Relaxo Footwear
Printed From: The Equity Desk
Category: Investment Ideas - Creating winning portfolios!
Forum Name: Stock Synopsis
Forum Discription: A bried discussion of companies on very specific matters. Normally this is the prelude for further research as always members would be discussing quality companies with good management only
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=2610
Printed Date: 20/Apr/2024 at 2:25pm
Topic: Relaxo Footwear
Posted By: amitdip
Subject: Relaxo Footwear
Date Posted: 08/Jan/2010 at 4:14pm
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I'll be brief but would initiate the discussion:
A delhi based company, Relaxo Footwear, http://www.relaxofootwear.com/ (website broken at the moment) now intending to expand in Gujarat and some southern states. I also later discovered the RJ had it in 2006-07, not sure how long or when has got tired of holding it. Its products are sold in over few thousand shops but has about 90 EBOs. Present locations: http://www.relaxofootwear.com/searchretailshop.asp Why I have some confidence in it coz I've used their products for many years as Ive lived in delhi for good 20 years, their "chappals" used to be cheaper than those of Bata and lasted longer. Company has plans to "gradually" expand EBOs in next two years. Also there are "plans" to extend to other segments such as accessories and perhaps garments. Not a single shop was closed down in retail shakeup, they cater to lower income strata and middle segment. Googling long enough will dish out all above facts. Five year sales followed by net profits in Rs Crores FY09 FY08 FY07 FY06 FY05 409.24 305.66 235.94 200.86 215.47 14.23 10.46 6.60 3.26 3.72 HI FY10 Sales followed by net profits in Rs Crores 261 19 My purchase price is between 190 and 200, started buying 5 days back. Regards Amit |
Replies:
Posted By: PKB2000
Date Posted: 08/Jan/2010 at 4:32pm
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Lots of people in market are looking at the feet / leather type business of the market
1 Fisrt call: Liberty shoe
2. HT2710: Mayur unicoaters
3. Amit DP: Relaxo
4. News channels / blogs: Crew boss
why don't we classify a sector like "Looking at shoe and belt of market"? ------------- I am always doing that which I cannot do, in order that I may learn how to do it. ~Pablo Picasso |
Posted By: hit2710
Date Posted: 08/Jan/2010 at 11:18pm
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Some more details.
Equity is 6 crore with 1.2 crore outstanding shares of rs 5 each.
Debt is around 106 crores. Market cap is around 226 crores.
Last five years debt has been increasing and stands at
47,41,60,71,106 crores beginning the year 05.
Dividend per share is 0.75 Rs per share since past 5 years.
RONW has been increasing consistently and for fy 09 was around 19. (could it be due to increasing debt?)
The stock has an incredible run from May from around 30 levels to a high of 220 in Nov 09 and currently around 190.
For H1 Fy 10 eps(not annualsed is 16) ------------- Stockmarket is a weird place. For every person who buys a stock there is a person who sells it and both think they are very smart. |
Posted By: amitdip
Date Posted: 08/Jan/2010 at 1:29am
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Negatives:
------------ - Debt increase (albiet for capacity expansion) - No increase in dividend ( although for first time in several years interim divided of 10% has been declared in October on Face value 5Rs, besides regular 15%) - Non tech savvy promoters/website does not work properly Others attributes: ================== Brand positioning is a "bargain brand", med/good quality with low price. I doubt any delhiite over 25 years old cant recall this brand, they'd advertise very frequently on radio. Another recollection is one of their franchised where I used to buy from, Darya Ganj in Delhi, was right next shop to Bata ( shared same wall) , it was cramped/ size of a bathroom ! - but I always bought from there Its worth finding out how their existing shops look like. |
Posted By: amitdip
Date Posted: 08/Jan/2010 at 1:33am
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ROCE is trending up, FY10 Capital Employed 180 Crores, expected PBDIT : 80 Crores, thus ROCE of 44%
Regards |
Posted By: amitdip
Date Posted: 08/Jan/2010 at 2:56am
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From their website:
Relaxo produces huge volumes on a daily basis. In addition to meeting all domestic requirements, the company is all set to increase its presence in the global markets. Over 100 million pairs per annum The combined production capacity of the 9 manufacturing plants owned by Relaxo is over 100 million pairs per annum! The highest volumes belong to the category of lightweight Hawaii slippers - over 300,000 pairs per day. These are followed by its three other categories of joggers, casuals and school shoes. 4 footwear categories: Relaxo has ventured into home, casual, sports and school wear. Currently, it has 4 footwear categories, namely, Hawaii, Casual, Joggers, and Schoolmate. It is one of the few companies that maintain consistent production activity in such a varied range of footwear. Manufacturing experience: The company caters to several international buyers of high repute. Premium shoe brands like Nike and Dunlop source their sports-friendly joggers from Relaxo. New units are being set up to increase its production capacities. |
Posted By: amitdip
Date Posted: 08/Jan/2010 at 3:47am
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TV Ads
http://www.youtube.com/watch?v=U4QT0Gsv_xY&NR=1 http://www.youtube.com/watch?v=MrQDIpZtoew |
Posted By: EquityInv
Date Posted: 08/Jan/2010 at 6:22am
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http://www.moneycontrol.com/news/business/expect-rs-550-cr-turnover-rs-35-cr-pat-relaxo-footwears_433387.html - Management is hopeful for better FY10 . They seems to close FY10 EPS with above Rs.28. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: srisaurabh2000
Date Posted: 08/Jan/2010 at 9:25am
