Ladies and gentlemen, good day, and welcome to the Q4 FY22 Relaxo Footwears Limited earnings conference call hosted by Centrum Broking Limited. As a reminder, all participants' lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. I now hand the conference over to Mr. Akhil Parekh from Centrum Broking Limited. Thank you, and over to you, sir.
Thank you, Ryan. Good afternoon, everyone. On behalf of Centrum Broking Limited, I would like to welcome you all to Relaxo Footwears' Quarter 4 FY 2022 earnings conference call. From the management we have with us today Mr. Ramesh Kumar Dua, Managing Director, Mr. Ritesh Dua, Executive Vice President, Finance, Mr. Gaurav Dua, Executive Vice President, Marketing, Mr. Sushil Batra, CFO, and Mr. Vikas, Company Secretary. We'll begin the call with a brief discussion from the management, and then we can open the floor for Q&A session. Over to you, sir. Thank you.
Thank you, Akhil. Good afternoon to everyone. Ladies and gentlemen, thank you very much for attending our earnings call for the financial year 2021-22. We have already shared our earnings press release and result presentation. Hope you got an opportunity to go through that. I will start with Q4 FY22 financial performance, followed by full year FY22 financial performance. In Q4 FY22, Relaxo booked operating revenue of INR 690 crore as compared to INR 748 crore in the corresponding period of previous year. Revenue during the quarter was affected due to disruption caused by Omicron variant of COVID, GST rate hike from 5%- 12%, with effect from January 2022 on footwear price below INR 1,000, and subdued demand due to high inflation.
EBITDA during the quarter is at INR 111 crore as compared to INR 163 crore in the corresponding period of the previous year. Our EBITDA margin for the quarter is 15.9%. EBITDA margin decreased mainly due to steep increase in raw material prices and extra support provided to trade toward GST rate differential on inventory. Our profit after tax is INR 63 crore for the quarter as compared to INR 102 crore in the corresponding period of previous year. For FY 2022, our revenue stood at INR 2,653 crore as compared to INR 2,359 crore, which is a growth of 12% year-on-year. The growth in revenue is achieved mainly due to calibrated price hike taken during the year to mitigate impact of high raw material prices.
EBITDA is at INR 416 crore as compared to INR 495 crore in the previous year. Our EBITDA margin for the year is 15.7%. A decline in EBITDA margin is mainly on account of increase in raw material prices and normalization of selling, marketing and administrative expenses in FY 2022 as compared to FY 2021. Our profit after tax is INR 233 crore as compared to INR 292 crore during the previous years. During FY 2022, we generated a cash of INR 140 crore from operations and spent INR 140 crore in CapEx. At the end of March 31, 2022, we have 394 exclusive brand outlets which contributed around 7% of our FY 2022 revenue.
Export crossed INR 100 crore mark and is picking up with opening of market and its contribution is more than 4% of revenue of FY 2022. Going forward, we are cautious about the continual extraordinary inflation and remain cautiously optimistic on the basis of strong recovery across category, especially in the high value closed footwear category after opening up of offices, schools and society. We believe that we are well positioned in the footwear marketplace by providing the right price value equation to our customer while making sure our product remain affordable and accessible. We remain committed to all our stakeholder by creating a strong foundation for the future, which can provide a sustainable and profitable growth for the long term. Thank you. We can open now the floor for questions. Thank you very much.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Tejash Shah with Spark Capital. Please go ahead.
Yeah. Hi. Hi, sir. Thanks for the opportunity. Just, we'll start with a couple of basic questions. If you can help us to understand the split between the realization split increase which has happened between price increase and premiumization, if any, happened during the year and during the quarter. Hello?
Yeah. Price increase because this full year was lot of inflation. Raw material prices went up, so price increase was in the range of 25% across all the category. In few category more and few category less. This is majorly due to the price increase. For that mix, because closed footwear was sold much more as compared to FY 2021, so that mix also happened this year. Overall increase majorly is due to price increase.
Sir, this 25% price increase would be at customer level because of GST increase as well, but that would not have totally reflected in our numbers, right?
No, no. It's a mix of raw material and GST. GST came only in January 2022. That was the last increase we took.
Yeah.
Overall, from start of the year, from May onwards, raw material prices were going up, so we took 3%-4% price increase in full year.
Okay. Second, how though the initial period yet, but almost 4-5 months have passed by after GST increase has happened. What is the initial feedback in terms of customer and both channels, whether they have absorbed this price hike easily, or it will take some more time for demand and channels to settle down on this?
Yeah, Tejas, Ritesh Dua on this side. It's been four months, you are right. What we are seeing is in first two, three months, there was a pressure because it was new for the trade. There was lot of resistance. People were talking about taking this price back from 12 to 5. They were giving lot of representation to the government. Now it is settled. The rates have been settled. Post that, there is definitely pressure because of inflation. Consumer sentiments are still not so great. Whatever the pass on of price, what we have done or the industry has done, it's taking time for the consumer as well as for the trade to take it.
