Relaxo Footwears Limited (530517) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Relaxo Footwear Q4 FY '20 Earnings Conference Call hosted by Elara Securities Limited. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Mr. Akhil Parekh from Elara Securities. Thank you, and over to you, Mr. Parekh.

Thanks, Ayesha. Good afternoon, everyone. On behalf of Elara Securities, I welcome you all to Relaxo Footwear 4Q FY '20 Earnings Call. From the management side, we have with us Mr. Ramesh Kumar Dua, Managing Director; Mr. Gaurav Dua, Executive VP, Marketing; and Mr. Sushil Batra, Chief Financial Officer. Without taking much time, I'll hand over the call to Mr. Dua for his opening remarks and post of which, we can open the floor for Q&A session. Over to you, sir.

Mr. Batra will take the opening, our CFO.

Sure.

Yes. Akhil, I think -- I'm Sushil Batra. So just I'm starting with opening remarks.

Sure. You can start it, sir.

Good afternoon to everyone. Ladies and gentlemen, thank you very much for attending our earnings call for the financial year 2019-'20. We have already shared our earnings press release and results presentation. Hope you got an opportunity to go through that. I will start with Q4 FY '20 financial performance followed by full year FY '20 financial performance. In Q4 FY '20, Relaxo booked an operating revenue of INR 540 crores, down by 15% year-on-year. This impact was mainly due to nationwide lockdown. Due to adoption of Ind AS 116, our rental expenses have reduced and simultaneously, depreciation and interest expenses have increased. The total impact of this new accounting standard on EBITDA is an increase of INR 45 crores. Our EBITDA margin for the quarter was 17.8% vis-à-vis EBITDA margin of 15% in Q4 FY '19. EBITDA margin of 17.8% for Q4 stand at 15.7% without Ind AS 116. As informed earlier, our company has chosen to exercise the option of lower tax rate of 25.168% as introduced by the Taxation Laws Ordinance 2019. Our profit after tax was INR 52 crore in -- for the quarter, down by 4.8% year-on-year with a PAT margin of 9.58%. For FY 2020, we registered a revenue of INR 2,410 crore, up by 5%, with gross margin of 56.88% and EBITDA margin of 17%. Favorable raw material prices and premiumization supported this growth. Our PAT of INR 226 crore in FY '20 with a PAT margin of 9.4% grew by 29% year-on-year, mainly due to cost control initiatives in manufacturing and lower tax rates. During FY '20, we generated a cash of INR 319 crore from operations and spent INR 210 crore in CapEx and repayment of current and noncurrent borrowings. At the end of March 2020, we have 390 exclusive brand outlets, which contribute 8% to our FY '20 revenues. We have added net 47 new stores in this period. Export have expanded to new territories and is contributing 4% of revenues. During the ongoing crisis, we are undertaking all necessary measures to ensure safety and well-being of our employees and partners. The company is strictly adhering to government guidelines and has started operation in plants and offices. Prior to starting of operation, we have developed detailed SOP for safety of its employees. Proper equipment and sanitization material, masks have been provided at all locations. We continue to support and provide assistance to our dealer, distributor and customers. Due to nationwide lockdown, overall demand for overall footwear is subdued, but demand for open slipper segment has improved during the period. However, due to restrictions in manufacturing operations, fulfillment of such demand will be a challenge in short term. The company has paid all long-term debts in FY '20, and its liquidity position is comfortable. Moreover, with start of business activity, the liquidity position of company will continue to be comfortable. Relaxo has always been one of the most trusted brand, and we believe that the company is well placed to emerge stronger in post-COVID-19 world. We will continue to adopt strategic initiatives to strengthen our brand positioning, improve our product innovation and expansion into newer geographies. We can now open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Tejash Shah from Spark Capital.

Sir, first question is, if you can give us some color on channel-wise and regional-wise business scenario post lockdown and even in the recent weeks when lockdown has been relaxed?

Currently, a lot of areas are still under lockdown. South and West markets are still -- I mean in a lockdown position. It is only the North, East and Central where things are opening up and there our business is picking up. So it will continue -- till the lockdown or this position become normal in the Western and South market, the business will be -- remain challenged.

Okay. So sir, roughly 70% to 80% of markets where you operate, are they open for business now?

50%.

50%, you can call it.

