CMP 683.25

Target Price 785.00

ISIN: INE131B01039

FEBRUARY 21st

, 2015

RELAXO FOOTWEARS LTD

Result Update (PARENT BASIS): Q3 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector Footwear

BSE Code 530517

Face Value 1.00

52wk. High / Low (Rs.) 750.00/245.00

Volume (2wk. Avg. Q.) 1705

Market Cap (Rs. in mn.) 41001.83

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 12118.33 14810.14 17179.76

EBITDA 1493.56 1893.90 2264.18

Net Profit 656.36 919.09 1132.02

EPS 10.94 15.32 18.86

P/E 62.47 44.61 36.22

Shareholding Pattern (%)

1 Year Comparative Graph

RELAXO FOOTWEARS LTD. BSE SENSEX

SYNOPSIS

Relaxo Footwears Ltd incorporated in 1984 and is the

2nd largest footwear company in India measured in

terms of values & its brands.

In Dec quarter of FY 2015, Net profit grew by 88.18%

y-o-y of Rs. 199.06 million against Rs. 105.78 million in

Dec quarter of the previous year.

The company has achieved a turnover of Rs. 3325.05

million for the 3rd quarter of the financial year 2015 as

against Rs. 2604.50 million in the corresponding

quarter of the previous year.

In Q3 FY15, the company has reported an Operating

profit of Rs. 431.49 million and rose by 46.27% y-o-y

against Rs. 294.99 million in Q3 FY14.

Profit before tax (PBT) at Rs. 290.07 million in Q3

FY15 compared to Rs. 154.03 million in Q3 FY14,

registered a growth of 88.32%.

During the quarter, the company has added of 2 retail

stores in the states of Haryana and Punjab and total

stores stood at 199 in India.

For the nine months ended of FY15, the company

registered a growth of 23.89% in Net sales to Rs.

10401.12 million from Rs. 8395.19 million for the nine

months ended of FY14.

Net profit grew by 37.80% to Rs 603.68 million for the

end of 9M FY15 from Rs 438.09 million for the end of

9M FY14.

During the quarter the Credit rating of long term

facility has been upgraded to A+ and for short tern

fund rated A1 by leading rating agency – ICRA.

Net Sales and PAT of the company are expected to

grow at a CAGR of 19% and 36% over 2013 to 2016E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Relaxo Footwears Ltd 683.25 41001.83 10.94 62.47 14.83 50.00

Bata India Ltd 1299.30 83497.90 26.88 48.34 8.24 65.00

SuperhouseLtd. 231.20 2640.30 31.93 7.24 1.35 15.00

Liberty Shoes Ltd 299.30 5100.10 8.39 35.67 3.71 15.00

Recommendation & Analysis - ‘BUY’

Relaxo Footwears Ltd has delivered another quarter of “profitable growth” with revenue increasing by 27.67%

and PAT by 88.18%, compared to same period last year. The increase in sales was primarily driven by volume

growth across major brands and improved price realization. For the 3rd quarter ended of FY15, the company’s

net sales Jumps to Rs. 3325.05 million from Rs. 2604.50 million in Q3 FY14. In the same Dec quarter, Net profit of

the company grew by 88.18% y-o-y and stood at Rs. 199.06 million against Rs. 105.78 million in the

corresponding quarter of the previous year. Net Profit increased due to Interest cost decreased significantly by

26.51% by which in term loans and lower debt requirements owing to better working capital management and

internal cash accruals. In Q3 FY15, the company has reported an Operating profit of Rs. 431.49 million and rose

by 46.27% y-o-y against Rs. 431.49 million in Q3 FY14. Profit before tax (PBT) at Rs. 290.07 million in Q3 FY15

compared to Rs. 154.03 million in Q3 FY14, registered a growth of 88.32%. During the quarter, the company has

added of 2 retail stores in the states of Haryana and Punjab and has been growing its presence in South and West

regions in India. Relaxo continue to benefit from its online sales and will strive to enhance its focus on this

segment.

For the nine months ended of FY15, the company registered a growth of 23.89% in Net sales to Rs. 10401.12

million from Rs. 8395.19 million for the nine months ended of FY14. Net profit grew by 37.80% to Rs 603.68

million for the end of 9M FY15 from Rs 438.09 million for the end of 9M FY14.

Relaxo Footwear is aggressively working on rationalization of non performing retail shoppe’s and has started

giving positive results of margin or inventory level. The company produces Over 4, 54,000 pairs of footwear at its

state-of-the-art manufacturing unit’s daily and products are sold across Asia, Africa and the Middle East.

