Relaxo Footwear 4Q FY 2013

7/30/2019 Relaxo Footwear 4Q FY 2013

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

Y/E March (` cr) 4QFY2013 4QFY2012 % chg (yoy) 3QFY2013 % chg (qoq)Total Income 291 242 20.6 223 30.7EBITDA 32 33 (3.1) 19 71.3

EBITDA margin (%) 11.0 13.7 (269)bp 8.4 262bp

Reported PAT 14 19 (28.2) 6 122.2Source: Company, Angel Research

Relaxo reported mixed set of numbers for 4QFY2013. The revenue for the quarter

grew considerably by 20.6% yoy and stood at `291cr, higher than our

expectation of `275cr. However, on the operating margin front the companywitnessed a contraction of 269bp on yoy basis and came in at 11.0% against out

estimate of 11.8%, mainly due to the higher other expenses. Tax for the quarter

stood at `8cr (38.1% of PBT). Subsequently, the profit for the quarter declined by

28.3% yoy and stood at `14cr, 27.7% lower than our estimate of `19cr.Store expansion and brand revamp to drive volume:Relaxo has aggressive retailexpansion plans to open 25-30 retail stores every year to expand its direct reach

and brand visibility. In FY2013, the company added 27 retail outlets, which has

taken the total retail outlet count to 168 at the year end. We expect that this

expansion of retail outlets along with the leading celebrity endorsement of the

brands will help the company in expanding its reach as well as strengthening itsbrand image which will eventually result in top-line addition. Outlook and valuation:We expect Relaxo to post a revenue CAGR of 15.2% overFY2013-15E to `1,333cr with an operating margin of 11.4% in FY2015E. The

PAT is expected to grow at a CAGR of 27.7% to `73cr for the same period. The

stock has corrected ~25% since the start of this year and at the current market

price, it is trading at attractive valuation of 9.9x FY2015E earnings. We maintainour Buy recommendation on the stock with a revised target price of `791, basedon a target PE of 13x for FY2015E.Key financialsY/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ENet sales 686 860 1,005 1,146 1,333% chg 23.9 25.4 16.8 14.1 16.3

Net profit 27 40 45 55 73% chg (28.8) 48.7 12.2 22.9 32.7

EBITDA margin (%) 9.6 10.5 10.4 10.9 11.4EPS (`) 22.4 33.3 37.3 45.9 60.9P/E (x) 27.0 18.2 16.2 13.2 9.9

P/BV (x) 5.4 4.2 3.4 2.8 2.2

RoE (%) 22.0 26.0 23.2 23.0 24.6

RoCE (%) 14.3 19.5 17.6 19.6 22.5

EV/Sales (x) 1.3 1.0 0.9 0.8 0.7

EV/EBITDA (x) 13.3 9.7 8.8 7.3 5.9

Source: Company, Angel Research

BUYCMP `605

Target Price `791

Investment Period 12 Months

Stock Info

Sector

Net debt (`cr) 161

Bloomberg Code

Shareholding Pattern (%)

Promoters 75.0

MF / Banks / Indian Fls 16.1

FII / NRIs / OCBs 1.5

Indian Public / Others 7.5

Abs.(%) 3m 1yr 3yr

Sensex 3.8 23.8 20.1

Relaxo (9.1) 68.1 95.8

Footwear

Market Cap (`cr) 727

Beta 0.4

Face Value (`) 5

BSE Sensex 18,817

52 Week High / Low 917 / 354

Avg. Daily Volume 2,111

RLXF IN

Nifty 5,724

Reuters Code RLXO.BO

Tejashwini Kumari30940000 ext: 6856

[email protected]

Relaxo FootwearFinancial Performance

4QFY2013 Result Update | Footwear

May 15, 2013


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4QFY2013 Result Update | Relaxo Footwear

May 15, 2012 2

Exhibit 1:4QFY2012 performanceY/E March (` cr) 4QFY2013 4QFY2012 % chg (yoy) 3QFY2013 % chg (qoq) FY2013 FY2012 % chgNet Sales 291 242 20.6 223 30.7 1,005 860 16.8Net raw material 134 125 7.4 101 32.3 469 459 2.2(% of Sales) 45.9 51.6 45.4 46.7 53.4

Staff Costs 28 25 12.0 27 3.9 113 82 37.6

(% of Sales) 9.7 10.4 12.2 11.3 9.6

Other Expenses 97 59 65.8 76 28.0 317 229 38.6

(% of Sales) 33.4 24.3 34.1 31.6 26.6

Total Expenditure 259 208 24.4 204 26.9 900 770 16.8EBITDA 32 33 (3.2) 19 71.3 105 90 16.7EBITDA margin (%) 11.0 13.7 (271)bp 8.4 262bp 10.4 10.5 (1)bp

