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Please refer to important disclosures at the end of this report 1
Y/E March (` cr) 4QFY2013 4QFY2012 % chg (yoy) 3QFY2013 % chg (qoq)Total Income 291 242 20.6 223 30.7EBITDA 32 33 (3.1) 19 71.3
EBITDA margin (%) 11.0 13.7 (269)bp 8.4 262bp
Reported PAT 14 19 (28.2) 6 122.2Source: Company, Angel Research
Relaxo reported mixed set of numbers for 4QFY2013. The revenue for the quarter
grew considerably by 20.6% yoy and stood at `291cr, higher than our
expectation of `275cr. However, on the operating margin front the companywitnessed a contraction of 269bp on yoy basis and came in at 11.0% against out
estimate of 11.8%, mainly due to the higher other expenses. Tax for the quarter
stood at `8cr (38.1% of PBT). Subsequently, the profit for the quarter declined by
28.3% yoy and stood at `14cr, 27.7% lower than our estimate of `19cr.Store expansion and brand revamp to drive volume:Relaxo has aggressive retailexpansion plans to open 25-30 retail stores every year to expand its direct reach
and brand visibility. In FY2013, the company added 27 retail outlets, which has
taken the total retail outlet count to 168 at the year end. We expect that this
expansion of retail outlets along with the leading celebrity endorsement of the
brands will help the company in expanding its reach as well as strengthening itsbrand image which will eventually result in top-line addition. Outlook and valuation:We expect Relaxo to post a revenue CAGR of 15.2% overFY2013-15E to `1,333cr with an operating margin of 11.4% in FY2015E. The
PAT is expected to grow at a CAGR of 27.7% to `73cr for the same period. The
stock has corrected ~25% since the start of this year and at the current market
price, it is trading at attractive valuation of 9.9x FY2015E earnings. We maintainour Buy recommendation on the stock with a revised target price of `791, basedon a target PE of 13x for FY2015E.Key financialsY/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ENet sales 686 860 1,005 1,146 1,333% chg 23.9 25.4 16.8 14.1 16.3
Net profit 27 40 45 55 73% chg (28.8) 48.7 12.2 22.9 32.7
EBITDA margin (%) 9.6 10.5 10.4 10.9 11.4EPS (`) 22.4 33.3 37.3 45.9 60.9P/E (x) 27.0 18.2 16.2 13.2 9.9
P/BV (x) 5.4 4.2 3.4 2.8 2.2
RoE (%) 22.0 26.0 23.2 23.0 24.6
RoCE (%) 14.3 19.5 17.6 19.6 22.5
EV/Sales (x) 1.3 1.0 0.9 0.8 0.7
EV/EBITDA (x) 13.3 9.7 8.8 7.3 5.9
Source: Company, Angel Research
BUYCMP `605
Target Price `791
Investment Period 12 Months
Stock Info
Sector
Net debt (`cr) 161
Bloomberg Code
Shareholding Pattern (%)
Promoters 75.0
MF / Banks / Indian Fls 16.1
FII / NRIs / OCBs 1.5
Indian Public / Others 7.5
Abs.(%) 3m 1yr 3yr
Sensex 3.8 23.8 20.1
Relaxo (9.1) 68.1 95.8
Footwear
Market Cap (`cr) 727
Beta 0.4
Face Value (`) 5
BSE Sensex 18,817
52 Week High / Low 917 / 354
Avg. Daily Volume 2,111
RLXF IN
Nifty 5,724
Reuters Code RLXO.BO
Tejashwini Kumari30940000 ext: 6856
Relaxo FootwearFinancial Performance
4QFY2013 Result Update | Footwear
May 15, 2013
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May 15, 2012 2
Exhibit 1:4QFY2012 performanceY/E March (` cr) 4QFY2013 4QFY2012 % chg (yoy) 3QFY2013 % chg (qoq) FY2013 FY2012 % chgNet Sales 291 242 20.6 223 30.7 1,005 860 16.8Net raw material 134 125 7.4 101 32.3 469 459 2.2(% of Sales) 45.9 51.6 45.4 46.7 53.4