Remarkable 3rd quarter for Relaxo Footwears with revenue increasing by 27.6% and PAT by 88.2%, led by

significant volume growth. The growth momentum for Relaxo continues to be supported by its strategic

initiatives, enhanced capabilities and increasing traction for company’s brands. The company continues to

expand distribution network and our portfolio, thereby resulting in a healthy mix of product premiumization and

volume growth across all its brands. Net Debt reduced significantly from Rs. 1644.10 million as on Sept 2014 to

Rs. 1580.70 million as on Dec 2014. Over 2013-2016E, we expect the company to post a CAGR of 19% and 36%

in its top-line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘RELAXO FOOTWEARS LTD’ with

a target price of Rs. 785.00 on the stock.

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q3 FY15,

Relaxo Footwears Ltd. is standing firm to serve the

footwear needs of 1.2 billion people of our country

with 8 manufacturing plants, a portfolio of 10

brands, 168 Excusive Outlets and an extended family

of over 50000 retailers and distributors. The

company has reported its financial results for the

quarter ended 31st Dec, 2014.

The company has achieved a turnover of Rs. 3325.05 million for the 3rd quarter of the current year 2014-15 as

against Rs. 2604.50 million in the corresponding quarter of the previous year. For Q3 FY15, EBITDA of Rs. 431.49

million an increased by 46.27% y-o-y against Rs. 294.99 million in 3rd quarter of previous financial year. The

company’s net profit of Rs. 199.06 million against Rs. 105.78 million in the corresponding quarter of the previous

year. EPS of Rs. 3.32 for the 3rd quarter of FY15 as against an EPS of Rs. 8.81 in the corresponding quarter of the

previous year. Earning per share has decline due to stock split from face value of Rs. 5/ each to Rs. 1/- each (with

effect from 22nd November, 2013).

Break up of Expenditure

During the quarter, Total expenditure rose up by 25 per cent, mainly increased on account of cost of material

consumned by 49%, Depreciation & Amortization Expenses by 20%, Purchase of stock in trade up by 88%,

Employee benefit expensses 20% along with other expenses was increased by 34% are the main attribute for the

growth of expenditure when compared to corresponding quarter of previous year. Total expenditure in Q3 FY15

stood to Rs. 2996.97 million as against Rs. 2395.01 million in Q3 FY14.

Rs. In million Dec-14 Dec-13 % CHANGE

Net Sales 3325.05 2604.50 27.67

PAT 199.06 105.78 88.18

EPS 3.32 8.81 (62.36)

EBITDA 431.49 294.99 46.27

Break up of Expenditure (Rs. in Millions)

Q3 FY15 Q3 FY14

Cost of Raw Material Consumed 1537.04 1028.68

Employee Benefit Expenses 319.54 266.48

Depreciation & Amortization

Expenses 97.99 81.86

Other Expenses 1176.4 880.78

Purchase of stock-in-trade 328.01 174.1

COMPANY PROFILE

Headquartered in New Delhi, India, Relaxo Footwear began as a small enterprise in the year 1976 and was

officially incorporated in 1984 and further went into public listing in 1995. According to the 2008 Business

Survey, it has now emerged as the second largest footwear producer in India. Relaxo Footwear commenced its

journey with the manufacture of Hawaii slippers. It has now grown into a large-scale entrepreneurship catering

to the basic needs of the quintessential Indian citizen.

Today Company is standing firm to serve the footwear needs of 1.2 billion people of our country with 8

manufacturing plants, a portfolio of 10 brands, a family of 9000+ employees and an extended family of over

50000 retailers and distributors.

Products

Product Brands

• Hawaii

Hawaii is the most popular brand in the Relaxo portfolio. It comes in diverse shades and styles and its

comfort value makes it a favourite among all age groups. With an output of 300000 pairs a day, Relaxo is one

of the largest manufacturers of Hawaii in India.

• Flite

Flite is Relaxo's most exclusive brand. Its unique “fashionable and light” quality is ensured by its

manufacturing process, involving cutting-edge EVA technology. Available in an array of colours and designs,

it is among the popular products in the casual footwear industry.

• Sparx

Sparx is a range of sports shoes and sandals that embodies the spirit of today's youth. Available in awe-

inspiring colours and designs, it reflects verve and dynamism as an iconic youth brand and is symbolic of a

wholehearted zest for life.

