Relaxo Footwears Ltd.

[ NSE RELAXO ; BSE 530517 ] declared its Q1FY13 Results today which were inline with our estimates. Given below are the highlights of the numbers and our prima-facie analysis post numbers :

(fig. in ` cr.)
Revenue

Q1FY13

Q1FY12

YoY Growth

Q4FY12

QoQ Growth

249.52

216.19

15.41 %

242.72

2.8 %

EBITDA

31.27

24.48

27.73 %

34.24

(-8.67 %)

PAT

15.06

10.79

39.57 %

18.78

(-19.8 %)

EBITDA Margin

12.53 %

11.32 %

basis points

+ 121

14.10 %

basis points

(- 157)

PAT Margin

6.03 %

4.99 %

+ 104 basis points

7.73 %

(-170) basis points

(1) Company posted Q1FY13 Revenue at INR 249.52 cr. which translates into a YoY growth of 15.41 % and a sequential QoQ growth of 2.8 %. Q4 and Q1 are normally the best quarters as far as sales of the company are concerned. (2) Company's EBITDA for Q1FY13 came at INR 31.27 cr. which translates to a YoY growth of 27.73 % but a QoQ decline of 8.67 % mainly because of sharp rise in Employee costs which rose by 307 basis points (w.r.t. Revenue) YoY and by 288 basis points (w.r.t. Revenue) QoQ. Another reason for low EBITDA despite favourable key raw material prices is lower outsourcing of manufacturing work, or, in other words, lower purchase of finished products for sale which declined by 188 basis points (w.r.t. Revenue) YoY and by 406 basis points (w.r.t. Revenue) QoQ. (3) PAT for the quarter stood at INR 15.06 cr. which translates to a YoY growth of 39.57 % but a QoQ decline of 19.8 % mainly because of lower EBITDA for the reasons mentioned above and increase in taxes paid which rose by 808 basis points (w.r.t. PBT) YoY and by 802 basis points (w.r.t. PBT) QoQ. Tax rate for the quarter stood at one of the historical highest level at 31.76 %. (4) EPS for the quarter (not annualised) stood at INR 12.55, a YoY increase of 39.59 %. (5) During Q1FY13, company opened 5 new Exclusive Retail Stores ('Relaxo Retail Shoppe') to take the total tally to 154 operational stores in Q1FY13. It is worthwhile to note here that during the month of July'2012, company has opened another 4 stores which takes the total number of company operated exclusive Retail Stores as at 31st July 2012 to 158. (6) After signing Salman Khan for the brand 'Relaxo Hawaii' and Akshay Kumar for the brand 'Sparx', company has recently signed-in Katrina Kaif for its brand 'Flite'. Katrina Kaif will replace Prachi Desai who was till now the brand ambassador for 'Flite' brand and appointment of top-notch celebrities as

brand ambassadors for all of its three major brands augurs very well for the sales of the company in the current recessionary environment. (7) Company kicked-off its aggressive promotional campaign for the ensuing festive season by title sponsorship of special television show called 'Max Super Kool Comedy Night' aired on SonyMax channel on 27th July 2012. (8) Company seems to be aggressively focussing on 'pre-brand-activation' stage for all of its three key brands with brand activation likely to follow from Q4FY13 onwards. First brand taken up for pre-brandactivation is 'Relaxo Hawaii' whose August'2012 promotional lineup across all media seems to be one of the most aggressive in company's history. Media Schedule for July'August'2012 for promoting 'Relaxo Hawaii' brand in Print & Television Media is attached at the end for reference. (9) Key Raw Material prices remained stable during the quarter with average Q1FY13 EVA landed price at INR 124.16 per kg. ( down 14.9 % YoY & 3.3 % QoQ ) while average Q1FY13 Rubber price at INR 192.54 per kg. ( down 15.2 % YoY but up 0.8 % QoQ ). As on 3rd August 2012, EVA landed price is hovering around INR 119 per kg. while Rubber price is hovering around INR 181 per kg. (10) Peer comparison for Q1FY13 is provided below for reference : Q1FY13 Revenue Q1FY12 Revenue YoY Growth in YoY Growth in Q1FY13 Q1FY12 Q1FY13 Q1FY13 EBITDA Margin EBITDA Margin EBITDA Margin Revenue