Okay. Last one, we have based on the recent channel checks, which has been done on the sector, it is seen that there's a huge traction in online channel for closed footwear, especially the sports footwear or athleisure footwear. Have we seen any such traction in our numbers? And what was our exposure to online channel for the full year as a company, and also within the Sparx brand in particular?
Yes, Sparx brand has done very well in e-commerce platform, and we can see the growth rate was more than 40% in e-commerce platform. There is a traction of, you know, sports shoe selling more on e-com.
Okay. Sir, what will be the total exposure of online as a channel for us?
We were last year around 10%. Now it is 11.5%.
Okay.
It's going to go more.
Yeah.
Right. Yeah.
Yes, sir. Go ahead, please.
Yeah. No, no, you can continue. You can continue.
No, sir. I'll come back to you for follow-up questions on this. Thanks a lot.
Yeah. Thank you.
Thank you. Our next question comes from the line of Gaurav Jogani with Axis Capital. Please go ahead.
Thank you for taking my question, sir. My first question is with regard to the RM inflation as you have highlighted. Is the bulk of the RM inflation now done, or do we need to take further price increases to mitigate this RM inflation that we are seeing?
I am Ramesh Kumar Dua, sir. You know, raw material situation continues to remain unpredictable. You cannot say guaranteed everything is settled. Always there are different kinds, sometimes packing material, chemicals, polymers. Things are not stable as yet. We can't say confidently things are stabilized as far as the raw material situation is concerned. We have to be watchful of it, and accordingly, we have to see market dynamics also, and accordingly keep on taking appropriate actions.
To put the other way around, if assuming, you know, whatever the RM prices are today, does it covers the, I mean, whatever the price increases that we have taken, as on today, RM price, do we cover it or do we need to still take further some, pricing action to cover the impact? Because, you know, the impact on margin is huge as can be seen from the results. Still, do we need to take further price increases to even cover today's, RM inflation?
No, no. You know, we have to wait and see all these things. Ultimately, our goal at the moment is to focus on our market share in the market and keeping in view the strata that we are in, which are meant for masses, lower rung of society. That's very important we be keeping strict vigil on it and accordingly take appropriate actions at appropriate time.
Okay. Sure, sir. The next question is with regards to, you know, your volume, if we see this particular year. The volume this particular year has even, you know, seen a decline if we compare versus FY 2020. While I do agree, you know, that there was some impact during, you know, the first quarter due to Omicron and even this quarter was impacted. How do you see the volume trajectory going ahead in the light of the sharp RM inflation that we are seeing, given, you know, our target consumer is very price sensitive?
Last year, if you remember, in May, we had this Corona wave where everything was shut down, and followed by January also we had a small Omicron variant coming in. There definitely has been pressure on volume in terms because last to last year, the closed open footwear was selling a lot because people were at home. The shift, like there was extraordinary sales happening on last to last year. To sustain that was a challenge. Going forward, the consumer sentiments are still not so buoyant. We feel I think after maybe quarter one, the things will come back. Very difficult to say right now because supply chain things are not settled, raw material prices are not settled.
we are hoping that, quarter two onwards we can see some recovery.
Sure, sir. Then one last question from my end is, regarding, you know, the sportswear segment. I mean, sir, the sportswear or so to say, the casual footwear segment has been seeing very good traction as such. In this light, you know, we have seen lately one of our listed competitors getting listed on the exchange. You know, they have been showing smart growth in Q4 as well. In that extent, sir, if you, in that light, if you see, what is our action towards the sportswear segment? What are we doing to address that?
We have three brands. They are basically, it's for them it is the athleisure brand what we hear. That is 1/3 of our business. We are also seeing a good growth rate in athleisure and sports category. We are going in line with the industry.
Sure. Anything, sir? Because, yeah, anything that you're seeing, because on a, you know, a general market check suggests, you know, that they are higher on the market share percentage-wise, given that they are very dominant in that segment. Anything that we are doing in terms of product launches or, you know, expanding our reach on the online or anything of that sort that you can highlight, you know, that we are increasing our presence there.
Definitely, it's we are taking some steps, and I think it is, like for example, we are increasing some A&SP spends on e-com and having new tie-ups with like different channels also. It's a continuous process.
Sure. Thank you. That's all from me. I'll come back for more questions.
Thank you. Our next question comes from the line of Bharat Chhoda with ICICI Securities. Please go ahead.
Yeah, thanks for the opportunity, sir. Generally when we see Relaxo has a good working capital cycle of around 50 days, but this time it appears to be on the higher side of it, closer to 90 days. What is the reason for the same, sir? Is it more of RM being raw material being accumulated or is it the finished goods? Can you just provide a brief view on that?
