Relaxo Footwears to spend Rs 70cr to raise capacity in FY13

Nachiket Kelkar
Moneycontrol.com

Delhi-based Relaxo Footwears plans to invest Rs 70 crore in capacity expansion this year, which includes a new PU (polyurethane) footwear plant.

"As on date, we have a capacity of 3.70 lakh pairs per day....We are working on expansion. We are adding capacities in EVA and a PU plant is also coming up this year," Sushil Batra, CFO, told moneycontrol.com on Friday.

It doesn't have any acquisition plans, but might look at outsourcing some production, he said.

Relaxo Footwears makes Hawaii, Flite, Schoolmate and Sparx brand of footwear. Batra said, by March 2013, the company's total capacity will go up by around 30,000 pairs per day.

The company's current production facilities are located at Bahadurgarh in Haryana, Bhiwadi in Rajasthan and Haridwar in Uttarakhand.

Relaxo is also expanding its retail footprint across the country. The company competes with the likes of Bata and Liberty in this space. It currently has 154 stores in India and plans to open 20-25 new outlets this year. All of the stores will be company owned, according to Batra.

He said there has not been any slowdown in footwear sales. However, the sharp depreciation in the rupee against the US dollar is a concern. The rupee hit a record low on Friday, crossing the 57 to a dollar level. Relaxo imports EVA (Ethylene Vinyl Acetate) a key raw material, and as the rupee depreciates the landed cost of the raw material goes up, thus putting pressure on margins.

Raw material costs accounted for 53% of Relaxo's sales last year. Its EBITDA (earnings before interest, taxes, depreciation and amortization) margin in FY12 declined to 10.9% from 12% in FY11 as rubber and EVA prices had peaked last year.

Batra said the basic price of EVA has come down, but the rupee depreciation would impact the company to an extent.

The company, however, is ready to pass on the additional cost burden to customers, he said.

"Generally we pass on the costs. If things are going beyond our control or prices increase beyond a certain limit, then we pass on the cost to the customer."

Relaxo had last hiked prices in the first week of May by around 4-5%.

Overall, the company expects around 20% revenue growth this year.

Relaxo Footwears' revenue in 2011-12 rose 25% year-on-year to Rs 860 crore.

"We expect around 20% growth, should be definitely be there," Batra said.

Meanwhile, Relaxo Footwears is undergoing a restructuring process from a promoter-led to professionally managed company. It has appointed consulting firm Accenture to improve logistics and supply chain, providing inputs for new product launch, successful implementation of SAP and expansion of retail operations, according to a report by brokerage Nirmal Bang.

Batra said the company is making some progress on restructuring but promoters will continue to be involved in day-to-day operations.

Relaxo Footwears shares were very volatile on Monday morning. At 9:40 hrs, the stock was down 2% at Rs 474.55 on NSE. They had hit a high of Rs 516.20 earlier in the session. The stock has risen over 90% in the last one year.

nachiket.kelkar@moneycontrol.com