Staff Costs 28 25 12.0 27 3.9 113 82 37.6
(% of Sales) 9.7 10.4 12.2 11.3 9.6
Other Expenses 97 59 65.8 76 28.0 317 229 38.6
(% of Sales) 33.4 24.3 34.1 31.6 26.6
Total Expenditure 259 208 24.4 204 26.9 900 770 16.8EBITDA 32 33 (3.2) 19 71.3 105 90 16.7EBITDA margin (%) 11.0 13.7 (271)bp 8.4 262bp 10.4 10.5 (1)bp
Interest 5 4 17.8 5 13.3 18 19 (5.2)
Depreciation 7 6 23.6 6 6.7 25 23 10.4
Other Income 2 1 18.3 1 48.2 6 5 11.1
PBT 22 25 (11.7) 9 144.9 68 54 26.4(% of Sales) 7.5 10.2 4.0 6.7 6.2
Tax 8 6 41.7 3 193.6 23 14 68.5
(% of PBT) 38.1 23.7 31.8 33.8 25.4
Reported PAT 14 19 (28.3) 6 122.2 45 40 12.2PATM 4.6 7.8 2.7 4.5 4.6
Equity capital (`cr) 6 6 6 6 6
EPS (`) 22.5 31.4 (28.3) 10.1 122.2 74.7 66.6 12.2Source: Company, Angel Research
Revenue better than expected
Relaxo reported mixed set of numbers for 4QFY2013. The revenue for the quarter
grew considerably by 20.6% yoy and stood at `291cr, higher than our expectation
of `275cr.
Exhibit 2:Actual vs. EstimateY/E March (` cr) 4QFY13 Angel est. % diffNet sales 291 275 5.8EBITDA 32 32 (1.0)
EBITDA margin (%) 11.0 11.8 (76)
Reported PAT 14 19 (27.7)Source: Company, Angel Research
Softening of rubber price offset by increase in other expense
On yoy basis, the gross margin improved by 566bp to 45.9% due to the softening
in rubber prices. However, the same was offset by increase in the other expense on
yoy basis. Other expense as a per cent of net sales increased from 22.8% in
4QFY2012 to 29.0% in 4QFY2013. Hence, the operating margin for the quarter
witnessed a contraction of 269bp on yoy basis and came in at 11.0% against out
estimate of 11.8%.
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Exhibit 3:Revenue grew considerably for the quarter
Source: Company, Angel Research
Exhibit 4:Lower RM prices offset by Other expense (yoy)
Source: Company, Angel Research
Tax for the quarter stood at `8cr (38.1% of PBT), higher than expected.Subsequently, the profit for the quarter declined by 28.3% yoy and stood at `14cr,
27.7% lower than our estimate of `19cr.
Investment rationale
Store expansion to expand reach and strengthen brand imageRelaxo has aggressive retail expansion plans to open 25-30 retail stores every
year. In FY2013, the company added 27 retail outlets, which has taken the total
retail outlet count to 168 at the year end. We expect that this expansion of retail
outlets will help the company in expanding its reach as well as strengthening its
brand image and visibility which will eventually result in top-line addition.
Brand revamping to boost growth
Relaxo has roped in three Bollywood stars for the endorsement of its brands -
Salman Khan to endorse Hawaii, Katrina Kaif to endorse Flite and Akshay Kumar
toendorse Sparx.As a part of its aggressive advertisement strategy, the company
spent ~`55.1cr on the advertisement in FY2013. In our channel check, where we
interacted with various stores, we came to know that with these celebrities
endorsing the brands, the demand has risen. We further expect that the company
will be able to maintain its market share in the mass segment through Hawaii
brand and penetrate further in the lower and upper-middle class segment throughexisting products and upcoming launches of Flite andSparx brands.