This year, because there was pressure on sales visible also. Our inventory has increased, normally more than the expected. There are two reason for inventory increase. One is the pressure on sales and then the prices also. Because our cost of goods and everything has increased, so it has also given a multiplying effect on the inventory. That is the one reason and
Sir, volume was not clear. Could you please repeat, sir? I was not able to get it.
Okay. Just I'm repeating. Inventory is a major reason for working capital disturbance in this year. There are two reason. One, there was the pressure upon the sale, and second, because the cost of goods has also increased, even the raw material also, and we were carrying little more inventory just to be more cautious about the future price increase. Inventory has increased in the balances. That is visible also. Second, I think some debtors also a little bit, not much, but little bit there is increase. These are the two reason key working capital is under pressure.
Material is up and raw material also. Okay. Sir, we have seen this, the realization being significantly higher. At this level, do you see we would see an impact on the volumes going ahead? Probably also, what is the margin we should work with? Like, is it a 17%-18% kind of a margin that is possible for us to maintain with the current level of this?
Yes, margin definitely because this year being a little tough year comparatively, and FY 2021 was a best year even we never thought. FY 2020, if you compare with that, so that margins are definitely achievable and we intend to, and we are hopeful that will be achieved FY 2020 base, if you see.
The FY 20 base is what we should work with for FY 23.
Yes, we can say. FY 20 was 17, and this year we achieved lower than that. Definitely we intend and it's possible also.
At this level, do you see the consumer actually, like the volumes, are they being impacted or how is it, sir? Because that, could you please provide a view on that? How the consumer is reacting, the volumes have been down or how it is at this price levels? I think initially, there has been a comment from your side probably, but, post that stabilization, is that volume again, picking up?
As you are well aware that because of inflation, the purchasing power of the lower end of the pyramid, you know, the mass market, they are feeling the pinch of inflation. They are looking, some of them are looking for cheaper alternatives, you know. You can understand they are, because they have no money in their pocket, so they're going for cheaper alternatives. There is a volume pressure, no doubt about it. I think from quarter two onwards, this thing will be much better.
Okay, sir. That's it from my side. Thanks for answering the question. Thank you. Thank you. Our next question comes from the line of Mythili Balakrishnan with Alchemy Capital. Please go ahead.
Thank you. I just wanted to get a couple of data points from you. I wanted to understand the mix between the different brands, Sparx, Bahamas, Flite, and the normal Hawaii.
We are doing like Hawaii and Bahamas under Hawaii division, so that is around 25%. Flite is 37.5%, and similarly Sparx is 37.5%.
Got it. Within Sparx, right, 60% was sandals, and the rest 40% were the closed toes. Has that portfolio sort of changed in terms of the mix?
Yes, it has hanged. Now it is 60% shoes and 40% sandals. As athleisure going tremendously.
Are the sandals wala part of the business under pressure or both of them are doing?
Both are doing well. The only thing is there is a good demand in athleisure and sportswear, you know, that e-commerce is growing much faster because of India becoming more fit and demand of these products are going high.
Got it. Could you also help me understand the distributor and channel mix for us currently? I mean, how much EBO, online, and wholesalers?
We have around 680 distributors, 650- 680 distributors. Online contribute around 11.5% of our sales. 7% is contributed by retail and 4% by exports.
All right. The last question was on CapEx. You have spent, like, around INR 140 crores this year. Just wanted to get a sense of, is that, like, some larger CapEx in the footprint given our venture into the south, et cetera?
No, we don't have any intent to spending in South, but definitely we are expanding our capacity in North. We have our own setup, so we are integrating our back-end operations, and for that we are working. This year also we have intent to spend around INR 100 crores, so it will add to the back-end operations mainly.
Thank you. That's all from me.
Thank you. Our next question comes from the line of Manish Poddar with Motilal Oswal Asset Management. Please go ahead.
Hi, sir. Just three questions. First is, you know, if you can help me with this extra trade support which was given to the channel. How much is the one term for that?
Extra trade support we gave in Q3 because we were having inventory in December, and GST was effective from January. In that quarter we gave around INR 15 crore-INR 18 crore and in some because we were carrying some inventory at our end also, we gave the support in this quarter also. That is around INR 8-INR 10 crore in this quarter also.
Okay. You said, the prices in the channel now, or let's say the inventory in the channel is liquidated or has got the new pricing. Is that a fair understanding?
Yes. Now new pricing material has come in the market, so that old inventory is almost clear. Now everything is through in the system.
Okay. Just two more data points if you can. You said now 650 distributors are there. How many distributors have you added in the full year?
That is roughly around 10% what we have added.
Okay. Just, in terms of SKUs, would you be able to tell me how many articles do we have and let's say what is the addition on a YOY basis?
Just a second. 400 articles we have right now. If you talk about SKU, it is just a second. 12,257 SKUs we have.
What is the change? Is it a reduction in that? Because it might be a reduction. Just want to understand what is the number that you are talking about.