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This was recommended by HDFC securities in Sept 09 at CMP 86- here is the link:
http://www.hdfcsec.com/CMT/Upload/ArticleAttachments/Relaxo%20Footwear%20Ltd%20Stock%20Note.pdf - http://www.hdfcsec.com/CMT/Upload/ArticleAttachments/Relaxo%20Footwear%20Ltd%20Stock%20Note.pdf
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Posted By: shivkumar
Date Posted: 08/Jan/2010 at 9:41am
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These are the main negatives about the company as per the HDFC report: Certain group companies are engaged in similar business thereby posing a threat as conflict of interest could take place. Also there are related party transactions such as purchase of goods from the company’s associates that could raise doubts about arm’s length pricing of these transactions. The Relaxo brand is not wholly owned by RFL. It is jointly with a group company. However no royalty is currently being paid by RFL. |
Posted By: hit2710
Date Posted: 08/Jan/2010 at 9:44am
HDFC securities people seem to be very good at uncovering uncommon stocks , Stocks I have read on their website include the names like Bodal Chemicals, Vinati Organics, Astral Poly, among others. ------------- Stockmarket is a weird place. For every person who buys a stock there is a person who sells it and both think they are very smart. |
Posted By: kaushalchawla
Date Posted: 09/Jan/2010 at 3:15pm
I saw Opto circuit recommendation by HDFC securities when it had a mcap of 200 Crores.....I still regret not buying it.  ------------- Warm Regards, Kaushal |
Posted By: srisaurabh2000
Date Posted: 13/Jan/2010 at 10:06pm
| Relaxo Footwear also has the Sparx brand which is promoted by Neil Nitin Mukesh. |
Posted By: amitdip
Date Posted: 13/Jan/2010 at 4:26am
Donning clothes or off  |
Posted By: amitdip
Date Posted: 13/Jan/2010 at 11:18am
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I got a reply from Relaxo footwear for apologies for not having fixed the defect on their website.
They are instead rebuilding a whole new website. Regards Amit |
Posted By: EquityInv
Date Posted: 17/Jan/2010 at 11:31pm
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Amit, Do you have idea of revenue mix [Hawai, Flite and Sparx] of Relaxo? It seems that Sparx is contributing less now but has high margins compared to other two.
Bata dragged Relaxo to court for law suit of brand [Sparx] infringement. Any more idea on this? ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: amitdip
Date Posted: 17/Jan/2010 at 12:35pm
Hi, dont have exact sales mix in Rs but company is at high capacity utilization in all three products, that is why a new factory will go online in April 2010 One can however guess by these numbers: Production per day: Hawai Chappals : 2 lac pairs Flite: 75,000 Sparx: 10,000 Flite and sparx have obviously high margins. They spent 60 crore Rs last year on building factories and 30 crore Rs on Ads and promotions to build brands. Another reason is company has got higher visibility of complete product line through retail chain, average store size is 85 square metres per store displaying whole range. Trigger is rural people upgrading to branded products. Not sure about Bata case, still subjudice. |
Posted By: EquityInv
Date Posted: 17/Jan/2010 at 1:21am
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Thanks Amit..
Relaxo seems really available at decent valuation now. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: amitdip
Date Posted: 25/Jan/2010 at 4:23am
| This is for their new factory coming to life in April 2010 |
Posted By: amitdip
Date Posted: 25/Jan/2010 at 4:24am
http://www.timesjobs.com/candidate/JobDetailView.html?adId=NXDQdry//bhzpSvf+uAgZw==&bc=INT&searchName=inner&from=submit |
Posted By: amitdip
Date Posted: 31/Jan/2010 at 11:22am
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Two kicks for not having noticed this at 30 Rs. Feast your eyes on the alluring beauty, I feel vindicated of guilt for investment price at 200, 7x price of March 2009.
http://www.bseindia.com/xml-data/corpfiling/announcement/Relaxo_Footwears_Ltd_300110_Rst.pdf |
Posted By: amitdip
Date Posted: 12/Feb/2010 at 3:22am
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“At Relaxo we always believe in delivering quality par excellence. After getting good response from Ahmedabad, Surat, Anand, Valsad stores, we have decided to carry our motto of providing quality products at affordable price to our customers in the other cities of Gujarat, Vadodara is one of them.” "We are also coming with more stores in Gujarat in the cities such as Navsari, Rajkot, Bhavnagar, Jamnagar, Junagarh, Porbandar, Bhuj, Gandhidham, Mehsana and Palanpur," Dhar further adds. http://www.indiaretailing.com/news.aspx?topic=1&Id=4504 |
Posted By: EquityInv
Date Posted: 13/Feb/2010 at 6:48am
Does this guys give franchisee? It seems that they do open their own stores [hence more capex..] rather than franchise. Also, do you have soft copy of annual report? ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: amitdip
Date Posted: 13/Feb/2010 at 10:55am
Hi, I dont have annual report :-( Franchising is a wonderful thing for ROE, but Relaxo is not that fortunate and does not follow that model yet as they are still to build brand muscle, but more than 50% of their stores are breaking even already. CHINKI is doing more research on it. We want to watch expansion in Gujarat and South India closely to know if they can nail pan india. |
Posted By: amitdip
Date Posted: 14/Feb/2010 at 9:21am
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We may have pressure on bottomline next year http://www.indexmundi.com/commodities/?commodity=rubber&months=60 |
Posted By: amitdip
Date Posted: 14/Feb/2010 at 10:36am
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Thanks to CHINKI, he got hold of annual report, I will be able to send you if you provide your email id
Cheers
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Posted By: kaushalchawla
Date Posted: 15/Feb/2010 at 10:04pm
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HI Guys.....I have boarded this bus....