50%. Okay. And sir, now unlike other models, your model is very MBO driven, and I believe a lot of inventory would have been there because the lockdown was sudden. So ballpark figure how many months of inventory you believe will be in the channel already before you start seeing primary pickup happening at your level as well?

Our CFO will reply.

Inventory in the channel will be in the range of 60 days. That's what we assume depending upon the dealer capacity and all these ones. So it will be around 2-month inventory.

Okay. So sir, is it a fair assumption that it will take some time for us to see pickup in primary level because this was quite sudden shock in terms of demand planning and all?

Yes, sure. Maybe by next quarter, things will become more clear.

Okay. And sir, you also mentioned in your opening remarks, Mr. Batra did that, we'll be looking at new geographies for expansion this year. So any new territories we are planning or within the same areas we are planning for deeper penetration?

This is always an ongoing process. Wherever we find there are greater markets, we keep on developing our distribution, finding distributor and expanding. That we have been doing in the past also, we'll continue that effort.

Sure. And sir, there was a very strong thrust when we started this year on online channel. You called out in your half year call as well. So what is the exit contribution from this channel as on March for the full year?

Around 8%?

7% to 8%.

7% to 8%.

7% to 8%. Okay. And sir, lastly, one bookkeeping question. Looking at the demand scenario, are we planning to do any major CapEx this year now?

Yes. It's not major, but it is ongoing. Wherever, whatever is the need, there are molds are there, small machineries are there. So in the past also, around INR 100 crores. This year also, that kind of capital expenditure will be there.

[Operator Instructions] The next question is from the line of Kaustubh Pawaskar from Sharekhan Limited.

Sir, question is on the current situation. Since the lockdown has -- is gradually improving and people would be getting out of home and still the permissions are not at the optimum level. So which of the categories of Relaxo would see higher demand in the current situation? Also, schools have not reopened. So which of the categories would see demand in the current situation?

Currently, what we find that the value of slippers, open footwear, that is in demand more than the sports shoes or sporty sandals. So that is what we find. Slippers, open slippers, whether PU, EVA or our Hawaii, Bahamas, these kind of articles are more in demand.

Right, sir. And what would be the approximate contribution from this to your overall revenues?

2/3.

2/3.

2/3 of your revenues. Okay, sir. And sir, it is expected that the schools would reopen somewhere in August, which at current juncture look to be unlikely, but the government is planning to slowly start with the education institutions. So can we expect the school demand or demand for the school shoes to pick up post August, maybe in September? And what is the contribution from that particular category for you?

It is very insignificant. School shoes are very insignificant contribution in our scheme of things.

Okay. And sir, one question on the raw material prices. This quarter despite the fact the revenues were down, and at gross margins were -- level, we have seen significant improvement. So how is the raw material cost position now? And do you expect this gross margin expansion to sustain in the coming quarters?

Yes, raw material prices have been, by and large, stable in the last year. And this quarter also, they will be benign. So we are -- we have to sustain these margins.

Okay. And sir, last, if I can chip in. Sir, in your presentation, you mentioned that the exports -- Indian contribution to overall global export is just 2% compared with China, which is at around 40%. So do you -- post COVID, do you expect this contribution to go up, are you seeing some kind of orders coming from the markets which have slowly -- international markets which have slowly started opening up?

No, no. We are already doing a lot of effort in our export promotion. But for the time being, even overseas market, this COVID effect is throughout the world. It's not that only in India the effect is there. So there also things are not opening up.

The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.

Just wanted to check that when can we see a ramp-up in terms of our production reaching 100% utilization assuming that the demand comes back? You mentioned that there was...

Volume has gone down.

Can you please repeat the question? We are not able to hear you properly.

Yes, can you hear me now?

Yes.

A lot better.

Yes. I'm saying that, sir, assuming that the demand comes back by, say, September or maybe October, do you think that we can sort of ramp up production to, say, around 80%, 90% by September, October? Will we be able to do that?

Once we get the demand coming, we will be able to then, I mean, utilize our capacities, ramp up because by that time, I think, migrated labor will also start returning after 3 more months.

Okay. And in terms of your vendors from where you sort of procure raw materials -- any raw materials or semi-finished goods, how is the situation over there in terms of your vendors, sir?

That is not an issue.

So you don't think there will be any production challenges by September, is what we can assume?

From raw material point of view, no challenge.

Okay. Secondly, sir, what could be 2 or 3 cost-saving levers which you can sort of use to sort of contain cost in FY '21?

