q2FY13 Results on 5th
November 2012 which were inline with our estimates, especially on
topline front, but EBITDA was lower than our estimates. Given below
are the highlights of the numbers and our prima-facie analysis post
numbers :
(fig.
in `
cr.)
Q2FY13
Q2FY12
YoY
Growth
Q1FY13
QoQ
Growth
Revenue
243.27
200.41
21.38
%
249.52
(-2.50
%)
EBITDA
25
16.8
48.81
%
31.27
(-20.05
%)
PAT
10.28
4.3
139.06
%
15.06
(-31.73
%)
EBITDA
Margin
10.27
%
8.38
%
+ 189
basis
points
12.53
%
(-
226)
basis
points
PAT
Margin
4.22
%
2.14
%
+ 208
basis
points
6.03
%
(-181)
basis
points
Company
posted Q2FY13 Revenue at INR 243.27 cr. which translates
into a YoY growth of 21.38 % but a sequential QoQ
decline of 2.5 %. Q2 is traditionally the weakest
quarter for the company in terms of sales and this time even the
festive season has shifted to Q3. At a time when even the strongest
footwear company Bata is facing the headwinds of recessionary
environment taking a toll on consumption because of which Bata was
able to grow its revenues at only 15.4 % YoY in
September'Qrtr.'FY13, Relaxo has turned out an impressive sales
performance vis-a-vis its peers.
Company's
EBITDA for Q2FY13 came at INR 25 cr. which
translates to a YoY growth of
48.81 % but a QoQ decline of 20.05 % mainly
because of sharp rise in Employee Costs which rose by
301 basis points (w.r.t. Revenue) YoY as also sharp rise in
Advertisement Expenses (covered under 'Other Expenses') which
rose by 230 basis points (w.r.t. Revenue) YoY.
PAT
for the quarter stood at INR 10.28 cr. which translates to
a YoY growth of 139.06 % but a QoQ decline of
31.73 % mainly because of lower EBITDA for the reasons
mentioned above.
EPS
for the quarter (not annualised) stood at INR 8.57, a YoY
increase of 139.38 %.
During
Q2FY13, company opened 6 new Exclusive Retail Stores ('Relaxo
Retail Shoppe') to take the total tally to 160 operational stores at
the end of Q2FY13.
Company
continued to focus on aggessively promoting its three key brands
(Hawaii, Flite & Sparx) across all media during the quarter.
Company kicked-off aggressive promotional campaigns for 'Hawaii'
brand with its brand ambassador Salman Khan starting July 2012 ;
for 'Flite' brand with its brand ambassador Katrina Kaif starting
August 2012 ; for 'Sparx' brand with its brand ambassador Akshay
Kumar starting September 2012. These initiatives will benefit the
company in capturing larger marketshare during Q3 and Q4.
Key
Raw Material prices remained stable during the quarter with average
Q2FY13 EVA landed price at INR 117.5 per kg. ( down 17.05
% YoY & 5.36 % QoQ ) while average Q2FY13 Rubber
price at INR 181.16 per kg. ( down 13.95 % YoY & 5.91
% QoQ ). As on 2ndNovember
2012, EVA landed price is hovering around INR 114 per kg. while
Rubber price is hovering around INR 177 per kg.
Peer
comparison for Q2FY13 is provided below for reference :
Q2FY13
Revenue
Q2FY12
Revenue
YoY
Growth in Q2FY13 Revenue
Q2FY13
EBITDA Margin
Q2FY12
EBITDA Margin
YoY
Growth in Q2FY13 EBITDA Margin
Relaxo
243.27
200.41
+
21.38 %
10.27 %
8.38 %
+
189
basis
points
Bata
429.05
372.43
+
15.2 %
13.13 %
14.24 %
(-
111)
basis
points
Liberty Shoes
70.70
79.69
(-
11.28) %
7.71 %
8.11 %
(-
40)
basis
points
Prima-facie
View post Q2FY13 Results :
We
maintain our view that Relaxo Footwears Ltd. is one of the
good opportunities available in the domestic-consumption-oriented
basket. Our
use of word'good'
(in current Q2FY13 Update) instead
of word'best'
(used in IC as well as Q1FY13 Update) is
because :
share
price has exhibited a sharp 71.8 % appreciation from our IC
rate of INR 480 in a short span of just 4 months,
Relaxo-story
is now relatively well recognised by the markets which is
evident from many recent IC reports on the company by prominent
brokerage houses ; this is a double-edged sword which leaves little
room for the management to commit any error,
management
has disappointed on EBITDA margins front for the second
consecutive quarter which is not a good sign as company is currently
passing through one of the best times in its history wherein its
scale is increasing at a fast pace while its key raw material prices
are stable with a negative bias ; although company is doing the
right thing by using the resources (derived out of favourable
scenario) for making expenditure on increasing the scale, still,
such low EBITDA margins doesn't augur well when key raw material
prices are at their two year lows.
