Relaxo Footwears: Niche in mass and value footwear

Relaxo Footwears Ltd, Incorporated in 1984, is one of the leading footwear companies in India.

(A) About the Company

  • Headquartered in Delhi, Company manufactures Non-Leather Products  i.e. rubber / EVA / PU slippers, canvas/ sport / school shoes, sandals, etc.
  • Relaxo is today ranked among the top 500 Most Valuable Companies.
  • Started off with the manufacture of Hawaii slippers, Today, Company offers a wide collection of fashionable, colourful, comfortable and durable footwear for Men, Women and Children.

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(B) Journey Since Inception

Relaxo Footwears Limited Stock Research with details of its Journey Since Inception.

(C) Family Structure

*Mr. Ramesh Kumar Dua and Mr. Mukund Lal Dua are Brothers.

*Mr. Nitin Dua is Executive Vice President (Retail) in the Company and Mr. Ritesh Dua is Executive Vice President (Finance) in the Company.

(D) Executive Board Members

(i) Ramesh Kumar Dua (Managing Director)

Mr. Ramesh Kumar Dua is the current Managing Director of Relaxo Footwears Limited. He is also the Co-founder of the company. He is Commerce Graduate & Rubber Technologist (LPRI, London).

Graduating in 1974, Mr Ramesh went back to school to study rubber technology for use in footwear. At the time, most Indian footwear was made of leather but Ramesh noticed that affordable, quality rubber footwear could be “manufactured for serving the masses”. Taking a course at The Plastics and Rubber Institute, London, Mr Ramesh began studying and reading whatever he could about rubber technologies.

Then in 1983, he started the company along with his brother Mukund Lal Dua and began operating under the familiar Relaxo name. He has over 44 years of experience in sales and marketing, production and new product development in Footwear Industry.

He is also Director in Relaxo Rubber Private Limited & Marvel Polymers Private Limited. Age of Mr. Dua is 67 years. He received Remuneration of INR 20.42 Crore i.e. 0.87% of Total Revenue and 7% of PAT in the Fiscal years 2020-21.

(ii) Mukand Lal Dua (Whole Time Director)

Mr. Mukund Lal is the Co-founder of the company and also the brother of Mr. Ramesh Kumar Dua. Currently, he is the Whole Time Director of Relaxo Footwears Limited. He is a Science Graduate.

He has over 47 years of experience in new product development and quality control in Footwear Industry. Mr. Dua is also Director in Relaxo Rubber Private Limited & Marvel Polymers Private Limited. Age of Mr. Mukund Lal Dua is 72 years. In FY21, he received a remuneration of INR 20.42 Crore i.e. 0.87% of Total Revenue and 7% of PAT.

(iii) Nikhil Dua (Whole Time Director)

Mr. Nikhil Dua is the Whole Time Director in the Company. He is the Son of Mr. Mukund Lal Dua and Nephew of Mr. Ramesh Kumar Dua. He is Commerce graduate and has studied from International School of Modern Shoe-making, Czech Republic.

He has over 24 years of experience in production and new product development and also has rich knowledge of product mix in Footwear Industry. Age of Mr. Nikhil is 46 years. He received remuneration of INR 1.17 Crore i.e. 0.05% of total revenue and 0.04% of PAT for FY21.

(iv) Deval Ganguly (Whole Time Director)

Mr. Ganguly is the Whole-Time Director of the company. He joined Company in 2011 as President, Manufacturing and then elevated to Board w.e.f 5.11.2012. He is B.Tech from IIT Kanpur. Moreover, he has an experience of over 39 years in areas of manufacturing, project and plant management in various reputed organizations. He received Remuneration of INR 1.46 Crore i.e. 0.06% of Total Revenue and 0.50% of PAT in the Fiscal years 2020-21.

(E) Shareholding Pattern

Relaxo Footwears Limited Stock Research with details of Shareholding Pattern.
Relaxo Footwears Limited Stock Research with details of Major Shareholding of Promoters.
Relaxo Footwears Limited Stock Research with details of Major Shareholding of Public.

Change in shareholding of Promoters & Promoter Group

(F) Product Portfolio

Relaxo started off with the manufactue of Hawaii slippers and subsequently diversified into manufacturing casuals, joggers, school and leather shoes. At present, the company manufactures Hawai rubber slippers, EVA and PU-based slippers and sports shoes and sandals. It is also one of the largest players in Non-leather Footwear Market in India.