My portfolio's first pick is Relaxo. (5% weightage as of now). I spoke to my uncle who is in shoe business in north. And he told me:- 1. Relaxo sells by name. People ask for it. 2. It keeps its ears on ground level and modifies as per market's needs and realities. I was pleasantly suprised to see relaxo in mangalore. [i had not expected it.] The shopkeeper told me that the demand for relaxo is good here also and the demand outpaces the supply. He also told me that Relaxo gives you Nike quality shoes at half the rate. ------------- Warm Regards, Kaushal |
Posted By: EquityInv
Date Posted: 15/Feb/2010 at 10:20pm
Thanks Amit and Chinki, Amit, I sent you my mail id. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: EquityInv
Date Posted: 15/Feb/2010 at 10:54pm
Thanks Kaushal, This is really good info. Only thing concern me is their debt.. But given their expansion plan in manufacturing,retail shoppe and brand building, it seems they will be pretty comfortable... Also, big profit jump in this year will help bring down d/e ration much.. Moreover, they target to the masses. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: EquityInv
Date Posted: 15/Feb/2010 at 10:54pm
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duplicate post ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: EquityInv
Date Posted: 15/Feb/2010 at 11:12pm
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crap.. it's again deleted.. Is there anyway to delete post completely? ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: amitdip
Date Posted: 15/Feb/2010 at 11:56pm
Useful first hand info.. They used to/still do ? make jogger shoes for Nike and Dunlop, so they have the know how to make good shoes After eight years of trading in 30-50 range like Hawkins Cooker this has vaulted in 2009. So expansion has to work to keep price trending up. Also building brand is really a costly affair but one that lasts, 13 crores on Ads and 17 crores on selling and promotion in 2009 has not given them enough clout in terms of franchise capability Thanks |
Posted By: amitdip
Date Posted: 15/Feb/2010 at 12:04pm
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Some more detail on this page:
The footwear range offered by us include: • Sparx Sport Shoes • Sparx Sandals • Flite Men's EVA Footwear • Flite Lady's EVA Footwear • "Schoolmate" School Shoes • Hawai Slippers • Casualz Men's Dip Shoes • "Elena" Ladies Bellies • "Relaxo" Canvas Shoes • "Leatherite" Slippers • "Boston" Men's Shoes • "Mary Jane" Lady's Fancy Footwear Our Brands These exclusively designed and manufactured footwear products are offered to clients under following brand names: • Sparx • Flite • CASUAL • ELENA • ESTEEM • Bahamas • Hawaii • Leatherite • Canvas http://www.footwear-industry.com/company.asp?pvc=16 - http://www.footwear-industry.com/company.asp?pvc=16 |
Posted By: balloon
Date Posted: 15/Feb/2010 at 10:24am
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any views on the sustainability of margins? what kind of growth do group members foresee for this company?
------------- "The only way to win is work, work, work and hope to have a few insights" - Charlie Munger |
Posted By: amitdip
Date Posted: 16/Feb/2010 at 12:23pm
Unbiased views: Retail companies, if cashflow positive and black in bottomline can go bankrupt only because of leverage and unmindful expansion. Biased views: Relaxo is growing gradually not too rapid, its debt it not cause of worry today. They spent 60 crores on building factories and 30 crores on ads and promotions in 2009. Worst case scenario: Relaxo will be same size it is today in five years, so you will not lose capital permanently. Best Case scenario: Relaxo expansion works and its a 1000 - 2000 crores company in sales and market cap in next 5-6 years. Tailwind favours India: Shoes are labour intensive industry and trend favours India. Dhandho approach: Tails i dont lose much, heads i win. Oh forgot to answer Margins: No idea, at this time only bet is 20-25% topline growth for next few years, there may be good and bad years due to rubber and EVA raw material. Regards |
Posted By: balloon
Date Posted: 17/Feb/2010 at 11:57am
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what is happening on the counter? any views...yesterday on circuit and today doing brisk volumes? Do group members have any view of the management? Any red flags that one should look for?
------------- "The only way to win is work, work, work and hope to have a few insights" - Charlie Munger |
Posted By: amitdip
Date Posted: 22/Feb/2010 at 10:06am
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The range of Relaxo has collections from formal to
casual shoes in Men's, women's and kid's category. This collection of
reasonably priced yet incredibly comfortable shoes includes formal
shoes, sports shoes, canvas shoes, sandals, floaters, slippers, school
shoes, fashionable sandals and shoes for ladies, furthermore they are
available under the brand name of Sparx, Flite, Mary Jane, School Mate, Hawai, Boston and Kids fun. http://www.indiaprwire.com/pressrelease/fashion/2010022244091.htm |
Posted By: CHINKI
Date Posted: 22/Feb/2010 at 11:19am
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The problem with this stock is their net profits depends purely on raw material price (rubber).
