Relaxo Footwear 1QFY2013RU 070812

7/31/2019 Relaxo Footwear 1QFY2013RU 070812

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Please refer to important disclosures at the end of this report 1

EBITDA 30 33 (9.4) 23 30.6

EBITDA margin (%) 12.1 13.7 (162) 10.7 138

Source: Company, Angel Research

Relaxo Footwear (Relaxo) reported a decent set of numbers for 1QFY2013. The

companys revenue grew by 15.6% yoy to `248cr, which was in-line with our

estimate of `250cr. On the operating margin front, it saw an improvement of138bp yoy to 12.1% mainly due to softening of raw material prices. However, the

margin contracted on qoq basis by 162bp on account of substantial rise in the

employee cost and other expenses. Subsequently, the profit for the company grew

by 39.6% yoy but declined by 19.8% on a qoq basis to `15cr.

The company is in

an expansion mode and plans to incur a capex of `60cr for building up a PU

(Polyurethane) footwear plant (expected to get completed by FY2013) and `25cr

for building a warehouse (to be completed by FY2014E). In addition, the

company plans to open 25-30 retail stores each year. It recently signed up

leading celebrities for endorsement of its brands - Salman Khan for Hawaii,

Katrina Kaif for Flite and Akshay Kumar for Sparx. We expect capacity expansion

and aggressive marketing to complement each other and drive volume.

We expect Relaxo to post a revenue CAGR of 18.5% over

FY2012-14E to `1,208cr with an operating margin of 13.0% in FY2014E. The

PAT is expected to grow at a CAGR of 43.4% to `82cr for the same period. At the

current market price, Relaxo is trading at 7.5x FY2014E earnings.

Key financials

% chg 35.9 23.9 25.4 18.5 18.5

% chg 160.2 (28.8) 48.6 53.3 34.1

EBITDA margin (%) 13.8 9.6 10.5 12.3 13.0

P/E (x) 16.3 22.9 15.4 10.1 7.5

P/BV (x) 5.6 4.6 3.6 2.7 2.0

RoE (%) 41.0 22.0 26.0 30.3 30.2

RoCE (%) 21.8 14.3 19.5 24.0 26.3

EV/Sales (x) 1.4 1.1 0.9 0.8 0.6

EV/EBITDA (x) 10.0 11.6 8.5 6.2 4.8


CMP `514

Target Price `684

Investment Period 12 Months

Stock Info

Sector

Net debt (`cr) 144

Bloomberg Code

Shareholding Pattern (%)

Promoters 75.0

MF / Banks / Indian Fls 15.5

FII / NRIs / OCBs 1.7

Indian Public / Others 7.7

Abs.(%) 3m 1yr 3yr

Sensex 4.1 3.6 16.1

Relaxo 66.4 94.0 749

RLXF IN

Nifty 5,337

Reuters Code RLXO.BO

Face Value (`) 5

BSE Sensex 17,602

52 Week High / Low 560 / 235

Avg. Daily Volume 2,189

Footwear

Market Cap (`cr) 616

Beta 0.6

30940000 ext: 6856

[email protected]

All about brand show

1QFY2013 Result Update | Footwear

August 7, 2012


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1QFY2013 Result Update | Relaxo Footwear

August 7, 2012 2

Exhibit 1:2QFY2012 performance

Net raw material 120 125 (3.9) 117 2.3 459 375 22.3(% of Sales) 48.3 51.6 54.5 53.4 43.6

Staff Costs 37 29 27.4 26 45.3 106 74 42.6

(% of Sales) 15.0 12.1 11.9 12.3 8.7

Other Expenses 61 55 12.0 49 24.9 205 170 20.7

(% of Sales) 24.6 22.6 22.8 23.8 19.7

OPM 12.1 13.7 (162)bp 10.7 138bp 10.5 9.6 81bp

Interest 4 4 (11.4) 5 (16.5) 19 16 19.2

Depreciation 6 6 6.7 6 3.7 23 21 10.3

Other Income 2 1 27.0 2 20.4 5 6 (12.9)

(% of Sales) 8.9 10.2 6.6 6.2 4.1

Tax 7 6 19.6 3 108.0 14 9 53.8

(% of PBT) 31.8 23.8 23.8 25.4 24.7

PATM 6.1 7.8 5.0 4.6 3.1

Equity capital (`cr) 6 6 6 6 6


In-line revenue with better operating performance

Relaxos revenue came at `248cr, 15.6% higher yoy, in-line with our estimate of

`250cr. The raw material cost as a percentage of net sales for the quarter declined

by 332bp qoq to 48.3% due to softening of ethyl vinyl acetate (EVA) and rubber

prices. At the same time, the employee cost and other expenses witnessed a

substantial jump in 1QFY2013, which led the operating margin to contract by

162bp on a qoq basis to 12.1%. The tax outgo for the quarter increased to 31.8%

of PBT, which was 23.8% in 4QFY2012. The profit for the quarter witnessed a

jump of 39.6% yoy to `15cr, 10.8% higher than our estimate of `14cr.

