You are on page 1of 13

Footwear

India I Equities

Initiating Coverage
5 October 2012

Relaxo Footwear
Building pricing muscle; initiating with Buy
Relaxo Footwear (Relaxo) is second largest in the organised segment of Indian footwear, accounting for 7-8% share. It is currently focused on building pricing power by revamping key brands, Sparx and Flite. Over FY12-15, we expect revenue and EPS to post CAGR of 23% and 39%, respectively, and margins to expand 250bps. We initiate coverage with Buy, at a price target of `960. Rising volumes, improving value mix. Relaxo is currently focused on growing revenues from its premium brands - Flite and Sparx. Towards this, the company has already set up a manufacturing unit for polyurethane a key chemical used in making its shoes which will commence production from Q3FY13. This, together with rapid network expansion, will aid revenues to post 23% CAGR over FY12-15. Embarking on major brand revamp. The company has roped in three leading Bollywood stars for its brand endorsements. This marketing strategy is applicable across segments, from low-cost Hawaii to premium Sparx. It would build pricing power, raise market share (especially in East, West) and increase direct reach to customers through stores across India. Margin expansion on the cards: Margins are likely to expand 250bps owing to: (a) falling raw material prices, especially of EVA and rubber (more than 50% of RMC); (b) freight costs stabilising at 3% of sales with new warehouses; and c) reducing third-party purchases. Valuation. We assign a one-year-forward PE of 13x and derive target price target of `960. It has historically traded at 6-17 PE.At the CMP of `725, the stock trades at PE of 15.1x FY13e and 9.9x FY14e EPS of `48.1and `73.6 respectively. Risk: Rise in input costs.

Rating: Buy Target Price: `960 Share Price: `725

Key data 52-week high / low Sensex / Nifty 3-m average volume Market cap Shares outstanding

RLXF IN / RLXO.BO `815 / `230 18909 / 5737 US$0.2 `9bn / US$173?bn 12m

Shareholding pattern (%)

Jun 12 Mar 12 Dec 11

Promoters - of which, Pledged Free Float - Foreign Institutions - Domestic Institutions - Public

75 0 25 1.53 0 23.47

75 0 25 1.67 0 23.33

75 0 25 1.67 0 23.33

Relative price performance


800 700 600 500 400 300 200 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12
Source: Bloomberg

RLXF

Sensex

Key financials (YE Mar)

FY11

FY12

FY13e

FY14e

FY15e

Sales (`m) Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%)
Source: Company, Anand Rathi Research

6,897 268 22 (28.7) 32.4 6.2 22.0 15.6 0.1 3.2

8,647 399 33 48.2 21.8 4.9 26.0 19.2 0.2 3.8

10,923 576 48 44.8 15.1 3.7 28.8 21.7 0.3 5.3

13,731 882 74 52.9 9.9 2.7 32.5 24.7 0.3 7.8

15,953 1,069 89 21.3 8.1 2.0 29.2 24.0 0.3 10.0

Suman Memani
+9122 66266707 suman.memani@rathi.com

Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Quick Glance Financials and Valuations


Fig 1 Income statement (`m)
Year-end: Mar FY11 FY12 FY13e FY14e FY15e

Fig 2 Balance sheet (`m)


Year-end: Mar FY11 FY12 FY13e FY14e FY15e

Net revenues Revenue growth (%) - Op. expenses EBIDTA EBITDA margins (%) - Interest - Depreciation + Other income - Tax Effective tax rate (%) Reported PAT Extraordinary items Adjusted PAT PAT growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%)

6,897 24.6 6,177 719.9 10.4 159.1 209.5 5.2 88.3 24.8 268 269.0 (28.7) 22.4 (29)

8,647 25.4 7,704 942.6 10.9 186.7 231.0 10.6 135.8 0.3 399 398.8 48.2 33.2 48

10,923 26.3 9,588 1,334.9 12.2 198.4 288.2 15.0 286.0 0.3 576 576.3 44.5 48.1 45

13,731 25.7 11,883 1,847.9 13.5 191.6 353.0 15.0 435.7 0.3 882 881.7 53.0 73.6 53

