Relaxo Footwear: a wannabe brand play

Vijay_Kiran · November 23, 2020, 2:54pm

RELAXO FOOTWEARS:

Concall Summary dated 2nd Nov 2020
Revenue: ₹575.9 cr (▼7.4%) Net Profit: ₹75.1 cr (▲6.5%)

Revenue from operations in Q2 was lower than previous year by 7.38% at ₹575.87 crore. The decline in operating revenue was due to the drop in economic activity because of the pandemic.
Net profit in Q2 FY21 increased to ₹75.10 crore as compared to ₹70.54 in Q2 FY20. Profit after tax (PAT) margin stood at 13%.
Profit before tax (PBT) was higher than previous year by 35% at ~₹100 crore. PBT margin was 17.4%.
EBITDA margin improved to 22% in Q2 FY21 v/s 16.8% in Q2 FY20 on the back of reduced administrative expenses and benign raw material prices.
Other income stood at ₹5.04 crore.
For H1 FY21, EBITDA margin came in at 19.6% v/s 16.6% last year. PAT margin was 10.6%.

Demand saw a volume growth of 2% YoY in Q2 FY21. Volume growth in H1 was -13% YoY.
The demand from rural regions was higher than that of urban regions.
The south and west regions were most impacted as Mumbai reopened late from the lockdown and parts of Kerala are still under lockdown. The demand here has de-grown.
Even in the festive season during October, demand picked up across the season except in Kerala.
The demand and production gap still persists in the open footwear category as the demand quickly escalated but it took time for the production levels to ramp up.
Exports demand is similar to domestic demand after Covid-19. The focus is on the major market of Gulf region. A good traction is seen in the important international markets of Africa, Gulf, Central America and Oceania.
The company always has a capacity cushion of 30%-40% to cater to the additional demand.

The open footwear category has shown good traction in the quarter with the brands Hawai, Flite and Bahamas performing well. A major reason for this is the work from home practice due to which the demand for formal footwear declined.
Open footwear has a revenue share of 80% at present. The closed footwear forms 10% of the product profile in volume terms and 20% in value terms.
The canvas shoe category has not grown. Shoe as a category forms 10% of the overall portfolio.
Sparx as a brand has seen recovery in Q2 but it remains far from the pre-Covid levels.
No demand has been observed for school shoes yet.

The company as on 30 September, 2020 had 396 exclusive brand outlets (EBOs) which contributed 5% to the revenues in H1 FY21. It made 6 new store additions in the quarter.
The EBOs are display-cum-sale counters established to capture the needs and preferences of the customers. The company has no plans of increasing such outlets (despite it being non-existent in the southern region of the country).
E-commerce has a share of 10% in revenue. It is expected to increase further by 2% in the next 6 months.
The number of channel trades and distributors remain same post-Covid while it is being estimated that some dealers might have shut down, especially in the north and south.
The number of dealers and distributors has increased as the demand for open footwear across the country saw growth.
The amount of security has been revised for both new and existing dealers to bring in more serious players. The implementation of the same was due in April but got postponed to June due to the pandemic.
The supply time from the company to the distributors remains at 2-3 days on a regular basis. The distributors have been requested to maintain an inventory of 1 month at all times.
The same level of margin is provided to both channel trade and e-commerce.

EBITDA margin shall not be the same as Q2 in the upcoming quarters as the expenses return to normal levels. However, on a YoY basis, the margin is expected to be better in the upcoming quarters.
At the company level, a volume growth of 3%-4% is expected in H2 FY21.
The capex for the year shall be in line with that of every year at around ₹100 crore with an eye on capacity expansion.
The objective shall be to recover the loss of Q1 in terms of turnover and growth over the next year. Over the longer horizon, a double digit growth is expected.
Rising raw material prices can be a trouble going forward.
The management forecasts that the demand for slippers and open footwear shall remain strong in the next 2-3 years due to the adoption of work from home culture post Covid-19 pandemic.
It will continue to focus on growing presence in the untapped and under-penetrated markets along with focusing on strengthening the brand.

Disc: Invested in Core PF.