Capacity expansion in place to cater increasing demand
The company has incurred a capex of `60cr for the construction of a PU
(Polyurethane) footwear plant which got commissioned on 18th of January, 2013.
With this plant getting operational, the companys total capacity has gone up by
~30,000 pairs per day which was at 3.70 lakh pairs per day. The company is not
planning for any capex in near term for capacity expansion.
We expect that with the current capacity the company will be able to cater to the
growing demand. According to the industry reports, the current Indian footwearmarket is estimated to be worth US$3.9bn and is growing at a CAGR of 15% and
is expected to be worth US$6.9bn by FY2015.
201
215
199
204
242
248
242
223
291
25.6
39.5
10.3
33.5
21.8
15.6
21.6
9.2
20.6
0
5
10
15
20
2530
35
40
45
0
50
100
150
200
250
300
350
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY14
(%)
(`cr)
Revenue (LHS) yoy growth (RHS)
55.6 54.5 54.1 53.7 51.648.3 47.3 45.4 45.9
8.510.7
7.9 8.613.7
11.1 11.08.4
11.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY14
(%)
Raw material/ sales EBITDA margin
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May 15, 2012 4
Changing revenue mix to drive profit
With the changing revenue mix, the profitability is expected to improve in the
coming years.Sparx has increased its contribution from a mere 4.2% in FY2008 to
26% in FY2012; on the other hand, Flite has maintained its contribution at ~25-
30%. Hawaii, being a mass brand, adds to the volume, however, Sparx and Flite
help in improving the companys profitability. Going forward we expect the mix to
further improve. To meet the growing demand and growing fashion-consciousness
of the consumers, the company is launching new designs across all brands in
regular intervals.
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May 15, 2012 5
Financial performance
Assumptions
Exhibit 5:Key assumptionsAssumptions FY2014E FY2015EVolume Growth 10.8 13.0
Realisation Growth 3.0 3.0
Change in raw material prices (%)Ethyl Vinyl Acetate (EVA) (3.0) 4.0
Rubber (3.0) 4.0
Source: Company, Angel Research
Exhibit 6:Actual vs. estimateY/E March (` cr) FY2013E FY2013A % chng
Net sales (`cr) 989 1,005 1.6EBITDA Margin (%) 10.6 10.4 (20)bp
Adj. PAT 50 45 (10.6)Source: Company, Angel Research
For FY2013, the company witnessed a revenue growth of 16.8% and stood at
`1,005cr, against our estimate of `989cr, on account of healthy demand coupled
with price hikes across brands. We expect the companys revenue to grow at a
CAGR of 15.5% over FY2013-15E, from `1,005cr in FY2013 to `1,333cr in
FY2015E, mainly on the back of growth triggers, which includes 1) capacityexpansion plan, 2) store expansion, 3) improved sales mix and 4) brand
revamping.
Exhibit 7:Revenue to be driven by volume growth
Source: Company, Angel Research
Exhibit 8:Sales break up Brand-wise
Source: Company, Angel Research
The gross margin for the year improved by 666bp, however, the effect of same
could not result in improvement of operating margin. The reason for the same
being increased other expense on account of various initiatives taken in sales,
marketing and supply chain management. Also, the company spent substantialamount of ~`55cr (~`30cr in FY2012) on advertisement and publicity.
Consequently, the operating margin came in at 10.4%, slightly below our estimate
of 10.6%. Going ahead, we expect the other expense to normalize, thus aiding the
407 554 686 860 1,0
05
1,1
46
1,3
33
33.335.9
23.925.4
16.814.1
16.3
0
10
20
30
40
0
200
400
600
800
1,000
1,200
1,400
1,600
FY2009
FY2010
FY2011
FY2012
FY2013E
FY2014E
FY2015E
(%)
(`cr)
Revenue (LHS) Revenue growth (RHS)
49.2 44.4 40.8 35.5 33.0
31.929.1
28.925.8 26.0
4.27.5 15.3
24.3 26.0
14.7 18.9 15.1 14.5 15.0
0.0
20.0
40.0
60.0
80.0
100.0
FY2008 FY2009 FY2010 FY2011 FY2012
(%)
Hawaii Flite Sparx Others*
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4QFY2013 Result Update | Relaxo Footwear
May 15, 2012 6
operating margin to improve by 93bp over FY2013-15E to 11.4% in FY2015E.