Also, during the quarter, the company signed up Salman Khan and Katrina Kaif

for the endorsement of its brands Hawaii and Flite respectively.

Exhibit 2:Actual vs. Estimate

EBITDA 30 29 5.5

EBITDA margin (%) 12.1 11.4 69bp



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August 7, 2012 4

Exhibit 7:Declining raw material prices to boost operating margin


Brand Show all the way

The company is promoting its brands aggressively to increase their visibility. For

that, it has signed up Salman Khan to endorse Hawaii, Katrina Kaif to endorse

Flite and Akshay Kumar forendorsing 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 andSparx brands.

Also, as a part of aggressive branding initiatives, the company has scheduled ads

of Hawaii during July-August12 in print media (9 newspapers and 10 magazines)

as well as television media (general entertainment, news, movies and regional

channels).

Exhibit 8:Brand show all the wayHawaii Salman Khan

Flite Katrina Kaif

Sparx Akshay Kumar


Changing revenue mix to drive profit

With the changing revenue mix, the profitability is expected to improve in the

coming years.Sparx has increased its contribution from a mere 4.2% in FY2008 to

24.3% in FY2011; on the other hand, Flite has maintained its contribution at ~25-

30%. Hawaii, being a mass brand, adds to the volume, however, Sparx and Flite

help in improving the companys profitability. Going forward we expect the mix to

further improve with the new ads and celebrity endorsements, which will help in

increasing brand visibility. The company is also planning to launch new products in

the high margin segment.

52.3 53.555.4 55.6 54.5 54.1 53.7 51.6

48.3

13.611.0 9.1 8.5

10.77.9 8.6

13.7 12.1

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

(%)

Raw material/ sales EBITDA margin


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August 7, 2012 5

Exhibit 9:Sales break up Brand-wise

Source: Company, Note: * Others includes - Other brands, outsourced, & traded goods

Financial performance

Assumptions

Exhibit 10:Key assumptionsVolume Growth (%) 15.2 15.2

Realisation Growth (%) 3.0 3.0

Change in raw material prices (%)

Ethyl Vinyl Acetate (EVA) (4.0) 0.0

Rubber (8.0) 0.0

Source: Angel Research

Exhibit 11:Change in estimates

OPM (%) 11.2 12.2 12.3 13.0 108bp 78bp

Source: Angel Research

We expect the companys revenue to grow at a CAGR of 18.5% over FY2012-14E,

from `860cr in FY2012 to `1,208cr in FY2014E, mainly on the back of volume

growth. With the cooling off of raw material prices, we expect the raw material cost

as a percentage of sales to decline from 54.4% in FY2012 to 47.6% in FY2014E.

However, we expect only a 255bp expansion in the operating margin to 13.0% in

FY2014E due to simultaneous increases in employee cost and other expenses. The

companys profit is expected to grow at a CAGR of 43.4% over FY2012-14E, from

`40cr in FY2012 to `82cr in FY2014E.

49.2 44.4 40.8 35.5

31.929.1

28.925.8

4.2 7.5 15.324.3

14.7 18.9 15.1 14.5

0.0

20.0

40.0

60.0

80.0

100.0

FY2008 FY2009 FY2010 FY2011

(%)

Hawaii Flite Sparx Others*


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August 7, 2012 6

Exhibit 12:Revenue to be driven by volume growth


Exhibit 13:Margin to rebound with decreasing RM price


Outlook and valuation

We expect Relaxo to post revenue CAGR of 18.5% over FY2012-14 to `1,208cr

with an operating margin of 13.0% in FY2014. The PAT is expected to grow at a

CAGR of 43.4% to `82cr for the same period. At the current market price, Relaxo

is trading at 7.5x FY2014E earnings.

