RELAXONSEQ4 FY22May 18, 2022

Relaxo Footwears Limited

8,349words

203turns

19analyst exchanges

6executives

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Management on call

Ramesh Kumar Dua

MD, RELAXO FOOTWEARS LIMITED

Ritesh Dua

EXECUTIVE VICE PRESIDENT, FINANCE, RELAXO FOOTWEARS LIMITED

Gaurav Dua

EXECUTIVE VICE PRESIDENT, MARKETING, RELAXO FOOTWEARS LIMITED

Sushil Batra

CFO, RELAXO FOOTWEARS LIMITED

Vikas Tak

COMPANY SECRETARY, RELAXO FOOTWEARS LIMITED

Akhil Parekh

CENTRUM BROKING

Key numbers — 40 extracted

698 crore

e followed by full year FY22 Financial Performance. In Q4 FY22 Relaxo booked operating revenue of 698 crores as compared to Rs. 748 crores in the corresponding period of previous year. Revenue during the q

Rs. 748 crore

22 Financial Performance. In Q4 FY22 Relaxo booked operating revenue of 698 crores as compared to Rs. 748 crores in the corresponding period of previous year. Revenue during the quarter was affected due to d

the quarter was affected due to disruption caused by Omicron variant of COVID, GST rate hike from 5% to 12% w.e.f. January ‘22 on footwear priced below Rs. 1,000 and subdued demand due to high infla

12%

arter was affected due to disruption caused by Omicron variant of COVID, GST rate hike from 5% to 12% w.e.f. January ‘22 on footwear priced below Rs. 1,000 and subdued demand due to high inflation.

Rs. 1,000

micron variant of COVID, GST rate hike from 5% to 12% w.e.f. January ‘22 on footwear priced below Rs. 1,000 and subdued demand due to high inflation. EBITDA during the quarter is at Rs. 111 crores as compar

Rs. 111 crore

priced below Rs. 1,000 and subdued demand due to high inflation. EBITDA during the quarter is at Rs. 111 crores as compared to Rs. 163 crores in the corresponding period of the previous year. Our EBITDA margi

Rs. 163 crore

bdued demand due to high inflation. EBITDA during the quarter is at Rs. 111 crores as compared to Rs. 163 crores in the corresponding period of the previous year. Our EBITDA margin for the quarter is 15.9%.

15.9%

163 crores in the corresponding period of the previous year. Our EBITDA margin for the quarter is 15.9%. EBITDA margin decreased mainly due to steep increase in raw material prices and extra support

Rs. 63 crore

tra support provided to trade towards GST rate differential on inventory. Our profit after tax is Rs. 63 crores for the quarter as compared to Rs. 102 crores in the corresponding period of previous year. Fo

Rs. 102 crore

e differential on inventory. Our profit after tax is Rs. 63 crores for the quarter as compared to Rs. 102 crores in the corresponding period of previous year. For FY2022 our revenues stood at Rs. 2,653 crores

Rs. 2,653 crore

to Rs. 102 crores in the corresponding period of previous year. For FY2022 our revenues stood at Rs. 2,653 crores as compared to the Rs. 2,359 crores which is a growth of 12% year-on-year. The growth in revenue

Rs. 2,359 crore

ing period of previous year. For FY2022 our revenues stood at Rs. 2,653 crores as compared to the Rs. 2,359 crores which is a growth of 12% year-on-year. The growth in revenue is achieved mainly due to calibrate

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Guidance — 20 items

Sushil Batra

opening

“Going forward we are cautious about our continual extraordinary inflation and remain cautiously optimistic on the basis of strong recovery across category, especially in the high-value closed footwear category after opening up of offices, schools, and colleges.”

Tejas Shah

“What will be the total exposure of online as a channel for us?”

Ramesh Kumar Dua

“So that's very important that we will be keeping strict vigil on it and accordingly take appropriate actions at appropriate time.”

Gaurav Jogani

“But how do you see the volume trajectory going ahead in the light of the sharp RM inflation that we are seeing given our target customer is very price sensitive?”

Gaurav Dua

“Going forward the consumer sentiments are still not so buoyant.”