Relaxo Bata Liberty Shoes

249.52 506.51 79.33

216.19 432.31 74.24

+ 15.41 % + 17.16 % + 6.85 %

12.53 % 16.95 % 8.79 %

11.32 % 15.96 % 6.88 %

+ 121 basis points basis points + 191 basis points + 99

Prima-facie View post Q1FY13 Results : We maintain our view that Relaxo Footwears Ltd. Is one of the best opportunities available in the domestic-consumption-oriented basket which possesses : reasonable scale of operations, is professionally managed, is in a transformation phase which could make it a pure brand-play from current plain-vanilla-play and therefore offers decent scope of valuation-multiples rerating. If the management can achieve 20-25 % topline growth with stable EBITDA and PAT margins till FY15 by gradually reducing the debt levels, then, the current valuations could very well become a history post 2HFY13 when the actual rerating process for the company should start. Recent aggressive branding initiatives by the management depict the seriousness for achieving the said growth and aggressive recruitment undertaken by the company on ground signify the means towards achieving the said growth.

Print Media
( July-August 2012 Schedule for 'Relaxo Hawaii' )

Newspapers
(Total 10 Ads in 29 Editions)

Magazines
(Coverage in 10 Magazines)

Hindustan Times (English Daily - National) Times of India (English Daily - National) Prabhat Khabar (Hindi Daily Bihar, Jharkhand & West Bengal)

Womens Era English (Women's Magazine - 24 Lakh Readers) Gruh Shobha - Hindi (Women's Magazine 77 Lakh Readers) Sarita - Hindi (Family Magazine 35 Lakh Readers)

Amar Ujala (Hindi Daily North India)

Chitra Lekha - Marathi (Regional Magazine 1 Lakh Readers)

Dainik Bhaskar ((Hindi Daily North & Central India) Punjab Kesari (Hindi Daily North India) Navbharat Times (Hindi Daily Mumbai, Delhi) The Assam Tribune (English Daily Assam)

Stardust - Hindi (Bollywood Magazine 1 Lakh Readers) Saras Salil - Hindi (General Magazine 97 Lakh Readers) Galatta - English (Largest Circulating English South Indian Film Magazine) Rail Bandhu (India's Only Magazine for Rail Passengers 30 Lakh Readers)

Asomiya Pratidin (Assamese Daily Assam)

Outlook Hindi (General Magazine 16 Lakh Readers) Outlook Business - English (Business Magazine 2.6 Lakh Readers)

Television Media GECs, News, Movies & Regional Channels

( July-August 2012 Schedule for 'Relaxo Hawaii' )

General General Entertainment Entertainment Channels Channels National Regional ( Coverage Across 7 ( Coverage Across 8 GECs in 14 Prime Time GECs in 11 Prime Time Shows ) Shows )

News Channels National ( Coverage Across 6 News Channels in 7 Prime Time Shows )

News Channels Regional ( Coverage Across 9 News Channels in 10 Prime Time Shows )

Movie Channels National ( Coverage Across 4 Movie Channels in 13 Prime Time Movies )

Movie Channels Regional ( Coverage Across 4 Movie Channels in 16 Prime Time Movies )

Sony TV
(Kya Hua Tera Vaada 10 p.m. Bade Achchhe Lagte Hai 10.30 p.m.)

Zee Kannada
(Panduranga Vittala 10 p.m.)

Aaj Tak
(Prime Time News 9 p.m.)

MBC News Orissa

(MBC News 360 9 p.m.)

SonyMax
(15th Aug.- Lagaan 9 p.m. 18th August Tere Naal Love Ho Gaya 9 p.m. 25th Aug.- Om Shanti Om 9 p.m.)

Zee Talkies
(19th & 26th Aug. - Sunday Movie)

Star Plus
(Diya Aur Baati Hum 9 p.m. Ek Hazaron Mein Meri Behna Hai 8.30 p.m.)

Zee Telugu
(Kalavari Kodallu 6.30 p.m.)

India TV
(Breaking News 9 p.m. Aap Ki Adalat 10 p.m.)