15,953 16.2 13,812 2,141.2 13.4 175.8 378.5 15.0 531.6 0.3 1,069 1,069.3 21.3 89.2 21

Share capital Reserves & surplus Net worth Total debt Minority interest Def. tax liab. (net) Capital employed Net fixed assets Investments - of which, Liquid Working capital Cash Capital deployed Net debt/equity (x) W C turn (days) Book value (`/sh)

60 1,287 1,347 1,861 2 181 3,390 2,692 1 677 21 3,390 1.4 36 112

60 1,665 1,725 1,752 4 218 3,700 2,926 764 10 3,700 1.0 32 144

60 2,221 2,281 1,984 223 4,488 3,485 902 102 4,488 0.8 30 190

60 3,083 3,143 1,916 226 5,285 3,553 1,086 646 5,285 0.4 29 262

60 4,132 4,192 1,758 229 6,179 3,563 500 1,338 778 6,179 0.2 31 349

Source: Company, Anand Rathi Research

Source: Company, Anand Rathi Research

Fig 3 Cash-flow statement (`m)


Year-end: Mar FY11 FY12 FY13e FY14e FY15e

Fig 4 Ratio analysis @ `725


Year-end: Mar FY11 FY12 FY13e FY14e FY15e

PBT + Non-cash items Cash profit - Incr./(decr.) in WC Operating cash-flow - Capex Free cash-flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash-flow + Op. cash & bank bal. Cl. Cash & bank bal.

357 210 566 147 713 (562) 151 (21) 0 96 (216) (141) 10 21

535 231 766 (35) 732 (455) 276 (14) 0 (110) 1 (174) (297) 21 10

863 288 1,152 (238) 914 (847) 67 (21) 0 229 (183) 25 10 102

1,318 353 1,671 (440) 1,232 (411) 820 (21) 0 (78) (176) (275) 102 646

1,602 378 1,980 (671) 1,310 (339) 971 (21) 0 (158) (500) (159) (838) 646 778

P/E (x) Cash P/E (x) EV/EBITDA (x) EV/sales (x) P/B (x) RoE (%) RoCE (%) Dividend yield (%) RoIC (%) Debt to equity (x) Debtor days Inventory days Payables days Working capital days Fixed asset T/O (x)

32.4 18.2 14.1 1.5 6.2 22.0 15.6 0.1 1.4 12.3 61.7 77.2 35.8 2.2

21.8 13.8 10.8 1.2 4.9 26.0 19.2 0.2 1.0 9.7 54.2 61.9 32.2 2.4

15.1 10.1 7.6 0.9 3.7 28.8 21.7 0.3 0.8 10.0 51.5 60.0 30.2 2.6

9.9 7.1 5.5 0.7 2.7 32.5 24.7 0.3 0.4 10.0 52.6 60.0 28.9 2.8

8.1 6.0 4.7 0.6 2.0 29.2 24.0 0.3 0.2 10.0 56.7 60.0 30.6 3.0

Source: Company, Anand Rathi Research

Source: Company, Anand Rathi Research

Fig 5 PE band
(`) 1,000 800 600 400 200 0 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Apr-08 Apr-09 Apr-10 Apr-11 Dec-08 Dec-09 Dec-10 Dec-11 Apr-12

Fig 6 FY11 revenue breakdown (standalone)


Export Other 4% 1%

15x 12x 9x 6x 3x

Retail 7%

Distributor 88%
Source: Company

Source: Bloomberg, Anand Rathi Research

Anand Rathi Research

21

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Rising volumes and better value mix


Relaxo is focused on increasing revenue from high-margin products, especially Flite and Sparx. To expand volumes and enhance value mix, it is setting up a manufacturing unit for polyurethane (PU) - a key chemical used for making its shoes - likely to commence production from Q3FY13. Also, it is enhancing its distribution network by increasing the number of retail outlets in East and West India to capture volumes. Value mix to enhance further Sparx and Flite together accounted for 35% and 51% of volume and value, respectively, of distributor category in FY10. This has steadily risen to 42% and 60% in FY12. We believe concerted efforts towards growing revenues from the two brands, supported by massive distribution, will grow value mix even further in future.
Fig 7 Volume and value mix
FY10 FY11 Value Volume Value FY12 Volume Value