In
the backdrop of recently declared quarterly results (Q2FY13 &
Q1FY13) and at the current appreciated valuations, Relaxo only
deserves a 'Hold' and therefore we feel it prudent to downgrade
it to a 'Hold' from earlier 'Buy'. Current
valuations don't factor-in any shock that could arise out of key raw
material price appreciation and consistent low EBITDA
margins of 12.53 % & 10.27 % of Q1FY13 & Q2FY13 respectively
is one of the key reason for this downgrade. Any substantial
consistent improvement in EBITDA margins can only justify a 'Buy' at
current levels which we not see coming atleast for next three
quarters barring odd upward blips that might arise because of festive
Q3FY13 and seasonally best Q4FY13.
Company's
valuations might stabilise in the short term at 1xFY13e.Sales (1070
cr.) and beyond this valuations, margin of safety diminishes very
fast as unless the company exhibits pricing power as is there with
any branded FMCG player, including Bata, markets might not assign
rich valuations to Relaxo on a sustainable basis for the long term.
Since Bata itself is available at a price-to-earning multiple of 22
on CY13e numbers (Bata has a December-year-ending), Relaxo will
always trade at a discount to it as it lacks both, the management
bandwidth and brand recall value relative to Bata. Provided below is
a broad comparison of expected financials and valuations of Bata &
Relaxo at Bata's CMP and Relaxo's 1xFY13e.Sales market price :
Relaxo
Bata
CY13e
Revenue
(
year-ending December'2013 )
-
2225 cr.
FY13e
Revenue
(
year-ending March'2013 )
1070 cr.
-
CY13e
PAT
(
year-ending December'2013 )
-
248.2 cr.
FY13e
PAT
(
year-ending March'2013 )
63.1 cr.
-
CY13e
Debt to Equity
(
year-ending December'2013 )
-
0
FY13e
Debt to Equity
(
year-ending March'2013 )
0.8
-
CY13e
RoCE
(
year-ending December'2013 )
-
30.8
FY13e
RoCE
(
year-ending March'2013 )
21.7
-
CY13e
RoE
(
year-ending December'2013 )
-
30.9
FY13e
RoE
(
year-ending March'2013 )
28.8
-
Number
of Retail Stores expected till December 2012
1485
168
Valuations
Mcap/Sales
CY13e
(for Bata) & FY13e (for Relaxo)
[
@865 for Bata & @891 for Relaxo ]
1.00
2.51
Price/Earnings
CY13e
(for Bata) & FY13e (for Relaxo)
[
@865 for Bata & @891 for Relaxo ]
16.94
22
Price/Book.Value
CY13e
(for Bata) & FY13e (for Relaxo)
[
@865 for Bata & @891 for Relaxo ]
4.55
6.0
EV/Sales
CY13e
(for Bata) & FY13e (for Relaxo)
[
@865 for Bata & @891 for Relaxo ]
1.11
2.4
EV/EBITDA
CY13e
(for Bata) & FY13e (for Relaxo)
[
@865 for Bata & @891 for Relaxo ]
9.24
12.9
Four
things need to be noted from above :
(a)
Inspite of superior CY13e RoE and RoCE, Bata is
trading at just 24 % premium to Relaxo in terms
of P/E, P/BV and EV/EBITDA.