Currently, we have to -- currently, maybe we will -- actually, we can't say what actually we are going to do. Depending upon the market condition, the new schemes or the sales incentive schemes that we'll relook into, or brand building exercises, we can cut some expenditure in those things also. Marketing expense is what I mean to say.

Okay. And lastly, sir, there were a few new competitors who had emerged and who gave us strong competition on the Sparx brand, especially the footwear segment, the sports shoe segment. So post lockdown, do you see these new entrants continuing with their competitive intensity or you think they will sort of slow down?

The competition is always there and it is a healthy part. The competition should be always in the trade. And whether competition or no competition, our company has been growing at a fairly good rate. So we will focus on it and hope that we will be doing the way we have been doing in the past.

And sir, do you think FY '22 can be better than FY '20?

Market conditions are very unpredictable at the moment. So we have to currently see quarter-by-quarter how the things unfold. Depending on how the market unfolds, really how the shopping area grows, how much public starts moving out.

But FY '22 should be better than FY '20.

You want [ 2020 or '22? ]

'22.

'22.

FY '22, I think, it will be better than '20.

By that time, things will be very clear and stabilized. Things will be good -- very good.

The next question is from the line of Dhruv Bhimrajka from Bharti AXA Life.

My question relates to -- I just wanted some detail on your raw material procurement and sourcing. So what are the main raw materials that you use? Do you source it locally or through exports? Can you just give a detailed description about it? That would be great.

There is -- in the non-leather footwear industry, there are lot of materials. Main is -- main are the polymers, like natural rubber, ethyl vinyl acetate (sic) [ ethylene-vinyl acetate ], PVC, PU. So all -- certain material like EVA and PU, they are imported, but that is not an issue. Natural rubber is available locally also.

Okay. So sir, if I have to ask this EVA and PU, which is imported, what are the major countries that you import them from?

There are many, 7, 8.

Okay. 7, 8 countries. Okay. That would be great. And what would be the largest component of raw material? Sir, rubber is what part of your raw material component? And if you could just give us range, that would also be useful.

Largest is, as on date, EVA.

Okay. That is how much, sir?

Followed by PU, then natural rubber.

PU and then rubber. So what would the percentage be, sir?

Article-wise different consumption, different articles. Very difficult to tell.

Okay. Okay. But these 3 would be the major raw materials which matter to you?

Yes, as far as polymers are concerned. And the polymer is the main cost in non-leather footwear.

Polymer is the main cost. Okay. And sir, last question, what is the -- what would be your -- like North India is what part of revenue? Can you give a breakup of North, South, East, West India? That would be great.

No, no. Different articles have different things. Open slippers have a different scenario, those like Sparx have a different scenario. That's the reason why we'll not like to diverge, for competitive reason.

The next question is from the line of Dhaval Mehta from ASK Investment.

Sir my question is related to open footwear. This is a category where we are seeing right now maximum growth. So how is the competitive intensity in this category because where I'm coming from is, right, this category predominantly, the unorganized pie was doing a sizable business. So have -- they are facing constraints in terms of manufacturing which is helping us. So I just wanted to know more about it.

Competition is part and parcel of every business, and we have been coexisting for the last so many years. So there is nothing to fear from it. Let it be there. And some of the local players are also getting organized. So that is not an issue.

Okay. So even the local or the unorganized players are back in full capacity, so they are not facing more of a manufacturing constraint as of now. Is this the right assessment?

I can't comment on that. What are they internally doing, I can't comment on that.

Okay. Okay. Sir, my second question is with respect to our distributors. So our distributors' income will also be impacted because of the lockdown. So are we giving some extended credit or helping them in terms of -- by supporting them in terms of a few other benefits. Is that happening? Or how exactly things are at the distributor end?

No, no. It's not necessary. Currently, what is happening in the market because demand is there, supply constraint is more. We are giving now less discounts to retailers. So they are able to make up their margin accordingly.

Okay. Okay. Okay. And sir, most of our factories are located in the northern region, and the South and the West market was the market where we were getting maximum growth. So how -- so when you expect the supply chain to be normalized? And is it already normalized?

In South, markets are not operating. Supply chain has challenges, but not that we are not able to supply. It may take a day or 2 more. But problem is these markets are not opening up. Once the demand starts coming, we'll keep on serving those markets also.

The next question is from the line of Ritesh Gupta from AMBIT Capital.