No, there's no reduction in SKU. It's around 10,000-12,000. Generally it's always changing also, no. Some articles are plus and some minus also. It's always changing, but range is around 10,000-12,000.
Okay, fair enough. Thank you so much.
Thank you. Thank you. Our next question comes from the line of Ashish Kanodia with Ambit Capital. Please go ahead.
Yeah. Hi, sir. The first question is in terms of capacity addition. In terms of volumes, what is the capacity addition plan for the next two years? Across which brands or categories will we be expanding those?
You know, already we have reached a capacity of 10 lakh pairs per day. Utilization is around 65%. Within this category, you know, we are focusing to increase some capacity of whatever is required in shoe business.
Okay, sir. Got it. Second thing, in terms of price hike, I think the full year price hike was 25%. In terms of, you know, the price hike taken for Sparx, apart from the 7% which you might have taken because of GST, was there any, you know, other price hikes as well?
Any last price hike we took in December. That was inclusive of GST as well as material impact also. That was the last one.
Okay. Very helpful. Last question in terms of, you know, there is an inflationary trend in RM prices, but is there any disruption in the supply of RM as well, or at least on the supply side, that's not a challenge?
No, we are getting the supplies, but we are. What we are doing is we are maintaining inventory of the material. Because this uncertainty is there, it is always there, so we have to keep some material, raw material in inventory for possible any disruption which is there.
Sure, sir. That's helpful. Just on the inventory side, is it possible to share out of the total inventory which you are carrying at the year-end, what percentage would be pertaining to finished goods and what percentage would be of raw material?
Percentage of overall maximum inventory related to FG because most of the materials we keep around 50-60 days inventory in the system, but this time it was little higher. Overall, we keep around 40 days, but this time it is higher. Percentage term, you can say around one third will be around 30% will be raw material and the rest is WIP and FG.
Okay. Got it, sir. That's all from my side. Thank you.
Thank you. Our next question comes from the line of Nikunj Gala with Sundaram AMC. Please go ahead.
Yeah, good evening, sir. Just want to understand on the pricing front, you mentioned 25% increase which you are facing. This increase is at a consumer level or if I look at your realization increase on a YoY basis for FY 2022, it is also near 22.7%. Similar kind of increase is also at the consumer level?
On MRP, you can say consumer level, yes.
Even at the MRP, it's a 25% increase on a YoY basis? This includes the GST increase also from 5%- 12%, right?
Yes. You know, it depends upon category to category also.
Okay. Sure.
25% across all categories. In some categories more, some categories less, so it depends upon its raw material.
Okay, got it, sir. Yeah, if I look at this price increase on a three-year basis, like, you know, our realization on a three-year basis, it would be 7%. Just wanted to understand this 7% kind of increase on a three-year basis, you know, how much this has impacted the consumer from the volume perspective because our volumes are down 2% on a three-year basis. Is that very meaningful impact as you are looking at the external environment that the demand has been impacted so much purely on account of this kind of a price increase?
Ramesh, you know, the price increase has happened more in Hawai slippers, Bahamas and Slides EVA because they are having high content of polymer which became very expensive. Their price increase has been extraordinarily high, and that has just affected the demand of the articles. The 25% what we are talking, that is average across all categories.
Yeah, I understand. Sorry to dwell more on this. You know, can you just help us with the. Let's take an example of average, you know, large part of your chunk of, you know, your product would be selling at approximately INR 250-INR 300 rupees article at a consumer level. On that you have taken, say, 20%-25% increase. That INR 250-INR 300, kind of like INR 50 per pair, would have such a deep, you know, impact on the volume. Just want to understand that.
Yes. You are right. In some categories we can feel the heat, you know, that you're seeing INR 50 increase is there. It has definitely affected some volume.
Sure.
I think going forward, this thing will improve because other people are also increasing their prices. It will take the consumer some time to really adjust to the new prices.
Sure. Just last one question on a very sustainable basis, what kind of a working capital you think would be, you know, doable in the medium term? I understand this year it would be, you know, high on account of high RM. What is the target threshold level you work with?
Threshold from which angle? Amount term or what you-
Like on a very sustainable working capital days.
Sustainable working capital.
Days, yeah.
If it's a three-month, I think things are working well smoothly. Three and a half month maximum.
This is different from, you know, last 10, you know, if I look at seven, eight years where it was two months, now we have shifted to three months kind of working capital?
Because this shoe category is growing much faster. It's a high value item, so it's lead time is much more.
Okay.
We have to give little more credit to the trade also because it's a high value item. That's why it's increasing. Moreover, the raw material prices has also gone up like anything. Overall value term, it is definitely putting pressure upon the working capital side.
Sure. Thank you. Thank you, sir. Thanks for your time.
Thank you. Our next question comes from the line of Akhil Parekh with Centrum Broking Limited. Please go ahead, sir.