Sparx and Flite key drivers for value mix.In FY12, both brands together increased to 42% and 60% in volume and value respectively

Particulars

Volume

Hawaii Flite Sparx

65% 28% 7%

47% 33% 18%

61% 28% 10%

40% 29% 30%

58% 31% 11%

39% 30% 30%

Source:Company,Anand Rathi Research

Fig 8 Realisation of major categories


(`/pair) 250 200 150 100 50 0 FY10 FY11 FY12 Flite

Hawaii
Source: Company, Anand Rathi Research

Sparx

Capacity expansion on track In FY11 and FY12, volume growth in Flite and Sparx (shoes) was a steady 1% and 15% and 45% and 26% respectively, whereas Relaxos overall revenue growth in FY12 was 25.4%. Management took the right decision in expanding both Flite and Sparx capacities in FY11, by 44% and 23%. Considering the steady growth in sales volumes, we believe the company would again have to increase capacity in FY14. After declining volume growth in FY11, rising exports in FY12 led to Hawaii volumes growing marginally. Also, we believe that the expanded capacities would help curtailing imports of Sparx (shoes) from China. Overall, we see 24% and 26% revenue growth in Flite and Sparx, respectively, over FY12-14e (see Fig 9).

User demand leading to capacity expansion

Anand Rathi Research

22

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Fig 9 Capacity category-wise


Capacity (m pairs) FY09 FY10 FY11 FY12e

Hawaii Sparx Flite


Source: Company, Anand Rathi Research

60 3 22.5

60 9 24

60 11.1 34.5

60 11.1 34.5

PU capacity enhanced At Bahadurgarh, Haryana, Relaxo is setting up a manufacturing unit for PU footwear, the fastest-growing segment. It is already selling, on a small scale, PU-Flite (formal and fashionable footwear with additional features: light weight, longevity and skid resistance). Expansion in this category would increase overall volumes and improve market share. It is incurring capex of `700m and commercial production is likely to start in Q3FY13. We believe this segment is likely to lead to an asset-turnover ratio of 3-4x and help the company improve both value mix and revenue. Expanding distribution to match increasing demand In the past, Relaxos operations were concentrated in North and NorthEast India, with a distribution network primarily in the North. Rising footwear consumption has, however, led the company broaden its distribution network to eastern and western India. Today, the company has a strong network of more than 46,000 distributors all over India and 154 retail outlets. These retail outlets go a long way in enhancing Relaxos brand image, the effect of which will trickle down to margins.

Company is incurring a capex of `70m on PU capacity, which will deliver to 3-4x assets turnover,improving overall revenues

Expanding network in East and West India

Fig 10 Revenue break-up region-wise


Region (`m) FY10 % Share FY11 % Share FY12 % Share Stronger Presence Industry player presence

North East West South Total

3,270 1,150 340 310 5,070

64.5 22.7 6.7 6.1

3,410 1,520 700 440 6,070

56.2 25.0 11.5 7.2

4,000 2,180 880 530 7,590

52.7 28.7 11.6 7.0

UP, Delhi, Haryana Kolkata Gujarat, Maharashtra

Relaxo, Lakhani Khadims, Relaxo Relaxo, Lakhani Paragon, Relaxo

Source: Company, Anand Rathi Research

Fig 11 Distribution network


FY10 FY11 FY12

Multi Brand Outlets Retail Outlets Sales Store revenue per store
Source: Company, Anand Rathi Research

20,000 100 541.5 5.4

40,000 127 459.236 3.6

46,000 149* 612 4.1

Anand Rathi Research

23

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Brands undergoing major revamp