Sushil Batra

“Margin definitely because this year being a little tough year comparatively and FY21 was a best year but if we compare FY20 the margins are definitely achievable, and we intend to and we are hopeful that will be achieved on FY20 base if you see.”

Sushil Batra

“We can say, FY20 was 17 and this year we achieved lower than that, so definitely we intend and it's possible also.”

Gaurav Dua

“I think from Quarter 2 onwards this thing will be much better.”

Sushil Batra

“So, in percentage term you can say around one-third, around 30% will be raw material and rest is WIP and FG.”

Gaurav Dua

“It has definitely affected some volume, but going forward this thing will improve because other people are also increasing their prices.”

Risks & concerns — 15 flagged

The growth in revenue is achieved mainly due to calibrated price hike taken during the year to mitigate impact of high raw material prices.

— Sushil Batra

The decline in EBITDA margin is mainly on account of increase in raw material prices and normalization of selling, marketing and administrative expenses in FY22 as compared to FY21.

— Sushil Batra

Going forward we are cautious about our continual extraordinary inflation and remain cautiously optimistic on the basis of strong recovery across category, especially in the high-value closed footwear category after opening up of offices, schools, and colleges.

— Sushil Batra

What we are seeing is in first 2-3 months there was a pressure because it was new for the trade.

— Gaurav Dua

Post that there is definitely a pressure because of inflation, consumer sentiments are still not so great and whatever the pass on off price what we have done, or the industry has done its taking time for the consumer as well as for the trade to take it.

— Gaurav Dua

My next question is with regards to your volume if we see this particular year, so the volume this particular year has even seen a decline if we compare versus FY20.

— Gaurav Jogani

So definitely there has been a pressure on volume in term, because last to last year the open footwear was selling a lot because people were at home and there was extraordinary sales happening on last-to-last year.

— Gaurav Dua

We feel I think after maybe Quarter 1 the things will come back but very difficult to say right now because of unpredictable supply chain things are not settled, raw material prices are not settled but we are hoping that Quarter 2 onwards we can see some recovery.

— Gaurav Dua

This has been because there was a pressure upon sale and price also.

— Sushil Batra

Our inventory has increased abnormally more than expected and there are two reasons for the inventory increase, one is the pressure upon sale and also the prices because your cost of goods and everything has increased.

— Sushil Batra

Inventory is the major reason for working capital disturbance in this year and there are two reasons, one there was pressure upon the sale and second because the cost of goods has also increased, even raw material also.

— Sushil Batra

We were carrying little more inventory just to be more cautious about the future price increase, so inventory has increased in the balance sheet.

— Sushil Batra

So, these are the two reasons the working capital is under pressure.

— Sushil Batra

There is a volume pressure no doubt about it.

— Gaurav Dua

Are the sandals part of the business under pressure or both of them are doing well?

— Mythili Balakrishnan

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Q&A — 19 exchanges

Just will start with a couple of basic questions. If you can help us to understand the realization split increase which has happened between price increase and premiumization if any happened during the year and during the quarter?

Sushil Batra

Price increase, because this full year was lot of inflation, raw material prices went up. Price increase was in the range of 25% across all the categories, in few categories more and few categories less. This is majorly due to the price increase and product mix because closed footwear was sold much more as compared to FY21. That mix also happened in this year. Overall increase majorly is due to price increase. This 25% price increase would be at customer level, because of GST increase as well but that would not have totally reflected in our numbers, right? No, it's a mix of raw material and GS

Thank you for taking my question. My first question is with regards to the RM inflation as you have highlighted. Is the bulk of the RM inflation now done or do we need to take further price increases to mitigate the RM inflation that we have seen?

Ramesh Kumar Dua

Raw material situation continues to remain unpredictable. You cannot say for guarantee that everything is settled. Always we are getting news of different kinds, sometimes packing material, chemicals, polymers. So, things are not stable as yet, we can’t say confidently things are stabilized as far the raw material situation is concerned. But we have to be watchful of it and accordingly we have to see market dynamics also and accordingly keep on taking appropriate action. To put the other way round if assuming whatever the RM prices are today, does it cover whatever the price increases that we

Generally, when we see Relaxo has a good working capital cycle of around 50 days but this time it appears to be on the higher side of it closer to 90 days. What is the reason for the same? Is it more of raw material being accumulated or is it the finished goods? Can you just provide a brief view on that?