Thanks for the opportunity. My first question is on the price rise. What is the price differential now between Relaxo footwear and, say, unbranded and some of our peers like maybe Aqualite, VKC for example?
Sir, voice is. Can you repeat the question? The voice, we can't hear.
Sir, I'll repeat the question. How is the price differential between Relaxo versus our peer and versus the unbranded?
See, what it was last year, we have maintained the same gap, you know. It is not that there is a huge gap in terms of like what it was one year back. I can just say that we are always expensive than unorganized. You cannot compare branded with unorganized, you know. It's very difficult because they do pricing on daily basis. We do not do, so it's very difficult to compare with the unbranded. If we talk about other brands, whatever difference was there before, it is same.
How much that will be roughly?
Depends upon brand to brand. There are so many other brands also. If you're talking about Aqualite, so 5%-10% difference is always there.
Got it. Does that lead to downgrading? Say, for example, given that, you know, the unbranded is cheaper and they can sacrifice on quality, have you seen a trend where consumers have shifted from a branded player to unbranded?
Some parts of India or you can say bottom of pyramid, you know, where people are feeling the heat of inflation a lot. They are doing it because, again, the money in the pocket, you know. Whatever money they have and it's getting depreciated, so they are going towards the unorganized. That is a short-term phenomenon because the quality is not that good, so they will come back to the brand.
Okay. My second and last question is, in terms of the retail touchpoints, right? If I look at fourth quarter 2021 presentation, we said we have 50,000 touchpoints and now we say we have 60,000 touchpoints. Any specific geographies where we have added 10,000 outlets in last one month?
It is across actually, but major in West and South.
Got it. Thanks a lot. That's it.
Thank you. Our next question comes from the line of Nisarg Gandhi, an investor. Please go ahead.
Thank you for the opportunity. My first question is regarding how your customers are reacting to the significant price increase, and will you be willing to reduce your prices if the raw material pressures soften, which is something I, if I recall correctly, you have never done in the past.
We have to really always remain relevant to the market conditions and also keep our pricing competitive. If we review our input costs, we have to act accordingly, and that will keep on affecting.
Okay. Thank you, sir. Just one more question, if I may. Do you see an increasing contribution from e-commerce, like from 11.5% to as high as 15% to even 20%, in the medium term? If you can outline what is your growth strategy for incremental share in e-commerce?
As everybody knows that digital is growing and e-commerce is the fastest growing category in footwear. 11%-15% in one year will be difficult, but we are definitely having high aspirations and we will grow to a good number. It's difficult to say right now it will become 11% and 15% in just one year.
No, sir, I was just looking to know more about the strategy that you are deploying to increase your maybe revenue shares from the e-commerce channels?
Strategy, if you ask, like, you know, we are going to increase the spends on the different channels, be it e-com. So that is one of. We are going for SMUs or whatever product specific, whatever calls we have to take, we are doing that. We are adding more channels in that.
Okay. Thank you, sir. Thank you for taking my question.
Thank you. Our next question comes from the line of Priyam Khimawat with ASK Investment. Please go ahead.
Hi, sir. Two quick questions from my end. First, you highlighted a sales mix as 25% in Hawai and Bahamas and 35% each in Sparx and Relaxo. Was that the volume breakup you were referring to or was that a value breakup?
It's a value breakup. Value.
Okay. How would the volumes be then, if you could share that, please?
Volume generally we don't share, but overall, you know, yes, maximum, yes, contribution come from Hawai. Hawai including Bahamas also. Second is Apply.
Last will be.
Sparx is the last one. This is the breakup.
Okay. Secondly, on price increases, you highlighted that the last price increase was in December 2021. Right now we are already in May, and I assume that raw material pricing would have further increased from December up to now. Are we contemplating any further price increase in the near term or the increase taken in December was sufficient for us to maintain our margin at the desired levels?
I think we like to continue with what pricing has been already there, and let the things stabilize. Every now and then changing pricing destabilizes the market and creates a lot of uncertainty.
Fair enough. Can we see some pressure on margins then in quarter one, quarter two because there will be a lag in price increases?
Yeah. That will be there. After all, things are in the system, new things are getting adjusted. But it will improve in the next quarters, maybe somewhat this quarter also.
Okay. Sir, you highlighted our online share is 11.5% of the overall volumes. If I take closed footwear category as a whole, what will be our online share there? I was just trying to understand are we in line with competition or ahead of them?
Can you repeat your question?
Sir, our overall share in online is 11.5%, as you highlighted. I just wanted to understand what would be the share in closed footwear category, sports and leisure, primarily.
If you talk about online, in Sparx we have 60% share in shoes and 40% is sandals even online. Majority of sales are coming more than 500 MRP in online.
Okay. Sir, let me put it another way. Out of that, in our Sparx brand, what would be the online contribution?
It's more than 25%.
Okay, perfect. That's what I was looking for. Thank you.