The profit for FY2013 stood at `45cr (12.2% higher than FY2012), against our
estimate of `50cr. On account of improved margin, we expect the net profit to
grow at a CAGR of 27.7% over FY2013-15E to`73
cr in FY2015E.
Exhibit 9:Margin to rebound with decreasing RM price
Source: Company, Angel Research
Exhibit 10:Profit to grow at a CAGR of 27.7% (FY2013-15E)
Source: Company, Angel Research
Outlook and valuation
With the growth triggers in place which includes 1) capacity expansion plan, 2)
store expansion, 3) improved sales mix and 4) brand revamping 5) continuous
product development we remain positive on the companys future. We expect
Relaxo to post a revenue CAGR of 15.2% over FY2013-15E to `1,333cr with anoperating margin of 11.4% in FY2015E. The PAT is expected to grow at a CAGR of
27.7% to `73cr for the same period. The stock has corrected ~25% since the start
of this year and at the current market price, it is trading at attractive valuation of
9.9x FY2015E earnings. We maintain our Buy recommendation on the stock with arevised target price of `791, based on a target PE of 13x for FY2015E.Exhibit 11:One-year forward PE
Source: Company, Angel Research
41
76
66
90
105
125
152
10.1
13.8
9.610.5 10.4 10.9
11.4
0
2
4
6
8
10
12
14
16
0
20
40
60
80
100
120
140
160
FY2009
FY2010
FY2011
FY2012
FY2013E
FY2014E
FY2015E
(%)
(`cr)
EBITDA (LHS) EBITDA margin (RHS)
33.2
160.2
-28.8
48.7
12.222.9
32.7
-50
0
50
100
150
200
0
10
20
30
40
50
60
70
80
FY200
9
FY201
0
FY201
1
FY2012
E
FY2013
E
FY2014
E
FY2015
E
(%)
(`Cr)
PAT (LHS) PAT growth (RHS)
0
200
400
600
800
1000
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
(`)
Price (`) 4x 8x 12x 16x
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Exhibit 12:Comparative analysisCompany Year end Mcap(` cr) Sales(` cr) OPM(%) PAT(` cr) EPS(`) RoE(%) P/E(x) P/BV(x) EV/EBITDA(x) EV/Sales(x)Relaxo footwear FY2014E 727 1,146 10.9 55 45.9 23.0 13.2 2.8 7.3 0.8
FY2015E 727 1,333 11.4 73 60.9 24.6 9.9 2.2 5.9 0.7Bata India* CY2013E 5,241 2,167 15.5 205 33.3 25.4 22.4 6.7 15.0 2.3
CY2014E 5,241 2,534 16.2 248 40.4 24.9 18.6 5.5 12.3 2.0
Source: Company, Angel Research, *Bloomberg
Risks
Rise in raw material prices and depreciating rupee
The prices of key raw materials EVA and rubber had reached their peak in the
last financial year to ~`149/kg and ~`243/kg respectively, which impacted the
operating margin. However, the rubber price has started declining, with the current
price for rubber at ~`183/kg. Any rise in the price can put margins under
pressure. Also, Relaxo imports its entire EVA requirement, so any further
depreciation in the rupee can pose a risk to the operating margin and thereby
impact the profitability of the company.
