हिंदी – Relaxo footwear stock review ( Saurabh Mukherjea  )

हिंदी – Relaxo footwear stock review ( Saurabh Mukherjea )


Hello investors , my name is Sagar and in this video we´ll talk about Relaxo Footwear we will talk about their business model , financials and valuation Let´s start with their history . Mr. Ramesh Kumar Dua is the managing director of this company and the business was started by his family members they used to manufacture cycle parts and they decided to diversify the business and they entered the footwear segment the footwear segment was very small when you compare it to the cycle parts business Mr. Ramesh Kumar Dua used to handle the financials of this company at that time and he realised that they had a lot of debt to repay somehow they improved the cycle parts business and they managed to repay the debt back but he noticed that unlike the cycle parts business , the footwear segment was very profitable that´s when they closed down the cycle parts business and they decided to concentrate on the footwear segment but he also took one more important decision. At that time, most of the footwear companies were focusing on leather products this made them expensive and not everyone could afford them. That´s when Mr. Ramesh Kumar Dua decided to focus on rubber footwear because it would be cheaper and everyone could afford it He also went to London to study about rubber technology and he met many people that actually helped him improve his rubber technology Now , let´s talk about the management. As I mentioned before , Mr. Ramesh Kumar Dua is the managing director and he has been there since inception He is running this business with his brother , Mukand Lal Dua . Both of them have more than 20 % shares of this company I would like to mention that I find the salary bit expensive . Mr Ramesh Kumar Dua has a salary of 13.7 crores when their profit for last year was 175 crores let´s take a look at the business model . The good thing here is that you already know their products we can classify their brands into two categories . One , is their big brands where they earn most of their money and the second category is their small brands Their first big brand is Relaxo and everyone knows about this. This is where they sell their Hawaii slippers The second brand is Bahamas and you might have seen Salman Khan ads with it these are fashionable and colourful products The next brand is Flite and they have two basic models. EVA and PU . So what do they actually mean ? Their Flite products have a basic component known as polymers and they have named the category according to the polymer itself EVA and PU are polymers. So EVA stands for Ethylene-vinyl acetate and PU stands for Polyurethane Flite PU is growing very nicely and it was launched recently . The price of this product is actually higher compared to their other brands The last brand is Sparx and they you might have seen ads with Akshay Kumar This is their sports division and they also make sandals . The price of this category is higher compared to other brands if you have watched my previous videos , I usually tell you how much did they earn from each brand but in this case , I can´t explain because the company doesn´t explain how much do they earn from each brand the company did mention that Flite and Sparx are growing rapidly when we compare them with the rest but as I mentioned before , they also have some small brands so let´s talk about them We have three basic categories. For kids , they have Schoolmate . This is school footwear and the second brand is Kids Fun for colourful models For men , they have Boston (formal ) and Casualz (semi formal ) For women , they have Maryjane . These are their small brands but the majority of their revenue comes from the first category Now that we know their brands , let´s understand how do they actually make their product In this case , Relaxo manufactures their own product . Why is this so important ? Because in order to do that , you need property and equipment plus you also need the raw material to make the product EVA and PU are constitute more than 30 % of their raw material . I explained them earlier when I was talking about their Flite brand In this case , they actually import EVA and this is important because if the raw material price increases , it directly affects their profit margins As I mentioned earlier , the products of Relaxo aren´t so expensive , it´s aprox. 125 Rs per pair so when the raw material price increases , it directly affects their profit and that´s what happened in 2011 when the raw material price increased even though the company kept increasing their revenue , their profit got impacted There is one more important point. as they manufacture their own product , they need to invest in property , plant and equipment (cap ex ) As you can see in the image, the company is consistently spending money on cap ex interestingly , in 2010 or 2011 , even though the company was profitable , they weren´t generating a lot of cash but you can see that they have been spending in cap ex every year. So how did they actually fund this ? They had to take loans to do this that´s why , initially , the company had a lot of debt in their balance sheet but the situation has improved as their profits have been increasing , they don´t need to take debt to expand their business So now you know how they actually make their products but let´s understand , how do they actually sell their products Most of their products are sold through multibranded outlets . The issue is that they are competing with several brands in the same store plus they can´t show their entire range of products because they only get limited space in these multibranded outlets that´s why in 2006 , Relaxo decided to open their own stores and they currently have aprox. 