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.
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.