Sushil Batra

This has been because there was a pressure upon sale and price also. Our inventory has increased abnormally more than expected and there are two reasons for the inventory increase, one is the pressure upon sale and also the prices because your cost of goods and everything has increased. So, it has also given a multiplying effect upon the inventory. That is the one reason. Your words were not clear. Could you please repeat? I was not able to get it. Just repeating. Inventory is the major reason for working capital disturbance in this year and there are two reasons, one there was pressure upon t

I just wanted to get a couple of data points from you. I want to go understand the mix between the different brands Sparx, Bahamas, Flite and the normal Hawai.

Gaurav Dua

We are doing Hawai and Bahamas come under Hawai division. That is around 25% and Flite is 37.5% and similarly Sparx is 37.5%. Within Sparx 50% were sandals and the rest 40% were the closed toes, has that portfolio changed in terms of the mix? Yes, it has changed now. It is 60% shoes and 40% sandal as athleisure growing tremendously. Are the sandals part of the business under pressure or both of them are doing well? Both are doing well. The only thing is there is a good demand in athleisure and sportswear. That e-commerce is growing much faster because of India becoming more fit and demand of t

Just three questions. If you can help me with this extra trade support which you've given to the channel, how much is the quantum for that?

Sushil Batra

Extra trade support we gave in Q3 because we were having inventory in December and GST was effective from January. In that quarter we gave around the INR 15 to 18 Cr because we were carrying some inventory at our end also, we gave the support in this quarter also. That is around INR 8 to 10 crores in this quarter. You said the prices in the channel now or the inventory in the channel liquidated or has got the new pricing, is that the fair understanding? Now new price material is coming the market. So that old inventory is almost clear. So now everything is through in the system. Just two more

The first question is in terms of capacity addition, so in terms of volumes what is the capacity addition plan for the next 2 years and across which brands or categories will we be expanding those?

Ramesh Kumar Dua

Already we have reached the capacity of 10 lakhs pairs per day and utilization is around 65% and within this category we are focusing to free some capacity of whatever is required in shoe division. Second thing in terms of price hike, I think the full-year price hike was 25% but in terms of the price hike taken in 4Q apart from the 7% which you might have taken because of GST, was there any other price hikes as well? The last price hike we took in December. That was inclusive of GST as well as material impact also, so that was the last one. Last question, there is an inflationary trend in RM p

Just want to understand on the pricing front, you mentioned 25% increase which we have taken, this increase is at a consumer level or if I look at your realization increase on YOY basis for FY22, it is also nearly 22.7%. Similar kind of increase is also at a consumer level?

Gaurav Dua

On MRP you can say, consumer level, yes. Even at a MRP it’s a 25% increase on a YOY basis and this includes the GST increase also from 5% to 12%, right? Yes, but it depends upon category to category also. 75% across all categories, in some category more, some category less, so depends upon the raw material. If I look at our realization on a 3-year basis, it would be 7%. So just wanted to understand this 7% increase on a 3-year basis, how this muchhas impacted the consumer from the volume perspective because our volumes are down to 2% on a 3-year basis. Is that a very meaningful impact you are

My first question is on the price hike. What is the price differential now between Relaxo footwear and unbranded and some of our peers like Aqualite, VKC footwear?

Ramesh Dua

Can you repeat the question, your voice we can't hear? I'll repeat my question. How is the price differential between the Relaxo versus our peer and versus the unbranded? What it was last year we have maintained the same gap. It is not that there is a huge gap in terms of what it was one year back. I can just say that we are always expensive than unorganized. You cannot compare brand with unorganized. It's very difficult because they do pricing on daily basis, so we do not do. It's very difficult to compare with the unbranded but if you talk about other brands whatever difference was there bef

My first question is regarding how are the customers reacting to the significant price increase and will you be willing to reduce the prices if the raw material pressure softens which is something if I recall correctly, you have never done in the past?

