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November 6, 2012
Relaxo Footwear
Financial Performance
Y/E March (` cr) Total Income EBITDA EBITDA margin (%) Reported PAT
Source: Company, Angel Research
BUY
CMP Target Price
% chg (yoy) 21.6 53.1 204 139.4 1QFY2013 248 30 12.1 15 % chg (qoq) (2.5) (20.3) (221) (31.7)
`803 `933
12 Months
Investment Period
Stock Info Sector Market Cap (` cr) Beta Net debt (` cr) 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Relaxo Footwear (Relaxo) reported lower than expected numbers for 2QFY2013. The revenue for the quarter stood at `242cr marginally lower than our expectation of `248cr, while it grew by 21.6% yoy from `199cr in 2QFY2012. The EBITDA margin witnessed an expansion of 204bp yoy to 9.9% during the quarter; however, it was lower than our expectation of 12.5%. Subsequently, the profit for the quarter grew by 139.4% yoy (on a lower base of `4cr for 2QFY2012) at `10cr, which was 32.9% lower than our estimate of `15cr. Expansion plans and brand revamp to drive volume: The company is in an expansion mode and plans to incur a capex of `60cr for building up a PU (Polyurethane) footwear plant (expected to get completed by FY2013) and `25cr for building a warehouse (to be completed by FY2014E). In addition, the company plans to open 25-30 retail stores each year. It has also roped in leading celebrities for endorsement of its brands - Salman Khan for Hawaii, Katrina Kaif for Flite and Akshay Kumar for Sparx. We expect capacity expansion and aggressive marketing to complement each other and drive volume. Outlook and valuation: We expect Relaxo to post a revenue CAGR of 18.5% over FY2012-14E to `1,208cr with an operating margin of 12.5% in FY2014E. The PAT is expected to grow at a CAGR of 41.6% to `80cr for the same period. At the current market price, Relaxo is trading at 12.0x FY2014E earnings. We maintain our Buy recommendation on the stock with a revised target price of `933, based on a target PE of 14x for FY2014E.
Footwear 963 0.7 144 908 / 235 2,548 5 18,817 5,724 RLXO.BO RLXF IN
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 75.0 16.0 1.3 7.8
3m 7.8 51.2
1yr 6.8
3yr 16.8
94.0 749.4
Key financials
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
FY2010 554 35.9 38 160.2 13.8 31.4 25.5 8.8 41.0 21.8 2.0 14.5
FY2011 686 23.9 27 (28.8) 9.6 22.4 35.8 7.2 22.0 14.3 1.6 16.9
FY2012 860 25.4 40 48.5 10.5 33.3 24.1 5.6 26.0 19.5 1.3 12.3
FY2013E 1,019 18.5 56 41.2 11.0 47.0 17.1 4.2 28.2 21.7 1.1 9.9
FY2014E 1,208 18.5 80 42.0 12.5 66.7 12.0 3.2 30.1 25.4 0.9 7.3
Tejashwini Kumari
30940000 ext: 6856 tejashwini.kumari@angelbroking.com
2QFY2013 242 115 47.3 37 15.4 66 27.4 218 24 9.9 4 6 1 15 6.2 5 31.5 10 4.3 6 17.2
2QFY2012 199 108 54.1 26 12.9 50 25.1 184 16 7.9 5 6 1 6 3.1 2 29.8 4 2.2 6 7.2
% chg (yoy) 21.6 6.3 45.1 32.6 18.9 53.1 204 bp (19.0) 6.6 3.5 145.2 158.6 139.4
1QFY2013 248 120 48.3 37 15.0 61 24.6 218 30 12.1 4 6 2 22 8.9 7 31.8 15 6.1 6
% chg (qoq) (2.5) (4.3) (0.1) 8.6 0.0 (20.3) (221)bp 0.4 6.1 (31.2) (31.9) (32.5) (31.7)
HY2013 491 234 47.8 75 15.2 128 26.0 437 54 11.0 8 12 3 37 7.6 12 31.6 25 5.2 6
HY2012 414 225 45.9 51 10.5 99 20.2 375 39 9.3 10 12 3 20 4.1 5 25.6 15 3.1 6 25.2
% chg 18.5 4.2 45.2 28.8 16.3 39.7 167bp (17.8) 5.1 12.9 82.9 125.8 68.1
139.4
25.1
(31.7)
42.3
68.1
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25 20 15 10 5 0
154
Revenue (LHS)
EBITDA (LHS)
Investment rationale
Aggressive capacity expansion plans
The company is planning to incur a capex of `60cr for the construction of a PU (Polyurethane) footwear plant which is expected to be completed by the end of FY2013E. With this plant getting operational, the companys total capacity will go up by ~30,000 pairs per day which is currently 3.70 lakh pairs per day. In addition, it is planning to construct a warehouse, expected to be completed by FY2014E with a capex of `25cr. Retail store expansion to enhance brand visibility : Further, the company has aggressive retail expansion plans to open 25-30 retail stores (Relaxo Shoppe) every year which will help in increasing direct reach to customers, brand building and increase in sales. Presently, the number of exclusive stores stands at 158, which was 149 at the end of FY2012.