350 stores. but these stores help them advertise their product because they only contribute 7 % to their total sales but these shops are important because they can display their entire range of products and they also offer good discounts so their own stores are manly for advertisement because the main revenue comes from multibranded outlets online also contributes a bit but it´s in single digit . Recently the company has also started franchise model and they plan to make this bigger geographically 50 % of their sales come from North , 20 % from East and the rest is South and West they are very dominant in North but they still have space to grow in other areas. Sparx has been doing well in South but the other brands are not doing so well They do have a very different strategy to sell their products and this is ads with Bollywood celebrities they match their product with the Bollywood actor´s personality . So, for example , they matched Bahamas with Salman khan because he is known for strength and style they matched Sparx with Akshay kumar because of his athletic lifestyle they have been following this strategy from 1991 and they spend 4 % of their revenue in ads now let´s talk about the industry. India is the third largest global player after China and USA (2.1 billion pairs ) but the main issue is that 65 – 70 % of the market is unorganised so organised players only have 30 % of the market share. Relaxo has 5 – 6 % market share. Remember I mentioned their products are not so expensive so let´s take a look In 2003 , the average price per pair was 32 Rs and the profit per pair was 0.74 Rs so you can see the prices were very low at that time but the industry has changed now. People want to have fashionable and colourful products so Relaxo has been restyling their products( 20 % every year ) plus they also launch some expensive products that are fashionable so as you can see in the image , the price per pair is shown in blue colour and that has been increasing every year . It went from 65 Rs in 2010 to 124 Rs in 2019 and the brown colour shows you the profit per pair and you can see that it has also grown significantly Now , let´s talk about their financials and we´ll start with their balance sheet . As I mentioned before , the company was taking loans so they could expand but the situation has improved now. The company as 1604 crores in assets . of course half of these assets are in property , plant and equipment Their total liabilities are 499 crores . now you might be thinking that the liabilities are very high when we compare this with their assets In this case , their debt or borrowings is only 86 crores and a big part of their total liabilities (190 crore ) is in trade payables A trade payable is an amount billed to a company by its suppliers for goods delivered but their borrowing is not so high Now let´s check their income statement. As you can see in the image , the blue colour shows you their revenue you can see that they have been increasing their revenue consistently . They went from 692 cr sales in 2011 to 2305 cr in 2019 the brown colour shows you their profit. It jumped from 26 cr in 2011 to 175 cr in 2019 , especially because their profit margins increased to 7.5 % Now let´s talk about their valuation . We will start with the free cash flows. This will help us understand the ” real earnings ” of this company In this case , in the last 9 years , they never posted free cash flows higher than 50 crores , except one year where it nearly reached 100 crores but you might be wondering , if the company earns good profit , why don´t they have good free cash flows that´s because all the money they earn is reinvested back into the business and they invest this money in cap ex that´s why we never get to see free cash flows at the end of the year I do understand why they are doing it because they are able to achieve goo returns on the cap ex they are doing but I´m not a big fan of that strategy because I always like to see good free cash flows as it can help us understand the “real earnings ” plus if I compare the free cash flows with the market cap of the company , it does seem very expensive to me I also don´t like the high salary the management is taking that´s why I won´t invest in this company because they aren´t able to convert the profit into free cash flows So if you would like to see which stocks do I have in my portfolio or at which price did I buy them or if you would like to know why did I actually buy them , you can check my portfolio service plus I do make special content for that service as well . 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