Sir, just to kind of ask the same question again which other participants have asked. So you touched almost a 60% gross margin in this quarter and I can see that crude prices have turned even more benign versus where, let's say, I would assume that you would keep an inventory of 3, 4 months. So the inventories at which probably you will be procuring some of the polymers might have further fallen and that inventories probably will come in your consumption in the next 3 to 4 months. So should we expect that margins may improve? And you have been indicating that you have been taking some price hikes also. So on a broader basis, should this 60% gross margin that you reported can actually further improve? Is it a fair expectation in FY '21?

That we have to watch market condition. What kind of demand is coming up in different categories and what is the, what you call it -- so most of the conversion, with the new way of SOP setting in the factories, a lot of precautions to be taken, social distancing to be maintained, so production capacity of every unit is getting affected. So that is on one way we'll be raising our cost, so let's -- we have to -- on a little 3, 4 months period, we'll really know where we stand as far as the cost is concerned, accordingly then we'll take appropriate steps.

Sure, sir. No, I mean, the question really is on the gross margin side. So I understand that will impact your operational costs and your employee costs, et cetera. But purely from a raw material standpoint, I mean, let's see, even if I look at from 1Q FY '20 to 4Q FY '20, you have improved from 54% to 60%, which in a way tells me that raw material benefits come to you with a lag, but potentially, even from a 4Q level, the RM prices have declined and RM prices clearly will not have any impact of social distancing, et cetera. So that was my question. I mean is it that you hedge your inventory to some extent and hence some of the benefits may not be there in the future quarter or it's a usual 3-month lag with which inventories kind of get baked into your gross margins?

Ritesh, I think you are seeing only Q4. I think better to see full year performance. So gross margin in full year, it's around 57%. So don't expect 60% margin will be there. Q4, you can see there is an increase in inventory, there is less trading goods. So it has impacted. That's why it looks like there is a big jump in the margin. That is not the case. Let's see the full year, which is around 57%, that is sustainable, again subject to so many things, how manufacturing takes shape and how material prices spurt, and then we'll take the appropriate action. So just don't get carried away with Q4 results. Let's see the full year results. That will be a right indicator of the performance.

Got it, sir. And just another thing. I think you also talked about distribution incentives, et cetera. So in a -- and this is a general question, I mean in a market where demand probably would be, we are just seeing some bit of challenges, do you think you will have to -- how should we think about the discounting at the trade level? Would the discounting at the trade level would increase to clear the inventories? Or you may have to give better margins to distributors to push your products? How does that happen? And in that context, how much is the pricing flexibility that you have as well? I mean would you have to roll back some of the price hikes you have done in the past?

So if you see the market, we have 3 brands. One is Sparx, Flite and then Bahamas. Okay. The open footwear, there is a lot of demand coming up because people in India, migrant labor going back, the demand of open footwear, and because of lockdown, people are sitting at home, so demand of open footwear has gone up compared to closed footwear, which from -- 3 to 6 months from now on, I think, the demand can pick up for closed shoes.

Got it, sir. And you told us that the ratio is 2/3 to 1/3?

Yes. Yes. Correct.

The next question is from the line of Devang Mehta from Bay Capital.

Just wanted to understand on the current strategy of streamlining distribution -- distributors. We have called out quite a lot of them from more than 900 to 700 now. So is the process over? Or how do we see this number of distributors and the regions that we are adding?

So now currently, we have 800 distributors. So last year, we have added more than 100 distributors -- new distributors and new territories. This is an ongoing process. But because of COVID, for the last 3 months, nothing is happening. And we suspect next 1 month or 2 months, will be remaining same. Post that, again, the drive of finding new distributor, new territory will be there.

Okay. Okay. And what will be the universe of retailers, MBOs endpoints for footwear in India?

See what data we have, we have collected. Last year, we discussed -- last meeting, we discussed it was 75,000. We have updated the list to 85,000 outlets. And our presence is roughly around 45,000 outlets. So this I'm talking about direct reach. Indirect reach is much more.

Yes, through wholesale, obviously.

Yes.

So 45,000 is direct without wholesale. That is what I understood, right?

Correct, correct.

Okay. Okay. And in terms of inventory in the system, you said there is 60 days of inventory in the channel. So -- and the demand is weak and for especially the closed footwear the demand is weak. So how do you see new footwear being -- so are we going to -- I mean, obviously, there will be some slack in terms of new design, but how do we see launching new products going forward?