Since their customers are middle class and lower middle class group which are sensitive to pricing, they may not be in a position to pass on the increase in the raw materials price. Rubber prices have been moving northward since last year and they have reached already Rs.14,000/-. Relaxo's profit margin which was at 7.94 during Q1 is also moving downwards and it is 7.08 during Q2 and 5.69 during Q3. While most of this may be due increase in staff cost, the raw materials cost is also increasing slowly. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: amitdip
Date Posted: 23/Feb/2010 at 1:53pm
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Good observation but I believe Rubber comprises only 33% or so of raw material and EVA accounts for 60% or so of raw material. Not sure how to track EVA foam prices.
Not a shadow of doubt that margins will be under pressure when raw material prices rise, but what happens is players from un-organised sector get wiped out into bankrupty and Relaxo survives because they refuse to/combination of unable to; pass on price to customer. They are lowest cost highest volume due to economies of scale of Slippers 3 lac pair a day so company is unlikely to go bankrupt, if 3 "chappal" makers survive in world, relaxo will be one of them |
Posted By: CHINKI
Date Posted: 23/Feb/2010 at 2:01pm
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EVA prices are directly dependent on Crude Oil Prices.
When raw material prices raises, unorganised market are the worst hit as they can not pass on the price raise. Relaxo also could not pass on the raw material price hike during last year and infact their net margin during Q3FY09 had come down to 0.8%. While Relaxo may not close down, but their earning are dependent on rubber price and earnings will not be steady. Another peculiar thing is that the management do not want to open the shops on franchisee model as it will save lot of capital. I don't know how did you get that 30% is the cost of the raw materials. For the current year till Q3 FY10, raw materials (INCREASE/DECREASE IN SIT, CONSUMPTION OF RAW MATERIALS & PURCHASE OF TRADED GOODS) constituted 51.62% while last year it was 62.08% of sales. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: balloon
Date Posted: 23/Feb/2010 at 2:16pm
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my two bits on this: 1). the company has been able to pass on the increase in raw material prices. If you see this years margins, they have primarily come from two factors - price hikes in FY09 and crash in raw material prices in the subsequent quarters. Amit is right. EVA is the main raw material to track in their case. EVA is largely ethylene plus VAM. Tracking ethylene prices is easy....i presume (correct me if i am wrong here), the trend in ethylene prices will also reflect in EVA prices. 2). Over the last 4 years, the margin profile of this company has changed significantly. Operating leverage, high value added products and lower contribution from traded goods have contributed to the same. Operating margins which were about 4-5% earlier, shot up to 10% and this year they are around 15%. I think the Company can sustain 12-13% margins going forward. 3). But I agree with you that it shud have set up retail outlets via the franchisee route. Why they havent done it remains to be seen. 4). The key question to a sucessful investment in Relaxo is whether they can sustain the current growth in business. In one of the interviews, the management has indicated a turnover target of about Rs.1000 crore over the next 3 years. Can they do it? ------------- "The only way to win is work, work, work and hope to have a few insights" - Charlie Munger |
Posted By: funkyappu
Date Posted: 23/Feb/2010 at 2:41pm
I have two queries regarding Relaxo:
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Posted By: CHINKI
Date Posted: 23/Feb/2010 at 2:42pm
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1) Following raw material prices does not lead you anywhere. What we have to worry is whether they will be pass it on to customer or absorb it without affecting the net margin by improving the operation efficiency.
2) Net margins have not improved much for the last 5 years (1.79%(FY05), 1.81%(FY06), 2.92% (FY07), 3.44% (FY08) & 3.49%[FY09]). While entering into Sports Shoes and Canvas would definitely improve the margins, but raw material prices may prove a spoilsport 4) In the link, what Amit has posted today, they are talking of Rs.1000Cr by FY11. I don't how they will do that?? One of the senior management was metioning that they may do 650Cr during next year. This year they are expected to do 550Cr which works out to only 18% growth. So take decision accodingly. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: balloon
Date Posted: 23/Feb/2010 at 2:50pm
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Chinki, the operating margin numbers for the last five years are as follows: 5.70 6.81 7.77 10.22 10.74 10.76. ------------- "The only way to win is work, work, work and hope to have a few insights" - Charlie Munger |
Posted By: funkyappu
Date Posted: 23/Feb/2010 at 2:53pm
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How much more are the raw materials prices going to increase?Can or has the management shed any light on this? ------------- |
Posted By: basant
Date Posted: 23/Feb/2010 at 2:58pm
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If investing into a company is so much dependent on RN then why not bet on the Raw material itself. Good brands generally find a way out of the Raw material crisis the trick is to check how they did the last time around when raw material behaved in such fashion. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: funkyappu
Date Posted: 23/Feb/2010 at 3:00pm
They did normal...average. ------------- |
Posted By: balloon
Date Posted: 23/Feb/2010 at 3:06pm