Thank you. Our next question comes from the line of Mr. Umang Mehta with Kotak Securities. Please go ahead.
Thank you, sir. I just had one question. In the online channel, at the EBITDA level, as we considering the delivery and all those expenses as well, would it be profit-making for the company?
We try to keep same margins what we have online, offline, and retail. We last time also discussed that we do not want that goods flow from one channel to another because of prices. We keep it same.
Same margin, you mean the gross margin, right? Considering the expenses of fulfillment of those orders, would you still be making same level of margin at EBITDA level?
Yes, it's the same. We just keep everything same.
Got it. Understood. Just one quick question on the geographic breakup. Would it be possible to share some broad numbers on region-wise sales?
Our major sales come from North India, that is around 50%. Then 18% come from East, same West 18%, and around 13% from South.
Got it. Thank you so much, and all the best.
Thank you. Our next question comes from the line of Deven Kulkarni with Marcellus. Please go ahead.
Yeah. Sir, so around three years ago, distributor count was around 800, and today it has come down to around 650. Why has the distributor count reduced over the last few years?
We want quality distributors, so less than INR 10 lakh sales per month, so they were many in number. We have cut down the tail. We are focusing on, you know, the cost of reaching them were also not viable. We are focusing on good number of distributor holding, more than INR 10 lakhs per month. Like, so that is how we decide. It was a tail, you know, we have to cut the tail.
Right. Is this exercise now over or it is, work in progress?
Sorry, can you repeat?
Sorry. Is this exercise of cutting the distributors over or it is still work in progress?
No, it is a continuous process. We add 50 or we remove 25 who are not performing. It's a continuous process.
Right. Sir, and, your presentation says that you have added around 10,000 retail touchpoints over the last one year or so, and despite that, we have seen a volume decline. Now, given that this is a seasonal category and, you know, replacement cycle of Hawai would be 2x a year roughly, what explains the volume decline?
The volume decline is mainly due to price reason and GST impact and these are the reason now. We added definitely new touchpoints, but ultimately there is an overall pressure from the demand. This is the reason for volume decrease.
Right. Sir, is there any channel destocking because of the price hike?
Channel, what is it? Channel destocking?
Yeah, I mean, reduction of inventory in the channel because the prices have gone up by 20%.
Yes, yes. The distributors and retailers are very cautious because of the so many changes on MRPs, so they're keeping less stock. Yeah.
Okay. Sir, will it be possible to quantify what will be the reduction in inventory in the channel in volume terms, roughly?
We don't have it. Distributor inventory and in the system at the retail level, that's not possible. We don't have.
Okay. That's it. Thank you.
Thank you. Our next question comes from the line of Girish Pai with Nirmal Bang. Please go ahead.
Yeah, thank you for the opportunity. You had an 8% decline in volume in FY 2022 versus FY 2021. Did the market also decline at the same rate? If not, who gained market share?
You know, overall category of Hawai and easy, it has actually gone down because this year the market is opened up and outdoor people have started being on the market. Closed footwear has gained. This, what you call it, chappals and these things have gone down. At the same time, because of high inflation, buying power of these masses has gone down. They are trying to hold on to their old slipper also, and so they're delaying their purchase.
No, I was trying to understand whether we've lost market share to any competitor, unlisted competitor, maybe somebody who's come from the south, for instance.
No, no. That's not there. You see now, last year, because it was a normal exceptional year, open footwear sale was much, much higher than the normal. That's why you are seeing there is a big growth in the number. That is the only reason. Last year we sold more open footwear. This year demand was less comparatively, and closed footwear picked up in this year. We don't see there is, I think some shifting of market share from here to there. It's your overall numbers has come down due to open footwear and closed footwear. You know, if you go to three years back also, our segment was 25%.
What was the mix of open to closed footwear in FY 22 compared to FY 21?
This year it is around 20/80. 20% closed footwear, 80% open footwear. Last time it was 85%.
Okay.
Eighty-five.
Okay. Did you see any difference between urban versus rural demand?
Yes. Rural, we are feeling more pinch. You know, there's more pressure in the rural side of India. Urban still, there is a movement, but in rural India, they are not able to absorb the inflation or price hikes.
Okay. Lastly, there was a mention that you will start kind of doing better starting from quarter two. What exactly do you mean by that?
As we have increased prices in December, and still there are 3-4 MRPs lying with the retailers, you know, and they are liquidating that. We are hopeful that the whatever prices we have taken, that will be absorbed and all the old inventory will be out of the system. There's a lot of confusion with retailers, you know, having multiple MRPs with him. We are thinking that once the MRP he liquidate his stock and the new rates will be adjusted.
Okay. My last question is on ad spend. What was that as % of sales in FY 2022 versus FY 2021?