Exhibit 13:Rubber price trend
Source: Company, Angel Research
Exhibit 14:Depreciating rupee a concern for EVA cost
Source: Company, Angel Research
Competition from both branded and unorganised sector
Relaxo competes with both branded as well as the unorgansied market. Hawaii,
the mass product faces stiff competition from the unorganised market. On the
other hand, Sparx faces competition from branded shoes. Though the company
has competitively priced its products, however, any price cut by competitors can
put pressure on Relaxos sales and margin.
The company
Relaxo is a key player in the retail footwear industry, with a strong foothold in the
slippers market and a strong distribution channel of 700 distributors and more
than 46,000 retailers. The company presently has 168 company-owned outlets
across India, with a concentrated presence in Delhi, Rajasthan, Gujarat, Haryana,
Punjab, Uttar Pradesh and Uttarakhand. It has nine manufacturing plants, seven inBahadurgarh (Haryana) and one each in Bhiwadi (Rajasthan) and Haridwar
(Uttaranchal). Currently, the company sells its products under three major brands
Hawaii, Flite andSparx.
258
183
150
170
190
210
230
250
270
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
(`/Kg)
51
52
53
54
55
56
57
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
USD
/INR)
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Profit & Loss Statement (Standalone)
Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ETotal operating income 686 860 1,005 1,146 1,333% chg 23.9 25.4 16.8 14.1 16.3Net Raw Materials 375 459 469 544 623
% chg 29.4 22.3 2.2 15.8 14.7
Other Mfg costs 43 55 64 73 85
% chg 31.8 26.8 17.5 14.1 16.3
Personnel 74 82 113 129 150
% chg 34.5 10.6 37.6 14.1 16.3
Other 127 174 253 275 323
% chg 27.6 37.5 45.3 8.8 17.3
Total Expenditure 620 770 900 1021 1182
EBITDA 66 90 105 125 152% chg (13.2) 35.9 16.7 19.1 21.3
(% of Net Sales) 9.6 10.5 10.4 10.9 11.4
Depreciation 21 23 25 29 32
EBIT 45 67 79 96 120% chg (25.5) 47.8 18.8 21.2 24.7
(% of Net Sales) 6.6 7.8 7.9 8.4 9.0
Interest & other Charges 16 19 18 19 17Other Income 6 5 6 6 7
(% of sales) 0.9 0.6 0.6 0.6 0.6
Recurring PBT 30 48 62 77 103% chg (40.5) 63.0 28.1 24.4 34.0
Extraordinary Expense/(Inc.) 0.0 0.0 0.0 0.0 0.0
PBT (reported) 36 54 68 83 110Tax 9 14 23 28 37
(% of PBT) 24.7 25.4 33.8 33.8 33.8
PAT (reported) 27 40 45 55 73ADJ. PAT 27 40 45 55 73% chg (28.8) 48.7 12.2 22.9 32.7
(% of Net Sales) 3.9 4.6 4.5 4.8 5.5
Basic EPS (`) 22.4 33.3 37.3 45.9 60.9Fully Diluted EPS ( ) 22.4 33.3 37.3 45.9 60.9% chg (28.8) 48.7 12.2 22.9 32.7
Dividend 2 2 6 6 6
Retained Earning 25 38 39 49 67
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Balance Sheet (Standalone)
Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 6 6 6 6 6Reserves& Surplus 129 166 208 257 325
Shareholders Funds 135 172 214 263 331Total Loans 156 146 205 195 171
Other Long Term Liabilities 0 0 6 6 6
Long Term Provisions 2 3 3 3 3
Deferred Tax (Net) 22 22 24 24 24
Total Liabilities 316 344 452 491 535APPLICATION OF FUNDSGross Block 353 379 464 510 561