Interest 5 4 17.8 5 13.3 18 19 (5.2)

Depreciation 7 6 23.6 6 6.7 25 23 10.4

Other Income 2 1 18.3 1 48.2 6 5 11.1

PBT 22 25 (11.7) 9 144.9 68 54 26.4(% of Sales) 7.5 10.2 4.0 6.7 6.2

Tax 8 6 41.7 3 193.6 23 14 68.5

(% of PBT) 38.1 23.7 31.8 33.8 25.4

Reported PAT 14 19 (28.3) 6 122.2 45 40 12.2PATM 4.6 7.8 2.7 4.5 4.6

Equity capital (`cr) 6 6 6 6 6

EPS (`) 22.5 31.4 (28.3) 10.1 122.2 74.7 66.6 12.2Source: Company, Angel Research

Revenue better than expected

Relaxo reported mixed set of numbers for 4QFY2013. The revenue for the quarter

grew considerably by 20.6% yoy and stood at `291cr, higher than our expectation

of `275cr.

Exhibit 2:Actual vs. EstimateY/E March (` cr) 4QFY13 Angel est. % diffNet sales 291 275 5.8EBITDA 32 32 (1.0)

EBITDA margin (%) 11.0 11.8 (76)

Reported PAT 14 19 (27.7)Source: Company, Angel Research

Softening of rubber price offset by increase in other expense

On yoy basis, the gross margin improved by 566bp to 45.9% due to the softening

in rubber prices. However, the same was offset by increase in the other expense on

yoy basis. Other expense as a per cent of net sales increased from 22.8% in

4QFY2012 to 29.0% in 4QFY2013. Hence, the operating margin for the quarter

witnessed a contraction of 269bp on yoy basis and came in at 11.0% against out

estimate of 11.8%.


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May 15, 2012 3

Exhibit 3:Revenue grew considerably for the quarter


Exhibit 4:Lower RM prices offset by Other expense (yoy)


Tax for the quarter stood at `8cr (38.1% of PBT), higher than expected.Subsequently, the profit for the quarter declined by 28.3% yoy and stood at `14cr,

27.7% lower than our estimate of `19cr.

Investment rationale

Store expansion to expand reach and strengthen brand imageRelaxo has aggressive retail expansion plans to open 25-30 retail stores every

year. In FY2013, the company added 27 retail outlets, which has taken the total

retail outlet count to 168 at the year end. We expect that this expansion of retail

outlets will help the company in expanding its reach as well as strengthening its

brand image and visibility which will eventually result in top-line addition.

Brand revamping to boost growth

Relaxo has roped in three Bollywood stars for the endorsement of its brands -

Salman Khan to endorse Hawaii, Katrina Kaif to endorse Flite and Akshay Kumar

toendorse Sparx.As a part of its aggressive advertisement strategy, the company

spent ~`55.1cr on the advertisement in FY2013. In our channel check, where we

interacted with various stores, we came to know that with these celebrities

endorsing the brands, the demand has risen. We further expect that the company

will be able to maintain its market share in the mass segment through Hawaii

brand and penetrate further in the lower and upper-middle class segment throughexisting products and upcoming launches of Flite andSparx brands.

Capacity expansion in place to cater increasing demand

The company has incurred a capex of `60cr for the construction of a PU

(Polyurethane) footwear plant which got commissioned on 18th of January, 2013.

With this plant getting operational, the companys total capacity has gone up by

~30,000 pairs per day which was at 3.70 lakh pairs per day. The company is not

planning for any capex in near term for capacity expansion.

We expect that with the current capacity the company will be able to cater to the

growing demand. According to the industry reports, the current Indian footwearmarket is estimated to be worth US$3.9bn and is growing at a CAGR of 15% and

is expected to be worth US$6.9bn by FY2015.

201

215

199

204

242

248

242

223

291

25.6

39.5

10.3

33.5

21.8

15.6

21.6

9.2

20.6

0

5

10

15

20

2530

35

40

45

0

50

100

150

200

250

300

350

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY14

(%)

(`cr)

Revenue (LHS) yoy growth (RHS)

55.6 54.5 54.1 53.7 51.648.3 47.3 45.4 45.9

8.510.7

7.9 8.613.7

11.1 11.08.4

11.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY14

(%)

Raw material/ sales EBITDA margin


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May 15, 2012 4

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

26% in FY2012; 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. To meet the growing demand and growing fashion-consciousness

of the consumers, the company is launching new designs across all brands in

regular intervals.