I think we have to recalibrate our strategy and go for value-for-money product more because premiumization in this scenario looks a little difficult.

That would be across all the categories?

Correct, correct.

The next question is from the line of Sumant Kumar from Motilal Oswal.

So my question is regarding the volume degrowth in FY '20, 2.7%. So is it because of fully lockdown or some product mix changes, low-end product we have sold lesser and high-end product we have sold more. So we have seen an overall 8% realization growth also in FY '20. So can you elaborate what are the key reasons for that?

I think degrowth in full year at 2.7%, that's right. It's a mixture of both due to lockdown. Definitely, we could not sell in last, I think, last 10, 15 days in the month of March. And the full year, if you see, we were selling more premium product and with lot of value addition. So value was growing much faster than the volume. That was, I think, basic fact and the lockdown has impacted much. That's why this growth in volume is minus 2.7%.

Okay. So going forward, our focus is more to sell our value-added product. So whatever the low-end product like you have Relaxo Hawaii and Bahamas, that realization is lower. So going forward, we have a higher growth in that other segment?

No. Realization depends upon the market. Currently, market demand for this value footwear is more slipper, Hawaii slipper, Bahamas, even Flite. So we are serving them accordingly. Tomorrow, if the brand Sparx shoes also comes up, which is there, but volume is always more in these kind of articles.

Okay. Okay. And can you give us the mix -- volume mix across category? Volume and value mix?

No, sorry, we won't be able to, given competitive reasons because so many -- 400 articles, what mix we find out of it.

Okay. So like Relaxo Hawaii plus Bahamas, Flite and Sparx, 3 broader category?

High value, I think that we have been sharing, high value. So say, there are 3 categories majorly. One is Relaxo, including Bahamas; then second category is Flite and PU; third is Sparx brand. You can say it's 1/4 Hawaii segment, I'm talking about the last year number, and rest is 50-50. You can say Sparx and Flite-PU mix, Sparx and Hawaii. So 1/4 Hawaii and rest is 50-50.

So you're talking about FY '19 or FY '20?

'20, '20,'20. FY '20.

Okay. Is this volume mix you're talking about?

Sorry?

Volume mix or value mix?

It's value, value. I'm talking about value only.

Okay. Any indicative number for volume?

Volume, you can reverse. I think Hawaii will be around...

40%.

40% plus -- around 40% and then rest is balance.

Okay. Flite, you said 40%?

Hawaii Relaxo is 40%, then Flite and Sparx is the balance number.

The next question is from the line of Nirav Savai from JM Financial.

My question is more regarding this open footwear and closed footwear category. So we are undisputed leader in this open footwear category. So just wanted to understand, from a strategy point of view, that for the next 2 to 3 years, how much revenue do we target from this closed footwear category, particularly the Sparx brand?

In Sparx also, we have various segments of footwear. There is sporty sandal, there are SFGs, there are slippers and there are canvas sport shoes.

On the sport shoes side, particularly?

How much is our share? Gaurav can tell, sports shoes?

In Sparx or overall?

Total, overall scheme of sales.

It's 5% to 10%. Between 5% to 10% is the sports shoe segment what we are catering.

Okay. And if we want to see the revenue or realizations from that, would it be substantially higher, maybe 50%, 60% or even more than that average realization of the product?

If you compare this with the basic Hawaii slipper, then definitely it is much higher. But an overall revenue point of view, it is between 5% to 10%.

And internally, do we see -- foresee a larger opportunity here in the next 2 to 5 years where the sales can be higher?

Market opportunity, it is -- it's little doubtful because we are waiting for the winter season to come and then we have to see how the closed footwear performs...

This year.

This year.

Because of COVID-19 challenge.

Yes.

Right. Right. But I'm saying, in particular, if we see for the next 2 to 3 years, from a strategic point of view, is there a big shift where you see this as a larger opportunity since your penetration in this segment is very...

Pre-COVID, you can say because everybody was saying pre-COVID it was there. But post COVID, how it will be, we have to wait and watch.

Right. Sir, also, another thing is gross margins for our company for the last 3 quarters has been consistently growing. Even in this quarter, it was about 600 basis points up. So how much do you see is mainly for -- on account of raw material -- lower raw material prices and how much can be on the back of premiumization?

You see, we see the overall cost and accordingly we do the pricing so that we are able to sustain the margins.

