RELAXO Q4 Earning call/Transcript update

1. 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.
2. Our EBITDA margin for the quarter is 15.9%.
3. Our profit after tax is Rs. 63 crores for the quarter as compared to Rs. 102 crores in the corresponding period of previous year.
4. 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.
5. Our EBITDA margin for the year is 15.7%. 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.
6. At the end of March 31st, 2022, we have 394 exclusive brand outlets which contributed around 7% of our FY22 revenue. Export crossed Rs. 100 crores mark and is picking up with opening of market and its contribution is more than 4% of revenue of FY2022.
7. 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. it's a mix of raw material and GST.
8. Yes, Sparx brand has done very well in e-commerce platform and we can see the growth rate was more than 40% in e-commerce platform. There is a traction of a sports shoe selling more on e-com.
9. Total exposure of online as a channel for us were last year around 10%, now it is 11.5%.
10. 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. We were carrying little more inventory just to be more cautious about the future price increase, so inventory has increased in the balance sheet.
11. 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. We can say, FY20 was 17% margin and this year we achieved lower than that, so definitely we intend and it's possible also.
12. 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%.
13. Within Sparx 50% were sandals and the rest 40% were the closed toes, has that portfolio changed in terms of the mix? Gaurav Dua: Yes, it has changed now. It is 60% shoes and 40% sandal as athleisure growing tremendously.
14. 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 these products going high.
15. We have around 650 to 680 distributors and online contribute around 11.5% of our sales, 7% is contributed by retail and 4% by exports.
16. We don't have any intent to spend in south but definitely we are expanding our capacity in north where we have our own set up. So, we are integrating our backend operations and for that we are working. This year also we have intent to spend around INR 100 crores, so it will add to the backend operations mainly.
17. 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.
18. So overall maximum inventory related to FG (Finished Goods) because most of the materials we keep around 50 to 60 days inventory in the system but this time it was little higher. Average we keep around 40 days but this time it is higher. So, in percentage term you can say around one-third, around 30% will be raw material and rest is WIP and FG.
19. MRP it’s a 25% increase on a YOY basis and this includes the GST increase also from 5% to 12%,
20. The price increase has happened more in Hawai Slippers, Bahamas, and Flite EVA because they are having high content of polymers which became very expensive.
21. Sustainable working capital, if it’s 3 months things are workable smoothly, 3-3.5 months maximum. If I look 7-8 years where it was 2 months. Now we have shifted to 3 months kind of working capital. Sushil Batra: Because this shoe category is growing much faster. It's a high value item, so it's lead time is much more, and we have to give little more credit to trade also because it is high value item. So that’s why it is increasing and moreover the raw material prices have also gone up like anything. So overall in value term it is definitely putting pressure upon the working capital side.
22. 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. If you're talking about Aqualite, so 5% to 10% cheaper is relaxo.
23. 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 grow to a good number. But it’s difficult to say right now if it will become 11% to 15% in just 1 year.
24. 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.
25. If you talk about online, in Sparx 60% is shoes and 40% is sandals even in online. So, majority of sales are coming more than Rs. 500 MRP in online. In our Sparx brand, online contribution is more than 25%.
26. Our major sales come from North India that is around 50% and then 18% comes from East, same West 18% and around 13% from South.
27. 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 was cut. 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.
28. The distributors and retailers are very cautious because of so many changes in MRPs. So, they're keeping less stocks.
29. 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.
30. Whether we've lost market share to any competitor, unlisted competitor, maybe somebody who's come from the South for instance? Ramesh Kumar Dua: No, that's not there.
31. 20% in closed footwear, 80% in open footwear and last time it was 15-85.
32. Rural we are feeling more pinch, there's more pressure in the rural side of India. Urban still there is a movement but in rural India they are not able to absorb the inflation or price hikes.
33. 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.
34. 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? Gaurav Dua: Through our distributor.
35. Sometimes we have to first protect our market share and top line and we have to keep our pricing very competitive so that we are there. Once the things settle down then you can always have your better pricing and margins also.
36. It's very important we have the market share; we cannot lose our shelf space. We have to be there in the minds of the consumer always, that is of prime importance. Once we are always there and everything else will only then follow. If we lose our market share, then what are we left with.
37. Competition is from unorganized also and organized also but we have to always remain competitive on all fronts. We can't just look down upon anybody lightly. Gaurav Dua: They were selling before, now also. So listing and non-listing does not make any difference Ramesh Kumar Dua: They were always in the system. They will remain always in the system.
38. Ramesh ji, my biggest concern is succession plan for Relaxo? Is this something that is actively discussed in the company or is this something that the board is discussing? What are your personal thoughts on this? 
39. Ramesh Kumar Dua: That thing is in process. We are serious on it, but we can't divulge beyond anything now.