Exhibit 14:One-year forward PE


Exhibit 15:Comparative analysis

Relaxo footwear FY2013E 616 1,019 12.3 61 51.0 30.3 10.1 2.7 6.2 0.8

FY2014E 616 1,208 13.0 82 68.4 30.2 7.5 2.0 4.8 0.6

Bata India CY2012E 5,906 1,945 16.7 185 28.7 28.9 32.2 8.4 17.9 3.0

CY2013E 5,906 2,298 17.7 234 36.4 29.7 25.4 6.8 14.4 2.5

Source: Company, Angel Research, Bloomberg

306

407

554

686

860

1,

019

1,

208

29.6

33.335.9

23.925.4

18. 5 18. 5

0

10

20

30

40

0

200

400

600

800

1,000

1,200

1,400

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013E

FY2014E

(%)

(`cr)

Revenue ( LHS ) Revenue growth (RHS)

31

41

76

66

90

125

157

10.3 10.1

13.8

9.6

10.5

12.313.0

0

2

4

6

8

10

12

14

16

0

20

40

60

80

100

120

140

160

180

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013E

FY2014E

(%)

(`c

r)

EBITDA (LHS) EBITDA margin (RHS)

0

200

400

600

800

1000

Apr-08

Sep-0

8

Feb-0

9

Jul-09

Dec-0

9

May-1

0

Oct-10

Mar-11

Aug-1

1

Jan-1

2

Jun-1

2

(`)

Price (`) 4x 8x 12x 16x


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August 7, 2012 7

Risks

Rise in raw material prices and depreciating rupee

The prices of key raw materials EVA and rubber had reached their peak in thelast financial year to ~`149/kg and ~`243/kg respectively, which impacted the

operating margin. However, the prices of both the raw materials have started

declining, with current prices at ~119/kg for EVA and ~180/kg for rubber. Any

rise in the prices can put margins under pressure. Also, Relaxo imports its entire

EVA requirement, so any further depreciation in the rupee can pose a risk to the

operating margin and thereby impact the profitability of the company.

Exhibit 16:Depreciating rupee a concern for EVA cost

Source: Angel Research, Bloomberg

Footwear industry in India

According to a report titled Indian Footwear Industry: An Analysis by

ASSOCHAM, the Indian footwear industry is expected to grow at a CAGR of 15%

to `38,700cr in FY2015 from the current level of `22,000cr. India produces nearly

300cr pairs of footwear annually, of which 10% are exported. India accounts for

about 15% of annual global footwear production which is over 2,000cr. The per

capita consumption of shoes in India (number of footwear worn by an individual)

is currently about 2.5 shoes per year, said the study.

Globally, the footwear market is growing at a CAGR of ~5% and is currently

estimated at ~`10.2 lakh cr. The same is likely to reach `12.34 lakh cr by 2015,

said the ASSOCHAM study.

The company

Relaxo is a key player in the retail footwear industry, with a strong foothold in the

slippers market and a strong distribution channel of 700 distributors and more

than 46,000 retailers. The company currently has 158 company-owned outlets

across India as of July 2012, with a concentrated presence in Delhi, Rajasthan,Gujarat, Haryana, Punjab, Uttar Pradesh and Uttarakhand. Currently, the

company sells its products under three major brands Hawaii, Flite andSparx.

44.2

55.5

42

44

46

48

50

52

54

56

58

Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12

(USD/INR)


8/12


August 7, 2012 8

Standalone Profit & Loss Statement

Gross sales 407 554 687 861 1,020 1,209

Less: Excise duty 0 0 1 1 1 1Net Sales 407 554 686 860 1,019 1,208

Other operating income - - - - - -

% chg 33.3 35.9 23.9 25.4 18.5 18.5

Net Raw Materials 218 290 375 459 490 560

% chg 33.1 33.0 29.4 22.3 6.8 14.2

Other Mfg costs 50 33 43 52 63 78

% chg 19.3 (34.3) 31.8 19.6 22.4 23.1

Personnel 33 55 74 106 150 180

% chg 38.6 65.7 34.5 42.6 41.1 20.4

Other 65 99 127 153 191 233

% chg 45.9 52.8 27.6 21.1 24.2 22.1

Total Expenditure 366 477 620 770 894 1051

% chg 31.3 85.2 (13.2) 35.9 39.3 25.3

(% of Net Sales) 10.1 13.8 9.6 10.5 12.3 13.0

Depreciation 10 15 21 23 24 27

% chg 39.5 98.0 (25.5) 47.8 52.2 27.7

(% of Net Sales) 7.5 11.0 6.6 7.8 10.0 10.8

Other Income 3 4 6 5 6 7

(% of sales) 0.6 0.7 0.9 0.6 0.6 0.6

% chg 42.1 132.0 (40.5) 62.9 69.5 36.2

Extraordinary Expense/(Inc.) (0.3) (0.0) 0.0 0.0 0.0 0.0

Tax 10 16 9 14 27 36

(% of PBT) 40.7 30.0 24.7 25.4 30.3 30.4

% chg 33.2 160.2 (28.8) 48.6 53.3 34.1

(% of Net Sales) 3.6 6.8 3.9 4.6 6.0 6.8

% chg 33.2 160.2 (28.8) 48.6 53.3 34.1

Dividend 1 2 2 2 2 2

Retained Earning 14 36 25 38 59 80


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August 7, 2012 9

Balance Sheet (Standalone)

