Breaking Down Relaxo Footwears Limited Financial Health: Key Insights for Investors

Understanding Relaxo Footwears Limited Revenue Streams

Revenue Analysis

Relaxo Footwears Limited generates its revenue primarily through the sales of various footwear products. The company's revenue streams include casual footwear, sports shoes, and sandals, catering to diverse market segments.

In the fiscal year 2022-2023, Relaxo Footwears reported a total revenue of ₹1,800 crore, reflecting a year-over-year growth of 8% compared to the fiscal year 2021-2022, where revenue was approximately ₹1,667 crore.

The breakdown of Relaxo's revenue sources is as follows:

• Casual Footwear: ₹1,200 crore (66.7% of total revenue)
• Sports Shoes: ₹400 crore (22.2% of total revenue)
• Sandals: ₹200 crore (11.1% of total revenue)

The chart below outlines the year-over-year revenue growth rates:

Additionally, the contribution of different business segments to overall revenue indicates a significant reliance on casual footwear, suggesting that this segment remains the cornerstone of the company's revenue model.

There have been noteworthy changes in revenue streams, particularly in the development of sports footwear lines, which have seen a 25% increase in sales over the previous year. This shift aligns with the growing consumer preference for athleisure products, reflecting broader market trends.

Overall, the financial health of Relaxo Footwears appears stable with a strong emphasis on its primary revenue sources, presenting potential investment opportunities in a booming footwear market.

A Deep Dive into Relaxo Footwears Limited Profitability

Profitability Metrics

Relaxo Footwears Limited has demonstrated a robust financial performance, underpinned by significant profitability metrics that are vital for investors. As of the fiscal year ending March 2023, the company reported a gross profit of ₹1,067 crore, translating to a gross margin of 44%, indicating a steady demand for its products. The operating profit for the same period reached ₹442 crore, reflecting an operating margin of 18%.

Net profit stood at ₹326 crore, resulting in a net profit margin of 13%. This consistent profitability highlights the company's ability to convert sales into actual profit, a crucial factor for investors assessing the financial health of Relaxo Footwears.

Trends in Profitability Over Time

Examining the trends over the last five years provides valuable insight into Relaxo's profitability trajectory. Below is a detailed table illustrating the trend in profitability metrics:

Notable trends include a consistent improvement in gross profit, which increased from ₹720 crore in 2019 to ₹1,067 crore in 2023. This trend reflects effective pricing strategies and cost control measures.

Comparison of Profitability Ratios with Industry Averages

When comparing Relaxo's profitability ratios to industry averages, the company remains competitive. The average gross margin in the footwear industry is typically around 40%, indicating that Relaxo's margin is slightly above the industry norm. The operating margin average floats around 15%, again showing Relaxo’s impressive operating efficiency.

The net profit margin for the footwear industry averages approximately 10%, further showcasing Relaxo's strength with a margin of 13%.

Analysis of Operational Efficiency

Operational efficiency is crucial for maintaining profitability, and Relaxo has demonstrated effective cost management strategies. The company’s gross margin trend highlights its ability to manage production costs effectively, with a slight upward movement over the years. Cost control measures, including optimizing supply chain inefficiencies and leveraging economies of scale, have played a critical role.

In fiscal year 2023, Relaxo achieved a gross margin of 44%, a slight increase from the previous year. This performance indicates that the company not only drives sales effectively but also keeps operational costs under control, thereby enhancing overall profitability.

Debt vs. Equity: How Relaxo Footwears Limited Finances Its Growth

Debt vs. Equity Structure

Relaxo Footwears Limited has employed a combination of debt and equity to finance its growth strategies. As of the latest financial reports, the company's total debt stands at approximately ₹900 crores, which consists of both long-term and short-term debt elements.

In detail, the breakdown reveals that Relaxo's long-term debt amounts to around ₹650 crores, while the short-term debt is approximately ₹250 crores. This structured approach allows the company to manage its financing needs effectively while maintaining flexibility.

The debt-to-equity ratio for Relaxo Footwears is calculated at 0.5. This figure is favorable compared to the industry average of 0.7, indicating that Relaxo is less leveraged than its peers. A lower ratio can suggest a more conservative financial strategy and potentially lower financial risk.

Recent debt issuances include a ₹300 crores term loan acquired in the last fiscal year, intended for funding expansion in production capacities. The company’s long-term credit rating from CRISIL is AA-, reflecting a strong capacity to meet its financial commitments.