The company has roped in three leading Bollywood stars for its brand endorsements. This marketing strategy is applicable across segments, from low-cost Relaxo Hawaii to premium Sparx. It would build pricing power, raise market share (especially in East, West) and increase direct reach to customers through stores across India. As large as 4-5% of sales has been allotted to advertisement. New marketing strategy across categories Relaxo has ramped up its marketing strategy for all categories (Relaxo Hawaii low cost, and Flite and Sparx premium), targeting all age groups. It has recently roped in Bollywood stars (Salman Khan, Akshay Kumar and Katrina Kaif) to endorse Relaxo Hawaii, Sparx and Flite .This is likely to broaden recognition of its brands all over India against earlier perceptions of the company being largely a northern and north-eastern player. This would push its volumes and enhance its value mix. We believe this measure is likely to increase its market share (7-8%of organised segment) in all segments as well as in the overall footwear market.
Fig 12 Brand wise realisation and EBIDTA margin
(`/pair) 250 200 150 100 50 0 FY10 FY11 FY12 (%) 19 17 15 13 11 9

Fig 13 Brand ambassadors


Celebrity Salman Khan Akshay Kumar Brand Hawaii Position Low-cost mass market Target Segment Impact Unorganised sector Will help gain market share from the unorganised segment and compete with the economy footwear range Middle class; MNC brands, youth Will help target middle-agers and young and sporty and middle-agers compete with MNCs as well as domestic for middle-agers brands such as Lotto and Sketchers Will help target the youth category and Fashionable, Unorganised stylish domestic as well as increase market share in the fashionable MNCs in the youth and style category category

Sparx

Katrina Kaif Flite

Hawaii

Sparx

Flite

EBIDTA margins (RHS)

Source: Company, Anand Rathi Research

Source: Company,Anand Rathi Research

Focused on retail store expansion


Fig 14 Region-wise sales percentage
(`m) 70 60 50 40 30 20 10 0 FY10 FY11 FY12

Relaxo is increasing the number of its retail stores Relaxo Shoppe, dealing directly with end-customers, to enhance its brand image and increase sales. It has 154 stores (FY12, 149 stores) currently and is in the process of adding 25 more this year . We believe greater volumes and value would be added if more stores are opened in East and West India, where its revenue is fast increasing every year. Advertising costs to be held in check Despite signing up three huge Bollywood stars at `120m, we believe that advertising expenditure would not cross 4-5% of sales. The benefits would be substantial in comparison with the costs.
Fig 15 Advertisement cost vs EBIDTA margin
Particulars FY10 FY11 FY12 FY13e FY14e FY15e

North

East

West

South

Source: Company, Anand Rathi Research

Advertisement cost (% of sales) EBIDTA margins (%)


Source: Anand Rathi Research

3.76 16.4

3.62 10.4

3.42 10.9

4.57 12.2

4.00 13.5

3.76 13.4

Anand Rathi Research

24

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Margin Expansion on Cards


Relaxo is taking steps to rationalise costs and improve margins. Margin expansion is likely to come through: (a) falling raw material prices, especially of EVA and rubber (more than 50% of RMC); (b) stabilising freight at 3% of sales by opening warehouses in West and East India (since sales and revenue are increasing there); and (c) reducing third-party purchases by expanding capacity. All these would yield margin expansion of 250bps over FY12-15e. Two-year low input costs to boost margins Raw material costs formed ~54-55% of sales, except in FY11 and Q1/Q2FY12 when they were 60-61%. Rubber (15-16% of RMC), the major component of Relaxo Hawaii, peaked in Q2FY12 and has come off 22-23%. This, we believe, would add to margins .EVA (100% imported item, 27-30% of RMC), largely used in Flite, peaked in Q4FY12 and has now dropped 22-23% from. The rise in raw material prices is passed on to end consumers but with a lag of 3-4 months. Ahead, we do not see prices of the above raw materials rising more then 5% annually. With its increasing pricing power, Relaxos margins are likely to further improve. We expect the FY14 EBIDTA margin to improve 150bps over FY12.
Fig 16 EVA price movement
(`/kg) 140 135 130 125 120
12,000

