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7/29/2019 Relaxo equity research
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7/29/2019 Relaxo equity research
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1QFY2013 Result Update | Relaxo Footwear
November 6, 2012 2
Exhibit 1:2QFY2012 performanceY/E March (` cr) 2QFY2013 2QFY2012 % chg (yoy) 1QFY2013 % chg (qoq) HY2013 HY2012 % chgNet Sales 242 199 21.6 248 (2.5) 491 414 18.5Net raw material 115 108 6.3 120 (4.3) 234 225 4.2(% of Sales) 47.3 54.1 48.3 47.8 45.9
Staff Costs 37 26 45.1 37 (0.1) 75 51 45.2
(% of Sales) 15.4 12.9 15.0 15.2 10.5
Other Expenses 66 50 32.6 61 8.6 128 99 28.8
(% of Sales) 27.4 25.1 24.6 26.0 20.2
Total Expenditure 218 184 18.9 218 0.0 437 375 16.3Operating Profit 24 16 53.1 30 (20.3) 54 39 39.7OPM 9.9 7.9 204 bp 12.1 (221)bp 11.0 9.3 167bp
Interest 4 5 (19.0) 4 0.4 8 10 (17.8)
Depreciation 6 6 6.6 6 6.1 12 12 5.1
Other Income 1 1 3.5 2 (31.2) 3 3 12.9
PBT 15 6 145.2 22 (31.9) 37 20 82.9(% of Sales) 6.2 3.1 8.9 7.6 4.1
Tax 5 2 158.6 7 (32.5) 12 5 125.8
(% of PBT) 31.5 29.8 31.8 31.6 25.6
Reported PAT 10 4 139.4 15 (31.7) 25 15 68.1PATM 4.3 2.2 6.1 5.2 3.1
Equity capital (`cr) 6 6 6 6 6
EPS (`) 17.2 7.2 139.4 25.1 (31.7) 42.3 25.2 68.1Source: Company, Angel Research
Revenue marginally lower, however operating performance
disappointed
Relaxo reported revenue of`242cr, 21.6% higher yoy, marginally lower than our
expectation of`248cr. 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%.
On sequential basis, the operating margin contracted by 221bp from 12.1% in
1QFY2013 on account of higher other expenses as a percentage of net sales
(mainly advertisement expense). Subsequently, the profit for the quarter grew by
139.4% yoy (on a lower base of `4cr for 2QFY2012) at `10cr and declined by
31.7% on sequential basis; against our estimate of`15cr.
Exhibit 2:Actual vs. EstimateY/E March (` cr) 1QFY13 Angel est. % diffNet sales 242 248 (2.2)EBITDA 24 31 (22.4)
EBITDA margin (%) 9.9 12.5 (258)bp
Reported PAT 10 15 (32.9)
Source: Company, Angel Research
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1QFY2013 Result Update | Relaxo Footwear
November 6, 2012 4
Exhibit 5:Brand show all the wayBrand CelebrityHawaii Salman Khan
Flite Katrina Kaif
Sparx Akshay Kumar
Source: Company, Angel Research
Changing revenue mix to drive profit
With the changing revenue mix, the profitability is expected to improve in the
coming years.Sparx has increased its contribution from a mere 4.2% in FY2008 to
24.3% in FY2011; on the other hand, Flite has maintained its contribution at ~25-
30%. Hawaii, being a mass brand, adds to the volume, however, Sparx and Flite
help in improving the companys profitability. Going forward we expect the mix to
further improve with the new ads and celebrity endorsements, which will help in
increasing brand visibility. The company is also planning to launch new products in
the high margin segment.
