Relaxo Footwear has garnered many followers on Dalal Street of late. Its stock has delivered a mind-boggling 374% return in the past three years and trades currently at 33x FY17 consensus earnings, closing in on the valuation gap with rival, Bata India, which trades at 36.2x.
This re-rating has been driven by a couple of things: a strong growth in realisation because of a product-premiumisation strategy, and an expansion in its distribution network. But, can this stellar performance continue?
Relaxo has gradually moved up the value chain, increasing its realisation from ₹48 per pair in 2008 to ₹130 per pair currently, but still far lower than Bata’s ₹480 per pair. Yet as its sales continue to come from non-leather products, it makes up for nearly 85% of sales by selling 13.5 crore pairs, as against Bata’s sales of 5 crore pairs.
Since 50% of India’s footwear market still belongs to unorganised players, Relaxo identifies them as direct competitors instead of big players like Bata. Hence, it is still sticking to a lower price point while strengthening its branding to get a greater share of this pie by tapping customers willing to upscale. In line with the strategy, it has not only been innovating on product design, launch