Fig 17 Rubber price movement


(`/ton) 24,000
22,000 20,000 18,000 16,000 14,000

115 FY14e 1QFY13 2QFY13 2HFY13e FY15e FY12

10,000 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 FY14e 2HFY13e FY15e FY10 FY11

Source: Anand Rathi Research

Source: Anand Rathi Research

Fig 18 Key raw material realisation vs. EBIDTA margin


Raw Materials FY10 FY11 FY12 FY13e FY14e FY15e

Rubber EVA Synthetic rubber EBIDTA margins


Source: Company, Anand Rathi Research

112.0 90.0 77.2 16%

192.4 116.8 94.1 10%

193.7 145.5 114.4 11%

186.1 121.1 114.4 12%

195.4 127.1 114.4 13%

205.1 133.5 114.4 13%

Freight costs to stabilise despite wider operations in East, West Relaxo has nine manufacturing plants, seven in Bahadurgarh (Haryana) and one each in Bhiwadi (Rajasthan) and Haridwar (Uttaranchal). At present, 53-55% of sales arise in North India and most of its distribution network is located here, restricting freight costs to 3.5% of sales. Ahead, freight costs are likely to stabilise at 3% despite its all-India operations as it is putting up four warehouses .Capital expenditure for the warehouses, to be opened one at a time, is likely to be `200m in the next two years.
Anand Rathi Research 25

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Fig 19 Plant location


Plant Location Production

RFL I RFL II RFL III RFL IV RFL V RFL VI A RFL VI B RFL VIIA RFL VIIB

Bahadurgarh (Haryana) Bahadurgarh (Haryana) Bhiwadi (Rajasthan) Bahadurgarh (Haryana) Haridwar (Uttaranchal) Bahadurgarh (Haryana) Bahadurgarh (Haryana) Bahadurgarh (Haryana) Bahadurgarh (Haryana)

Hawaii Hawaii Hawaii Flite Sparx shoes and sandals Flite, Schoolmate, Casualz, Sparx Flite, Schoolmate, Casualz, Sparx Canvas, Sparx, shoes, sandals Canvas, Sparx, shoes, sandals

Source: Company, Anand Rathi Research

Fig 20 Warehouse setup


Existing Warehouses New warehouse location Sales Revenue (%)

North India Delhi Bahadurgarh East India West Bengal East India Patna, Bihar Ranchi, Jharkhand Guwahati, Assam West India Bhiwadi, Rajasthan South India Karnataka
Source: Company, Anand Rathi Research

53.0

28.5

West India Bhiwadi, Rajasthan 11.5

7.0

Third-party-purchase costs likely to come down In-house production is likely to improve margin further. Expect third-party purchase to come down to 4-5% against 10-11% in the past few years Third-party purchases are largely of the high-value Sparx, imported from China. With minor expansion in Sparx (4,000 pairs a day) and surplus capacity in Relaxo Hawaii, we expect outsourcing (as percent of sales) to come down and settle between 4% and 5% in the next two years, against 10-11% in the past few years (table). Margins in the high-value Sparx produced by the company are higher than in those outsourced.
Fig 21 Outsource vs. EBIDTA margin
(%) 16

13

10

4 FY10 FY11 FY12 FY13e FY14e FY15e

Outsourced purchases % of sales


Source: Company, Anand Rathi Research

EBIDTA margin (RHS)

Anand Rathi Research

26

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Financials
We expect Relaxo to report 23% revenue growth over FY12-15, led by growth in volumes and value. EBIDTA margin is likely to improve 250bps to 13.5% in FY15e. With free-cash generation, we believe gross debt is likely to come down from 1.0x in FY12 to 0.4x. Ahead, return ratios are likely to further improve with working-capital efficiency and a better margin.
Fig 22 Revenue break-up
(%) FY10 FY11 FY12

