Relaxo India or Bata Bangladesh ?
I had initiated a discussion on Relaxo on the 8th of Jan 2010 at theequitydesk.com
What I felt and saw at the time were screen slapping me in the face with:
Sales/Market Cap ratio of 0.25
Cash flows of 60+ crores per annum on market cap of 200 crores
30 Crores per annum was spent on Ads per annum in 2010 and effects of which are noted well in Prof. Bakshi’s reports.
The company has only got better since then.
I also wrote on the above link, on the 23rd of Feb
Posted By: amitdip
Date Posted: 23/Feb/2010 at 1:53pm
Good observation but I believe Rubber comprises only 33% or so of raw material and EVA accounts for 60% or so of raw material. Not sure how to track EVA foam prices.
Not a shadow of doubt that margins will be under pressure when raw material prices rise, but what happens is players from un-organised sector get wiped out into bankrupty and Relaxo survives because they refuse to/combination of unable to; pass on price to customer. They are lowest cost highest volume due to economies of scale of Slippers 3 lac pair a day so company is unlikely to go bankrupt, if 3 “chappal” makers survive in world, relaxo will be one of them
What I feel today is that Relaxo is selling for 1 times Sales with cash flows of 75 crores on Market Cap of 900 Crores. Still better than larger peer Bata at 2.8 times Sales etc.
– It is unlikely to make a dent in Shoes space, infact word BRAND does not connote much of a meaning in conventional terms.
Visit three sites popular in India, Myntra.com , Yebhi.com, Jabong.com and check the number of brands
And that is actually a subset of brands that have only hit India. More than 20 premium brands have not even significant presence in India.
Digressing a bit, of the top footwear brands like Salomon, Kathmandu, KEEN, TEVA, Merrell, INOV-8, Columbia, Patagonia, Mammut, ECCO, La Sportive etc. the brand behind the real brand is Gore-Tex. A magnificent company of epic proportions. Privately held, now a 3 billion $ company.
Its evidently clear to me ( with a chance to be wrong ) that future of footwear is not Relaxo. Perhaps I am not willing to bet on invincibility of moat of Chappals, or perhaps I am afraid
of losing money. I am not sure the brother and sisters of India would like to identify a strong association with 100 Rs chappal as a superior brand. Chappal/Flip-flop story is likely play for another few years with low income segment. I don’t have the stats on how many are transitioning to higher end Chappals. For now, for me its a pass.
Coming back to Original Question Relaxo or Acrysil:
– They are not in the same segment hence not directly comparable.
– For comparison sake, Relaxo has a much higher probability of consistent returns.
– Detailed study on Acrysil left for another day, primary reason is that Schock process technology (10% owner of Acrysil) accounts for 75% of worldwide quartz sink production.
– Acrysil products are sold to top 10% income strata for whom money is not a constraint, but style, aesthetics or superior performance is paramount, this is 180° crosswise to Relaxo model.
– Chances of losing money are low in either
– Growth is likely to be more consistent in Relaxo since it has reached critical mass
– Acrysil has over 60% market share in India but probability of consistent growth like clockwork are low
– However, probability of re-rating to 35PE or more is higher with premium products, which is advantage Acrysil
– Acrysil’s return ratios are likely to suffer as it chases other product lines
– Downside, if dividends are any barometer to protect downside then 0.4% yield of Relaxo offers stunted support
– So, the answer is NOT AT ALL CLEAR which will perform better over next five years
Every person is unique:
Any single one of you is likely to make more money than me, Buffett, Munger and RJs of the world in certain stocks only if you stop following other but instead listen to your own conviction and heart. In fact some of you may have already missed few stocks by following others.
Opportunity Cost and second, third best alternatives:
I would invest either in Unilever Nepal with 8% yield at 10 PE. If I can’t do that – I would spend two months to try to get a Stock Trading Account opened in Bangladesh. I disclosed this one to my partners and friends couple of months back when Bata Bangladesh was at 600 Rs and 5% yield and PE of 10.5. Indian citizens are allowed to invest in Bangladesh equity markets.
Even today Bata Bangladesh at 4% dividend yield and PE of 14 is far superior opportunity with leadership position and great menagement. (I think over 40% share in Bangladesh).
Hence my answer, is a bit round about but you get the picture. You can go crazy over financial and cash flow, SWOT and all the other fancy analysis of Bata Bangladesh, I think you will like the results. Also, not being a sales man but do read AR 13 of Acrysil.
Since value cost matrix for every investor is unique and different, otherwise shares will stop trading altogether, a share is likely to be on buy bucket of one person and sell bucket of another. Also, I want some dividend to protect downside in worst case scenario. 5% Rs on JK Bank or 4% for Acrysil looks better than 0.5% for Relaxo.
I have been insisting that you increase your opportunity cost. It can take about 2 months to execute the process for an Indian National to open Stock Trading account in Bangladesh.
Enjoy and get rich