by Suhani Adilabadkar

The journey started with Relaxo EVA slippers, followed by the addition of Mary Janes, Bostons, Flites, and Sparx. These brands helped Relaxo footwear evolve into the second largest player in Indian organized footwear industry, in a market long-dominated by Bata. Relaxo has been challenging the leader's hold on customers with a fairly varied product mix, high affordability and distribution reach, and now manufactures over 6 lakh pairs of footwear every day through its 9 manufacturing facilities.

The company sells more than 16 cr pairs a year and boasts 10 different brands and 6000 SKUs, with a distribution network of 50,000 retailers/MBOs, 390 EBOs, 800 distributors and exports to 28 countries. The stock has gained more than 60% from its 52-week low of Rs. 395 struck last year.   

Quick Takes

• Revenues fell 15% YoY and operating profit was almost stagnant at Rs. 96 crore in Q4 FY20.

• Net Profit or PAT stood at Rs. 52 crore in Q4 FY20 falling 5% YoY.

• The company has adopted new covid strategy of focussing on ‘value for money product’ instead of premiumization.

• The company is back to its 70% utilization levels of manufacturing capacity. In terms of regional recovery, rural areas not stringently under lockdown restrictions are witnessing growth compared to urban areas. 

• “We were growing in double digits, and delivered 12% plus growth till December. So we were growing in a good way, and double digit growth was there till mid-march and then I think everything got impacted due to COVID. We would have grown in double digits in this quarter as well, had there been no COVID”, Mr. Ramesh Kumar Dua, MD, Relaxo Footwears says.

A Subdued March Quarter FY20

The nationwide lockdown in March meant that no one has been walking around very much. The restrictions led to a decline in revenues in Q4 FY20, falling 15% YoY. Operating revenues stood at Rs. 540 crore in march quarter FY20 against Rs. 635 crore same period previous year.

Operating profit was almost stagnant at Rs. 96 crore with margins coming out at 17.8% in Q4 FY20 against 14.98% same period previous year expanding 280 bps YoY aided by favourable raw material prices. Net Profit or PAT stood at Rs. 52 crore in Q4 FY20 against Rs. 54 crore corresponding quarter previous year falling 5% YoY. Speaking with respect to Covid impact, Mr Sushil Batra, CFO, Relaxo Footwear, said, “We believe that the company is well placed to emerge stronger in post COVID world. We will continue to adopt strategic initiatives to strengthen our brand positioning, improve our product innovation and expansion into newer geographies”.

Only Challenge to BATA

Despite footwear companies spending huge amounts on advertisement, print and media, per capita consumption with respect to footwear industry is just 1.7 pairs compared to 6-7 pairs in developed economies. In the Indian context, 45% of footwear industry is unorganized and 90% of footwear production is utilized domestically with only 10% being exported. Relaxo is second in the organized market after Bata, and completely in the non-leather segment and utilizing EVA (ethylene vinyl acetate), PU (polyurethane) and natural rubber as its key raw materials.

With a strong focus on premiumization and volume growth, Relaxo has been growing at a CAGR of 16% and 20% for revenue and PAT respectively over the past 10 years, ahead of Bata which has been moving at 11% and 18% respectively. Hawai Relaxo (40% volumes), Flite, Bahamas and Sparx are the major revenue churners. Unlike Bata, Relaxo has an insignificant presence in school segment but a sizable one in sports through the Sparx brand.  Sparx has strong presence in southern markets while Relaxo and Flite are sturdy in north. 20% of the company’s business come from premium products. North region is its major strong hold contributing half of the revenues followed by eastern India, about one fifth and south and west putting in 10-15% in the revenue basket.

Covid Impact

“We were growing in double digits, and delivered 12% plus growth till December. So we were growing in a good way, and double digit growth was there till mid-march and then I think everything got impacted due to COVID. We would have grown in double digits in this quarter as well, had there been no COVID”, Mr. Ramesh Kumar Dua, MD, Relaxo Footwears says. Thus, with a value de-growth of 15%, volume declined 18-20% in march quarter FY20. Coming to recovery with gradual opening up of markets, the company is witnessing higher demand of open footwear such as Bahamas and flite. With lockdown restrictions, work from home and movement of migrant labour, open footwear is more in demand compared to closed footwear. The company expects a recovery in closed footwear with the advent of winter season. Coming to regional recovery, rural areas not stringently under lockdown restrictions are witnessing growth compared to urban areas. The company is back to its 70% utilization levels of manufacturing capacity. 

Relaxo has adopted the new covid strategy of focussing on ‘value for money product’ instead of premiumization. With lower income levels and job cuts as customers attempt downtrading, Relaxo is better placed compared to rest of its peer group, such as Bata. On the same plane, Relaxo with its strong brand recall has better offerings targeted for mass segment with respect to price and quality compared to the unorganized sector. Relaxo does not consider imported footwear and the unorganized sector as a major challenge especially after increases in customs duty and lowering of GST by the government.

Another tailwind is in the form of benign raw material prices aiding margin expansion in the near future. Continuing with its capex momentum of the last five years, Rs. 100 crore capex is being carried out with 50% allocation for construction in Bhiwadi plant and remaining for maintenance purposes. With respect to market recovery, the management expects stability to return back in FY22 as Mr. Dua alluded that, “At the moment market conditions are very unpredictable. We need to observe a quarter by quarter development on how market evolves. FY22, I think it should be better than 2020. By that time things will be very clear and stabilized, things are expected to be very good”.