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May 15, 2012 5

Financial performance

Assumptions

Exhibit 5:Key assumptionsAssumptions FY2014E FY2015EVolume Growth 10.8 13.0

Realisation Growth 3.0 3.0

Change in raw material prices (%)Ethyl Vinyl Acetate (EVA) (3.0) 4.0

Rubber (3.0) 4.0


Exhibit 6:Actual vs. estimateY/E March (` cr) FY2013E FY2013A % chng

Net sales (`cr) 989 1,005 1.6EBITDA Margin (%) 10.6 10.4 (20)bp

Adj. PAT 50 45 (10.6)Source: Company, Angel Research

For FY2013, the company witnessed a revenue growth of 16.8% and stood at

`1,005cr, against our estimate of `989cr, on account of healthy demand coupled

with price hikes across brands. We expect the companys revenue to grow at a

CAGR of 15.5% over FY2013-15E, from `1,005cr in FY2013 to `1,333cr in

FY2015E, mainly on the back of growth triggers, which includes 1) capacityexpansion plan, 2) store expansion, 3) improved sales mix and 4) brand

revamping.

Exhibit 7:Revenue to be driven by volume growth


Exhibit 8:Sales break up Brand-wise


The gross margin for the year improved by 666bp, however, the effect of same

could not result in improvement of operating margin. The reason for the same

being increased other expense on account of various initiatives taken in sales,

marketing and supply chain management. Also, the company spent substantialamount of ~`55cr (~`30cr in FY2012) on advertisement and publicity.

Consequently, the operating margin came in at 10.4%, slightly below our estimate

of 10.6%. Going ahead, we expect the other expense to normalize, thus aiding the

407 554 686 860 1,0

05

1,1

46

1,3

33

33.335.9

23.925.4

16.814.1

16.3

0

10

20

30

40

0

200

400

600

800

1,000

1,200

1,400

1,600

FY2009

FY2010

FY2011

FY2012

FY2013E

FY2014E

FY2015E

(%)

(`cr)

Revenue (LHS) Revenue growth (RHS)

49.2 44.4 40.8 35.5 33.0

31.929.1

28.925.8 26.0

4.27.5 15.3

24.3 26.0

14.7 18.9 15.1 14.5 15.0

0.0

20.0

40.0

60.0

80.0

100.0

FY2008 FY2009 FY2010 FY2011 FY2012

(%)

Hawaii Flite Sparx Others*


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May 15, 2012 6

operating margin to improve by 93bp over FY2013-15E to 11.4% in FY2015E.

The profit for FY2013 stood at `45cr (12.2% higher than FY2012), against our

estimate of `50cr. On account of improved margin, we expect the net profit to

grow at a CAGR of 27.7% over FY2013-15E to`73

cr in FY2015E.

Exhibit 9:Margin to rebound with decreasing RM price


Exhibit 10:Profit to grow at a CAGR of 27.7% (FY2013-15E)


Outlook and valuation

With the growth triggers in place which includes 1) capacity expansion plan, 2)

store expansion, 3) improved sales mix and 4) brand revamping 5) continuous

product development we remain positive on the companys future. We expect

Relaxo to post a revenue CAGR of 15.2% over FY2013-15E to `1,333cr with anoperating margin of 11.4% in FY2015E. The PAT is expected to grow at a CAGR of

27.7% to `73cr for the same period. The stock has corrected ~25% since the start

of this year and at the current market price, it is trading at attractive valuation of

9.9x FY2015E earnings. We maintain our Buy recommendation on the stock with arevised target price of `791, based on a target PE of 13x for FY2015E.Exhibit 11:One-year forward PE


41

76

66

90

105

125

152

10.1

13.8

9.610.5 10.4 10.9

11.4

0

2

4

6

8

10

12

14

16

0

20

40

60

80

100

120

140

160

FY2009

FY2010

FY2011

FY2012

FY2013E

FY2014E

FY2015E

(%)

(`cr)

EBITDA (LHS) EBITDA margin (RHS)

33.2

160.2

-28.8

48.7

12.222.9

32.7

-50

0

50

100

150

200

0

10

20

30

40

50

60

70

80

FY200

9

FY201

0

FY201

1

FY2012

E

FY2013

E

FY2014

E

FY2015

E

(%)

(`Cr)