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I think there has been a fundamental change in the company's product profile over the last 3-4 years, which reflects in the change in the operating margins. I think while raw material will still affect them, but i dont think it affects as significantly as it used to in the past. Besides, if one were to look at their per unit realizations on raw materials and sales, many discussing this company here will be in for a surprise. Over the last 4 years, realizations from sales have growth at a faster rate compared to the rate at which raw material expense per unit has increased. besides, also look at their cash flow generation. it has been quite strong. In toto, I think raw material concern is a valid one, but I feel the greater concern from an investment point of view is whether the growth momentum will continue. ------------- "The only way to win is work, work, work and hope to have a few insights" - Charlie Munger |
Posted By: amitdip
Date Posted: 23/Feb/2010 at 2:24am
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Average Crude Price in Last 6 years = 75$ / Barrel Average Rubber Price in Last 6 years = 85 Cents / Pound CHINKI is correct that the Relaxo was NOT able to pass on prices to consumers as per their AR09 in some segments if not all. As per Basant's recommendation: I probed how the company fared when last similar story played Raw Material prices (both Rubber and Crude Oil (for EVA)) peaked between November 2007 - August 2008. My suspicion is there will be HIGH correlation with Rubber (prices of Chappal cant be passed on) and Low degree correlation with EVA (Branded product products can be relatively easily). Year 05 06 07 08 09 10* Sales 215 200 235 305 409 550 Raw Mat 145 126 150 140 181 220 NP 4 3 7 10 14 35 Viewing numbers; even if Raw Material prices impacted Relaxo with a lag of 3-6-12 months(hedging in favour); it cannot be seen through Relaxo's FY08 or FY09 numbers that they were under pressure. The possible explanation for this is a) operational efficieny and b) high value products up the chain. However, some benevolence of Raw Material prices can be seen in FY09 Numbers. Conclusion: Correlation is WEAK. Raw material was 67% in Rs terms of sales in FY05 to 40% of sales in FY10. We are better off worrying/discussing/arguing/fighting about looking whether expansion works or not. If it does this has potential as any other gangbuster retail story. |
Posted By: EquityInv
Date Posted: 23/Feb/2010 at 5:51am
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Amit summed it up really well about raw materials and change of product mix. Their higher margin product Sparx,Flite,etc.. will be main future growth drivers. Moreover, management is continuously focusing on brand building through different routes and hence capex is also spent on that [one more future growth driver].
One more thing to note is that they didn't diluted equity since last 10 years. Main thing to watch out will be whether they can replicate their retail shoppe [as well as brand] in "pan India" or not. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: EquityInv
Date Posted: 23/Feb/2010 at 5:57am
I also read it http://www.indiaprwire.com/pressrelease/fashion/2009101035581.htm - here that they are planning to achieve 1000 crores revenues in FY12 . Anyway this is from media news, I don't know about management estimates but I am happy with 30+ % topline growth. [Eventually it will be reflected in bottomline ]------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: CHINKI
Date Posted: 23/Feb/2010 at 8:35am
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Funkyappu has helped me in collecting the rubber prices since Jan'2008.
I have made the following table: QTR YEAR RUBBER SALES PROFIT NET PRICE CR CR MARGIN JAN-MAR 2008 9759 94.4 1.99 2.11 APR-JUN 2008 11925 98.49 4.11 4.17 JUL-SEP 2008 13594 92.12 2.01 2.18 OCT-DEC 2008 7718 95.32 0.77 0.81 JAN-MAR 2009 7205 122.94 7.34 5.97 APR-JUN 2009 9772 129.95 10.24 7.88 JUL-SEP 2009 10230 132.5 9.32 7.03 OCT-DEC 2009 11809 135.97 7.66 5.63 JAN-MAR 2010 13715 ?? ?? ?? OBSERVATIONS: i) Rubber prices vary between its minimum and maximum prices within 18 months ii) Based on the rubber price with a lag affect, net profit margin of Relaxo is also getting affected iii) Since 2008, looks like Relaxo are not increasing their products price when the raw material prices increases and vice versa iv) Since the rubber prices changes in a big way within a year, its effect on net profits gets masked v) With the increase in capacities and also getting into high margin products may to some extent nullify this effect (net profit margin coming down when rubber prices goes up) ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: basant
Date Posted: 23/Feb/2010 at 8:50am
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On the excel sheet run a correlation between rubber prices and op margin. That is how I try and look at things. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: EquityInv
Date Posted: 23/Feb/2010 at 9:08am
Thanks Chinki and funkyappu for this data.. But rubber is only around 20% of their Raw materials.. Their main raw materials [60%] is EVA [oil derivative?].. EVA is used to produce foam/smooth rubber. http://www.moneycontrol.com/stocks/company_info/print_main.php - Source ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: Rehan
Date Posted: 23/Feb/2010 at 9:55am
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What I see is that there is a continuous expansion of margin. Doubled in 5 yrs both on operating as well as net levels which is certainly a great sign. RM prices can impact margins on a qrtly basis since product prices dont react on a qrtly basis but in the long run it is their competitiveness which matters. Like in case of Hawkins increased aluminium prices didnt mean lower margins.
Once cursory look ats its competitors shows that Relaxos margins have expanded faster than most over the last 5 yrs which could mean that they have competitive advantage over others.