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(%)
25.8
Source: Company, Note: * Others includes - Other brands, outsourced, & traded goods
November 6, 2012
Financial performance
Assumptions
Exhibit 7: Key assumptions
FY2013E Volume Growth (%) Realisation Growth (%) Change in raw material prices (%) Ethyl Vinyl Acetate (EVA) Rubber
Source: Angel Research
We expect the companys revenue to grow at a CAGR of 18.5% over FY2012-14E, from `860cr in FY2012 to `1,208cr in FY2014E, mainly on the back of growth triggers, which includes 1) capacity expansion plan, 2) store expansion, 3) improved sales mix and 4) brand revamping. With the cooling off of raw material prices, we expect the raw material cost as a percentage of sales to decline from 54.4% in FY2012 to 47.6% in FY2014E. Simultaneously, we expect employee cost and other expenses to increase on account of expansion and advertisement spending respectively. We expect a 208bp expansion in the operating margin to 12.5% in FY2014E mainly on account of fall in raw material prices and improvement in value mix (Sparx and Flite contributing to ~60% of sales). The companys profit is expected to grow at a CAGR of 41.6% over FY2012-14E, from `40cr in FY2012 to `80cr in FY2014E.
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33.3 29.6
23.9
30 20 10 0
( ` cr)
600
1,019 1,208
80 60 40
(%)
(%)
400
306 407 554 686
112
31
41
76
66
0
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E
90
20
151
200
860
2 0
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013E
Revenue (LHS)
EBITDA (LHS)
Price (`)
4x
8x
12x
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FY2014E
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Risks
Rise in raw material prices and depreciating rupee
The prices of key raw materials EVA and rubber had reached their peak in the last financial year to ~`149/kg and ~`243/kg respectively, which impacted the operating margin. However, the prices of both the raw materials have started declining, with the current price for rubber at ~177/kg and EVA at ~`110/kg. Any rise in the prices can put margins under pressure. Also, Relaxo imports its entire EVA requirement, so any further depreciation in the rupee can pose a risk to the operating margin and thereby impact the profitability of the company.
US D/INR
The company
Relaxo is a key player in the retail footwear industry, with a strong foothold in the slippers market and a strong distribution channel of 700 distributors and more than 46,000 retailers. The company presently has 158 company-owned outlets across India, with a concentrated presence in Delhi, Rajasthan, Gujarat, Haryana, Punjab, Uttar Pradesh and Uttarakhand. It has nine manufacturing plants, seven in Bahadurgarh (Haryana) and one each in Bhiwadi (Rajasthan) and Haridwar (Uttaranchal). Currently, the company sells its products under three major brands Hawaii, Flite and Sparx.
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E-mail: research@angelbroking.com
Website: www.angelbroking.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies 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. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Relaxo Footwear No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
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