BUY RELAXO FOOTWEARS LTD. SYNOPSIS. CMP Target Price DECEMBER 16 th Result Update: Q2 FY14 ISIN: INE131B01039

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1 BUY CMP Target Price RELAXO FOOTWEARS LTD Result Update: Q2 FY14 DECEMBER 16 th 2013 ISIN: INE131B01039 Index Details Stock Data Sector Footwear BSE Code Face Value wk. High / Low (Rs.) /99.50 Volume (2wk. Avg. Q.) 1782 Market Cap (Rs. in mn.) Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph RELAXO FOOTWEARS LTD. BSE SENSEX SYNOPSIS Relaxo Footwears Ltd is the 2 nd largest footwear company in India measured in terms of values & its brands. The company expanding its geographic footprint with a growth of export business in Asian & Middle East countries. During the quarter, net profit increased by 13.35% of Rs million against Rs million in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs millions an increased by 20.56% during the quarter ended Q2 FY14 against Rs millions In Q2 FY13. Relaxo Footwears Ltd has approved split up of Equity Shares from face value of Rs. 5/ each to Rs. 1/- each. The company produces over 4,54,000 pairs of foot wear at its state-of-the-art manufacturing units daily. Relaxo has grown by 17% over previous years' revenue, which made the mn landmark possible in FY13. Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 13% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Relaxo Footwears Ltd Bata India Ltd Sreeleathers Ltd Liberty Shoes Ltd

2 Recommendation & Analysis - BUY Relaxo Footwears Ltd. commenced its journey with the manufacture of Hawaii slippers. It has now grown into a large-scale entrepreneurship catering to the basic needs of the quintessential Indian citizen. Products comprise a wide range of quality footwear in brands like Hawaii Slippers, Flite, Sparx and Schoolmate. Relaxo has grown by 17% over previous years' revenue, which made the mn landmark possible. The Production capacity has increased from 3,77,000 pairs to 4,54,000 pairs per day. The Company sold mn pairs in FY13 as compared to mn pairs of footwear in FY12. During the quarter ended Q2 FY14, The net revenue was up by 9.11% of the company at Rs million from Rs million in Q2 FY13. Due to overall slowdown in economic conditions, revenue growth has hampered and moreover, this period is always under pressure due to lean season in footwear demand and net profit of the company was up by % at Rs million against Rs million in the corresponding quarter of the previous year. EBITDA has increased by at Rs million from Rs million. Relaxo Footwear Ltd is aggressively working on rationalization of non performing retail shoppe s either by closing or disclosing. It will out pressure upon inventory/ margins in coming months. The company produces Over 4, 54,000 pairs of footwear at its state-of-the-art manufacturing unit s daily and products are sold across Asia, Africa and the Middle East. The company has marginally improved its profit in terms of per cent & is hopeful to maintain it with launching of new product Designs & portfolio Rationalisation in coming items. Company has created sufficient capacities; therefore pressure of capex will be moderate in coming times. We expect the company to post a CAGR of 12% and 13% in its top-line and bottom-line respectively. Hence, we recommend BUY for RELAXO FOOTWEARS LIMITED with a target price of Rs on the stock.

3 QUARTERLY HIGHLIGHTS (STANDALONE) Results updates- Q2 FY14, Relaxo Footwears Ltd. is standing firm to serve the footwear needs of 1.2 billion people of our country with 8 manufacturing plants, a portfolio of 10 brands, reported its financial results for the quarter ended 30 SEPTEMBER, MONTHS SEP-13 SEP-12 % CHANGE Net Sales PAT EPS EBITDA The company has achieved a turnover of Rs million for the 2 nd quarter of the current year as against Rs millions in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs millions an increased by 20.56% and a net profit of Rs million against Rs million reported respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs for the 2 nd quarter as against an EPS of Rs in the corresponding quarter of the previous year. Due to overall slowdown in economic conditions, revenue growth has hampered and moreover, this period is always under pressure due to lean season in footwear demand. Inventory increased due to low growth & that has adversely impacted interest cost in this period. Break up of Expenditure During the quarter, Total expenditure rose by 9 per cent, mainly increased on account of Depreciation & Amortization Expenses along with other expenses. Total expenditure in Q2 FY14 stood to Rs million as against Rs million in Q2 FY13. Break up of Expenditure (Rs. in Millions) Q2 FY14 Q2 FY13 Cost of Raw Material Consumed Employee Benefit Expenses Depreciation & Amortization Expense Other Expenses Purchase of stock-in-trade