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Posted By: CHINKI
Date Posted: 23/Feb/2010 at 10:36am
Issue is how much they can pass on this to the customer or diversify into products having high margins or improve operation efficiency due to economics of scale?? In case if they could do all the three during current high rubber price which we will come to know after two or three quarters, then it is good. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: CHINKI
Date Posted: 23/Feb/2010 at 11:11am
Net margins for the same period are 1.79%, 1.81%, 2.92%, 3.44% & 3.49% I have checked the operating margin and net margins for both Bata and Liberty during the same period (FY09 to FY05). They are as given below: OPERATING MARGIN LIBERTY: 13.13%, 15.61%, 14.73%, 12.68% & 10.74% BATA: -1.49%, 3.48%, 7.44%, 8.33% & 10.35% NET MARGIN LIBERTY: 5.45%, 9.01%, 7.65%, 6.45% & 3.11% BATA: -9.02%, 1.77%, 5.21%, 5.47% & 6.14%
------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: balloon
Date Posted: 23/Feb/2010 at 11:20am
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Chinki, You are mistaking in looking at the numbers. See there are various things at play here: 1). there is a definite improvement in operating margins. This is largely due to the following: increase in prices (check the per unit realization in the product break-up that the Company provides in its annual report). second, share of traded goods which was about 50% five years back will now be less than 15% (in FY10, i.e). 2). the reason why it has not translated into net margins is due to higher interest costs and deprecition, both of which have more than doubled during the last five years. This year, the company will generate about 60-70 crore in pre-tax cash. which will mean the Relaxo does not have to borrow higher. Debt levels are likely to remain the same as was the case last year. As business scales up with more and more cash kicking in, I think the interest part will slowly but surely come down. Besides, tax benefits due to wind power and uttranchal unit will keep net tax rate at a lower level. and which is why going forward, the expansion in operating margins will start reflecting at the net level too. With similar operating margins, both liberty and bata trade at more than 1 time sales, whereas Relaxo is trading at less than 0.5 times. ------------- "The only way to win is work, work, work and hope to have a few insights" - Charlie Munger |
Posted By: funkyappu
Date Posted: 23/Feb/2010 at 11:20am
Market price of Grade-4 Natural rubber
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Posted By: EquityInv
Date Posted: 23/Feb/2010 at 11:23am
Allright.. Let's take a look from rubber price perspective.. My observation from above numbers [considering an quarter lag]: 1) When rubber price was 9759 in Jan-Mar'08, they had margin of 4.11% in Apr-June'08. 2) When rubber price was highest 13594 in July-Sept'08, they had margin of 0.81 % in Oct-Dec'08. 3) In April-June'09, rubber was back to 9772 and relaxo had margin of 7% [as against 4.11% when price was 9759] in next quarter Jul-Sept'09. Above points clearly shows that in short term company is unable to pass on price, but in longer term they managed to pass it on. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: CHINKI
Date Posted: 23/Feb/2010 at 11:38am
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Equity, they are not passing on the price in the long term. It is only that after 9 to 12 months, rubber prices comes down.
That time they won't decrease the prices also. So they make up the margins which they lost when rubber prices were higher. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: funkyappu
Date Posted: 23/Feb/2010 at 11:39am
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Year Rubber Price Operating Margin Net Margin 2005-06 6699 6.17% 1.79% 2006-07 9204 7.32% 1.81% 2007-08 9085 9.88% 2.92% 2008-09 10112 11.28% 3.44% ------------- |
Posted By: Rehan
Date Posted: 23/Feb/2010 at 11:47am
Relaxos turonver has almost doubled - 200 to 407 crores- from 04 to 09 while batas has gone up from 700 to 1000 from 03 to 08 Dec .Libertys gone up from 200 to 247 from 04-09. Batas margin expansion is not exactly comparable as it turned around . Relaxos margin expansion has been at much higher sales growth which is double positive for this.
I dont have any expsoure but it is on my radar. |
Posted By: CHINKI
Date Posted: 23/Feb/2010 at 11:49am
There are so many parameters on which company's profit is dependent. One of them is raw material prices. Till date, they are not able to pass it onto customer. With so many other things they have done like diversifying into high margin products, adding capacities or opening a factory at Uttaranchal, that may to some extent may take care. This we will get to know during next financial year. Now the rubber prices have reached the maximum level. If the net profit margin comes down during Q4, then it clearly shows that they are yet out of woods. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: funkyappu
Date Posted: 24/Feb/2010 at 12:07pm
The increasing rubber prices aren't hampering the margins, as is evident from the data. Their increasing sales are taking care of the rubber prices. There is one more thing about the interest costs. They're eating into the cash flows. It'll be better if they consolidate as of now, their current situation, so that their working capital needs are taken care of by their internal cash flows. ------------- |
Posted By: amitdip
Date Posted: 24/Feb/2010 at 1:03pm
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Hate to repeat:
Raw Materials as a %age of sales are 40% in for year ended March 2010 (expected) 220Cr on sales of 550 Cr. This is going down year after year. High correlation with Rubber is appearing coz of serendipity of Oil price up at same time as rubber. When ROCE is 40% we should want Relaxo to take more loan and pay more interest. As long as they keep ROCE sufficiently higher than loan cost, its in investors favour. With management being in this business for decades, business run with ownership mentality, Mr Dua is more concerned than me in ensuring survival. |
Posted By: amitdip
Date Posted: 31/Mar/2010 at 2:05pm
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Operator today offered 50 Rs to get out for those who were interested, I was'nt. Its at lifetime high, many more highs to come.
Cheers |
Posted By: Kalyan
Date Posted: 03/Apr/2010 at 5:10pm
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amitdip upto what trajectory it can go. ------------- kalyan |
Posted By: balloon
Date Posted: 03/Apr/2010 at 8:00pm
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the Company is likely to do about 35 cr this year...if it can do about 40-42 cr next year, i think the stock can easily trade at about 350-400 bucks!
