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Market outlook and stock tip:-Relaxo Footwears Ltd
Saturday, May 12, 2012
Scripscan:Relaxo Footwears Ltd
Return percentage expected for coming 3-5 years:40-60%
Story:Such is the story behind the creation and flourishing of Relaxo Footwear, the company that has established itself as one of the most stalwart, quality conscious and avant-garde footwear companies in the Indian economy today. Headquartered in New Delhi, India, it maintains a fine combination of comfort, style, and workmanship and is embarking upon appreciable growth plans for the future. The company began as a small enterprise in the year 1976 and was officially incorporated in 1984 and further went into public listing in 1995. According to the 2008 Business Survey, it has now emerged as the second largest footwear producer in India.Relaxo Footwear commenced its journey with the manufacture of Hawaii slippers. It has now grown into a large-scale entrepreneurship catering to the basic needs of the quintessential Indian citizen. From a modest sale figure of Rs. 1 million in 1977 to more than Rs. 8700 million last year; the company has experienced a record-breaking growth since inception.Today, the company manufactures over 3 lakh pairs of footwear per day, which approximately adds up to over 10 million pairs per year. Each pair is given thorough attention by the dedicated and skilled employees working at the 10 state-of-the-art manufacturing units in Northern India. Thus, it is no small wonder that the annual turnover has multiplied by 4 times in the last 5 years from Rs. 230 crore in 2007-08 to a whopping Rs. 870 crore in 2011-12.Its products include slippers, canvas shoes, rubber flip flops, EVA injected flip flops, PVC DIP shoes, sport shoes, sandals, and PVC DIP casuals. The company sells its products under various brands, including Hawaii, Flite, Schoolmate, Sparx, Elena, Casualz, Mary Jane, and Boston.It also operates retail footwear stores in the states of Delhi, Rajasthan, Punjab, Uttaranchal, Uttar Pradesh, Gujarat, and Haryana. In addition, the company involves in wind power generation activities. The company has 130 retail outlets and plans plans to add 15-20 retail outlets every year.This is part of company's endeavor to create many more one-stop shops displaying their entire range of footwear. The company believes the roll-out of these retail outlets is directly influencing consumer demand and turnover of the Company. Relaxo is also trying to expand geographically by trying to market aggressively in south India and also export its products to Europe, Africa and other Asian countries. Exports as of now contribute not even 10% of total sales.A strong network of 350 distributors and 30,000 retailers operating across India ensures good reach.The Indian footwear retail market is expected to grow at a CAGR of 18% for the period spanning from 2010 to 2013 as per CARE Research.The company is expected to deliver an EPS of 47-48 for fy12-13,which at present prices discounts the same by less than 7 times.Its larger peer- Bata quotes at a mind boggling PE of over 30 times its expected future earnings.Relaxo has a huge chance of getting completely rerated in near future.It may replicate the consumption stories success like that of TTK,Hawkins or even Jubilant foodworks.Here's a company with nearly a a pan India presence,a company having a robust brand name,a company where debtors days are less than a fortnight(the distributors queue up to the company is advance)-what else do you want?In a country where population is over 120crs relaxo is such a company which can cater to the need of everyone(RFL produces different products under different brands. It produces Hawaii slippers branded as “Relaxo” whereas the light slippers segment is branded “Flite”. The school and sports shoes segment is branded Sparx).All three brands – Relaxo, Flite and Sparx are quite well known and well accepted in the market.The company also enjoys highest EBITDA & PAT margins in the industry as compared to Bata,Liberty Shoes.Relaxo is an asset and one should hold on to it for the next 4-5 years.Members having a lesser horizon can act as per my assigned target(arriving to the target price by putting an average multiple of 11x its fy13 earnings) and duration period.
Todays update:The company just hit 465rs, up 40% from the suggested price in a matter of just 2 weeks and looks good for even more.It would easily achieve the target within the stipulated duration and would probably be a big multibagger.
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