Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Relaxo India or Bata Bangladesh ?

with 18 comments

Tirumala, a friend of mine and also another friend communicated to me that Relaxo is a hot topic these days as Prof Bakshi has written a couple of reports on it. He asked me for my opinion on whether Relaxo would perform better or Acrysil.

http://fundooprofessor.wordpress.com/2013/09/22/the-relaxo-lecture/

I had initiated a discussion on Relaxo on the 8th of Jan 2010 at theequitydesk.com

http://www.theequitydesk.com/forum/printer_friendly_posts.asp?TID=2610

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.

======================================================================

Relaxo:

– 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

http://www.myntra.com/men-footwear?nav_id=17

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.

http://www.onlineshoes.com/brands

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.

http://www.gore-tex.com

http://www.goremedical.com

http://www.gore.com

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).

http://www.dsebd.org/pdf/facilities%20for%20for%20foreign%20investors.pdf

http://www.dsebd.org/displayCompany.php?name=BATASHOE

http://www.batabd.com/about-us/investors/anual-report.html

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.

http://www.bseindia.com/bseplus/AnnualReport/524091/5240910313.pdf

EDIT:
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

Written by amitdipsite

September 24, 2013 at 10:41 pm

Posted in Uncategorized

18 Responses

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  1. Schock

    http://www.schock.de/index.php?site=215

    Catalog

    http://www.schock.de/index.php?site=176



    Launch of berbel

    As you know Germany is the heart of engineering, there is a company which is endeavouring to make world's best range hoods and smoke/cooking vapour extractors
    http://www.berbel.de/

    Acrysil has got rights to sell their appliances in India too


    Schock has tied up with market leader of each continent. eg: Houzer in the US, Acrysil in India etc.

    Amit Arora

    September 25, 2013 at 3:35 am

  2. RBI is the daddy of Regulation. I feel its going a little mad, even though intentions are sincere.

    ——————————————–

    http://www.thehindu.com/business/Economy/rbi-bans-0-interest-for-emi-schemes/article5167702.ece
    ———————————————

    At this rate They will gradually force marriage food premium and beauty premium tax on whiter girls, taller men, fatter stomachs

    Now, they can't stop me liking food, gold, diamond.

    Influence me to some extent but can't force me. I understand the intention is good. But energies are not being channelled in productive enterprise, Universe is very very big, man is thinking like a Snail on a rock by the side of a lake he considers Ocean, RBI governor not excluded.

    ONE MORE RECOMMENDATION TO RBI Governor:

    BRITAIN HAD THE BEST TIME IN ECONOMIC HISTORY WHEN ITS STOCK MARKET WAS SHUT DOWN FOR 100+ YEARS.

    ———————————

    Now can RBI governor read all the books on psychology and advertisement and stop people from being influenced and manipulated ?

    Amit Arora

    September 25, 2013 at 7:44 pm

  3. Barring a few exceptional physicists, scientists, researchers into the realm of mind or matter everyone else is thinking like an un-evolved four legged donkey, worst still, they think they know everything – blessed in their ignorance.

    Richard Feynman said decades back, “There is enough energy in a single cubic metre of air to boil all the Oceans of the world”

    Amit Arora

    September 25, 2013 at 11:38 pm

  4. There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.

    — Richard Feynman

    Amit Arora

    September 26, 2013 at 2:15 am

  5. Dear Amit,
    Please look into Bambino Agro. Increasing sales and profit over the years. Recognizable brand.Recently started giving dividends too. rgds Hari

    Harish Pk

    September 26, 2013 at 8:16 am

  6. Dear Harish, Bambino is burdened with huge debt. Debt/equity ratio is poor. Inventories are twice the size of equity. Consumer is not pulling product, brand looks weak. Interest payments are twice the annual PAT ! What will happen in a downturn, risky company.

    This is an interesting case study of why it is failing despite 9 Crores per annum spent on Advertisement

    Regards

    Amit Arora

    September 26, 2013 at 9:20 am

  7. But bambino products are very good and brand is very familiar in south india.The company has potential,but management / promoters needs to do a better job.
    In the same category we can also look into tasty bite eatables.seems management is doing a good job but overall economical downturn spoils the party.

    Amit : Pls have a look into Rubfila international.unique products / Growth (targetting 350 crore from current 100 cr) / Maiden dividend /

    shanid

    September 26, 2013 at 9:47 am

  8. amit, what is your expectation in acrysil and price.