Ramesh Kumar Dua

We have to always remain relevant to the market conditions and also keep our prices competitive. Keeping in view our input cost we have to act accordingly and that will keep on happening. Do you see an increasing contribution from e-commerce like as high as 15% to even 20% from 11.5% this year in medium term and if you can outline what is your growth strategy for incremental sharing e-commerce? As everybody knows that digital is growing and e-commerce is the fastest growing category in footwear. 11% to 15% in one year will be difficult but we are definitely having high aspirations and we will

First you highlighted a sales mix as 25% in Hawai and Bahamas and 35% each in Sparx and Relaxo. So, was that volume break-up you are referring to or was that a value break-up?

Sushil Batra

It’s a value break up. And how would the volumes be then? If you could share that please? Volume generally we don't share but overall, Yes, maximum, Contribution comes from Hawai, Hawai is including Bahamas also and second is the Flite and last is Sparx. So, this is the breakup. Secondly on your price increases. You highlighted that our last price hike was in December ‘21. Right now, we are already in May and I assume that raw material prices would have further inched up from December up to now. Are we contemplating any further price increases in the near term or the increase taken in December

In the online channel at the EBITDA level, considering that delivery and all those expenses as well; would it be profit making for the company?

Gaurav Dua

We try to keep same margins what we have online-offline and retail. We last time also discussed that we do not want that goods flow from one channel to another because of prices. So, we keep it same. Same margin you mean the gross margin, right? But considering the expenses of fulfillment of those orders, would you still be making same level of margins, EBITDA level? It’s the same. We just keep everything same. Just one quick question on the geographic breakup. Would it be possible to share some broad numbers on region wise sales? Our major sales come from North India that is around 50% and th

Around 2 years ago our distributor count was around 800 and today it has come down to around 650. Why has the distributor count reduced over the last few years?

Gaurav Dua

We want quality distributors so less than Rs.10 lakh sales per month. So, they were many in numbers. So, we have cut down the tail. We are focusing on the cost of reaching them it was not viable. We are focusing on good number of distributors who are doing more than Rs. 10 lakhs per month. That is how we decided. It was a tail. We have to cut the tail. Is this exercise now over or it is a work in progress? Can you repeat? Is this exercise of cutting the distributors over or it is still work in progress? It is a continuous process. We add 50 or we remove 25 who are not performing. So, it's a co

You had an 8% decline in volume in FY22 versus FY21. Did the market also decline at the same rate and if not, who gained the market share?

Ramesh Kumar Dua

Over all category of Hawai and EVA, it is actually gone down because this year the market has opened up and outdoor people have started to be in the market. So, closed footwear is doing good and chappals and these things have gone down and at the same time because of high inflation, buying power of these masses has gone down. So, they're trying to hold on to their old slipper also and so delaying their purchase. No, I was trying to understand whether we've lost market share to any competitor, unlisted competitor, maybe somebody who's come from the South for instance? No, that's not there. You

Do we sell to B2B players like Udaan and Ajio Business and what would be our contribution from them?

Gaurav Dua

We started with Udaan and Ajio, but our contribution is quite less. It is less than 1% you can say that. So, it's a new channel for us. The problem with them is that they are playing a discounting game which we do not want to disrupt the market. We are cautiously watching them and going forward then we'll see how we have to do business. Because one of your competitors’ books double-digit revenues through these channels in the sports category. So, do we sell directly to them or we'll sell them through a distributor channel? Through our distributor. My second question was while you did say South

My first question on the raw materials side. Can you quantify what has been the jump in the raw material prices for the quarter versus 3Q and versus 4Q of last year? Any number to attach to it?

Ramesh Kumar Dua

Different material have different prices; we can tell you as an average. Average of different kinds of material, inflation or you want to know specific raw material wise? Whether we talk about a major part of the raw material number so an average? You want Q4 versus Q4 or full year versus full year? Q4 versus Q3 and Q4 versus 4Q of last year? Q4 versus Q4 there is huge jump definitely last year it was a very good year from raw material point of view. You can say in some material it was around 80% which is also a major contributor in the material side. So, Q4 versus Q4 overall there is a huge j

Couple of follow-ups. In most categories we are competing with unorganized and across categories in our channel checks we are picking up that wherever unorganized are dependent on Chinese imports, they have been struggling both on inflation and also availability count because their supply chain has been disrupted badly. Are we seeing any benefit of that in our favor because our supply chain will be relatively much more robust than unorganized competition in the three segments that we operate in?