PAT (LHS) PAT growth (RHS)

0

200

400

600

800

1000

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

Apr-11

Sep-11

Feb-12

Jul-12

Dec-12

May-13

(`)

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


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May 15, 2012 7

Exhibit 12:Comparative analysisCompany Year end Mcap(` cr) Sales(` cr) OPM(%) PAT(` cr) EPS(`) RoE(%) P/E(x) P/BV(x) EV/EBITDA(x) EV/Sales(x)Relaxo footwear FY2014E 727 1,146 10.9 55 45.9 23.0 13.2 2.8 7.3 0.8

FY2015E 727 1,333 11.4 73 60.9 24.6 9.9 2.2 5.9 0.7Bata India* CY2013E 5,241 2,167 15.5 205 33.3 25.4 22.4 6.7 15.0 2.3

CY2014E 5,241 2,534 16.2 248 40.4 24.9 18.6 5.5 12.3 2.0

Source: Company, Angel Research, *Bloomberg

Risks

Rise in raw material prices and depreciating rupee

The prices of key raw materials EVA and rubber had reached their peak in the

last financial year to ~`149/kg and ~`243/kg respectively, which impacted the

operating margin. However, the rubber price has started declining, with the current

price for rubber at ~`183/kg. Any rise in the price 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 13:Rubber price trend


Exhibit 14:Depreciating rupee a concern for EVA cost


Competition from both branded and unorganised sector

Relaxo competes with both branded as well as the unorgansied market. Hawaii,

the mass product faces stiff competition from the unorganised market. On the

other hand, Sparx faces competition from branded shoes. Though the company

has competitively priced its products, however, any price cut by competitors can

put pressure on Relaxos sales and margin.

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 presently has 168 company-owned outlets

across India, with a concentrated presence in Delhi, Rajasthan, Gujarat, Haryana,

Punjab, Uttar Pradesh and Uttarakhand. It has nine manufacturing plants, seven inBahadurgarh (Haryana) and one each in Bhiwadi (Rajasthan) and Haridwar

(Uttaranchal). Currently, the company sells its products under three major brands

Hawaii, Flite andSparx.

258

183

150

170

190

210

230

250

270

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

(`/Kg)

51

52

53

54

55

56

57

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

USD

/INR)


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May 15, 2012 8

Profit & Loss Statement (Standalone)

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ETotal operating income 686 860 1,005 1,146 1,333% chg 23.9 25.4 16.8 14.1 16.3Net Raw Materials 375 459 469 544 623

% chg 29.4 22.3 2.2 15.8 14.7

Other Mfg costs 43 55 64 73 85

% chg 31.8 26.8 17.5 14.1 16.3

Personnel 74 82 113 129 150

% chg 34.5 10.6 37.6 14.1 16.3

Other 127 174 253 275 323

% chg 27.6 37.5 45.3 8.8 17.3

Total Expenditure 620 770 900 1021 1182

EBITDA 66 90 105 125 152% chg (13.2) 35.9 16.7 19.1 21.3

(% of Net Sales) 9.6 10.5 10.4 10.9 11.4

Depreciation 21 23 25 29 32

EBIT 45 67 79 96 120% chg (25.5) 47.8 18.8 21.2 24.7

(% of Net Sales) 6.6 7.8 7.9 8.4 9.0

Interest & other Charges 16 19 18 19 17Other Income 6 5 6 6 7

(% of sales) 0.9 0.6 0.6 0.6 0.6

Recurring PBT 30 48 62 77 103% chg (40.5) 63.0 28.1 24.4 34.0

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

PBT (reported) 36 54 68 83 110Tax 9 14 23 28 37

(% of PBT) 24.7 25.4 33.8 33.8 33.8

PAT (reported) 27 40 45 55 73ADJ. PAT 27 40 45 55 73% chg (28.8) 48.7 12.2 22.9 32.7

(% of Net Sales) 3.9 4.6 4.5 4.8 5.5

Basic EPS (`) 22.4 33.3 37.3 45.9 60.9Fully Diluted EPS ( ) 22.4 33.3 37.3 45.9 60.9% chg (28.8) 48.7 12.2 22.9 32.7

Dividend 2 2 6 6 6

Retained Earning 25 38 39 49 67


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May 15, 2012 9

Balance Sheet (Standalone)

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 6 6 6 6 6Reserves& Surplus 129 166 208 257 325

