We have prepared a set of questions for Relaxo Management in order to understand the company better. We are trying to interact with Relaxo Management to understand the company and its prospects better & the challenges ahead.
Please have a look and suggest additions, follow-up questions that you may have.
Questions for Relaxo Management
1). We are very impressed by the strides made by Relaxo in last 5 years. Earnings have far outstripped Sales growth going up from 3.26 Cr in FY06 to over 37 Cr in FY10 - a more than 10x increase or a CAGR of over 80%. This probably has been achieved in the backdrop of increasing share of high-margin products, tremendous improvements in Working Capital management over last 5 years, reduction in power costs and a gradual softening in raw material prices over the years. Year on year EPS growth in FY10 was ~165% on the back of huge decreases in RM prices. However the situation has got reversed in FY11 with RM prices hardening significantly and FY11 is set to see EPS degrowth.
What do you attribute the successes to? Despite several of these advantages like moving up the value chain to high margin products, better working capital management, etc, the RM price volatility seems too much of a drag â dragging down margins drastically. Please comment on margins sustainability and countering the RM challenges going forward.
2). Current capacities are at 3.35 lakh pairs a day. 2 lakh pairs ofHawaii slippers per day, 105,000 pairs of Fliteper day and about 30,000 pairs of Sparx (shoes & sandals) per day. & factories spread across Haryana, Uttaranchal, Rajasthan.
What is the current revenue mix and margin contribution from these products? And where is Relaxoâs focus for future growth? What kind of plans going forward on Sparx/Flite. What kind of promotional budgets will be required for this?
What incremental capacities can the current locations take. What is the space available?
Any possibilities of multiple shifts?
3). All three brands â Relaxo, Flite and Sparx are quite well known and well acceptedin themarket.
The Relaxo brand is jointly owned with a group company. However no royalty is currently being paidby RFL. Is this arrangement set to continue or the Management has some plans on consolidating its brand ownership?
The âSparxâ brand is also involved in some patent infringement suite with Bata? Can you please explain the circumstances and the current status/ What are the threats to the company from this?
4). While Sales have gone up more than 2.5x in 5 years, working capital/Sales is just over 5% in FY10 coming down from 7.5% in FY07.Debtor days are at an unbelievable 14 days in FY10, down from 32 in FY06.This shows a management focused on improving operational efficiencies. 90% of the business is driven through its retail distribution network (balance from the company owned stores numbering 100) and this indicates strong acceptance and brand pull in the market.
Please elaborate on the factors contributing to this superlative performance on the working capital front. Is this a result of many factors coming together synergistically or its plain old-fashioned persistent focus on improving operational efficiencies and strategic thinking. How many distributors and retailers. How much of the business is driven thru retail distribution network? What is the role of company-owned stores in this play?
5). The company over the last two-years has also shown increase in its exports from just Rs 1.5 crores inFY08 to Rs 7.1 Crores in FY09 to Rs. 10.58 Crores in FY10. The current exports are to Europe (~70%) and the Middle East (~30%). The Company intendsto increase its revenue from exports further with the 2 new plants.
What kind of capacities are now dedicated to exports? Will export markets grow to be a significant contributor in the near future, by when? Are margin realizations higher in export markets?
6). The footwear industry needs lot innovation in coming out with new models. This must be quite a complex and constant planning exercise.
How do you currently manage this aspect? What are the in-house capabilities to cater to this? How many models have you introduced since launching Flite & Sparx brands respectively
7). We have always been hearing BATAâs business model is inherently different from Relaxoâs and these two are not really comparable.
Can you please educate us more on BATAâs model. What do you see as the strengths or weaknesses inherent in that model versus yours?
8). Relaxo seems to be growing at higher than the footwear industry growth rate.
What is the industry growth rate and why are you able to grow at higher rates consistently? Is this due to new users (growing the market), moving unorganized sector customers to yours, or eating into existing branded market share.
9). Relaxo has earlier mentioned a target of Rs. 1000 Cr in Sales by FY12.
How do you see Relaxo placed now? Where is this growth going to come from? What will be the profitability and quality of this growth?
10). Sales growth over the quarters has been pretty lumpy in FY11. 154 Cr in Q1, 181 Cr in Q2, 153 Cr in Q3.
This is in variance with the pretty consistent quarterly growths achieved in FY10 and earlier years. Kindly explain the reasons behind this, capacity utilization issues, supply/demand issues, or a deliberate shift in strategy?