Will Relaxo Footwears disrupt Indian footwears Exports? क्या आपको रिलैक्सो फुटवियर स्टॉक खरीदना चाहिए?

   1. Company & Business Strength: 10/10

India is the second largest producer in the world and third largest consumer in the world after US and China. Our population currently is at around 140 crores.

In India, footwear production is around 220 crore+ since 90% is the domestic market share which amounts to 200 crore pairs of shoes. We are currently at 1.8 per person. If we increase our per person to even just 2 then the demand would go up to 280 crore pairs which is an increase of 40%. (not counting even the population growth which has been at 1.2% from 2010 to 2019).

If on a more optimistic note, our per person increases to the global average of 3 pairs per person, we are looking at 420 crore pairs which is an increase of roughly 110% in demand. Thus Relaxo has a chance to capture this if it plays out well.

This is just an estimate for domestic consumption not even global and might take years to achieve.

Relaxo Footwears Limited is the largest footwear manufacturing company in India, which deals in non-leather products i.e. rubber/EVA slippers, canvas shoes, sports shoes, sandals, school shoes, and other types of footwear.

The company sells its products through retailers served through distributors, retail outlets, export,s and e-commerce / modern trade.

It is also the leader in the 'value' segment of footwear. It has a portfolio of renowned brands like Relaxo, Sparx, Flite, and Bahamas.

Business Segment:

 Although the business is focused only on footwear, it still has a wide range of brands to meet consumer needs. Below is the business segment where the revenue comes from:

Relaxo: Relaxo Hawaii slippers are known for durability and comfort at an affordable price.

Sparx: This variety is all about Sandals that focus on passion, challenges, and zeal for people to do things differently.

Flite: Brand which focuses on lightweight sandals and slippers.

Bahamas: Another brand that gives a wide variety of footwear.

Boston: Focuses on formal and leather shoes.

Mary Jane: Focuses on women's footwear and fashion.

Kids Fun: focuses on products for kids with a variety of designs.

2. Competitive Strength: 8/10

In India, the Organised sector is almost 45% out of which Relaxo thus commands a market share of 19% in the organized sector and a revenue share of 7%.

The rival competitor is, however, Bata which commands a market share of 4% in the organized sector and a revenue share of 9%.

Other competitors include brands such as Metro brands, Mirza International, Liberty shoes, etc, and mostly unorganized brands.

3. Stock Analysis Return & PE Ratio: 8/10

Relaxo Ltd Stock is listed both in NSE, and BSE and currently trading around 900 (Jan 2023), with a 52 high in the 1375s and a low of 880s.

It has a market cap of 22000+ which is Midcap, Stock has been consolidating for a long time now due to uncertainty in raw material prices.

The stock has given a 3-year CAGR of 13.9% which is good considering uncertain periods. 

The face value is 1, so expect bonuses and buybacks.

PE Ratio: Relaxo has a PE of 117 currently which is expensive although it is a growing company.

4. Dividend: 7/10

The stock has been giving a fair dividend of 0.27%. Generally, we expect a growing company to give atleast 1% dividend which is a good gesture and sign unless high Capex is planned.

Financial Ratios:

5. Sales Growth/Revenue: 6/10

The Sales growth indicates that the company can capture the market, which may increase profitability. 

 Relaxo has a 3-year median Sales growth of 5%  which is exceptional. Current year (2022) growth stands at 12%. For Mid caps, we consider the growth of atleast 15%+ as healthy sales. 

6. Profit Growth: 5/10

Sales growth indicates a good income, but unless profit is not made it's terrible. Profit growth indicates how expenses are managed or also how the company has pushed the raw material price to end customers.

Relaxo Profit growth stands at a 3-year median of 10% which is exceptional, Current year stands at -20%. For Mid cap atleast 20% is considered healthy growth in Profitability.

7. [ROE] & [ROCE] %: 8/10

Return on Equity:

ROE indicates the ability to generate profits from shareholders/Equity Investments. Relaxo ROE has a 3-year median of 18%.  The current year stands at 14%. 

We consider a healthy ROE to be atleast 20% for growth companies.

Return on Capital Employed:

ROCE indicates the ability to use its capital employed for business. Relaxo ROCE has a 3-year median of 24%.  The current year stands at 19%. 

We consider a healthy ROCE to be atleast 20% for growth companies.

8. Debt/Equity: 10/10

D/E is a measure of which a company is running through debts vs owned funds. Ideally, D/E should be less than 1, which indicates stability. 

Relaxo has a D/E of 0.01 which is excellent. Unless capital expansion or any other is required, a low debt is always good to maintain profitability.

We consider debt-free or D/E<0.1 to be healthy. 

9. Shareholding %: 10/10

The company has a high Promotor holding of 70.78%. The FII and DII of 3.11% and 7.43% indicate Institutions have very high holdings, and the Remaining are public holdings.

Note: The Promoter Pledging % is 0% which is good, generally no pledging indicates a good sign.

Another indicator like interest coverage ratio, Return on Assets [ROA], and others also seems good.

10. Future Prospects: 9/10

Pros:

Brand: The visibility of the brand is quite high.

The sector holds an important place in Make in India Initiative.

Volume: Relaxo has sold the highest number of pairs of shoes at 20 crores as compared to Bata and Liberty.

Revenue: Revenue has increased by 54% for Relaxo as compared to Bata and Liberty, which has the highest revenue amongst the peer companies.

Cost /per pair: The cost per pair is the lowest for Relaxo footwear at 127 rupees. It is much below even the industry average of 327. Several pairs sold by Relaxo are 4.5 times those of Bata, the revenue of Bata is higher as they charge an average of 700 per pair as against 127 by Relaxo.

Trend & Target Segment: Relaxo is targeting the mass segment which is probably 80% of the Indian population who would go for chappals rather than shoes.  The company seems to be going ahead in the right direction in expanding its retail network. • The growing trend of premiumization in the Indian footwear industry and the shift to branded footwear.

No Debt.

Cons:

Lack of pricing power: Raw material price rise can badly affect margins hence low profit.

The Sales growth is poor atleast in last few years.

 Competition may be tough ahead.

Investment Hacks Score Card: 

The average score of Relaxo Footwears limited based on all factors comes to be 8.1/10.

Conclusion:

Overall Relaxo Footwears limited seems to have a good Product portfolio with a wide range of consumer needs. Brand visibility is getting higher in India and more and more people are moving towards branded wear which would definitely increase the market share of organized players in which Relaxo has popularity like Sparx, Flite, and Bahamas. Relaxo also has a lower production cost per pair which would help them during raw material uncertainty.

The stock has overall given excellent returns to shareholders in the past but is consolidating now due to the margin effect. Since this is still a Mid-cap stock, Investors can see volatility in the future and should carefully watch plans and growth.

Disclaimer:

Since this is an educated opinion, Please research thoroughly or consult your financial advisor before Investment.

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Team Investment Hacks