Ramesh Kumar Dua

No, the materials that we're using in our Hawai slippers or Flite, EVA, we are always keeping good inventory in the system. There's no disruption in our manufacturing. We have been cautious, and we have to be cautious on that. Yes, precisely that is the point. Definitely we are actually better off than some of the unorganized players. So, are we seeing that natural gain happening in market share because unorganized is not as competitive compared to let's say they were 2 years back or 1 year back? The material like polymers, EVA, PU, PVC, and all-natural rubber, they are available in domestic a

Ramesh ji, my question is to you. It seems we are in a rather difficult situation whereas you mentioned in some ways the volume or the top line is not in our hands because the consumer is stressed because of inflation and the margin is also not in our hands because the raw material has a lot of pricing concern. Under these kinds of scenarios, how do you manage the business? What are the numbers and metrics that you focus on these days?

Gaurav Dua

We are going to increase our A&SP spend plus we are going to have a competitive range introduced soon so that we are able to get the top line fixed first. So that is the priority number one. There will be some measures in appointment of new distributor, adding more outlets. So, definitely I think we will be coming back with the numbers. As the situation is unfolding, there are so many different scenarios that are possible, and which is the scenario that you would be most worried about? And I'm thinking for example, if there is protracted inflation increase for the next let's say 18 months-24 m

Thanks Ryan. On behalf of Centrum Broking, I would like to thank the entire management team of Relaxo for answering all the questions very patiently and in detail. I will hand over the call to the management team for closing remarks if any. Thank you.

Sushil Batra

Thank you all for joining the call. This is all from our side. Looking forward to join you again. Thank you very much. Thank you from Relaxo side. .

Aggarwal City Square, Plot No.10, Mangalam Place, District Centre, Sector-3, Rohini, Delhi-110085 (India) CIN: L74899DL1984PLC019097 Website: www.relaxofootwear.com

Management

Speaking time

Gaurav Dua

Sushil Batra

Ramesh Kumar Dua

Moderator

Tejas Shah

Akhil Parekh

Nikunj Gala

Priyam Khimawat

Deven Kulkarni

Mrs. Trivedi

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Opening remarks

Akhil Parekh

Thank you Ryan. Good afternoon, everyone. On behalf of Centrum Broking Limited, I would like to welcome you all to Relaxo Footwears Quarter 4 FY22 Earnings Conference Call. From the management we have with us today Mr. Ramesh Kumar Dua – Managing Director, Mr. Ritesh Dua – Executive Vice President, Finance, Mr. Gaurav Dua – Executive Vice President, Marketing, Mr. Sushil Batra – CFO and Mr. Vikas Tak – Company Secretary. We'll begin the call with a brief discussion from the management and then we can open the floor for x Q&A session. Over to you sir. Thank you.

Sushil Batra

Thank you Akhil. Good afternoon, everyone. Ladies and gentlemen thank you very much for attending our earnings call for the financial year 2021-22. We have already shared our earnings press release and result presentation. Hope you got an opportunity to go through that. I will start with Q4 FY22 Financial Performance followed by full year FY22 Financial Performance. In Q4 FY22 Relaxo booked operating revenue of 698 crores as compared to Rs. 748 crores in the corresponding period of previous year. Revenue during the quarter was affected due to disruption caused by Omicron variant of COVID, GST rate hike from 5% to 12% w.e.f. January ‘22 on footwear priced below Rs. 1,000 and subdued demand due to high inflation. EBITDA during the quarter is at Rs. 111 crores as compared to Rs. 163 crores in the corresponding period of the previous year. Our EBITDA margin for the quarter is 15.9%. EBITDA margin decreased mainly due to steep increase in raw material prices and extra support provided to tr

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