------------- "The only way to win is work, work, work and hope to have a few insights" - Charlie Munger |
Posted By: amitdip
Date Posted: 03/Apr/2010 at 4:33am
Double in a year or 1000 Rs in three to four years. Depends on co:s attitude with dividend. Expectation of 25% growth, and PE rerating. Expecting FY 10 EPS of 50 Rs. No heretic MF/FI/FII manager has garnered courage to buy this as yet. Look what happened to TTK when fund buying got initiated. The movie has not even started, just ads playing on the screen before the movie. Cheers |
Posted By: EquityInv
Date Posted: 03/Apr/2010 at 5:06am
9MFY10 EPS is around Rs.23..do you mean expected EPS of Rs. 50 in FY12? ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: amitdip
Date Posted: 03/Apr/2010 at 8:27am
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Sorry I meant FY11 EPS of 50
Expecting sales of 700 crores next year, bottom line of 60 crores next year itself. Optimistic but doable. |
Posted By: EquityInv
Date Posted: 03/Apr/2010 at 9:51am
Amitbhai, Good optimistic view!! What are your reasons behind this expectations of revenue growth of 30% and bottomline growth of 70% in next year? In FY10, their operating margins increased mainly because of dual effect.. change in product mix and low raw materials cost. Hence I am of the view that currently they are enjoying highest operating margin and it will decline little bit or remain same next year. Obviously, stock looks attractive from this perspective too. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: funkyappu
Date Posted: 03/Apr/2010 at 9:58am
Nice observations... Besides, somebody told me that Relaxo people play in their own stocks. How can one find about people playing in one's own stocks? Is there any way of finding that? Bottomline growth of 70% can happen..I suppose....It depends upon how their high-margin products fare in the market..........but they're still relying on their slippers.....Their TV ads say so... ------------- |
Posted By: amitdip
Date Posted: 04/Apr/2010 at 6:53am
EquityInv ji, Relaxo is doing all the right things in terms of building brands. I feel that economies of scale will show up more and more in coming years, better bargaining power due to huge volumes and visibility with suppliers will give it an edge besides the twin factors of move up value chain and lower commodity prices. Visibility of more retail shops is another brand awareness medium. I am keen to find out of they will build yet more factories this year, shall update here when I do. Its set to replace Bata as leader in India and leader commands higher PE. A new factory should kick in this month, so 20% growth seems like a cinch. If a company is valued with DCF model compare the cash flows of Hawkins Cooker vs Relaxo. Expected cash flows may be 60-70 crores this year and 90-100 crores next year, what the hell will they do with this money, distribute or use it to expand. Company is available for just 250 crores when we can clearly see they will do sales of 1000 crores in three years tops. I feel they will keep coming back till they get the right retail model and brand presence... Now they are at an inflexion point where they can make many mistakes and still be wealthy. On the contrary, fear is extension into belts, accessories and other loss making retail ventures. |
Posted By: EquityInv
Date Posted: 04/Apr/2010 at 7:28am
Thanks for your view. I agree with your views broadly. They do have excellenct balance sheet, high return ratios, decent management and if their pan India presence clicked, relaxo will be really big. I was just cautious for bottomline growth for next year.. If they will do more than my expectations of 30%, it will be icing on cake  ..
Also, Relaxo consolidated in 180-200 range since last 5 months, let's hope party begins soon.. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: amitdip
Date Posted: 05/Apr/2010 at 12:18pm
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Party has to happen, no two ways about it, only a matter of time. Where there is honey, bees will come. Black cl ouds on the horizon will bring rain and it will pour $$ for sure
Consolidation or operator grip whatever the reality may be..its time has to come. The net profits are low this year due to high depreciation which makes cash flows much stronger than of net profits, that may continue for some time. |
Posted By: FutureBull
Date Posted: 05/Apr/2010 at 12:44pm
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I could not find dec. quarter results on BSE ------------- ‘The market always does what it’s supposed to — BUT NEVER WHEN’. |
Posted By: subu76
Date Posted: 05/Apr/2010 at 12:58pm
| Amit Sir, Do you have access to the company's annual report? I am specifically interested in the consolidated cash flow statement. |
Posted By: amitdip
Date Posted: 05/Apr/2010 at 3:56pm
Subu ji, As a matter of fact I do, please let me know your mail id for a relax-ed reading. Regards |
Posted By: subu76
Date Posted: 05/Apr/2010 at 6:41pm
| Amit Sir kindly clear your inbox. |
Posted By: Rehan
Date Posted: 05/Apr/2010 at 9:08pm
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Amit
Any idea how much will be the cash from operations for Fy10? This looks good from cash perspective and not so good from book profits.
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Posted By: amitdip
Date Posted: 05/Apr/2010 at 1:40am
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Dear Subu and Rehan,
Have cleared my inbox, sorry about that. Expected cash from operations 60+ crores by March 2010, and 90+ crores by March 2011. Key point to worry is what they will do with this money ? If they are able to plough back all this dough in new shoe/slipper factories, we wont contain the joy. Regards |
Posted By: amitdip
Date Posted: 06/Apr/2010 at 1:26pm
| http://www.moneylife.in/article/8/4491.html - http://www.moneylife.in/article/8/4491.html |
Posted By: amitdip
Date Posted: 07/Apr/2010 at 2:53pm
| http://www.imagesfashion.com/NewsDetails.aspx?Ntype=1&id=210 |
Posted By: Rehan
Date Posted: 12/Apr/2010 at 3:20pm
When we say cash from operations , do we mean the cash left after paying interest, tax etc?In this case 60 crores is the actual cash profit for the company. This 60 crores does not include money raised during the year for capex etc.