Shareholders Funds 135 172 214 263 331Total Loans 156 146 205 195 171

Other Long Term Liabilities 0 0 6 6 6

Long Term Provisions 2 3 3 3 3

Deferred Tax (Net) 22 22 24 24 24

Total Liabilities 316 344 452 491 535APPLICATION OF FUNDSGross Block 353 379 464 510 561

Less: Acc. Depreciation 84 108 133 162 193

Net Block 268 272 330 348 367Capital Work-in-Progress 1 21 20 20 20

Lease adjustment 0 0 0 0 0

Goodwill 0 0 0 0 0

Investments 0 0 0 0 0

Long Term Loans and adv. 11 12 15 15 15

Other Non-current asset 0 1 1 1 1

Current Assets 158 169 240 284 336

Cash 2 1 3 9 8

Loans & Advances 16 15 39 44 52

Inventory 117 128 159 193 228

Debtors 23 23 36 35 44

Other current assets 1 2 3 3 4

Current liabilities 123 131 154 176 204

Net Current Assets 35 38 87 108 132Misc. Exp. not written off 0 0 0 0 0

Total Assets 316 344 452 491 535


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May 15, 2012 10

Cash Flow (Standalone)

Y/E March (` cr) FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 36 54 68 83 110

Depreciation 21 23 25 29 32Change in Working Capital 13 (4) (46) (16) (25)

Direct taxes paid (9) (14) (23) (28) (37)

Others (17) 14 (6) (6) (7)

Cash Flow from Operations 44 73 18 62 73(Inc.)/Dec. in Fixed Assets (62) (46) (83) (46) (51)

(Inc.)/Dec. in Investments 0 0 0 0 0

(Inc.)/Dec. in LT loans & adv. 11 1 3 0 0

Others (12) (2) 11 7 8

Cash Flow from Investing (63) (47) (69) (40) (43)Issue of Equity 0 0 0 0 0

Inc./(Dec.) in loans 10 (11) 59 (10) (23)

Dividend Paid (Incl. Tax) (2) (2) (6) (6) (6)

Others 13 (14) 0 0 0

Cash Flow from Financing 20 (27) 53 (17) (30)Inc./(Dec.) in Cash 1 (1) 2 6 (0)

Opening Cash balances 1 2 1 3 9Closing Cash balances 2 1 3 9 8


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May 15, 2012 11

Standalone Key RatiosY/E March FY2011 FY2012 FY2013E FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 27.0 18.2 16.2 13.2 9.9P/CEPS 15.2 11.5 10.3 8.7 6.9

P/BV 5.4 4.2 3.4 2.8 2.2

Dividend yield (%) 0.2 0.2 0.8 0.8 0.8

EV/Sales 1.3 1.0 0.9 0.8 0.7

EV/EBITDA 13.3 9.7 8.8 7.3 5.9

EV / Total Assets 2.8 2.5 2.1 1.9 1.7

Per Share Data (`)EPS (Basic) 22.4 33.3 37.3 45.9 60.9

EPS (fully diluted) 22.4 33.3 37.3 45.9 60.9

Cash EPS 39.9 52.5 58.6 69.8 87.2

DPS 1.5 1.5 5.0 5.0 5.0

Book Value 112.2 143.7 178.7 219.6 275.4

Dupont AnalysisEBIT margin 6.6 7.8 7.9 8.4 9.0

Tax retention ratio 0.8 0.7 0.7 0.7 0.7

Asset turnover (x) 2.2 2.7 2.3 2.5 2.6

ROIC (Post-tax) 10.9 15.5 12.3 13.8 15.7

Cost of Debt (Post Tax) 7.5 9.6 5.7 6.6 6.6

Leverage (x) 1.2 1.0 0.9 0.8 0.6

Operating ROE 15.0 21.4 18.1 19.7 21.1

Returns (%)ROCE (Pre-tax) 14.3 19.5 17.6 19.6 22.5

Angel ROIC (Pre-tax) 14.5 20.8 18.5 20.8 23.7

ROE 22.0 26.0 23.2 23.0 24.6

Turnover ratios (x)Asset Turnover 2.1 2.4 2.4 2.4 2.5

Inventory / Sales (days) 49 52 52 56 58

Receivables (days) 12 10 11 11 12

Payables (days) 57 60 58 63 63

WC (ex-cash) (days) 21 14 21 28 29

Solvency ratios (x)Net debt to equity 1.1 0.8 0.9 0.7 0.5

Net debt to EBITDA 2.3 1.6 1.9 1.5 1.1

Interest Coverage 2.9 3.6 4.5 4.9 7.0


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May 15 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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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

Ratings (Returns): 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 4Q FY 2013