Less: Acc. Depreciation 84 108 133 162 193
Net Block 268 272 330 348 367Capital Work-in-Progress 1 21 20 20 20
Lease adjustment 0 0 0 0 0
Goodwill 0 0 0 0 0
Investments 0 0 0 0 0
Long Term Loans and adv. 11 12 15 15 15
Other Non-current asset 0 1 1 1 1
Current Assets 158 169 240 284 336
Cash 2 1 3 9 8
Loans & Advances 16 15 39 44 52
Inventory 117 128 159 193 228
Debtors 23 23 36 35 44
Other current assets 1 2 3 3 4
Current liabilities 123 131 154 176 204
Net Current Assets 35 38 87 108 132Misc. Exp. not written off 0 0 0 0 0
Total Assets 316 344 452 491 535
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Cash Flow (Standalone)
Y/E March (` cr) FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 36 54 68 83 110
Depreciation 21 23 25 29 32Change in Working Capital 13 (4) (46) (16) (25)
Direct taxes paid (9) (14) (23) (28) (37)
Others (17) 14 (6) (6) (7)
Cash Flow from Operations 44 73 18 62 73(Inc.)/Dec. in Fixed Assets (62) (46) (83) (46) (51)
(Inc.)/Dec. in Investments 0 0 0 0 0
(Inc.)/Dec. in LT loans & adv. 11 1 3 0 0
Others (12) (2) 11 7 8
Cash Flow from Investing (63) (47) (69) (40) (43)Issue of Equity 0 0 0 0 0
Inc./(Dec.) in loans 10 (11) 59 (10) (23)
Dividend Paid (Incl. Tax) (2) (2) (6) (6) (6)
Others 13 (14) 0 0 0
Cash Flow from Financing 20 (27) 53 (17) (30)Inc./(Dec.) in Cash 1 (1) 2 6 (0)
Opening Cash balances 1 2 1 3 9Closing Cash balances 2 1 3 9 8
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Standalone Key RatiosY/E March FY2011 FY2012 FY2013E FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 27.0 18.2 16.2 13.2 9.9P/CEPS 15.2 11.5 10.3 8.7 6.9
P/BV 5.4 4.2 3.4 2.8 2.2
Dividend yield (%) 0.2 0.2 0.8 0.8 0.8
EV/Sales 1.3 1.0 0.9 0.8 0.7
EV/EBITDA 13.3 9.7 8.8 7.3 5.9
EV / Total Assets 2.8 2.5 2.1 1.9 1.7
Per Share Data (`)EPS (Basic) 22.4 33.3 37.3 45.9 60.9
EPS (fully diluted) 22.4 33.3 37.3 45.9 60.9
Cash EPS 39.9 52.5 58.6 69.8 87.2
DPS 1.5 1.5 5.0 5.0 5.0
Book Value 112.2 143.7 178.7 219.6 275.4
Dupont AnalysisEBIT margin 6.6 7.8 7.9 8.4 9.0
Tax retention ratio 0.8 0.7 0.7 0.7 0.7
Asset turnover (x) 2.2 2.7 2.3 2.5 2.6
ROIC (Post-tax) 10.9 15.5 12.3 13.8 15.7
Cost of Debt (Post Tax) 7.5 9.6 5.7 6.6 6.6
Leverage (x) 1.2 1.0 0.9 0.8 0.6
Operating ROE 15.0 21.4 18.1 19.7 21.1
Returns (%)ROCE (Pre-tax) 14.3 19.5 17.6 19.6 22.5
Angel ROIC (Pre-tax) 14.5 20.8 18.5 20.8 23.7
ROE 22.0 26.0 23.2 23.0 24.6
Turnover ratios (x)Asset Turnover 2.1 2.4 2.4 2.4 2.5
Inventory / Sales (days) 49 52 52 56 58
Receivables (days) 12 10 11 11 12
Payables (days) 57 60 58 63 63
WC (ex-cash) (days) 21 14 21 28 29
Solvency ratios (x)Net debt to equity 1.1 0.8 0.9 0.7 0.5
Net debt to EBITDA 2.3 1.6 1.9 1.5 1.1
Interest Coverage 2.9 3.6 4.5 4.9 7.0
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May 15 2012 12
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.
Disclosure of Interest Statement Relaxo Footwear
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors
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