Revenue to register 23% CAGR over FY12-15e


88% 7% 4% 1%

Distributor Retail Export Other

87% 10% 2% 1%

88% 7% 3% 2%

Source: Company, Anand Rathi Research

On the launch of the Sparx and Flite brands in FY06, sales grew 24% over FY07-12. Ahead, we expect 23% revenue CAGR during FY12-15, led by 20% and 23% CAGR in Flite and Sparx respectively. Moreover, we expect enhanced revenue growth from retail outlets and exports. We believe the companys focus on brand building is likely to improve its value mix, helping revenue growth. Margin expansion to help robust net profit growth The margin is likely to expand 150bps to 13.5% over FY12-15e due to a) better pricing power through brand-building, b) increasing value mix especially of Sparx and Flite from 60%in FY12, c) freight-cost rationalisation on opening four warehouses in west and east India and d) low prices of raw material, especially of rubber and EVA, which are at oneyear lows. We do not expect any rise in raw material prices in the next 1-2 years due to rising capacities (of the raw materials) and a drop in demand from other industries such as autos. The margin expansion is likely to help net profit grow 39% over FY12-15e. Return ratios to improve further We expect the RoE to improve further, from 26% in FY12 to 29.2% in FY15 on the better asset-turnover ratio and value mix, resulting in robust net profit growth. We expect the RoCE also to improve, from 19.2% in FY12 to 24% in FY15. Free cash-flow to improve further On the expansion of its PU-Flite plant in Bahadurgarh at `700m, Relaxo is likely to generate more than `1bn in free cash. This free-cash generation would arise from better operational flows and efficient working capital. It would reduce the debt-equity ratio from 1x to 0.4x.
Fig 24 Cash flow
(`m) 1,400 (%) 33 30 1,050 27 700 24 21 350 18 0 FY13e FY14e FY15e FY11 FY12 15

Fig 23 PAT growth vs. EBIDTA margin


(%) 200 150 100 50 0 -50 FY13e FY14e FY15e FY10 FY11 FY12 (%) 19 17 15 13 11 9

PAT growth

EBIDTA margins (RHS)

Source: Company, Anand Rathi Research

Operating Cash Flow

FCF

RoE (RHS)

RoCE (RHS)

Source: Company, Anand Rathi Research

Anand Rathi Research

27

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Valuation
In the last few years, the stock has traded in the one-year-forward P/E range of 6x-17x. Brand recognition helps increase pricing power and improve revenue, as well as raises market share. We believe Relaxos focus is to increase the revenue value-mix, which would help to better margins. All this is likely to improve RoE from 26% to 32.5% over FY12-14e and help get higher multiples. The stock is at a discount over 50% to Bata India and we believe that, with Relaxos improving brand image, return ratios and growth ratios, the discount will narrow faster. At TP of `960, the stock trades at a P/E multiple of 13.0x and 10.8x FY14e and FY15e EPS of `73.6 and 89.2respectively. Risks Volatile raw material prices. Raw material cost was 54-55% of sales except in FY11 when it was over 60%. Key raw materials are rubber, EVA (ethyl vinyl acetate) and synthetic rubber. Inability to pass on the increase in raw material costs because of competition may lead to pressure on margins.Any rise in prices of rubber (15-18% of RMC), used in Relaxo Hawaii and shoes, would lead to pressure on margins in those categories. Any rise in prices of EVA (28-33% of RMC), used in Flite and shoes, would put pressure on margins in Flite.
Fig 25 RMC and EBIDTA margin
(`/unit) 210 (%) 17

We initiate coverage with TP of `960

170

15

130

13

90

11

50 FY13e FY14e FY15e FY10 FY11 FY12

Rubber
Source: Company, Anand Rathi Research

EVA

Synthetic rubber

EBIDTA margins (RHS)

Competition may lead to pricing pressure. Competition comes from all branded manufacturers, unorganised to high-end. The Hawaii brand primarily faces competition from the unorganised market in northern India; therefore, pricing has to be done considering this. Sparx shoes face competition from premium brands; any drop in prices by the competition would lead to a fall in the prices of Sparx, and would dent margins.