One more doubt I had was regarding interest paid. Does it not include the principal amount also ?
Please help me understand these issues.
Thanks
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Posted By: Hamlet
Date Posted: 13/Apr/2010 at 1:09pm
 The Hawaii chapals are flying high today
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Posted By: amitdip
Date Posted: 13/Apr/2010 at 4:26pm
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So long as Chappals dont fly in the face of a politician ala Bush, should be kosher.
Story is still undiscovered, last time I checked MF / FII Holding was Zero. -------------------------------------------------------- Cash from operations is cash left on the table after payment of operating expenses. Eg. depreciation is an entry in accounting statements but does not involve any cash outgo, it reduced net profits but no cash has left the business. More details here http://en.wikipedia.org/wiki/Statement_of_cash_flows Interest paid is exactly that, without principal being returned. Regards |
Posted By: funkyappu
Date Posted: 13/Apr/2010 at 4:28pm
Be on look-out for some chappal slaps.....  ------------- |
Posted By: Khan
Date Posted: 13/Apr/2010 at 5:31pm
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The shares have shot up today.
The company seems to be having high debt and that too coming at a high cost as well. For last year about 19 cr interest on average debt of 90 cr .i.e > 20% isn't this a cause for worry considering that both debt as well as interest costs have been rising over the years? If so much cash is available why the increase in debt?
------------- If you do what you've always done, you'll get what you've always gotten |
Posted By: EquityInv
Date Posted: 13/Apr/2010 at 8:57pm
It will look bit high debt if you look from debt/equity ratio. But if you look at debt to operating cash flow of just around 2 times and they have high RoCE you will see that debt is not much of problem. Moreover I think they don't need much debt this year and hence d/e will be on reducing side. Where do you see 19 cr interest? They paid 9 cr. interest in FY09. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: funkyappu
Date Posted: 13/Apr/2010 at 9:33pm
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If you see from operating cash flow angle, debt interest is already deducted from it. For stability parameters, debt should be viewed from shareholder's funds (equity + reserves & surplus). In the operating cash flow thing...which's at 41 crores......which comes from EBIDTA of 53 crores......That 53 crores contains depreciation as well as financial expenses of 19 crores. Financial expenses needs to be deducted from operating cash flow to have an exact picture. I personally'll take operating cash flow to be around 22 crores. Relaxo has a history of debt carrying. It never reduces to some substantial basis. Its inherent in their business model.....I suppose. ------------- |
Posted By: EquityInv
Date Posted: 13/Apr/2010 at 10:51pm
Well from cash flow perspective, I was tyring to say is that debt is really not an bigger problem. Main thing to watch out for will be how successful Relaxo will be to build good brand, increase higher margin product sales and success of it's pan-India retail shoppe.. High growth smallcap needs debt for growth. As far as they keep higher return ratios, leverage is in their favor. Moreover they didn't raised money by diluting equity since last few years.. ------------- One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers |
Posted By: amitdip
Date Posted: 13/Apr/2010 at 12:31pm
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Interesting debate..
>>If so much cash is available why the increase in debt? Company is saying I need 90 crores this year for expansion and growth, but business is generating 41 crores only, so they have to take on debt. Usually its fortunate to be in such a position, that your company has plans to reinvest all cash and still take on more debt to grow so long as it is serviceable. Even 15% ROE can do wonders in such a case with leverage. But I guess given their manufacturing operations, debt will stay for a while so long as they grow...manufaturing gives them some moat too. If they become a strong brand they may not need investments in factories/ can outsource, but will need to advertise more. At the moment money is invested on three expensive fronts other than regular opex: a) Ads b) New Factories c) Retail shops Its in early growth phase. Only by virtue of becoming a strong brand can it cut expense on b) and c). Though I have confidence that Relaxo will reap rewards for a) and b) but many a company has dropped the ball on c). Company has growth plans intact, hopefully not brisk and moribund as. Amit |
Posted By: funkyappu
Date Posted: 13/Apr/2010 at 9:59am
Yes, they can take a leaf from Woodland......which gets its products manufactured by people trained by it...its like contract manufacturing.. ------------- |
Posted By: Khan
Date Posted: 13/Apr/2010 at 11:55am
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check websites
smartinvestor shows 19.11 cr moneycontrol shows 21.28 cr
------------- If you do what you've always done, you'll get what you've always gotten |
Posted By: Khan
Date Posted: 14/Apr/2010 at 12:01pm
If ROE is 15% and interest cost is 20%, how does it help?
------------- If you do what you've always done, you'll get what you've always gotten |
Posted By: Khan
Date Posted: 14/Apr/2010 at 12:23pm
Also observed a big difference in interest figures based on quarterly reports and annual figures. Quarterly figures add up to around 9 cr for 4 quarters upto Mar 09. While annual figure for Mar 09 is around 20. What could be the reason for this?
------------- If you do what you've always done, you'll get what you've always gotten |
Posted By: amitdip
Date Posted: 14/Apr/2010 at 1:29pm
| Interest is 9 crores only. You may be talking about Finance Charge, its other component is "Cash Discount" usually given to customers to pay in cash rather than credit, so if you offer 2% cash discount, you collect 98 Rs instead of 100 Rs. |
Posted By: amitdip
Date Posted: 14/Apr/2010 at 3:42pm
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