(b) Bata
is a debt-free company and can fund future growth quite
easily with its internal accruals while Relaxo will require
funding in the form of equity or debt to grow aggressively and
narrow the sales-gap with Bata.
(c) Bata
is less susceptible to raw material price fluctuations as it
enjoys better pricing power because of its focus on high margin
products as also its strong brand value whereas Relaxo's margins
fluctuate wildly in case of any sudden raw material price
escalation (as we have seen in past – ex. FY11) as it has
relatively less pricing power because of its focus on mass
products. Although this will augur well in the short term for
Relaxo in the form of increasing scale because of current
downtrading by consumers, however, in the long term this is not a
sustainable model to work with.
(d) Bata
has relatively strong ground presence in the form of its
December2012e '1485' Retail
Stores spread across entire country as compared to Relaxo
with December2012e '168' Retail Stores. Because of this factor,
Bata deserves to trade at much higher premium
over Relaxo.
We
had initiated coverage on Relaxo with a 'Buy' on
23rd June 2012 at its
then market price of INR 480. At that time Relaxo was
trading at more than 60 % discount to Bata as also at par with its
smaller peer Liberty Shoes which was an anomaly which needed to be
corrected. However, now, when Relaxo is approaching 1xFY13e.Sales, it
has already started trading at premium to Liberty as also
considerably narrowed gap in valuations that existed with
undisputed leader of footwear segment viz., Bata. We feel that we
need to give ourselves some time to check how well Relaxo's
management delivers on their aggressive growth plans, and valuations
seem to have run-up too sharp too fast and are not atall in the
comfortable zone which concurs with the basic principle of investing
viz., “Preservation of Capital'.
When
markets start discounting FY14e numbers much ahead of time by
ignoring all possible risks involved and assign such valuations as
16.94 P/E on FY13e and 13.78 P/E on FY14e for a company which is
unlikely to go beyond 12.8-13.5 % EBITDA range (as guided by the
management) for atleast next two years even in most favourable
operating environment with extreme susceptibility to key raw material
price fluctuations, its time for us to be fearful and
therefore we signal a clear 'Hold' on Relaxo till it approaches
1xFY13e.Sales (market price = INR 891) and make a planned exit in
case the valuations keep running up sharp and fast as they have done
so in past 4 months. Company is good, business visibility is good,
business strategy is good but current valuations are such that they
are not worth possible risks involved.
Joined: 07/Nov/2011
Location: India
Online Status: Offline
Posts: 306
Posted: 04/Feb/2013 at 12:31pm
Relaxo Results announced.....
revenue at 224 cr. a real surprise on the negative side as it means for entire festive season, despite heavy spend on aggressive promotions, revenues have infact degrown QoQ and this is also contrary to management talk post q2fy13 results.....
EBITDA margins at 8.9 % despite raw material prices ruling at their historical lows, again a cautionary thing.....
Post Q2fY13 results I had downgraded Relaxo to a Hold.......Now, post Q3FY13 results, downgrading Relaxo again to a Sell as the market price should settle at maximum 620-640 range with rate of Buy in the range of 500-520......Reasons being :
(1) Raw material prices should start ascending upwards from 1HFY14...
(2) Entire benefit of Raw material price correction is lost due to aggressive promotions which has had no proportionate impact on scale of operation....This will prove very detrimental in the medium term in case raw material prices ascend fast.
(3) Depreciation cost should rise going forward as the new PU plant has got operational in current Q4FY13...
(4) There are only three meanings to subdued results in festive season : one, the consumer sentiment is so bad that sales are getting impacted.....or, second, competitive pressures are so high that Relaxo's sales are getting impacted.....or, third, Relaxo product quality is rejected by the consumers because of which after initial ramp-up, scale has gone flat..
(5) Fourth quarter is seasonally the best and might throw positive surprises in both topline and bottomline...i have assumed atleast 300 cr. topline with atleast 21 cr. PAT in Q4FY13 for basing my price range of 620-640 for Hold and 500-520 for Buy....Q3FY13 results are so bad that current market price deserves a sell despite likely fourth quarter positive surprise....
Selling continuously post announcement of results and will exit completely today from Relaxo.
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