With a combination of comfort, style, and quality, Relaxo provides a wide collection of fashionable, colourful, comfortable and durable footwear for men, women and children. Moreover, it has a portfolio of 9 Brands including major brands like Relaxo, Flite, Sparx and Bahamas.

Relaxo Footwears Limited Stock Research with details of its Brands.
Brands Owned By Relaxo

(G) Revenue From Operations

The company operates through its only Segment - "Footwear and Related Products"

(i) Geographical Classification Of Revenue

Company's major portion of Revenue comes from India i.e. 96%. Export contributes 4% towards total revenue. Company is exporting in more than 23 countries and its major focus is on middle east, Africa and Oceania regions. The company is also focused on expanding its presence in untapped Exports Market and has opened an office in Dubai.

Relaxo Footwears Limited Stock Research with details of Geographical Classification Of Revenue.

(ii) Volume of Pairs Sold

The Company's Production Capacity is 23 crore Pairs per annum. In the year 2021, Company sold 19.07 Crore pairs as compare to 17.92 crore pairs in last year 2020.

Year-on-Year volume Of Pairs sold is as follows -

Relaxo Footwears Limited Stock Research with details of Y-o-Y Volume of Pairs Sold.

(G) Expenses

(i) Research & Development Expenditure

New product development and innovation is a key determinant of success in footwear industry and last year threw up novel challenges in this endeavor. Company's R&D Expenditures has increased i.e. from 0.04 crore in 20211 to 5.32 Crore in the year 2021.

Relaxo's Year-on-Year R&D Expenditure is as follows -

Relaxo Footwears Limited Stock Research with details of Y-o-Y Research & Development Expense.

(ii) Advertisement & Sales Promotion Expenses

Competition has increased in the Indian Footwear Market, due to increase in the no. of Unorganized Players as the barriers to entry for new players are low. To remain ahead in the competition, many companies adopt various strategies. The one of the most popular and common strategy is Advertisement and Sales Promotion.

Relaxo also has been advertising and promoting its products through various means from many years. Company has continued its media campaigns with top Bollywood celebrities, Salman Khan, Akshay Kumar and Ranveer Singh, to maintain leadership position for its brands Bahamas, Sparx and Flite.

In F.Y. 2021, Company expend INR 69.6 Crore on Advertisement and Sales Promotion i.e. 2.9% of the Total Turnover.

Relaxo's Year-on-Year Advertisement & Sales Promotion Expenses are as follows -

Relaxo Footwears Limited Stock Research with details of Y-o-Y Advertisement & Sales Promotion Expense.

(iii) Cost Of Raw Material Consumed

The key Raw Materials used in the manufacturing of footwear are natural rubber, synthetic rubber, EVA and PU material. Price volatility of these commodities depend mainly on the international market conditions and also on the fluctuation in the price of crude oil and its derivative. Any Fluctuation in the prices of these Key commodities, directly affect the Cost of Raw Material consumed incurred by the company.

In the year 2021, Cost of Raw Material Consumed by the company reduced to INR 959.1 Crore from INR 1092.9 crore in the last year, because of Smooth Raw Material Prices.

Relaxo's Year-on-Year Cost Of Raw Material Consumed is as follows -

Relaxo Footwears Limited Stock Research with details of Y-o-Y Cost Of Raw Material Consumed.

(iv) CAPEX

Every year Company spent a significant amount on Capital Expenditure. The company reported annual capex outflow of INR 100-150 crore over the last few years.

Company's Year-on-Year Capex is as follows -

Relaxo Footwears Limited Stock Research with details of Y-o-Y Capex.
  • 2019 - In this year CAPEX of the Company increased to Rs 258.91 crore from INR 112.85 Crore in 2018. This is because, this capex includes additional Amalgamation amount of INR 153.23 crores (Amalgamation of Marvel Polymers Private Limited (MPPL) and Relaxo Rubber Private Limited (RRPL) with Relaxo Footwears Limited).
  • 2020 - In F.Y. 20, INR 90 crore incurred to set up a new Footwear Manufacturing Facility at Bhiwadi, Rajasthan, with a capacity of 1 lakh pairs per day.
  • 2021 - The capital expenditure was in line with the growth strategy of the Company and funded through internal accruals.