    Tamal Sarkar

    September 26, 2013 at 2:13 pm

  9. This Govt. must pave way for another one. People can't buy soap and shampoos now

    http://www.business-standard.com/article/companies/hindustan-unilever-q2-volume-growth-to-be-tepid-113092700877_1.html

    Amit Arora

    September 28, 2013 at 8:33 am

  10. Hi Amit,
    I have been reading your posts and really appreciate the topics and ideas you pick up. The unconventional yet very much pertinent. I wanted to discuss/share some investment theme and know your thoughts on it.

    How do you find companies who operate in some oligopoly/duopoly kind of environment, with proven track record (in terms of shareholder wealth creation) and are consumer facing (thus commanding some pricing power) I quote some examples below.

    1. Asian Paints/Pidilite – Though these companies don't compete with each other except for few products here and there. I find these 2 companies as great leaders in their respective sectors. Specially Pidilite, it has such great brands under its portfolio and its almost kind of monopoly. Atleast the mind share of brands like Fevicol/Dr. Fixit etc is huge.

    2. Cera/Kajaria – I know your liking for CERA. Even Kajaria may be counted broadly under same category.

    3. Amara Raja Batteries – Limited players and repeat purchase. Good track record.

    4. Astral/Supreme/Wim Plast – I feel these have good growth prospects and have good track record as well.

    5. Page/Lovable

    6. Lastly ITC- for its cig. business.

    How do you look at these businesses? and can you think of any more such examples.

    Thanks

    Anil Suman

    September 28, 2013 at 9:19 am

  11. You already know Anil, these have been serious wealth creators, so nothing much from me to add. I have had many of these companies myself.

    Amara Raja (20 Billion $ partner Johnson Controls), same for Page/Jockey.

    Kajaria may have 20+ competitors.

    Sanitaryware has only seven or so players, HSIL, CERA, Parryware, Jaguar, Roca, Kohler, Grohe.

    For part time investors these are safer stocks to hold for long term not necessarily stock to make maximum money out of.

    Rural India is growing few %age faster than urban India. Rural focus companies.

    Reversion to mean is also strong theme.

    Dabur, Bajaj Corp – Only Indians use hair oil
    All the best

    Amit Arora

    September 28, 2013 at 11:19 am

  12. Thanks for sharing your views.

    Yes, Bajaj corp has very strong dominance in light hair oil category (c60% market share if am not mistaken). Thanks for pointing it out. Only reason the market may not be ascribing 30 around PE to bajaj is due to is single product based portfolio. With acquisition of nomarks, things might improve gradually.

    On rural consumption theme, I feel even Emami is a decent player. Its products appeal to the masses and the company has good track record I believe.

    On reversion to mean – do you mean to say that these stories or companies may not perform/play out so nicely going fwd? or the market may pull down the valuations for such co's? The way I see it is – the market may definitely pull down valuations of such consumption based stories a bit as and when the cyclicals pick up. But still, the earnings momentum should be able to hold its own and support valuations.

    Fully agree that these are safer stocks for long term and would not necessarily the ones which would make maximum money.

    Thanks

    Anil Suman

    September 28, 2013 at 1:30 pm

  13. Hey Anil,

    Bajaj Corp is a single product company so far, but no MNC competition.

    Reversion to mean, I meant cheap stocks can become moderately prices rather than expensive once becoming cheap. Beaten down infra, bank, nbfc stocks like Muthoot, IDFC themselves leaders in their industry can do better on change of Govt. once the pessimism of double deficits and regulation is loosened. Past five years have been step backwards in India on regulatory front, instead of freeing up markets, they are further regulated on Land Acquisition Bill, Gold, Food Security etc. If new Govt. reverses these other companies are likely to do better than FMCG theme. Not sure whether they will come below 30 PE.

    Thanks

    Amit Arora

    September 28, 2013 at 10:50 pm

  14. In the past 20 years India’s GDP has risen from US$260bn to US$1,842bn; average annual real growth of 6.9%. The country’s equity market capitalization has increased from US$70bn to US$940bn, a 17% CAGR.

    What does that tell us ?

    Can the net profits of a company grow faster than its sales perpetually ? They have to slow down or catch up to the rate of revenues.

    Going forward only a very very narrow segment of stocks will perform rest will be mediocre.

    Amit Arora

    September 30, 2013 at 7:33 am

  15. hi amit,

    I am an indian national and want to open stock trading account in bangladesh. Can you plz throw some light on the procedure.

    Thanks..

    micheal richard

    October 11, 2013 at 5:59 am

  16. Contact them and let me know your feedback

    http://www.bracepl.com/brokerage/Investment-Process-Summary.php

    Thans

    Amit Arora

    October 11, 2013 at 6:26 am

  17. thx… will let u know..

    micheal richard

    October 11, 2013 at 8:43 am


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