Okay. Right. So you feel that from at least 1 or 2 quarters point of view, this premiumization thing would have a problem. So do we -- is it right to understand that your ASPs would go down in spite of lower prices -- raw material prices?

Yes. We will definitely go down when cheaper slippers or low-value slippers are selling. But gross margins and other things, we'll be able to sustain.

Okay. Right. And sir, I also just wanted to understand the competition intensity when we compare this to imported footwear. A lot of it also comes from China and India in this category. So how do you see things changing on that side? Those are not larger branded products, but on price, do we compete hard with them or they are even more cheaper than our products?

No, no. We have no competition. That is not something to worry on that front. It is mostly -- otherwise also government is day-by-day increasing that custom duty.

Yes, they have been protecting the industry, that is happening. So thus, being a branded player, there is no big challenge from the imported footwear?

No, no, not much.

Not much. And sir, the last question, if you can just help us out with online as a channel, how much does it contribute for our category of products from Relaxo point of view?

Around 10%.

Around 10% is all?

Yes.

The next question is from the line of Saurabh Pant from SBI Mutual Fund.

So 2 questions. One, just picking up from the last question. This increase in import duty that we saw in the budget on footwear from 25% to 35% and on the accessories from 15% to 20%. Has that -- I mean what have you seen -- what changes have you seen in the industry? And has it benefited players like us who are more backward integrated? That is one. The second is in terms of the season, I understand that there are hardly any fresh design, right? The summer season is almost over. So are we -- again, how are you preparing for the winter/fall in terms of bringing new designs? Or do you think this year, we are not going to see any new introductions? And what does that mean in terms of spend behind the CapEx on molds, et cetera?

So this is also -- we have to watch the market conditions and volume need of the consumer. Definitely, maybe this year, less number of articles we will introduce because it is going to be a different challenge -- other challenges which we have to overcome; supply chain issues, understand the demand. We already have good number of designs, but new number of designs also are likely to be introduced also -- this year also. It doesn't mean we will not introduce.

Okay. Okay. You think winter/fall, you will have new designs that you will introduce?

Yes, definitely.

Okay. So does it reduce the CapEx intensity, sir, this year because half the year is almost gone? And you wouldn't have had any new designs in the...

No, no. The CapEx will continue because our 1 plant of building is coming up, some expansions are taking place, some machinery is required. So at least that INR 100 crores of expenditure is going to take place this year also.

Sure, sure, sure. Any corresponding increase in -- I mean I know it's tough to -- in your setup, it's tough to give a number in terms of expansion from a volume point of view, but what does it mean from expansion of production? I mean in terms of just percentage increase, does it increase the production capacity with this INR 100 crores.

There is a new plant coming up in Bhiwadi whose first -- civil construction is going on. It will take another 1.5 years.

Sure. This is for the Bhiwadi plant. All of this INR 100 crores or...

Some of the machinery here and there, whatever we require. Sometimes old machinery has to be changed, new molds have to be ordered as somewhere because of -- some mold machineries are required. So that is part and parcel, and we have been doing for the last so many years. Every year, some CapEx has to be there.

Bhiwadi will be a small part of this INR 100 crores, right? Maybe -- I don't know if you can give a number.

Saurabh, I think out of INR 100 crores, one construction is going on. So 50% will go to that civil construction and rest will go to mold and some changes in machinery and so many other things, routine expenses. So the CapEx this year majorly is on the building part. This will be ready after 1.5 years.

Okay. I got it. Of this INR 100 crores, you're saying 50% will go to Bhiwadi, the rest will go in terms of maintenance and...

And mold and machineries.

Mold and some will go to machinery also.

Sure. And sir, just on the first question, if you can throw some light on the duties imposed by the government. Have you seen any noticeable impact?

That is not going to play much effect to us because they are -- these are the sport shoes that people import on low price, under value, whatever they do. So that is not an issue. Our 90% business is other articles.

Okay. I'm saying does it give you -- I mean is the competitive advantage meaningful for you that now it has been also imposed on accessories and also on the fully built shoes?

No, it doesn't matter. We have been always surviving among all kinds of competition. This duty up or down doesn't matter.

The next question is from the line of Sabyasachi Mukerji from Centrum PMS.

Two questions from my side. First, on the volume growth, you mentioned that for full year, there is a volume decline of 2.7%. I missed on the Q4 volume decline, if you can throw some light on that.