(Prime Time News 9 p.m.)

Suvarna News Star Gold Kannada (12th Aug.- Wanted 9 p.m.

th

Surya TV Malayalam

(25th Aug. - Saturday Movie 12.30 p.m. 19 Aug.- Singham 9 p.m. 25th Aug. - Bodyguard 9 p.m.) 19th & 26th Aug. - Sunday Movie 5 p.m.)

Zee TV
(Pavitra Rishta 9 p.m. Phir Subah Hogi 9.30 p.m. Mrs. Kaushik Ki Paanch Bahuein 10 p.m. PunarVivaah 10.30 p.m.)

Mazhavil Manorama Malayalam

(Kadha Ithu Vare 9 p.m.)

Times Now
(NewsHour with Arnab Goswami 9 p.m.)

News Live Assam

(Assamese Prime Time 7 p.m. News @ 60 9.30 p.m.)

Zee Cinema
(12th Aug. - Vivah 9 p.m. 19th Aug. - Hum Aapke Hai Kaun 9 p.m. 31st Aug. - Hera Pheri 9 p.m.)

Mahuaa TV
(29th July Aakhri Rasta 5th Aug. - Dil)

Sabe TV
(ChidiyaGhar 9 p.m.)

ETV Gujarati
(Flavours of Gujarat 6.30 p.m. Aapnu Gujarat 7 p.m.)

ETNow
(Morning News 9 a.m.)

Sahara Samay

DD National

PTC Punjabi

(NCR/Haryana/Rajasthan (17th Aug. - Zindagi (3rd Aug. - Jihne Mera Dil Prime Time News 7 p.m. NaMilegi Dobara 9 p.m. Lutiya Mumbai Prime Time News 8 p.m. 18th Aug. - Well Done Abba 5th Aug. - Tera Mera Ki MP/Chattisgarh/Bihar/Jhark 9 p.m. Rishta

hand/UP/Uttarakhand Prime Time News 10 p.m.)

24th Aug.- Force 9 p.m. 25th Aug.- Raajneeti 9 p.m).

10th Aug. - Mitti Waajan Maardi 12th Aug. - Yaar Anmulle 17th Aug. - Hashar 24th Aug. - Pata Nahi Rab Kehreya.. 19th, 26th & 31st Aug.)

Life OK
(Devon Ke Dev Mahadev 8 p.m.)

Tarang TV Oriya
(Jai Shri Krishna 9.30 p.m.)

Zee News
(NonStop@9 9 p.m.)

TV9 Maharashtra
(Prime Time News 8 p.m.)

DD National
(Sankat Mochan Hanuman 8.30 p.m. Pehchan Astitva Ki Talash 9 p.m. Command Force 9.30 p.m.)

Zee Bangla
(Kanakanjai 8 p.m.)

ABP News
(Star Khabaar 9 p.m.)

TV9 Telugu
(Prime Time News 9 p.m.)

Ten Cricket

Rang Assam

TV9 Kannada
(Prime Time News 9 p.m.)

(India v/s SriLanka Studio (Tumi Dusokut Kajol Lole Show & Live Sports) 8.30 p.m. Meghranjini 10 p.m.)

Title Sponsorship of
Special Show 'Max Super Kool Comedy Night' on

Zee Marathi
(Home Minister 6.30 p.m. Tu Tithe Mee 7 p.m.)

Manorama News
(Prime Time News 8 p.m.)

SonyMax

Sakshi TV
(Prime Time News 9 p.m.)

Disclaimer :
This Research Note should only be taken as a direction for further research and should, in no way, be construed as an advice to Buy/Sell concerned Company. While preparing this note, we have used all publicly available information as also information from other sources which are thought of as most reliable. However, although we have tried to be as genuine and as accurate as possible in publishing the data(s), still, reader of this note is advised to cross-check the information and we should not in any way be held liable for any incorrect information. Its safe to assume that we have the concerned company as part of our portfolio and so the views expressed in this note should be seen in that backdrop. The reader assumes the entire risk of any use made of this note and we should, in no way, be held liable for any loss arising out of the contents or action taken by the reader because of this note. This Research Note should not be interpreted as a recommendation of any kind but is only for the information purpose.