Anand Rathi Research

28

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Fig 26 Income statement (`m)


Year-end: Mar FY11 FY12 FY13e FY14e FY15e

Gross Sales Income from other sources Excise duty Other operating revenue Net Revenue Growth % Expenditure Cost of Revenue Employeee Cost Rent Advertisement Expenses Sales Promotion and Incentive Cartage Outward Other Expenses EBIDTA EBIDTA margin Depreciation & Amortisation EBIT Interest Expenses & Bank charges Other Income PBT Income taxes effective Tax rates Profit after Taxes PAT margin (%) PAT Growth (%) EPS Dividend on Equity Share Dividend per share
Source: Company, Anand Rathi Research

6,866 6 19 6,879 24.2 4,190 745 145 248 294 247 326 683 0.1 210 473 159 5 319 88 0 231 0.0 (38.8) 22 18 1

8,654 7 8,647 25.7 5,140 1,062 175 296 271 300 461 943 0.1 231 712 187 11 535 136 0 399 0.0 72.8 33 18 2

10,938 15 10,923 26.3 6,270 1,480 200 500 300 330 508 1,335 0.1 288 1,047 198 15 863 286 0 577 0.1 44.6 48 18 2

13,751 20 13,731 25.7 7,935 1,800 230 550 340 410 618 1,848 0.1 353 1,495 192 15 1,318 436 0 883 0.1 52.9 74 18 2

15,978 25 15,953 16.2 9,395 2,020 250 600 370 475 701 2,141 0.1 378 1,763 176 15 1,602 532 0 1,070 0.1 21.3 89 18 2

Fig 27 Balance sheet (`m)


Year-end: Mar FY11 FY12 FY13e FY14e FY15e

Inventories Sundry debtors Loans & advances Other current assets Cash & cash equivalents Current assets Net fixed assets Net intangible assets Investments Deferred tax asset, net Total assets Current liabilities Provisions Long-term debt Short-term debt Other liabilities Shareholder's equity Total liabilities & equity
Source: Company, Anand Rathi Research

1,166 232 270 9 21 1,698 2,652 40 1 (181) 4,210 1,182 115 964 601 2 1,347 4,210

1,285 230 262 34 10 1,820 2,890 36 -(218) 4,528 1,169 174 925 530 4 1,725 4,528

1,541 300 390 36 102 2,368 3,456 28 -(223) 5,630 1,331 333 1,184 500 2,281 5,629

1,980 377 490 26 646 3,520 3,553 --(226) 6,846 1,614 483 1,056 550 3,143 6,846

2,479 438 508 36 778 4,239 3,548 15 500 (229) 8,073 1,854 579 848 600 4,192 8,073

Anand Rathi Research

29

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Fig 28 Cash flow statement (`m)


Year-end: Mar FY11 FY12 FY13e FY14e FY15e

Profit before taxes Depreciation Amortization Interest expense Interest income Dividend income Profit on sale of investments Provisions for doubtful debts/adv Provisions written back Other non-cash adjustments Change in sundry debtors Change in inventories Change in loans & advances Change in other current assets Change in current liabilities Change in provisions Change in working capital Direct taxes paid Other operating cashflow Cashflow from operations Purchase of fixed assets Proceeds from sale of fixed assets Purchase of investments Proceeds from sale of investments Purchase of business Investment in subsidiary/JV Sale of business/subsidiary/JV Interest income Dividends income Other investing cashflow Cashflow from investing Issue of equity Issue of preference capital Proceeds from borrowings Repayment of borrowings Interest paid Dividend paid, including taxes Any other financing cashflow Cashflow from financing Net cash generated during year Forex gain/(loss) impact Cash at beginning of year Cash at end of year
Source: Company, Anand Rathi Research

357 -210 159 (5) ----(24) (494) 15 (9) 534 4 27 (34) 713 (562) --

535 -231 187 (11) (2) ---3 (119) (1) (25) (13) 9 (147) (62) 732 (455) 1

863 -288 198 (15) ----(70) (256) (128) (3) 157 8 (291) (130) 914 (847) --

1,318 -353 192 (15) ----(77) (440) (100) -284 -(333) (283) 1,232 (411) --

1,602 -378 176 (15) ----(61) (498) (79) -240 -(399) (433) 1,310 (339) (500)