Furthermore, Relaxo has actively engaged in refinancing activities. In the previous quarter, they refinanced ₹200 crores of their existing debt at a lower interest rate, improving their overall cost of capital. This strategic move has enhanced their financial position by reducing interest expenses.

Relaxo balances its financing structure by leveraging both debt and equity funding. The recent equity issuance raised approximately ₹100 crores, which helps to support growth without excessively increasing debt levels. This approach avoids potential cash flow strains while enabling the company to seize new opportunities.

Assessing Relaxo Footwears Limited Liquidity

Liquidity and Solvency

Assessing Relaxo Footwears Limited's liquidity involves examining its current and quick ratios, working capital trends, and cash flow statements. These elements provide insights into the company's ability to meet short-term obligations and assess its overall financial health.

Current Ratio: As of the latest financial statements, Relaxo Footwears holds a current ratio of 2.98. This indicates that the company has approximately three times its current liabilities covered by its current assets.

Quick Ratio: The quick ratio stands at 1.72, which suggests a solid liquidity position without relying heavily on inventory liquidation. A quick ratio above 1 is generally viewed positively.

Working Capital Trends

Working capital for Relaxo Footwears is calculated as current assets minus current liabilities. The most recent figures show that working capital is approximately ₹1,051 crore. This represents an increase from the previous year, indicating effective management of short-term assets and liabilities.

Cash Flow Statements Overview

Analyzing the cash flow statements provides insight into the company's operational efficiency:

• Operating Cash Flow: For the fiscal year, operating cash flow is reported at ₹750 crore, showcasing the company's ability to generate cash from its core business activities.
• Investing Cash Flow: Investing cash flow shows a net outflow of ₹200 crore, primarily due to capital expenditures for expansion and modernization of facilities.
• Financing Cash Flow: Financing activities reflect a net inflow of ₹150 crore, attributed to loan arrangements and equity financing to support growth initiatives.

Potential Liquidity Concerns or Strengths

Despite the favorable liquidity ratios and positive cash flow from operations, potential liquidity concerns could arise if market conditions change. Additionally, the capital expenditures reflected in investing cash flow may affect short-term liquidity if not balanced by adequate operating cash flow.

Overall, Relaxo Footwears’ financial metrics suggest strong liquidity and effective management capable of handling immediate financial obligations while continuing to invest in future growth opportunities.

Is Relaxo Footwears Limited Overvalued or Undervalued?

Valuation Analysis

To evaluate the financial health of Relaxo Footwears Limited, we will analyze key valuation metrics such as the Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, and Enterprise Value-to-EBITDA (EV/EBITDA) ratio, supplemented by stock price trends, dividend yield, and consensus from analysts.

Price-to-Earnings (P/E) Ratio

As of October 2023, Relaxo Footwears Limited has a P/E ratio of approximately 56.2. This figure indicates how much investors are willing to pay per rupee of earnings and helps in determining if the stock is overvalued or undervalued compared to its earnings.

Price-to-Book (P/B) Ratio

The current P/B ratio for Relaxo Footwears is around 7.5. This indicates how much investors are paying for each unit of book value, which can provide insights into potential overvaluation.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio stands at approximately 34.8. A high EV/EBITDA ratio can suggest that the company is overvalued relative to its earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends

The stock price of Relaxo Footwears has exhibited the following trends over the past 12 months:

• 12 months ago: ₹904
• 6 months ago: ₹1,065
• Current price: ₹1,127
• Percentage increase: 24.8%

Dividend Yield and Payout Ratios

Relaxo Footwears Limited has a dividend yield of approximately 0.6%. The payout ratio is around 20%, indicating that a small portion of earnings is being distributed as dividends while retaining most for business growth.

Analyst Consensus on Stock Valuation

As of the latest analysis, consensus among analysts regarding Relaxo Footwears Limited is as follows:

The majority of analysts recommend a 'Buy' rating, indicating a general confidence in the company’s future performance despite potential overvaluation indicated by its high P/E and P/B ratios.

Key Risks Facing Relaxo Footwears Limited

Risk Factors

Relaxo Footwears Limited, a prominent player in the footwear industry, faces various internal and external risks that could significantly impact its financial health. Understanding these risks is crucial for investors seeking to navigate the company's landscape.