I think you can say there is a value degrowth of 15% in this quarter. So volume growth is also around 18% to 20% in this quarter because we have been selling premium product in this one. So this time, value growth is mainly due to premium and product mix.

But overall, is it 2%? Overall for the year...

He asked this question.

It's only 2%?

2.7%.

That's all?

Yes.

Yes, yes, yes. Overall for the year, I understand. So for Q4, if I can ask what would have been the growth -- or rather than what was the growth till March -- let's say, March 15, for 75 days of the quarter? Has there been any growth in the first 75 days of the quarter?

You're talking about this year or March?

I'm talking about Q4 FY '20. If I exclude the last 10, 15 days, where we saw the lockdown impacting the sales, what would have -- what is the growth in the remaining part -- remaining period?

We were growing in a double-digit growth. We delivered 12% plus growth till December. So we were growing in a good way at double-digit growth for the year till mid-March, and then I think everything impacted due to COVID.

We would have grown at double digit this quarter also had there been no COVID.

That is double digit around 12% value growth you are saying, so volume growth would be around 7%, 8%?

Yes. We can say definitely, there is a gap of 6%, 7%. So at least 5%, 6% growth would have been there.

In volume.

Understood. Understood. Second part on the -- much more on the industry. We know that almost probably 60%, 65% of the industry is unorganized in nature. And given this pandemic situation, most of these players would be facing cash crunch liquidity issues. Do you see this pandemic moving into something like that, that organized players will come out much more stronger and there will be a market share shift from unorganized to organized players in the coming future?

Let us hope for it. Government is trying to support SMEs like anything. So nothing to worry. We have a good position in the market, and we will keep on growing the way we have been growing in the past. Also, competition activities always remain and competition activity should be there always. Then only because the whole industry grows. So whether -- even in the local, some people will survive but some people may, in local also, emerge stronger. Depends upon every management to management, how they handle, how they come out.

The next question is from the line of Chirag Shah from Valuequest.

Sir, my first question is on realization trend. So if I look at your realization per pair this year, it is up by 8%. And historically, last 3, 4 years data you shared in the presentation, it was almost flattish. So just wanted to understand, first, how do you define premium portfolio? What is the realization in premium portfolio? What is the current contribution? And this 8% increase is increase in premiumization or existing products have also seen price increases?

So 20% of our business comes from premium articles, and we keep on developing these articles after understanding the evolving needs of the consumer. So whatever consumer is needing, what needs -- how they are coming up, accordingly we launch our premium articles.

How do you define the premium articles?

It is very subjective. For one person, the article of INR 200 may be premium and somebody may say, no, INR 2,000 is premium. So Hawaii slippers, in our category, we say INR 200 is a premium because...

So anything above INR 200 -- so is it fair to understand anything above INR 200 per pair would be premium for us?

No, No. I mean it's a category to category. In sports shoe, INR 200 is nothing. In sports shoes, INR 1,000 where we have basic category. But there in the articles of INR 2,000, we will call it premium. So we have in our own creative segments within our own way of understanding the things. And accordingly, 20% of such articles we have categorized as our premium articles.

Akhil, you are there?

Sir, the line for the current participant dropped. The next question is from the line of Rakshit Ranjan from Marcellus Capital.

Sir, in your opening remarks, you mentioned you've taken certain initiatives to come out stronger from this crisis. Can you elaborate a bit more on what are these initiatives? Whether they are in manufacturing, in product development, in distribution, any specifics you can share?

Currently and even in the past, we always keep interaction with our consumers, our distributors, our retailers. So by understanding the evolving need of the consumer, our product development is taking place, and these articles are more successful in the market. That gives us a good edge in the market. And after post lockdown what we have seen, at the moment, value footwear are much in demand. And we are organizing within ourselves, trying to organize the things, improve the things. So maybe by next quarter, when things will normalize, then our sports shoe and other segment will also come up. So we are better prepared than competition, I should say, to make use of the opportunity if it comes up after stabilization of maybe second or third quarter.

And the biggest difference that you expect to see in your business vis-à-vis competition is around manufacturing? Or is it -- I mean because of different degrees of return to normalcy on the labor front or is it more around the front-end distribution? If you can elaborate that as well.

First of all, it is the market has to be normalized, and the demand starts coming then only you are able to cater to. And once that is there, since we have very good capacities, modern plants, so we are in a better position to serve them also. And we have our warehouses spread throughout the country. So servicing is also, for us, I mean, easier. So we can give better services to the people. We have a good sales force on the field. So all these things put us in a good advantageous position to serve the market.