• Schoolmate

Schoolmate is a range of school shoes for boys and girls and is an expression of Relaxo's faith and

commitment towards the young leaders of tomorrow. Made with special care to pamper thousands of tiny

feet, each pair bears the mark of superb workmanship and adaptable design.

• Elena

• Casualz

• Mary Jane

• Boston

Manufacturing Facilities

Relaxo has steadily established its production facilities across the length and breadth of Northern India. Each

state-of-the-art unit is equipped with futuristic infrastructure powered by cutting-edge technology and

progressive machinery. The company’s Production capacity is around 160 million pairs of footwear per annum.

Relaxo has 8 state of the art manufacturing facilities, six in Bahadurgarh (Haryana) andone each in Bhiwadi

(Rajasthan) and Haridwar (Uttaranchal).

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2013 -2016E

RELAXO FOOTWEARS LTD. FY13A FY14A FY15E FY16E

I. EQUITY AND LIABILITIES

A) Shareholders’ Funds:

a) Share Capital 60.01 60.01 60.01 60.01

b) Reserves and Surplus 2084.35 2705.61 3463.18 4242.40

Sub- Total Net worth (a) 2144.36 2765.62 3523.19 4302.41

B) Non Current Liabilities:

a) Long-term borrowings 1502.43 1143.10 898.48 706.20

b) Deferred Tax Liabilities [Net] 241.27 263.84 246.95 236.09

c) Other Long Term Liabilities 56.53 55.28 57.71 59.44

d) Long Term Provisions 33.77 28.61 21.34 16.43

Sub-Total Non Current Liabilities 1834.00 1490.83 1224.49 1018.17

C) Current Liabilities:

a) Short-term borrowings 546.62 484.08 309.81 201.38

b) Trade Payables 451.43 586.86 663.15 726.15

c) Other Current Liabilities 843.37 1188.14 1489.93 1668.72

d) Short Term Provisions 50.38 52.66 50.34 48.63

Sub-Total Current Liabilities 1891.80 2311.74 2513.23 2644.88

TOTAL EQUITY AND LIABILITIES (A + B + C) 5870.16 6568.19 7260.91 7965.45

II. ASSETS

D) Non-Current Assets:

Fixed Assets

• Tangible Assets 3215.97 3605.68 3984.28 4366.77

• Intangible Assets 51.20 52.71 53.98 54.73

• Capital work-in-progress 233.68 231.58 219.07 203.74

• Intangible Asset under Development 3.74 10.59 15.46 22.11

a) Total Fixed Assets 3504.59 3900.56 4272.79 4647.35

b) Other non-current assets 7.73 3.87 2.00 2.42

c) Non Current Investments 0.60 0.60 0.60 0.60

d) Long Term Loans and Advances 146.91 127.23 153.18 180.76

Sub-Total Non-Current Assets 3659.83 4032.26 4428.57 4831.13

E) Current Assets:

a) Current Investments 0.00 0.00 0.00 0.00

b) Inventories 1594.39 1639.99 1721.99 1825.31

c) Trade Receivables 359.64 682.18 893.66 1076.64

d) Cash and Bank Balances 29.72 56.64 78.84 106.43

e) Short Term Loans and Advances 199.17 128.33 107.80 94.86

f) Other Current Assets 27.41 28.79 30.06 31.08

Sub-Total Current Assets 2210.33 2535.93 2832.34 3134.32

TOTAL ASSETS (D+E) 5870.16 6568.19 7260.91 7965.45

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 10098.27 12118.33 14810.14 17179.76

Other Income 10.82 27.79 10.65 13.63

Total Income 10109.09 12146.12 14820.78 17193.39

Expenditure -9000.20 -10652.56 -12926.89 -14929.21

Operating Profit 1108.89 1493.56 1893.90 2264.18

Interest -177.03 -226.59 -179.66 -201.22

Gross profit 931.86 1266.97 1714.24 2062.96

Depreciation -254.98 -311.65 -400.60 -452.68

Profit Before Tax 676.88 955.32 1313.63 1610.28

Tax -228.80 -298.96 -394.54 -478.25

Net Profit 448.08 656.36 919.09 1132.02

Equity capital 60.01 60.01 60.01 60.01

Reserves 2084.35 2705.61 3463.18 4242.40

Face value 5.00 1.00 1.00 1.00

EPS 37.33 10.94 15.32 18.86

Quarterly Profit & Loss Statement for the period of 30th June, 2014 to 31st Mar, 2015E