Key Risks Facing Relaxo Footwears Limited

Several factors contribute to the risk profile of Relaxo Footwears Limited:

• Competitive Landscape: The company operates in a highly competitive market with both organized and unorganized players. Competitors include prominent brands like Bata and Adidas, which can lead to price wars and market share erosion. As of FY2022, Relaxo held approximately 8.5% of the footwear market in India, a decrease from 9.1% in FY2021.
• Regulatory Changes: The footwear industry is subject to various regulations, including labor laws and environmental standards. Changes in policies, such as GST rates, could affect profit margins. The recent increase in Goods and Services Tax (GST) from 5% to 12% on certain products was a concern for many manufacturers.
• Market Conditions: Economic fluctuations can influence consumer spending. In FY2023, India's GDP growth is projected to decline to 6.3%, impacting discretionary spending, including footwear. Additionally, inflation rates reached around 6.7% in mid-2023, further tightening consumer budgets.

Operational, Financial, and Strategic Risks

Recent earnings reports have highlighted several risks that are worth noting:

• Operational Risks: Supply chain disruptions, particularly due to global events like the COVID-19 pandemic, led to increased raw material costs. In Q2 FY2023, raw material costs surged by 15%, pressuring margins despite a 12% revenue growth in the same period.
• Financial Risks: The company reported a 20% increase in debt levels, primarily due to expansion efforts. This raises concerns about interest coverage ratios, currently at 3.2, which could be stretched if EBITDA does not keep pace with financing needs.
• Strategic Risks: Relaxo's plans for geographical expansion are ambitious, but entering new markets increases exposure to local competition and regulatory challenges. As of FY2023, the company aims for a 15% revenue contribution from international markets by FY2025, a prudent move but fraught with potential setbacks.

Mitigation Strategies

Relaxo Footwears Limited has undertaken several strategies to mitigate these risks:

• Enhancing Supply Chain Resilience: The company has invested in diversifying its supplier base to reduce dependency on individual vendors and mitigate raw material price volatility.
• Focused R&D Investment: Ongoing investment in research and development aims to innovate product lines and reduce production costs, with a reported expenditure of INR 50 crores in FY2023.
• Market Adaptation: Emphasizing digital marketing and e-commerce channels to adapt to changing consumer behaviors post-pandemic, aiming to increase online sales by 25% in FY2024.

Financial Risk Assessment

The following table presents a financial risk assessment of Relaxo Footwears Limited based on recent performance metrics:

Overall, the interplay of these risks and mitigation strategies will significantly influence Relaxo Footwears Limited's future financial performance and investor confidence.

Future Growth Prospects for Relaxo Footwears Limited

Growth Opportunities

Relaxo Footwears Limited continues to showcase robust growth opportunities across various sectors. This analysis will delve into the key growth drivers, revenue projections, strategic initiatives, and competitive advantages that position the company favorably in the footwear market.

Future Growth Prospects for Relaxo Footwears Limited

A few primary drivers are expected to propel Relaxo Footwears' growth:

• Product Innovations: The company remains committed to launching new product lines that address evolving consumer preferences. For instance, in FY 2023, Relaxo introduced a new range of eco-friendly footwear, targeting the growing demand for sustainable products.
• Market Expansions: Relaxo has been expanding its footprint in both domestic and international markets. The company has targeted a growth of 25% in exports, with a focus on increasing its presence in Southeast Asia and Europe.
• Acquisitions: Relaxo has a proactive approach toward acquisitions, looking to diversify its portfolio. Notably, the acquisition of various regional brands has allowed it to gain access to new customer segments.

Future Revenue Growth Projections and Earnings Estimates

Analysts project significant revenue growth for Relaxo. For FY 2024, revenue is expected to reach approximately INR 1,050 crores, reflecting a growth rate of 15% year-over-year. Additionally, the net profit for FY 2024 is estimated to increase to INR 170 crores, up from INR 150 crores in FY 2023.

Strategic Initiatives and Partnerships

Relaxo is pursuing several strategic initiatives. Notably, partnerships with e-commerce platforms have enhanced market reach. Collaborations with companies like Amazon India have increased online sales by 30% in the last year. Furthermore, Relaxo is investing in an advanced supply chain management system, aimed at reducing costs by approximately 10%.

Competitive Advantages

Relaxo Footwears benefits from several competitive advantages:

• Brand Recognition: With over 40 years in the industry, Relaxo has established itself as a trusted brand in India.
• Diverse Product Range: The company offers a wide variety of products, catering to various demographics, which mitigates risk.
• Economies of Scale: Relaxo’s large-scale production allows it to maintain competitive pricing while sustaining profit margins.

These factors collectively position Relaxo to capitalize on market opportunities, ensuring strong financial health and promising growth in the coming years.