The next question is from the line of Tejash Shah from Spark Capital.

Sir, a couple of follow-ups. Sir, the center point of our long-term strategy for last many years has been identifying new geographies and leveraging our cost leadership and branding capabilities to gain market share. Now the 2 geographies which we have been calling out for the last 2 years is South and West. So when you index your brand strength and I don't -- I know there is -- you have mentioned in the past, it's difficult to comment on market share. But whatever competitors' data you track in this market, what will be our market share -- rough market share gain in the last 3, 4 years, if you have to give some ballpark figure?

No, it will be only guesstimate we can give you because information of competition is not at all available. There is no source -- authentic source. Neither there is any neutral agency who can track these things. So from our own angle, the way we calculate, it is a guesstimate that we have a market share of 4% to 5%.

Still in South and West India we are single-digit market share?

No, I'm talking total.

Total? But sir, your North India market share will be higher than your new markets. So that's why I was asking.

So new market has better growth rate if we see. Compared to the overall growth, we are growing doubly in the West and South market.

Sure. And Gaurav, would it be a fair assumption that your premiumization -- your premium portfolio share also will be higher in South and West market?

Yes, definitely.

Okay. And last one sir, there were some rough comments you made last year that East India is also looking very lucrative. So any plans of entering East India in a big way this year or in near future?

East India, yes. There is West Bengal we are focusing, and we are seeing very good growth rate there. So we'll continue this process, yes.

The next question is from the line of Chirag Shah from Valuequest.

Sir, actually, my call got disconnected. So just wanted to check that existing products also saw price increase or it was just premium zing which led to this overall improvement in the realization?

Can you repeat, please?

So I just wanted to understand this 8% increase in realization per pair was due to just increasing share of premium portfolio or our existing portfolio also saw some bit of price increase which led to this overall improvement?

It should be a mix of both. There was also some price revisions and also premium article also getting more share in our scheme of things, both.

Okay. Can you share what kind of price increase you would have taken in existing portfolio?

It's very difficult. We have 400 articles. We have to be very selective where we can increase, how much we can increase. So it will be very complex and not -- nobody can make any sense out of it.

It depends upon what consumer is looking for.

Got it, sir. Got it. Just lastly on what will be our overall utilization levels currently -- plant utilization levels?

Around 70%.

We are back to 70%?

Yes.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Sir, could you share the ASP for the quarter and for the year, average selling price?

This year, it will be around INR 135. I think just -- it will be around INR 135, ASP.

For fiscal year '20, it was INR 135 per pair, right?

Yes, yes.

And for the quarter, was it any different or pretty much in line with this number?

Quarter, it will be same, I think. Full year average and quarter will be same, by and large.

Okay. My second question was, in the last 2 months after the quarter end, are you seeing different demand trends in rural versus urban?

Rural is picking up like anything because most part of India rural was not locked down. So there was a constant demand coming from rural. But the urban India, there is a lot of problem coming up. For example, retailer is hardly opening the shop. Even after government regulation, they are not opening their shops. If they are opening, they are opening with their own timings. So rural India is more promising than the urban India. So that's what we can see in next 1 month time.

Okay. That's very helpful. My last question is you're talking about PU being imported, and there is a player which has put up -- or in the process of putting up new capacity. Do you think that's good for your industry in the sense that, hopefully, the cost will come down or if you can give some color on that particular event?

PU -- whether PU or EVA, both are imported materials. So material is not an issue and is around demand. Now we have to make what this demand. If more demand is of PU slippers, we will make PU slippers more. If the demand now, for example, currently, these so-called Hawaii slippers, Bahamas and Flite, EVA, they are being demanded more, so we are producing those more.

But I think you want to know about the prices of raw material, no. That -- what's your exact question?

Yes, let me repeat my question. My question is that now that a player has -- is setting up the capacity in India itself, are you likely to buy it from them or do you think the landed price of importing PU is still going to be cheaper?

No, we have to see...

[Foreign Language] whether it is domestic -- domestic also, they import material, they do the mixing only then -- that they are also -- they are also importing. We are also importing. So we have to see. Wherever we get some price advantage, we buy from them.

I now hand the conference over to the management for closing comments.

Thank you all for joining the call. This is all from our side. Looking forward to joining you again. Thank you very much.

Thanks a lot, sir.

On behalf of Elara Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.