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Relaxo Footwears Ltd. (Relaxo), a part of Relaxo Group, primarily
produces footwear. The company has an installed capacity of
3.1 lakh pairs of footwear per day. We expect the company's top
line and profit to grow at CAGRs of 21% and 33%, respectively,
over FY2011-13E, as it is well poised for ~16% volume growth
on the back of a significantly untapped potential market.
We recommend Buy on Relaxo with a target price of `317 based
on a target PE of 8x for FY2013E.
Increase in disposable income will increase sales: According to
NCAER report, the number of households in India stood at ~21cr
in 2005, out of which 42.7% households were under urban BPL
or labour category. With increased disposable income of this
section due to programmes like NREGA, a shift to branded
products is happening. With relatively cheaper products and
established brand names, we expect an expansion in the market
share for players like Relaxo from unorganised players. On the
back of this shift, we expect Relaxo's volumes to grow at a CAGR
of ~16% over FY2011-13E.
Rise in raw-material prices to be passed on by FY2013E:
In FY2011, Relaxo's EBITDA margin declined due to increased
raw-material prices, both rubber and Ethyl Vinyl Acetate (EVA).
However, to improve its margin and offset the increase in
raw-material prices, the company has increased the average
prices of its products by an estimated 9% yoy. We expect the
company's profit to grow at a two-year CAGR of 33% to `48cr in
FY2013E. With almost 60% of revenue coming from high-margin
products (Sparx and Flite) and given the price rise, Relaxo is
expected to improve its margin by 132bp to 11.8% in FY2013E
Increase in share of high realisation products in revenue mix:
Relaxo, which was earlier only known for its Hawaii brand, has
now established itself in other categories such as sports shoes
and sandals. Some of its popular brands like Sparx and Flite in
these segments now contribute 60% to revenue. These higher
realisation products are likely to drive the company's top line at
a CAGR of 21% over FY2011-13E.
Branding: Relaxo increased its advertisement expense by 55%
in FY2010 from `13cr in FY2009 to `20cr in FY2010.
The company is now rigorously spending for the recognition of
its high-value brands (Flite and Sparx) through media
advertisement to establish its name in footwear other than Hawaii
slippers. The company is also actively advertising to establish its
brand name in Southern India, where it is still not present.
Outlook and valuation: At `250, the stock is trading at 9.4x and
6.3x its FY2012E and FY2013E earnings, respectively. We expect
the company's revenue and profit to witness CAGRs of 21% and
33%, respectively, on the back of price hike and ~16% volume
growth over FY2011-13E. We recommend Buy on Relaxo with
a target PE of 8x for FY2013E and a target price of `317 for an
investment period of 12 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Relaxo Footwears Ltd. (Relaxo), a part of Relaxo Group, primarily
produces footwear. The company has an installed capacity of
3.1 lakh pairs of footwear per day. We expect the company's top
line and profit to grow at CAGRs of 21% and 33%, respectively,
over FY2011-13E, as it is well poised for ~16% volume growth
on the back of a significantly untapped potential market.
We recommend Buy on Relaxo with a target price of `317 based
on a target PE of 8x for FY2013E.
Increase in disposable income will increase sales: According to
NCAER report, the number of households in India stood at ~21cr
in 2005, out of which 42.7% households were under urban BPL
or labour category. With increased disposable income of this
section due to programmes like NREGA, a shift to branded
products is happening. With relatively cheaper products and
established brand names, we expect an expansion in the market
share for players like Relaxo from unorganised players. On the
back of this shift, we expect Relaxo's volumes to grow at a CAGR
of ~16% over FY2011-13E.
Rise in raw-material prices to be passed on by FY2013E:
In FY2011, Relaxo's EBITDA margin declined due to increased
raw-material prices, both rubber and Ethyl Vinyl Acetate (EVA).
However, to improve its margin and offset the increase in
raw-material prices, the company has increased the average
prices of its products by an estimated 9% yoy. We expect the
company's profit to grow at a two-year CAGR of 33% to `48cr in
FY2013E. With almost 60% of revenue coming from high-margin
products (Sparx and Flite) and given the price rise, Relaxo is
expected to improve its margin by 132bp to 11.8% in FY2013E
Increase in share of high realisation products in revenue mix:
Relaxo, which was earlier only known for its Hawaii brand, has
now established itself in other categories such as sports shoes
and sandals. Some of its popular brands like Sparx and Flite in
these segments now contribute 60% to revenue. These higher
realisation products are likely to drive the company's top line at
a CAGR of 21% over FY2011-13E.
Branding: Relaxo increased its advertisement expense by 55%
in FY2010 from `13cr in FY2009 to `20cr in FY2010.
The company is now rigorously spending for the recognition of
its high-value brands (Flite and Sparx) through media
advertisement to establish its name in footwear other than Hawaii
slippers. The company is also actively advertising to establish its
brand name in Southern India, where it is still not present.
Outlook and valuation: At `250, the stock is trading at 9.4x and
6.3x its FY2012E and FY2013E earnings, respectively. We expect
the company's revenue and profit to witness CAGRs of 21% and
33%, respectively, on the back of price hike and ~16% volume
growth over FY2011-13E. We recommend Buy on Relaxo with
a target PE of 8x for FY2013E and a target price of `317 for an
investment period of 12 months.
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