FY 21 being a tough year, we spent less intensely. It was less. Definitely this year we spent as we have been doing, around 4%. This is the gap between FY 21 and 22. 22 was a normal year. 21 was a little different year.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Ankit Kedia with PhillipCapital. Please go ahead.
Sir, couple of questions from my side. You know, do we sell to B2B players like Udaan and AJIO business? What would be our contribution from them?
We started with Udaan and AJIO, but our contribution is quite less. It is less than 1% also you can say that. It's a new channel for us. The problem with them is they are playing a discounting game, which we do not want to disrupt the market. We are cautiously watching them. Going forward, we'll see how we have to do business.
Sir, because one of your competitors books, you know, double-digit revenues through these channels, you know, in the sports category. You know, do we sell directly to them or through a distributor channel we sell them?
through our distributor.
Okay. Sir, my second question was, you know, while you did say, you know, South is only 13% and we added more, you know, MBOs to West and South, could you share that, you know, the maximum volume decline would have come more in the North market or it was evenly spread, you know, North, South, East, West?
No, it was more in North and East part of India. West and South did well. Reason being, one more reason being West and South was affected more because of COVID lockdown, which they bounced back very well last year.
Sure. Sir, you know, in these two geographies, you know, two years down the line, do you think both these geographies together can contribute around 40-45% of our revenues in two years' time or they will still remain in that 30% kind of a ballpark range?
Very difficult to say right now how they will grow exactly to 45% or remain at 30%-35%, so.
That's good.
Definitely they have more growth rate.
Sure. Thank you so much.
Thank you. Our next question comes from the line of Vikas with Aquarius. Please go ahead.
Thank you so much, sir, for the opportunity. My first question on the raw material side, can you quantify what has been the jump in the raw material prices for the quarter versus Q3 and versus Q4 of last year? Any numbers to attach to it?
Different materials have a different, you know. I can tell you as an average of different kinds of material inflation. All you want is those specific raw material, which is actually raw material.
Probably talk to the major part of the raw materials, number probably, an average.
Yeah, actually you want Q4 versus Q4 or full year versus full year? Full year.
Q4 versus Q3 and Q4 versus Q4 of last year.
Q4 versus Q4, so there is a huge jump. Definitely last year it was a very good year from raw material point of view. You can say in some material it was around 80% also, which is also major contributor in the material side. Q4 versus Q4 overall, there is a huge jump. You can say around 50%-60%. Q3 versus Q4, because already material has peaked out, so gap is comparatively much lower, maybe 20% around 20%. Q3 versus Q4 in overall.
Okay. Sir, one another question similar to it that so there are two parts. First, the GST hike that has to be passed on, and second is the raw material inflation that is to be passed on in the price hike that we are taking. Can we say that the GST pass on is almost done and it is only the raw material price hike that has to be taken? Or even the GST part is also left to be reflected in the price that we have to take?
That is GST has been done now. That is now history. By and large, it has been settled in the market. It's really taking time, but yes, it has been settled now. Raw material is the only leftover item and overall inflation in the system, overall inflation on all fronts, it is also there everywhere it's there.
Okay. Sir-
There are two things.
Yeah.
There are two things. One thing is cost of input has gone up because of raw material itself and GST also. On the other hand, the buying power of the consumer has gone down. Both things have affected actually.
Correct. Just your view into how the market or probably our competition are strategizing with respect to taking the price hikes. Are they like, more of taking the prices or they are cutting back on taking the prices just to ensure that the demand does not get hit by this time?
Raw material is quite common for all of them, so they have also taken price hike. All of them are also feeling the heat, you know. There's a limit to pass on the price to the end consumer. Now, for now it is wait and watch. Let us see how the prices go, in next quarter.
Okay. Right. Thank you so much.
Thank you. Our next question comes from the line of Tejash Shah with Spark Capital. Please go ahead.
Tejash, your voice is not coming.
Mr. Shah, your line is unmuted.
Hello?
Yes, we can hear you.
Hello. Am I audible? Hello.
Yes, yes, Tejash, you can just continue.
Yeah, yeah. A couple of follow-ups. In most categories we are competing with unorganized and across categories in our channel checks we are picking up that wherever unorganized was depending on or dependent on Chinese imports, they have been struggling both on inflation and also availability count because the supply chain has been disrupted badly. Are we seeing any benefit of that in our favor because our supply chain will be relatively much more robust than unorganized competition in the three segments that we operate in?
No, you know, the material that we are using in our Hawai slippers or Flite EVA, we are always keeping good inventory in that system. There is no question of disruption in our manufacturing or anything. We have been cautious and we have to be cautious on that.
Yes, sir, precisely that is the point. Definitely we are actually better off than some of the unorganized players. Are we seeing that natural gain happening in markets, market share because unorganized is not as competitive, let's say, compared to let's say they were two years back or a year back?
You know, you know, the material like polymer, EVA, PU, PVC and all natural rubber, they are available in domestic also. That's not an issue for them. Material is available. Now it is a question of pricing. A year where the prices were very high in local markets because. Now there's comfortable pricing is there. Availability is not really a concern for these categories.