4 Latest Updates Relaxo Footwears Ltd has declared 40% on Equity Shares of the Company for the FY The company s products are sold across Asia, Africa and the Middle East. It produces Over 4, 54,000 pairs of foot wear at its state-of-the-art manufacturing units daily. Relaxo Footwears Ltd has approved Split up of Equity Shares from face value of Rs. 5/ each to Rs. 1/- each. COMPANY PROFILE Headquartered in New Delhi, India, Relaxo Footwear began as a small enterprise in the year 1976 and was officially incorporated in 1984 and further went into public listing in According to the 2008 Business Survey, it has now emerged as the second largest footwear producer in India. Relaxo Footwear commenced its journey with the manufacture of Hawaii slippers. It has now grown into a large-scale entrepreneurship catering to the basic needs of the quintessential Indian citizen. Relaxo has grown by 17% over previous years' revenue, which made the mn landmark possible. The net profit grew to Rs mn as compared to Rs mn in last year that resulted a growth of 12.30%. The Company sold mn pairs as compared to mn pairs of footwear last year. The Production capacity has increased from 3,77,000 pairs to 4,54,000 pairs per day. Today Company is standing firm to serve the footwear needs of 1.2 billion people of our country with 8 manufacturing plants, a portfolio of 10 brands, a family of employees and an extended family of over retailers and distributors. Products Product Brands Hawaii Hawaii is the most popular brand in the Relaxo portfolio. It comes in diverse shades and styles and its comfort value makes it a favourite among all age groups. With an output of pairs a day, Relaxo is one of the largest manufacturers of Hawaii in India. Flite Flite is Relaxo's most exclusive brand. Its unique fashionable and light quality is ensured by its manufacturing process, involving cutting-edge EVA technology. Available in an array of colours and designs, it is among the popular products in the casual footwear industry.

5 Sparx Sparx is a range of sports shoes and sandals that embodies the spirit of today's youth. Available in aweinspiring colours and designs, it reflects verve and dynamism as an iconic youth brand and is symbolic of a wholehearted zest for life. Schoolmate Schoolmate is a range of school shoes for boys and girls and is an expression of Relaxo's faith and commitment towards the young leaders of tomorrow. Made with special care to pamper thousands of tiny feet, each pair bears the mark of superb workmanship and adaptable design. Elena Casualz Mary Jane Boston Exports During FY14, the Company is planning to increase its presence across the globe with a primary focus on the African market and will also strive hard to increase foothold in the existing market. In the current year, the Company's export turnover was Rs mn, with the combined effort in existing and new markets. Nearly 90% of India's export of footwear goes to European Countries and the USA. Future growth of Indian footwear in India will continue to be market driven. The European countries and the USA are major consumers for the Indian footwear.

6 FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions) Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Extraordinary Items Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 31 MARCH, 2013 to 31 DEC, 2013E Value(Rs.in.mn) 31-Mar June Sep Dec-13E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face value EPS

7 Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) EBITDA Margin (%) % PBT Margin (%) % PAT Margin (%) % P/E Ratio (x) ROE (%) ROCE (%) Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts

8 OUTLOOK AND CONCLUSION At the current market price of Rs , the stock P/E ratio is at x FY14E and x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.8.51 and Rs.9.51 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 13% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at x for FY14E and x for FY15E. Price to Book Value of the stock is expected to be at 4.32 x and 3.56 x respectively for FY14E and FY15E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. INDUSTRY OVERVIEW India is the world's second largest footwear producing country, second to China and the third largest market. Even though the per capita footwear consumption in India has gone up from 1.4 pairs per year in 2004 to 2.5 pairs per year in 2012 & it is still much below the average per capita footwear consumption of five, in developed countries. The size of Indian footwear market is around mn and expected to reach mn with a CAGR of 15% by At present, Men's contribute around 60% of footwear market against Women's share of 30%. Men's market is growing at a CAGR of 10% & Women's market is growing at a much faster CAGR of 20 %. India controls 15% of annual global footwear production. Indian footwear retail is mainly an unorganized market with around 60% market share. The size of the organised sector which was around mn in 2010 increased to mn in 2011, growing at a CAGR of 30% every year since The market is expected to reach mn by 2015 growing at a CAGR of 19% p.a. Nearly 90% of India's export of footwear goes to European Countries and the USA. Future growth of Indian footwear in India will continue to be market driven. The European countries and the USA are major consumers for the Indian footwear. During FY13 the company is planning to increase its presence across the globe with a primary focus on the African market and will also strive hard to increase foothold in the existing market.

9 India produces more of gents' footwear while the world's major production is women's footwear. Style and colors vary from region to region. Bright colors may be in demand in northern India, while white and muted colors sell well in south India. The future growth of the footwear industry in India will continue to be market-driven and oriented towards EU and US markets. With technology and quality of the footwear improving year after year, Indian Footwear industry is poised for a global revolution worldwide. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

10 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods Ashish.Kushwaha IT, Consumer Durable & Banking Anil Kumar Diversified Suhani Adilabadkar Diversified M. Vinayak Rao Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com