(H) Manufacturing Facilities

Relaxo Footwear has 8 Manufacturing Facilities. Company has capacity to manufacture 23 crore pairs per annum and 7.5 lac pairs of footwear every day. Company has 5 Manufacturing Units in Bahadurgarh, Haryana, 2 Units in Bhiwadi, Rajasthan and 1 Facility in Haridwar, Uttarakhand.

(I) Distribution Network and Market Share

Relaxo Footwear has a widespread Distribution Network. Company sells its products through its wholesale, export and retail Network. The company sells its products through more than 50,000 retailers served through 650 distributors, 398 Exclusive Brand Outlets (EBOs), e-commerce and Modern Trade. Moreover, Company exported its Products to 30 Countries and also 1 Office in Dubai.

Relaxo Footwears Limited Stock Research with details of Distribution Network.

Market Share

The market position of the company’s products also improved over the years on account of significant advertising & branding initiatives and celebrity endorsements. The Company has good Market Share in Northern States of India. Its most popular Brands – Relaxo, Sparx, Flite & Bahamas are a leader in their space. Also, Relaxo has an overall Market Share of 5% in the Footwear Market and has a prominent presence in mass and value category products.

(J) Financial Parameters

  • The Company's Net Sales has shown a fair growth over last 10 Years and grew at a CAGR of 13%. In 2021, Company's Net Sales de-grew be 2% as National lockdown during April & most part of May-2020 impacted the operations. In the Total Revenue, Closed Footwear (Formal wear) share is around 15% and 85% is of Open Footwear (Casual Wear).
  • Also, Company PAT grew at a CAGR of 27% over past 10 Fiscal years, showing a significant and regular growth.
  • Moreover, Relaxo's PBIDT and PAT Margin have shown constant growth over last 10 years. In 2021, despite of Lockdown, Company's Margins increased due to low Raw Material Prices and Robust Cost Control initiatives.
  • On the other hand, ROE and ROCE of Relaxo have shown a volatile growth over last 10 Financial years.
  • During 2021, Company has repaid all its current and non-current borrowings and Now the Company is Debt-free.

Relaxo's Year-on-Year Free Cash Flow as % of Total Assets is as follows -

Relaxo Footwears Limited Stock Research with details of Free Cash Flow as % of Total Assets.

(i) Healthy Improvement In Performance In F.Y. 2021

Despite the impact of Covid-19 pandemic, Relaxo witnessed a strong improvement in profitability and reported nil debt and healthy debt protection indicators in F.Y. 2021. The portfolio premiumization, along with improvement in scale, led to the improvement in its margins over the years.

(ii) Strong Liquidity Position

The company’s liquidity position remained comfortable with cash and equivalents of close to INR 340 crore as on March 31, 2021 and large undrawn working capital limits of INR 140 crore.

(iii) Nil Debt And Reduction In Working Capital Utilization

The outstanding loans have been reduced to NIL and working capital utilization during the year has been reduced considerably, so interest coverage ratio and debt equity ratio have improved during F.Y. 2021.

(K) Management Discussion & Outlook

  • Management stated that in F.Y. 2021, Company generated a cash of INR 513 crores from Operations and spent INR 142 crores in CAPEX and repayment of Current and Non-current Borrowings.
  • Management said that its Exclusive Brand Outlets contribute around 7% of Total Revenue. On the other hand, Export is holding its ground and contributing around 4% of Revenue.
  • Management mentioned that due to lockdown in various parts of India, overall demand for footwear is subdued.
  • It also stated that company enjoys comfortable liquidity position with zero Net Debt and continues to provide assistance to its Distributors and Vendors.
  • As per the Management, due to lockdown Situation and work from home, more of the slippers have sold in 2021, whereas closed footwear and online sale remains affected.
  • It said that the margins have been more in 2021 because Company has been saving on account of sales and promotion expenses, travel expenses and some professional expenses and the raw material price also have been smooth.
  • Management mentioned that the industry scenario is unclear due to unpredictable environment due to lockdown; the sales through various channels will remain impacted and when lockdown lifts completely the company is expecting demand for footwears will bounce back.