Fair point. Got it, sir. Second and last question. If I see our volume, we are actually lower than FY 2020 volume. Understandably our capacity utilization will be lower than what we had in FY 2020 because we had CapEx also in the last two years. Again we have guided for INR 100 crore of CapEx this year. This looks a bit higher on maintenance CapEx side. Just wanted to understand what is this outlay for?
No, because every year we, it's a very fast moving article and we have to create new designs. A lot of money goes in the mold side also, around INR 25-INR 30 crore every year. It's a recurring CapEx every year we have to do. We are setting up some back-end operation that is almost in the final stage. Few expenses definitely will go there. These are the two major and other routine expenditure around IT and around this one, INR 800 crore. INR 100 crore, this is almost in this size. It's always there.
Okay, fair enough, sir. That's all from my side and all the best, sir.
Thank you. Our next question comes from the line of Mrs. Trivedi with Trident Capital Investments. Please go ahead.
Hi. Can you hear me?
Yes, yes.
Rameshji, my question is to you. It seems we are in a rather difficult situation where, as you mentioned, in some ways the volume or the top line is not in our hands because the consumer is stressed because of inflation. The margin is also not in our hands because the raw material, you know, has a lot of pricing concerns. Under these kind of scenarios, how do you manage the business? What are the numbers and metrics that you focus on these days?
We are going to increase our A&SP spend, plus we are going to have a competitive range introduced, soon, you know, so that we are able to get the top line fixed first. That is the priority number one. There will be some measures in appointment of new distributor adding more outlets. Definitely, I think we will be coming back with the numbers.
Okay. I mean, as the situation is, you know, unfolding, I mean, there are so many different scenarios that are possible. Which is the scenario that you know you would be most worried about? I'm thinking, for example, if there is protracted inflation increase, you know, for the next, let's say 18 months, 24 months, then I would imagine that there will be a lot of pain in the system. I'm curious to hear from your experience, what is it that you worry about the most in terms of future expectations?
No. At times we have to first protect our market share and top line, and we have to keep our, you know, pricing very competitive so that we are there. Once the things settle down, then you can always have your better pricing and margins also.
Can I ask you a follow-up on this? I mean, I think at least a couple of times during the call you have emphasized on market share. Why do you care so much about market share and why do you think if you have market share then pricing and margin and everything else follows? I'm just, I think it's very interesting, you know, your key focus on market share.
It's very important. We cannot lose the shelf space. We have to be there in the mind of the consumer always. That is of prime importance. Once we are always there, then everything else will follow out of that only. If we lose the market share, then what we are left with?
Got it. In your experience, and I'm thinking, let's say, you know, in early 2010s when the inflation was 10% or 12%, I mean, if you compare that period to now, I mean, any learnings and lessons that you can apply from those times to today?
This time, you know, inflation has been very severe. For example, the EVA material, which was at INR 120 costing one and a half year back, if that become INR 300, it is very severe. It never happened that in ten. At that time inflation was there, but it was gradual and gradually price hikes were taken and things settled like that. This year it has been very fast. As far as we have to take four price increases in the last one year, let me tell you. It has never happened. Still today also uncertainty continues. That's it.
Got it. In these times, while it is bad for the economy and unfortunate for the consumer, but in some ways is this not a good time for Relaxo to really seize and, you know, take market share from unorganized players for whom the pain will be much more?
No, no. Pain is for all. They are in the system, they will always remain in the system. We all have generally coexist, you know. Share can go down here and there. That's it. It doesn't mean somebody will be wiped out in the system.
You feel more competition from unorganized players given your price points or from all of these organized players, particularly the ones who are now going public as well and, you know, face pressure from their investors to show good results?
Competition is, you know, from.
Unorganized.
unorganized also and organized also. We have to always remain competitive on all fronts. You can't just look down upon anybody lightly.
They were selling before, now also. Listing and non-listing does not.
They were always in the system. They will remain always in the system, you know.
Yes. Got it. One final question, if I might. Rameshji, my biggest concern is, you know, succession plan for Relaxo. Is this something that is actively discussed in the company or is this something, you know, that the board is discussing? What are your personal thoughts on this?
That thing is in process. We are serious on it, but we can't divulge beyond anything now.
Okay. All right. Thank you so much and good luck to you.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question for today. I now hand the conference over to Mr. Akhil Parekh for closing comments.
Thanks, Ryan. On behalf of Centrum Broking, I would like to thank the entire management team of Relaxo for answering all the questions very patiently and in detail. I'll hand over the call to the management team for any closing remarks if any. Thank you.
Thank you all for joining the call. This is all from our side. Looking forward to join you again. Thank you very much. Thank you from Relaxo side. Thank you.
Thank you. On behalf of Centrum Broking Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.