Relaxo Footwear

Most of us must be aware of the Relaxo brand. The interesting part is the evolution of the company from the traditional “Hawai Chappal” business to the fashionable shoes, sandals and slippers business under the brand “Sparx” & “Flite”. It’s a definite consumer play story and the company has done remarkably well over the last 5 years.

During the last 5 years the turnover has increased from 200 Cr in 2006 to 557 Cr in 2010 while Net Profits have shot up 10 times from 3.27 Cr in 2006 to 37.70 Cr in 2010.

To get a better understanding of the company, we visited the company and met the CFO – Mr. Sushil Batra. Key takeaways from the interview are:

  • The growth since 2006 is real and the reason is the initiatives taken by the management to venture into manufacturing of Flite slippers and subsequently Sparx. Both the products have witnessed a very good demand from consumers and hence there is a brand pull.
  • Majority of the sales of the company is through a network of distributors/retailers. As of now the pricing power is not much as price revision in the industry is not very frequent.
  • There is great brand pull and hence more than 60% of the business is done on advance today. This explain the reason for their debtors days at less than 14 days!
  • The demand is robust and the company may continue to grow @ 20%.
  • As of now, due to the sharp increase in natural rubber prices, the co is facing margin pressure. The margins may remain under pressure for near future. The company had done a price hike recently in Jan, 2011 and it seems they will have to do another price hike in March/April.
  • Company targets to be a 1000 Cr turnover company by 2013.

Read the complete interview at ValuePickr

Our take:

Though the stock seems to be a good long term bet, but considering the significant pressure on margins of the company (Look at Q3 nos), it is better to wait for Q4 results or lower stock price.


Company’s Annual Report @

14 thoughts on “Relaxo Footwear”

  1. But what about corporate governance at these companies. Numbers are fine but are these trustworthy. In think numbers at 90% of such companies are manipulated depending on current objective of management

    1. Hi,

      This is where the research comes into play. For eg – In the case of Relaxo, its a known low segment brand for over the years….one can see their product selling…their ads etc. So if one is eager to research, there are several ways to cross check if the co is growing or not. Just doubting a co won’t help…we need to raise doubts based on logics/observations, if any.

      The above post is a sharing of the management interview with the company. One may certainly do his work and share it for the benefit of other investors.

      Seek more margin of safety while buying into a stock, if you feel something might be wrong.


    1. Hi Madhav,

      Though there are several models involved and it would be tough to explain in short but some of the basic points to look into are:

      1. Look at the valuations of market – Nifty is trading at PE multiple of 20.87, P/BV of 3.45 and gives Div Yield of 1.14%. This valuation is when expected growth rate is about 15%.

      The stocks which we have discussed till now are usually available at 5-8 times PE multiple, available at less than 2 times BV and giving higher div yields and growing at 20%+. So more the discount, more the safety and hence better possible returns.

      2. We look for cos with some unique business qualities, or segment leadership etc. Its important to see if the current nos are sustainable along with growth hence we look at 5 to 10 years of past track records and provide the same at our website.


  2. hi ayush, i guess it sure pays to listen to you, tcfc had quite a disappointing year and coastal roadways too ( as you d suspected) too was nothing to write home the way , srk s chaltey chaltey is a good movie to learn about the pitfalls of logistics buissness …… lol.
    anyways the satyam situation does seem to be improving going by the recent filings….….also dhandapani is becoming more interesting as it recorded its first CASH eps in the last 4 years(just waiting for the march egm so as to ensure no BIG dilution takes place) u think its a good idea to do an intrinsic value dcf on relaxo? if yes,what numbers do u have in mind?
    q2.what are your ideas on evaluating financial sector turnarounds?
    q3.recently while checking out sumedha, i had trouble finding its annual report, any idea where it can be found? also i ve never cheked out a brokerage firm before, any ideas on red flags and thongs to be focused upon in the annual report?
    q4. any thoughts on BHAGYANAGAR INDIA LTD.. sure seems to be an intresting co.
    eagerly awaiting ur reply

  3. Ayush,
    do you prefer to buy Relaxo at current price? The stock had good run up but has fallen due to disappointing numbers.

    Whats the out look of the company with Rubber prices running low?

    1. The rubber prices had corrected in between but are now back to 195-200 levels. So i don’t think its a trigger as of now.

      The co seems good but the profitability is under lot of pressure…so waiting for better valuations.

  4. The demand for Sparx Shoes is going on increasing now a days which is the reason behind increase in popularity and profit. Other than this Sparx has always maintained its quality in shoes which enhance people to purchase shoes.

  5. Take a bow, great pick, you seem to have been the earliest pickers of this great co., want to know a. whether you bought it later on b. whether you hold it still,

    1. Hi Shankar,

      It unfolded into a great story. Unfortunately we couldn’t participate much….made the mistake of trying to time the stock 🙁

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