Relaxo Footwear: a wannabe brand play

Relaxo Footwear stock story created.

The stock has continuously been on a slide, perhaps justified by the slide in performance quarter on quarter. From a high of Rs. 514 in Oct 2010, it is quoting at 238 CMP, Feb 07, 2010.

However I believe this may be a good stock to track closely and watch/bet for a turn in fortunes cautiously, as there are many things going for the stock too.

Please comment if you find the stock story has the right balance:) and help take the discussion forward.


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Reversal in RM prices (natural rubber & crude for EVA) would be key monitorables. As also an improvement in the debt situation.

Don’t see these coming through in a hurry…a few qrs will go by. But by then the stock may have corrected much more. That will be a goo entry point for me.

What I like the most in this story is the amazing record on debtor days - just 14 days in FY10. That’s almost like a FMCG business!

Also the fact that all this growth has been achieved without any equity dilution.

Don’t like the fact that they are poor dividend payers.

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There seem to be some concerns over the company:

1). Lack of pricing power-- raw material price rise if badly affecting margins

2). High debt

3). Promoter group transactions

On the positive side, the company seems to be going ahead in the right direction in expanding its retail network. And sales growth is impressive. Visibility of the brand is quite high.

But as mentioned above, in the current market scenario, it is not likely to run away in a hurry so one might watch it for a couple of quarters before taking a call.

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This news item is from dec 2009, involves bata and relaxo over trdemark infringement



Their after sales service seems to be lax, there are quite a few compalints that have gone unattended…

This can be pretty damaging. Sparx was supposed to be a flagship brand. Wonder what made Relaxo go after and start using a trademark registered by a rival that too in 1978!

“Relaxo has falsely claimed use of ‘Sparx’ trademark since April 2002,” said Bata in its petition, alleging that it was already selling shoes under ‘Sparx’ mark in 26 countries including USA, Malaysia, Thailand, Canada, China, Mexico.

In India, they have already registered their ‘Sparx’ trademark in November 1978.

“While adopting the impugned mark (Sparx), Relaxo Footwear deliberately, purposely and wilfully went for identical mark of a known company with brazen disregard of violation of trademark,” said Bata.

The court has listed the matter on December 16 for next hearing. Link:



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Chappals is a simple product,we need it everyday…given the indian middle class and creation of a new middle class in another decade…its scalable, the Brand Play shoud give sustained growth for many years…

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?

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Hi Donald,

A questionbased on my observation.

)- Why is Relaxo absent from some of the newer Retail channels like Reliance footprint, Inorbit etc. even though the distributionvia small shops hasbeen strong?

On page 54 of the AR there are quite a few names of relatives of the directors. Should it be construed that these people are holding some position in the company. If not, why are the names mentioned in the AR…???

Ayush Mittal and myself visited Relaxo and spent a couple of hours speaking to CFO Sushil Batra. The Q&A is captured here for everyone’s benefit.

Relaxo Footwear management Q&A Feb 16, 2011

Our conclusion: This is a good company focused on growth. Great brand pull, but no pricing power. Margins are not in their hands. RM situation unlikely to reverse before a few quarters…may offer better price points in future.

Please take forward the discussion.Any follow-up questions can be collated and we can now probably get them answered by Management.



Thanks Saurabh.

Please go through the Management Q&A posted, and the answers to this may be apparent.

Relaxo does more than 60% of business on advance basis. distributors queue up to take stocks. They are not to keen on modern retail as margins tend to be lower. A pointer to this is in the answer to exports question.


)- distributionvia small shops hasbeen strong?

Related Party transactions need to be disclosed by every company. In a way its good that Relaxo mentions the relatives upfront. Though they are upfront about it, the number of transactions may point to questions about the transactions being conducted at arms-length!

Relaxo FY 11 results

** q4 fy 11 q4 fy 10 fy 11 fy 10**

sales 198 158 686 554

pbit 11.3 16 51 65

np 5.61 10.5 26.7 37.7

eps for fy 11 is 22.26

Loans have increased from 147 to 185 crores.

**Anyone with some idea about rubber prices? Have they started softening along with other commodities? **

Regarding the business it is a classical case of an easy to understand business and a retail story unfolding. Once margins take care of themselves this could be a good stock to own. Good company passing through bad times. Ideal time to accumulate.

Comments invited.

Rubber prices have definitely come down from the peak.

We will have to see how much old stock of higher price they were holding and how much rubber prices will go down further.

Another interesting point is that increase in debts is mainly for the inventory since debtor days has not changed much plus debt/equity is almost same as last year.


Yes its a retail story. just look at debtors days down to ~12 in FY11. While inventory days have gone up, working capital is still ~10.5% of sales. Inventory days will keep going up as the product mix changes towards higher value items.

But the overall Business Quality leaves much to be desired. The business is too sensitive to RM price volatility. There is a direct correlation of OPM with RM. In FY11 RM/Sales went up to almost 49% from ~40% in FY10. OPMs have been hurtling down sequentially every qr for the past several quarters. Form a high of 15.8% OPM in 1QFY10, OPM in Q4Fy11 was down to 8.49%! On a yearly basis OPM is down 4% points from 14.5% to 10.5%. Net margins are down to 2.8% in q4 from high 7.9% in 1q fy10. On a yearly basis NPM is down to 3.88% from 6.61% in FY10.

While Sales have gone up 24% for the year, EPS has seen a degrowth of 29% down to 22.26 from 31.41 a year ago. At current prices of 245, the stock still quotes at 11x FY11.

Just cant say margins will take care of itself. This is a business that is likely to do well in a benign RM situation, and will not do well in a volatile RM situation as now.

As per the Balkrishna conference call rubber prices are again at $5100-5200 up from last qr, though they expect this to come down in a few quarters.

To me this still looks way expensive.

Regarding accumulate.

Comments invited.


International prices at $5150 per tonne

Interesting observation.

They didnt open single store in last 6 months. This guys really need to think about franchisee stores.

The CFO stated that they want to operate only through company owned stores…were talking about opening some 30 stores this year…