(M) Opportunities and Growth

(i) Strong Brand and Diversified Product Portfolio

Relaxo is one of India’s leading Footwear players with a strong brand recall. It is an iconic brand synonymous with rubber slippers, is the most versatile footwear for all segments of society. Relaxo had started its business as manufacturer of rubber based Hawai slippers. But, company has expanded its product portfolio over the years to include Ethylene Vinyl Acetate (EVA) slippers, Polyurethane (PU) slippers, casual shoes, sports shoes and sandals. And today along with Footwears, Relaxo offers other Accessories like - bags, clutches, socks and shoe care Products.

(ii) Long And Successful Track Record in Industry

Relaxo was incorporated in 1984 and its promoters have been involved in the footwear business for over three decades. Moreover, the company has successfully expanded in new product categories, geographies and customer segments and is one of the largest footwear manufacturers in the country as on date. The market position of the company’s products has also improved over the years.

(iii) Reduction of GST and Government’s initiatives

On June 12, 2018, GST Council lowered GST rates on footwear below INR 1,000 to 5% from 18% earlier (footwear having a retail sale price up to Rs500/pair is already covered under 5% rate). The changes in tax rate came into effect from July 27, This has spurred demand in the sector and led to volume-led growth particularly between INR 500-1,000 price range.

Also, Better infrastructure and conducive State policies towards e-commerce as well as greater acceptance among consumers has created a whole new marketing channel for footwear industry. This will lead to growth of Footwear Sector and Increase in the Sale Volumes of Footwear Companies like Relaxo.

(iv) Development Of New Products

New product development and innovation is a key determinant of success in footwear industry. Every year company tries to introduce New Products because the footwear industry is now becoming more of a fashion industry . It is diversifying its product portfolio from basic need to fashion and comfort oriented footwear and growth is seen in its various brands like Sparx, Bahamas and Flite.

(v) Increasing Awareness Of Fashion

With rising disposable incomes as well as increasing awareness of fashion through opening of malls, Indian footwear markets is well placed as a sweet spot. This will benefit the organized players and this in turn may help them to gain further market share. Being a leading player in the industry, Relaxo could one of the key beneficiaries going forward.

(vi) Focus On Non-leather Segment

The Indian footwear industry plans to focus more on non-leather footwear products as 86 per cent of the footwear consumed worldwide comprises non-leather. This could be beneficial to Relaxo Footwear as it is majorly engaged in non leather products such as rubber/EVA/PU slippers, canvas/sports/school shoes, sandals, etc. Demand from Rural area and Monsoon season could bring more on-leather footwear demand going forward.

(N) Risk/concerns

(i) Highly Competitive Industry

The footwear industry is inherently competitive as it is characterized by the strong presence of the unorganized sector. The industry does not have a capital-intensive manufacturing process and hence, the barriers to entry of new players are low. Also, the presence of a large number of small-to-medium-sized players constrains the pricing power. This Intense competition due to the fragmented nature of the Indian footwear industry, strong presence of the unorganized sector can threaten the revenue growth of the Company.

(ii) Volatility In Commodity Prices and Fluctuations in Exchange Rate

The key raw materials used in the manufacturing of footwear are natural / synthetic rubber, EVA , PU etc. Price volatility of these commodities depend mainly on demand – supply ,fluctuation in the price of crude oil and it’s derivatives. . In addition to the price of commodities, the changes in exchange rate impact the cost of material as the company imports most of its Ethylene Vinyl Acetate (EVA) and Polyurethane (PU) requirements. This could impact the profitability of the Company.

(iii) Impact Of Covid-19 Pandemic

Due to nationwide lockdown, overall demand for overall footwear is subdued. Relaxo has also been impacted by the lockdown measures implemented in FY2021 to contain the spread of Covid-19 pandemic, which resulted in a 2% fall in operating income (OI) in FY2021, marked by a decline in average selling price (ASP). Furthermore, the company’s operations were impacted by the second wave of the pandemic in the current fiscal due to regional lockdown measures adopted by various state governments.

(iv) Dependency on Multi Brand Outlets (MBO)

Relaxo significantly depends on the MBO channel. Continued liquidity stress in the Multi Brand Outlets (MBO) channel can adversely impact the revenue growth trajectory and also inflate the working capital cycle.

(v) Outflows Towards Capex

The company reported annual capex outflow of INR 100-150 crore over the last few years. Significant capex-related outflows are likely to continue going forward as well, which would exert pressure on its Free Cash Flows.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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