Equity Share Capital 6 6 6 6 6 6Reserves& Surplus 68 104 129 166 226 306

Total Loans 108 147 156 146 167 156

Other Long Term Liabilities - - 0 0 0 0

Long Term Provisions - 0 2 3 3 3

Deferred Tax (Net) 10 18 22 22 22 22

Gross Block 194 286 353 399 459 528

Less: Acc. Depreciation 54 64 84 108 131 158

Capital Work-in-Progress 19 7 1 1 5 5

Lease adjustment - - - - - -

Goodwill - - - - - -

Investments 0 0 0 0 0 0

Long Term Loans and adv. - - 11 12 12 12

Other Non-current asset - - 0 1 1 1

Current Assets 78 116 158 169 227 279

Cash 3 1 2 1 5 19

Loans & Advances 15 27 16 15 31 40

Inventory 40 67 117 128 162 185

Debtors 20 21 23 23 27 33

Other current assets 0 0 1 2 2 2

Current liabilities 45 69 123 131 148 173

Misc. Exp. not written off - - - - - -


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August 7, 2012 10

Cash Flow (Standalone)

Profit before tax 24 54 36 54 88 118

Depreciation 10 15 21 23 24 27Change in Working Capital (4) (16) 13 (4) (37) (13)

Direct taxes paid (10) (16) (9) (14) (27) (36)

Others 21 34 36 (5) (6) (7)

(Inc.)/Dec. in Fixed Assets (59) (80) (62) (46) (64) (69)

(Inc.)/Dec. in Investments - - - - - -

(Inc.)/Dec. in LT loans & adv. - - 11 1 - -

Others (0) (5) (12) 3 6 7

Issue of Equity - - - - - -

Inc./(Dec.) in loans 37 39 10 (11) 22 (12)

Dividend Paid (Incl. Tax) (1) (2) (2) (2) (2) (2)

Others (19) (25) (41) - - -

Inc./(Dec.) in Cash (1) (2) 1 (1) 4 14


11/12


August 7, 2012 11

Standalone Key Ratios

P/E (on FDEPS) 42.5 16.3 22.9 15.4 10.1 7.5P/CEPS 24.7 11.6 12.9 9.8 7.3 5.6

P/BV 8.3 5.6 4.6 3.6 2.7 2.0

Dividend yield (%) 0.1 0.3 0.3 0.3 0.3 0.3

EV/Sales 1.8 1.4 1.1 0.9 0.8 0.6

EV/EBITDA 17.5 10.0 11.6 8.5 6.2 4.8

EV / Total Assets 3.7 2.7 2.4 2.2 1.8 1.5

EPS (Basic) 12.1 31.4 22.4 33.3 51.0 68.4

EPS (fully diluted) 12.1 31.4 22.4 33.3 51.0 68.4

Cash EPS 20.8 44.3 39.9 52.5 70.7 91.0

DPS 0.8 1.5 1.5 1.5 1.5 1.5

Book Value 61.6 91.6 112.2 143.7 193.2 260.1

EBIT margin 7.5 11.0 6.6 7.8 10.0 10.8

Tax retention ratio 0.6 0.7 0.8 0.7 0.7 0.7

Asset turnover (x) 2.4 2.0 2.2 2.5 2.5 2.6

ROIC (Post-tax) 10.5 15.7 10.9 14.6 17.1 19.3

Cost of Debt (Post Tax) 5.1 5.3 7.5 9.6 8.4 8.4

Leverage (x) 1.3 1.4 1.2 1.0 0.8 0.6

Operating ROE 18.4 29.6 15.0 19.6 23.8 25.5

ROCE (Pre-tax) 15.8 21.8 14.3 19.5 24.0 26.3

Angel ROIC (Pre-tax) 17.8 22.4 14.5 19.6 24.5 27.7

ROE 21.5 41.0 22.0 26.0 30.3 30.2

Asset Turnover 2.5 2.3 2.1 2.3 2.4 2.4

Inventory / Sales (days) 34 35 49 52 52 52

Receivables (days) 16 13 12 10 10 10

Payables (days) 39 44 57 60 60 60

WC (ex-cash) (days) 25 25 21 14 19 24

Net debt to equity 1.4 1.3 1.1 0.8 0.7 0.4

Net debt to EBITDA 2.6 1.9 2.3 1.6 1.3 0.9

Interest Coverage 3.3 5.5 2.9 3.6 5.1 7.0


12/12


August 7 2012 12

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Disclosure of Interest Statement Relaxo Footwear

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Documents

Relaxo Footwear 1QFY2013RU 070812