-5 -(557) 0 -96 (159) (21) (84) 72 10 21

-11 2 (442) 0 -(110) (187) (14) (310) (21) 21 10

-15 -(832) 0 -229 (198) (21) -10 92 10 102

-15 -(396) 0 -(78) (192) (21) -(291) 545 102 646

-15 -(824) 0 -(158) (176) (21) -(355) 131 646 778

Anand Rathi Research

30

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Fig 29 Ratio analysis @ `725


Year-end: Mar FY11 FY12 FY13e FY14e FY15e

Profit Margins (%) Gross profit EBITDA EBIT PBT Adjusted PAT Return Ratios (%) Return on assets Return on capital employed Return on equity On adjusted net profit (%) Return on assets Return on capital employed Return on equity NOPAT [EBIT*(1-T)] Invested capital Return on invested capital Turnover Ratios Fixed asset turnover, gross Fixed asset turnover, net Total asset turnover Sales/ROIC Days of inventory on hand Days of sales outstanding Number of days payable Cash credit cycle
Source: Company, Anand Rathi Research

40 10 7 5 4

41 11 8 6 5

43 12 10 8 5

42 13 11 10 6

41 13 11 10 7

11 14 22

13 18 26

14 20 29

16 23 33

16 23 29

11 16 22 384 3007 14%

13 19 26 531 3349 17%

15 22 29 700 4197 19%

17 25 33 1001 4585 23%

17 24 29 1178 5441 23%

2.2 2.8 1.8 2.5 80.0 11.7 38.4 53.3

2.4 3.1 2.0 2.7 87.0 9.8 33.8 62.9

2.6 3.4 2.2 2.9 82.2 8.8 27.2 63.8

2.8 3.9 2.2 3.1 81.0 9.0 26.9 63.1

3.0 4.5 2.1 3.2 86.6 9.3 27.7 68.3

Anand Rathi Research

31

5 October 2012

Relaxo Footwear Building pricing muscle; initiate with Buy

Company Background & Management


Begun in 1977 as a marketing and trading company, after its IPO in 1995 Relaxo Footwear began manufacturing Relaxo Hawaii for the mass market. Today, it is the second-largestin volumes, after Paragon, and by value, after Batawith 7-8% of the organised market by value. First-generation promoters, the Delhi-based Dua family, hold a 75% stake.

Company Background
Founded by the late Shri Moolchand Dua, Relaxo Footwear was incorporated in Sep84 and went public in 1993. Primarily known as a Hawaii company in the early 2000s after manufacturing only Relaxo Hawaii, at present, it has diversified into sandals, slippers, Relaxo Hawaii, canvas shoes and casuals, and caters to men, women and children. With nearly 46,000 multi-brand outlets (MBO) and 154 retail outlets across the country (especially in north India), today Relaxo has one of the widest points-of-sale. This helps it enhance its brand. It has nine production facilities and four warehouses, and markets more than 300,000 pairs daily.
Fig 30 Revenue break-up in pairs and value
FY10 Particulars m pairs Value (`m) FY11 m pairs Value (`m) FY12 m pairs Value (`m)

Hawaii Flite Sparx Others

53 23 5 1

2,274 1,610 854 98

50 23 7 1

2,458 1,785 1,679 159

51 27 9 1

3,000 2,280 2,190 110

Source: Company, Anand Rathi Research

Management CEO and MD Ramesh Dua looks after strategic and overall operations. CFO Sushil Batra looks after finance. Executive vice-president Gaurav Dua looks after marketing. Younger son Rahul Dua looks after the new business of polyurathane-Flite. (Flite also comes in EVA.) Whole-time director Nikhil Dua has more then 15 years experience and looks after projects.
Fig 31 Key management
Management Person Designation Role

Ramesh Dua Sushil Batra Nikhil Dua Gaurav Dua Rahul Dua

CEO, MD CFO WTD Executive vice-president

Strategic and overall operations Finance Looks after projects Marketing New business of PU

Source: Company Anand Rathi Research

Anand Rathi Research

32