Value(Rs.in.mn) 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15E

Description 3m 3m 3m 3m

Net sales 3738.20 3337.87 3325.05 4409.02

Other income 1.11 1.30 5.42 2.82

Total Income 3739.31 3339.17 3330.47 4411.83

Expenditure -3256.86 -2952.84 -2898.98 -3818.21

Operating profit 482.45 386.33 431.49 593.63

Interest -49.02 -41.61 -43.43 -45.60

Gross profit 433.43 344.72 388.06 548.03

Depreciation -103.98 -99.27 -97.99 -99.36

Profit Before Tax 329.45 245.45 290.07 448.66

Tax -98.13 -72.15 -91.01 -133.25

Net Profit 231.32 173.30 199.06 315.41

Equity capital 60.01 60.01 60.01 60.01

Face value 1.00 1.00 1.00 1.00

EPS 3.85 2.89 3.32 5.26

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 37.33 10.94 15.32 18.86

EBITDA Margin (%) 10.98 12.32 12.79 13.18

PBT Margin (%) 6.70 7.88 8.87 9.37

PAT Margin (%) 4.44 5.42 6.21 6.59

P/E Ratio (x) 18.30 62.47 44.61 36.22

ROE (%) 20.90 23.73 26.09 26.31

ROCE (%) 32.52 41.09 48.49 52.15

Debt Equity Ratio 0.96 0.59 0.34 0.21

EV/EBITDA (x) 9.24 28.54 22.29 18.51

Book Value (Rs.) 178.67 46.09 58.71 71.69

P/BV 3.82 14.83 11.64 9.53

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 683.25, the stock P/E ratio is at 44.61 x FY15E and 36.22 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.15.32 and

Rs.18.86 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 19% and 36% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 22.29 x for FY15E and 18.51 x for FY16E.

� Price to Book Value of the stock is expected to be at 11.64 x and 9.53 x respectively for FY15E and FY16E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.785.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

India is the second largest global producer of footwear after China, accounting for 13% of global footwear

production of 16 billion pairs. The Indian Footwear Industry is highly fragmented. There are nearly 4000 units

engaged in manufacturing footwear in India. The industry is dominated by small scale units contributing nearly

55% of total production. The industry has seen many changes in the years that have gone by and is now one of

the fastest growing sectors in the country.

The Indian Footwear Market is standing on the threshold of a revolution. The facets of this revolution lie in the

inherently dynamic operating environment, the evolving income – demographic pyramids and more importantly

the changing consumer behavior.

The footwear sector is evolving from the level of the manual footwear manufacturing method to the automated

footwear manufacturing systems. Footwear production units are installed with world class machines. Manned

by skilled technicians, these machines help to turn any new innovative idea into reality. Support systems created

for the sector have indeed served the footwear industry well. With technology and quality of the footwear

improving year after year, Indian Footwear industry is stamping its class and expertise in the global footwear

trade. On the consumer front, Footwear manufacturers have gained a sudden upsurge in the retailing of footwear

with the rise of e-commerce and the growing trend of online shopping. For the first time, there is concerted effort

being put across by players in terms of brand building, product innovation and increased Retail presence. These

are structural changes that have slowly started shaping industry dynamics for future.

Opportunities & Threats

Despite significant macro – economic pressures in last year, the Indian Economy has shown a lot of resilience to

overcome the challenges and is poised to improve in the years to come. After one of the most sought-after

elections in the history of India, it is believed that long term initiatives will be taken by the new government

leading to an uptick in consumption. To give boost to the footwear industry the government has already

announced the relaxation in the excise duty on footwear pricing in the range of ` 500 to ` 1000.

Opportunities will lie largely in the three domains of product portfolio - reach, availability & internal efficiency.

An enhanced, customer centric product portfolio would enable satisfying all consumer needs. The products need

to be made available to the consumer at their convenience, which is where reach and availability will play a

major role whereas improving internal efficiency and building systems will enable the industry to capitalize on

the opportunities presented by the market.

Rising Material Costs, scarcity of skilled labour, stagnant socio – economic reforms will be some of the key

concern areas for footwear industry. Relaxo footwear Ltd enjoys the benefit of being in the business for more

than four decades and has a better understanding of the footwear market. The company has been adopting

appropriate strategies, e.g., Brand Building; focus on Quality & Innovation, Talent Management etc. to achieve its

objectives.

Disclaimer:

This document is prepared by our research analysts and it does not constitute an offer or solicitation for the

purchase or sale of any financial instrument or as an official confirmation of any transaction. The information

contained herein is from publicly available data or other sources believed to be reliable but we do not represent that

it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be

in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for

the recipients’ investment decision based on this document.

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