Exhibit 6:Sales break up Brand-wise
Source: Company, Note: * Others includes - Other brands, outsourced, & traded goods
49.2 44.4 40.8 35.5
31.929.1
28.9 25.8
4.27.5 15.3
24.3
14.7 18.9 15.1 14.5
0.0
20.0
40.0
60.0
80.0
100.0
FY2008 FY2009 FY2010 FY2011
(%
)
Hawaii Flite Sparx Others*
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1QFY2013 Result Update | Relaxo Footwear
November 6, 2012 5
Financial performance
Assumptions
Exhibit 7:Key assumptionsFY2013E FY2014E
Volume Growth (%) 15.2 15.2
Realisation Growth (%) 3.0 3.0
Change in raw material prices (%)
Ethyl Vinyl Acetate (EVA) (6.0) 2.0
Rubber (6.0) 2.0
Source: Angel Research
Exhibit 8:Change in estimatesY/E March Earlier estimates Revised estimates % chg(` cr) FY2013E FY2014E FY2013E FY2014E FY2013E FY2014ENet sales 1,019 1,208 1,019 1,208 0.0 0.0OPM (%) 12.3 13.0 11.0 12.5 (131)bp (47)bp
Adj. PAT 61 82 56 80 (7.9) (2.5)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 materialprices, 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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November 6, 2012 6
Exhibit 9:Revenue to be driven by volume growth
Source: Company, Angel Research
Exhibit 10:Margin to rebound with decreasing RM price
Source: Company, Angel Research
Outlook and valuation
Relaxo is poised for growth with triggers like 1) capacity expansion plan, 2) store
expansion, 3) improved sales mix and 4) brand revamping. On the back of these,
we expect Relaxo to post a revenue CAGR of 18.5% over FY2012-14 to `1,208cr
with an operating margin of 12.5% in FY2014. 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 onthe stock with a revised target price of `933, based on a target PE of 14x forFY2014E.Exhibit 11:One-year forward PE
Source: Company, Angel Research
306
407
554
686
860
1,
019
1,
208
29.6
33.335.9
23.925.4
18.5 18.5
0
10
20
30
40
0
200
400
600
800
1,000
1,200
1,400
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013E
FY2014E
(%)
(`cr)
Revenue (LHS) Revenue growth (RHS)
31
41
76
66
90
112
151
10.3 10.1
13.8
9.6
10.5 11.0
12.5
0
2
4
6
8
10
12
14
16
0
20
40
60
80
100
120
140
160
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013E
FY2014E
(%)
(`c
r)
EBITDA (LHS) EBITDA margin (RHS)
0
200
400
600
800
1000
Apr-
08
Sep-0
8
Fe
b-0
9
Jul-09
Dec-0
9
May-1
0
Oc
t-10
Mar-
11
Aug-1
1
Jan-1
2
Jun-1
2
Nov-1
2
(`)
Price (`) 4x 8x 12x 16x
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1QFY2013 Result Update | Relaxo Footwear
November 6, 2012 7
Exhibit 12:Comparative analysisCompany Year end Mcap(` cr) Sales(` cr) OPM(%) PAT(` cr) EPS(`) RoE(%) P/E(x) P/BV(x) EV/EBITDA(x) EV/Sales(x)Relaxo footwear FY2013E 963 1,019 11.0 56 47.0 28.2 17.1 4.2 9.9 1.1
FY2014E 963 1,208 12.5 80 66.7 30.1 12.0 3.2 7.3 0.9
Bata India* CY2012E 5,557 1,858 15.1 173 26.8 27.2 32.2 8.0 18.7 2.9
CY2013E 5,557 2,206 16.2 226 35.2 29.0 24.6 6.4 14.1 2.5
Source: Company, Angel Research, *Bloomberg
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November 6, 2012 8
Risks
Rise in raw material prices and depreciating rupee
The prices of key raw materials EVA and rubber had reached their peak in thelast 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.
Exhibit 13:Depreciating rupee a concern for EVA cost
Source: Angel Research, Bloomberg
Competition from both branded and unorganised sector
Relaxo competes with both branded as well as the unorgansied market. Hawaii,
the mass product faces stiff competition from the unorganised market. On the
other hand,Sparx faces competition from branded shoes. The company has priced
its products considering competition. Any price cut by competitors can put pressure
on Relaxos sales and margin.
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 andSparx.
52.26
54.5
42
44
46
48
50
52
54
56
58
Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12
USD/NR
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1QFY2013 Result Update | Relaxo Footwear
November 6, 2012 9
Profit & Loss Statement (Standalone)
Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014ETotal operating income 554 686 860 1,019 1,208% chg 35.9 23.9 25.4 18.5 18.5Net Raw Materials 290 375 459 495 558
% chg 33.0 29.4 22.3 7.9 12.5
Other Mfg costs 33 43 55 65 82
% chg (34.3) 31.8 26.8 19.1 25.9
Personnel 55 74 106 153 184
% chg 65.7 34.5 42.6 44.0 20.1
Other 99 127 150 194 233
% chg 52.8 27.6 18.6 28.9 20.4
Total Expenditure 477 620 770 907 1056
EBITDA 76 66 90 112 151% chg 85.2 (13.2) 35.9 24.6 35.1
(% of Net Sales) 13.8 9.6 10.5 11.0 12.5
Depreciation 15 21 23 23 28
EBIT 61 45 67 89 124% chg 98.0 (25.5) 47.7 32.7 39.3
(% of Net Sales) 11.0 6.6 7.8 8.7 10.2
Interest & other Charges 11 16 19 17 17Other Income 4 6 5 6 7
(% of sales) 0.7 0.9 0.6 0.6 0.6
Recurring PBT 50 30 48 72 106% chg 132.0 (40.5) 62.8 48.6 48.7
Extraordinary Expense/(Inc.) (0.0) 0.0 0.0 0.0 0.0
PBT (reported) 54 36 53 78 113Tax 16 9 14 21 33
(% of PBT) 30.0 24.7 25.4 27.5 29.2
PAT (reported) 38 27 40 56 80ADJ. PAT 38 27 40 56 80% chg 160.2 (28.8) 48.5 41.2 42.0
(% of Net Sales) 6.8 3.9 4.6 5.5 6.6
Basic EPS (`) 31.4 22.4 33.3 47.0 66.7Fully Diluted EPS ( ) 31.4 22.4 33.3 47.0 66.7% chg 160.2 (28.8) 48.5 41.2 42.0
Dividend 2 2 2 2 2
Retained Earning 36 25 38 55 78
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Balance Sheet (Standalone)
Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014ESOURCES OF FUNDSEquity Share Capital 6 6 6 6 6Reserves& Surplus 104 129 166 221 299
Shareholders Funds 110 135 172 227 305Total Loans 147 156 146 156 156
Other Long Term Liabilities 0 0 0 0 0
Long Term Provisions 0 2 3 4 4
Deferred Tax (Net) 18 22 22 22 22
Total Liabilities 275 316 344 409 487APPLICATION OF FUNDSGross Block 286 353 379 455 532
Less: Acc. Depreciation 64 84 108 131 159
Net Block 222 268 272 324 374Capital Work-in-Progress 7 1 21 20 20
Lease adjustment - - - - -
Goodwill - - - - -
Investments 0 0 0 0 0
Long Term Loans and adv. 0 11 12 12 12
Other Non-current asset 0 0 1 1 1
Current Assets 116 158 169 221 263
Cash 1 2 1 4 10
Loans & Advances 27 16 15 17 20
Inventory 67 117 128 169 196
Debtors 21 23 23 28 33
Other current assets 0 1 2 3 4
Current liabilities 69 123 131 169 182
Net Current Assets 47 35 38 52 81Misc. Exp. not written off 0 0 0 0 0
Total Assets 275 316 344 409 487
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Cash Flow (Standalone)
Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014EProfit before tax 54 36 53 78 113
Depreciation 15 21 23 23 28Change in Working Capital (16) 13 (4) (11) (23)
Direct taxes paid (16) (9) (14) (21) (33)
Others 34 36 (5) (6) (7)
Cash Flow from Operations 72 97 54 63 79(Inc.)/Dec. in Fixed Assets (80) (62) (46) (75) (77)
(Inc.)/Dec. in Investments 0 0 0 0 0
(Inc.)/Dec. in LT loans & adv. 0 11 1 0 0
Others (5) (12) 3 7 7
Cash Flow from Investing (85) (63) (42) (68) (70)Issue of Equity 0 0 0 0 0
Inc./(Dec.) in loans 39 10 (11) 10 0
Dividend Paid (Incl. Tax) (2) (2) (2) (2) (2)
Others (25) (41) 0 0 0
Cash Flow from Financing 11 (33) (13) 8 (2)Inc./(Dec.) in Cash (2) 1 (1) 3 6
Opening Cash balances 3 1 2 1 4Closing Cash balances 1 2 1 4 10
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Standalone Key RatiosY/E March FY2010 FY2011 FY2012 FY2013E FY2014EValuation Ratio (x)P/E (on FDEPS) 25.5 35.8 24.1 17.1 12.0P/CEPS 18.1 20.1 15.3 12.1 8.9
P/BV 8.8 7.2 5.6 4.2 3.2
Dividend yield (%) 0.2 0.2 0.2 0.2 0.2
EV/Sales 2.0 1.6 1.3 1.1 0.9
EV/EBITDA 14.5 16.9 12.3 9.9 7.3
EV / Total Assets 4.0 3.5 3.2 2.7 2.3
Per Share Data (`)EPS (Basic) 31.4 22.4 33.3 47.0 66.7
EPS (fully diluted) 31.4 22.4 33.3 47.0 66.7
Cash EPS 44.3 39.9 52.5 66.4 89.9
DPS 1.5 1.5 1.5 1.5 1.5
Book Value 91.6 112.2 143.7 189.1 254.3
Dupont AnalysisEBIT margin 11.0 6.6 7.8 8.7 10.2
Tax retention ratio 0.7 0.8 0.7 0.7 0.7
Asset turnover (x) 2.0 2.2 2.7 2.6 2.6
ROIC (Post-tax) 15.7 10.9 15.5 16.7 19.1
Cost of Debt (Post Tax) 5.3 7.5 9.6 8.0 7.8
Leverage (x) 1.4 1.2 1.0 0.8 0.6
Operating ROE 29.6 15.0 21.4 23.3 25.6
Returns (%)ROCE (Pre-tax) 21.8 14.3 19.5 21.7 25.4
Angel ROIC (Pre-tax) 22.4 14.5 20.8 23.1 27.0
ROE 41.0 22.0 26.0 28.2 30.1
Turnover ratios (x)Asset Turnover 2.3 2.1 2.4 2.4 2.4
Inventory / Sales (days) 35 49 52 53 55
Receivables (days) 13 12 10 10 10
Payables (days) 44 57 60 68 63
WC (ex-cash) (days) 25 21 14 14 17
Solvency ratios (x)Net debt to equity 1.3 1.1 0.8 0.7 0.5
Net debt to EBITDA 1.9 2.3 1.6 1.4 1.0
Interest Coverage 5.5 2.9 3.6 5.2 7.2
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N b 6 2012 13
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. 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 reliablesources 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 thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible 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. WhileAngel 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.
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.
Disclosure of Interest Statement Relaxo Footwear
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors