Relaxo Footwears Ltd
NSE:RELAXO
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
740.3
936.6
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Relaxo Footwears Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Relaxo Footwears Limited Q2 and H1 FY '23 Earnings Conference Call, hosted by Motilal Oswal Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aliasgar Shakir from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Yes, thank you so much. Good evening, everyone. On behalf of Motilal Oswal Securities [indiscernible] the senior management of Relaxo Footwears for Quarter FY '23 Earnings Conference Call. Welcome all to this call. From the management, we have with us today Mr. Ramesh Kumar Dua, Managing Director; Mr. Gaurav Dua, Full Time Director; Mr. Ritesh Dua, Executive Vice President; Mr. Sushil Batra, Chief Financial Officer; and Mr. Vikas Tak, Company Secretary. I'll hand over the call to the management for opening remarks, and then we can open the floor for questions. To you, sir.
Thank you, Ali. Good afternoon, ladies and gentlemen. Thank you for joining the Q2 and H1 FY '23 earnings call of Relaxo Footwears Limited. We have already uploaded our earnings press release and presentation at the exchanges, and we hope you have got an opportunity to review them. Before we open the floor for question-and-answer session, I would like to take you through an overview of the number of Q2 and H1 FY '23.
During Q2 FY '23, the company reported total revenue of INR 670 crore as compared to INR 714 crore in Q2 FY '22, registering a decline of 6.3% year-on-year. The performance remained subdued mainly on account of fall in volumes in Q2 FY '23 in the categories, serving the masses, with consumer facing inflationary pressures affecting affordability, there has been a shift in consumer habits as they moved towards cheaper alternative at the cost of quality.
This prompted the company to take an aggressive price correction in September 2022 to remain competitive in the current market. This price specialization approach has been welcomed by distributor and customer, which would help us clear high-cost inventory in the coming quarter and ultimately improve our volume number going ahead.
EBITDA in Q2 FY '23 was at INR 59 crore as compared to INR 117 crore in Q2 FY '22. This degrowth in EBITDA was mainly due to steep increase in raw material prices. EBITDA margin during the Q2 FY '23 was at 8.9%, declined by 748 bps point year-on-year. The profit after tax was at INR 22 crore in Q2 FY '23 as compared to INR 69 crore in Q2 FY '22.
Moving to our H1 FY '23 performance, the total revenue was at INR 1,337 crores and grew by 10.3% year-on-year as compared to INR 1,212 crore in H1 FY '22. EBITDA was at INR 146 crores from INR 183 crore in H1 FY '22. The company reported a profit after tax of INR 61 crore in H1 FY '23 as compared to INR 100 crore H1 FY '22.
The strong fundamentals complemented by wide distribution reach, strong brand recall and better sourcing capability. We are optimistic about overcoming this tough phase and focus on delivery, steady revenue growth in both domestic and export making going forward.
Thank you. Now we can open the floor for questions.
[Operator Instructions] The first question is from the line of Gaurav Jogani from Axis Capital.
Sir, my first question is with regard to the sharp volume decline that we have seen. And you have also mentioned that you have taken aggressive price cut in September '22. So, one, if you can highlight what is the quantum of the price cut that you have taken? And how much of that has impacted the initial volumes? Because we understand that your distributors would have destocked initially. And because of which also there will be some volume impact.
Yes, I'm Ramesh Kumar Dua this side. Just in the background, I want to tell you a few things. The main cause of our price increase in the past 1.5 year headwind, some of the raw material polymers like EVA, PVC, [ polyvinyl. ] They have started gradually rising and capital rising to an extent, the thing which we were getting at INR 120 a kg, reached INR 300 kg. And then this started falling also, and it came down to INR 160. So in such a kind of volatile situation, where our company has to maintain a long supply chain because materials are imported. It has to be at least 6 months' supply chain.
So when the things arise, then it is beneficial for the entire trade company and our customers. But when there is sudden fall, which historically, at least I have never witnessed. Such a fall from INR 300, a thing become INR 160. And local market becoming cheaper than the international market at which we got. Our way of pricing the products have been based on our costing. But now during this period, when the local raw material prices became lower than our cost prices, the local industry or other people who are always hosting the material from local sources, they became competitive and also the affordability of the mass segment, that has been affected because of inflation all around.
As a result for the -- our mass customers, we started shifting to cheaper products, never mind the quality, whether it lasts 2 months or 3 months, they are not bothered. They just want to [indiscernible] this difficult period, which they are facing for inflation. So when the prices were rising gradually, we are forced to revise the prices upward. But when the raw material started falling or it became cheaper to the competition, they reacted very fast.
But as far as our company is concerned, which has a long supply chain, we took our own time. Meanwhile, because of unaffordability of our article to the masses, they went for cheaper alternative. So that started affecting our sales. Now in the month of September, we have made some price correction so that we are competitive in the market. Nevermind, it will affect our bottom line, but to be in the market, have volume sales, that has become very -- that is a kind of a cautious call to maintain our market share in the market. So that has been the reason.
Otherwise, if I want to tell you the gravity of the thing, the polymer, we are consuming around 1,000 tonnes per month that is in a year, 12,000 tonnes. And the material of this, which was INR 120 kg in '19 -- 2021 -- sorry, last year, for the year, it became average INR 210, INR 100 kg, you can see a different, INR 100 kg, 12,000 tonne, INR 120 crores per single material. And even in another 6 months, this year also, our average has been INR 240. So this is a magnitude of the [indiscernible], this thing, which we say average is INR 240, but in local it became INR 160, so they became more competitive. [indiscernible] took this aggressive or -- to be competitive. But in the coming months, all those things are not still stabilized, the INR 160, which was coming to local now it has become INR 200. So things are very volatile. We are keeping an eye in the market, and we will keep on taking timely corrections, keeping a view of how the other markets are reacting. That's it.
Sure. Sir, just to follow up on this one. So one, what is the magnitude of price cut that you have taken in September? And second thing, sir, now because you're saying now the local markets, again, that price has become INR 200 per kg. And you might be having some inventory because of this. So now does that place you better versus the competition because you have some earlier inventory also with you?
Yes. No. Generally, our supply chain is around 6 months. The price -- what you call it, price correction has been around 15% to 20%. Our main segment that is affected is Hawaii and EVA segment. Other PU-related footwear and Sparx shoe that is not affected. That has grown also and it's okay also. It's only where EVA polymer is being consumed. They are in our Bahamas wear, and Relaxo and also Flite EVA category. There, our company has suffered because of this volatility. The volatility even earlier, we were able to say, okay, next year, what will be the price of this material, we were able to predict. But now our purchase department is not able to tell in guarantee what is going to be the price next quarter, such is the kind of volatility and unstability. Under such volatile chaotic conditions, things have become quite challenging. And now we are keeping a close watch on the market and taking timely correction, not based on our costing, but based on market conditions.
Last question from my end. Sir, what would be -- I mean what we are seeing [indiscernible] in terms of consumption in footwear at least that the premium and the mid-premium segment continues to grow well. I mean you have highlighted that for you the Sparx and the sports shoes are relatively unimpacted. So according to you what is driving this difference? Wherein the sports shoes and the higher segment is growing, but people are not able to afford being the lower end of the segment.
Well, you all know richer are becoming richer and poorer are becoming poorer. This mass segment, his affordability has been affected. And that was our quite a big share of business.
Plus rural market in India, they are really suffering, if you read the Economic Times today also even Hindustan Lever is taking heat because of a lot of inflation in rural market. So the purchasing power in rural market is more affected than urban India.
Sure. Sir, anything that you are doing in terms to cater to that the demand that is shifting towards update, I would say, to the premium and the mid-premium segment. So what is the company's efforts on the same and how the company is looking to make more from it?
We are focusing on our other categories, which are...
Sorry to interrupt, members of the management team. Sir, there's a lot of disturbance from your line.
[Technical Difficulty]
I think I have concluded. Now we can go for next question.
The next question is from the line of Bharat Chhoda from ICICI Securities Limited.
Our cost of goods sales for per pair has been around INR 60, INR 65 over the last few quarters or so. And then probably this quarter, it has gone to INR 88 per pair. So in the ensuing quarters, do you see like in Q3, Q4, that could come down to between INR 75, INR 80 or even lesser than that? Do you see that possibility?
Yes. Although raw material conditions are quite volatile, but we have a long supply chain, and we have a lot of goods purchased at higher prices of the last year also, we are carrying inventory. But in this quarter, that is October, November, December, I think all that old inventory will be flushed out. And January, February, March, there, our cost of production will be definitely low and things will be better.
So probably from Q4 onwards, we would see normal gross margin kind of things returning?
Since we started improving, topline will start improving, but at the same time, we have to keep ourselves, what you call, competitive, relevant as per the market. We've to also be very watchful, what is the affordability of the mass segment. Accordingly, we have to take corrective action timely.
So this high-cost inventory will be there for one more quarter at least?
Yes, at least. This quarter, it will be flushed out, by November or maybe December by all mix.
Okay. And sir, our raw material prices, what was the peak level that was there and from a percentage increase on a Y-o-Y basis. And from there, how much it has fallen down right now? If you could give a benchmark on that.
Yes, yes. It seems -- it was INR 120, it gone up to INR 300, now it has become INR 200. That is the kind of volatility you can understand. And consuming 1,000 tonnes a month -- just understand, consuming 1,000 tonnes a month, you can understand the volatility and the affect.
Okay. And sir, how is this higher-end segment doing like you said it is growth in that. So what kind of growth are we witnessing in the shoe segment or something? Any color you can provide on that?
Yes, Gaurav will tell regarding sales figures of it.
So in shoe division, our growth in last 6 months is around 30%. So there's a healthy growth coming in shoe division, which is sports shoes and sports sandals. So that has grown well, but open footwear, which is Hawaii that has degrown.
So what is the quantum of degrowth over there, Hawaii?
That is also around 20%.
This you're speaking in terms of volume, sir?
Value, value, value.
The next question is from the line of [ Nisar Parekh from Native Capital. ]
My question is, I think, in continuation to what we've asked earlier, if you can just break up your volume or revenue? And just give us some directional view in terms of how is the performance of some of the lower-end categories or price points versus some higher-end categories?
No, lower end -- Gaurav?
Actually, the out-of-home category, which is sports shoes, formal slippers that has grown well and indoor, like we have Hawaii and Flite EVA, that has degrown. So now after lockdown, there has been a shift, people are going for more premium out-of-home categories. So that is going well. But in Hawaii segment, we are feeling the heat -- facing the heat here.
Out-of-home would be what percentage of your revenue?
See, in out-of-home also like we have Flite category in which we have EVA and PU, so PU is more than 50%, so that's growing more. if you say open footwear. But if you add Sparx, Sparx is also giving more than 41% contribution to our total business. That is growing at around 30%.
Okay. And what would be the average selling price for the Sparx category and the shoes category?
Every category is different, like sports shoe has around 800 plus [ ASP ] and sandal is around 500-plus [ ASP. ]
And my second question is just in terms of your price and margins. So given recent...
Your voice is not clear. Can you...
[Technical Difficulty]
The next question is from the line of Priyam Khimawat from ASK Investment Managers.
Just wanted to understand, you alluded that price of polyurethane has moved from INR 120 to INR 300 per kg and then again falling back to INR 200 per kg. What percentage of raw material is this for us?
What you want to know, consumption of the material?
Breakup of a raw material in terms of what percentage of raw material is this component?
That is different in category-wise, you're not able to make anything out of it. I just told you, our total consumption of this polymer is around 1,000 tonnes a month. And the volatility has been 120 to 300 and then 300 to 200. 20% is consumption of EVA in the total, total cost of the materials.
Okay. And if you could give some color on what are the other components in our raw material?
There are so many other materials. The EVA is there. The PVC is there. These are the major polymer, natural rubber is there. [ PPDM ] is there. There are host of so many materials. But the main reason has been too much flexibility on these 3 for key materials, EVA, PVC , low-density polyethylene and some natural rubber that's all.
Okay, sir. That helps. Sir, you alluded to a 6-month supply chain cycle in most of the raw materials imported. Now that we've seen that this raw material can be so highly volatile, anything we're doing to reduce this import component and reducing the supply chain?
We can't depend upon local sources. Otherwise, our factory will not be able to run. Local source, availability is only meant for small manufactures, small. If we go to the market rate will be out of control [Foreign Language] local, because our 1,000 tonne, nobody can match. So we have to maintain this kind of supply chain so that there is no disruption in the manufacturing process. It is only this onetime life phenomenal, things that fall otherwise it has always kept our company in a very healthy position. And it has been always beneficial.
Got it. Sir, and did I hear it right that Sparx is currently at 41% revenue contribution and it is growing at around 30% for us?
Right.
So despite that [indiscernible] growing at 30%, our sales have declined around 7% this quarter. So the other part, which is 60% has declined, that steeply.
Yes, yes. You're right. You're right. So there is a factor, the Hawaii factor, the EVA factor, what we are doing in Hawaiian and Flite that has degrown a lot. So whatever gains we are getting from shoes division is getting nullified. So it's why the 10% growth is coming. And in this quarter, it was not that also because of too much rains and the market was not responding.
Understood. Sir, and our ASP right now is trending at around 169. Can you give us what -- because 41% is part, you alluded to 800 ASP and 500 ASP for sports shoes and sandals, respectively?
We need to correct that, that's 800 -- if you take as a Sparx, we have 437 as ASP, 450, you can say. It has INR 450 all categories total in Sparks.
Understood, understood. So going ahead, should we assume that since Sparx is growing at such a high pace, and ASP structurally will move towards INR 200 to INR 260 in the coming years?
It will be increasing, but by how much we have to see. Sales will increase.
The next question is from the line of Harsha from InCred.
Sir, my question is we have made a press release where we have stated that we have canceled some 15,000 stock option under our [indiscernible] to 5 employees because the resignation. So just wanted to inquire your -- are these senior, mid-senior level exits and when have they kind of resigned? Is it -- I mean, near term or kind of in that perspective, sir?
We give the result to our AGM and above. There are 110 people in that category. So out of these 5 people have left the company and one was retirement case. So these are the middle level -- senior mid-level, you can say, and they have left...
So this is basically -- I mean exit by retirement?
Some retirement and some people left voluntary clearance.
Okay. Okay. And secondly, sir, what is our current capacity of Sparx? And what will be our capacity of Sparx in the next 2 years?
Currently, it is around 50,000 pairs a day of this Sparx and which we are increasing the production to 100,000 pairs a day.
Okay. And that will be -- I mean, that will come -- I mean, operationalized by what time, sir?
Next April onwards.
Okay. So we should be able to double our capacity in next 6 months, basically?
Correct.
Okay. Sir, then what would be our CapEx outlay for FY '23?
FY '23, our CapEx will be around INR 120 crores to INR 140 crores because we have already placed the order, it is in pipeline. And we have added some back-end operations also. And including all these molds and so many other expenses on building part, it will be in the range of INR 140 crores, you can say, FY '23.
The next question is from the line of Aliasgar Shakir.
A couple of questions. First is on your sportswear. So if my understanding is correct, out of about 20% of closed footwear, about 50% is sports and athleisure, right, which should be somewhere about ballpark around INR 250-odd crores. So just wanted to understand, I mean, what are our plans there? A few of the recently listed companies and in fact, overall market, also a lot of smaller players have rapidly grown in the recent past. So what are our plans here? I think we will recently also added capacity in the sportswear. So how do we plan to grow this business over the next probably 3 years, if you could share your insights.
So this sports shoe segment this divided into online sale and distributor sales, the channel sale. So in both channels, we are seeing a good demand coming from the market, and that's why we have added the capacity there only. And we are adding more designs every year like this year also we have added a lot of designs and we're giving a lot of trust to a placement of products in the market. So we are expecting a good growth also coming from these Sparx segments specially sports shoes.
Okay. So would you share what is our plan over 3 years, if you could share some number what kind of growth we can expect here given that there are players who have reached [indiscernible] crores kind of revenue. And we certainly have a very deep distribution reach. So we should be able to use our existing distribution reach or sportswear requires a different reach and therefore, it should be a very slow growth business.
No, this won't be slow growth. We are growing at 30%, and we'll continue to grow more than 30% year-on-year in this category. And the demand will come from both channels, online, offline, both.
Understood. And is the number that I shared about [ INR 250-odd crores ] from the sportswear number correct? Or is my understanding...
That is only typical sport shoes, which we did last year, INR 250 crores. So definitely it will grow here -- from here.
Understood. And just second question is on the inventory situation. So given the fact that you have taken price cuts, you would obviously have a lot of inventory yet in the system, which is at a higher price point. So by when do you expect that inventory to get unwind? And then you should only have one price point or lower price point inventory available in the market.
At company level, I think by December end, we'll be able to clear almost all the inventory of old prices but it will go through the retail and that will take 1 to 2 months more at the retail level. So it's a long supply chain. Company can get over quickly. But at retail and distributor level, it takes time, maybe 2 to 3 months more, so by March I think it will be everywhere is new purchase.
Got it. So, so far, whatever is the current price point, we should be able to normalize our inventory by probably March unless seeing some more volatility.
From company point of view, by this December, it will be clear.
Next question is from the line of Ankit Kedia from PhillipCapital.
Sir, the price cuts are 15% to 20%, which you alluded in the open footwear category, is it in line with the raw material price deflation what we have seen or the price cuts are more towards volume protection and not towards fall, which you have seen from average perspective?
Price this revision has been taken keeping a view of the local market conditions, affordability of the consumer and what is the competitive environment. To be competitive, we have brought these prices, and we have to always remain competitive in the market. That is what we have done.
Is it fair to assume that the price cut is more than the [ RM ] deflation, which we have seen the market and hence, the gross margins could bleed actually because of this?
No, no, this gross margin under pressure until December. I think we'll start looking up in January onwards. But one thing I must tell you, the raw material situation is very volatile. We can't even predict in January, February, March at what rate we will be buying. Based on whatever we have in supply chain and what we are making current buying arrangements from international suppliers, we are able to tell today.
Sir, let me put it the other way. So if the [ RM ] increases, we will continue to maintain our prices to gain volumes and not increase our prices further...
That is a very strategic view point you are raising. You need to watch the market condition at the same time. Whatever is the market environment accordingly, we have to respond.
Sure. Sir, my next question is on your sports footwear. So from the current MBO retail network, how much is for the close sports footwear, if you can share that? And over the next 2 years, because we're expanding capacity, how much is coming predominantly for online? Are we going to have a differential product like some of our competitors have for online, where we will focus more or it's going to be fungible between online, offline as the demand comes in?
Currently, we have same portfolio, but going forward, we'll have different portfolio, especially SMUs for e-commerce and different products for the offline because we want to control the price, there is a lot of -- sometimes price war. One channel give you more discount than what we have heard in this Big Billion Days. So we are going to change our strategy and making SMUs for online channel.
And sir, how many exclusive MBOs do we have for Sparx out of the 60,000 retailer network which we have?
You're talking about wholesale or you talking about our own retail outlets?
How much for wholesale, sir?
Wholesale, what we have, we are going currently to 60,000 -- 50,000 to 60,000 outlets. We have a data of 90,000 outlets. In that 10,000 outlets we are covering through Sparx.
And so over the next 3 years, what is the target? Do you -- what is the potential for Sparx for these outlets you feel given that open footwear will obviously be more? So -- and how do you plan to target the South and West market for Sparx?
Sparks does well in South and West. Already, we are doing good in the South and West. Now we have to do good in East and North, other way around. And this 10,000 outlets definitely increased to 15,000 to 18,000 outlets in the next 3 to 4 years?
And sir, one last question on the online side. Today, online -- last year was around 12% of your revenues. What is the target given that the strategy is going to be more focused on online over the next 2 years, predominantly for the closed footwear contribution from online?
See 12% is all brands put together. But if you take Sparx, it will be more than 20%, 25%.
And over the next 2 years, sir, what is the target given that you'll spend more on online?
Definitely, this 12% contribution will increase to roughly around 15% in 2 to 3 years' time, and this 25% will also increase what Sparx we are doing.
The next question is from the line of Mithun Soni from GeeCee Investments.
Just wanted some clarifications. So how much of our revenue comes from the EVA-based product? Because that's where, from what we understand, is where the maximum pressure has come because of the long supply chain?
Around 50%. EVA consuming is around 50% to 60%.
Okay. So this will be even -- and out of the 50% to 60%, how many of this business would be like where we had reasonably priced products like Hawaiis of the world and where -- it is at the mass segment because that is where you would have faced most of the pressure in the -- or you have faced the pricing pressure even in the Hawaii category?
We have faced this pricing pressure at the Hawaii which comes under brand Relaxo and Bahamas. And also EVA coming under Flite brand. These 2 categories have -- we have faced this problem.
And the price correction, 15% has been taken across the entire portfolio of 50% or 60% of the EVA products?
No. Yes, EVA and Hawaii segment, we have done the correction.
EU and Sports shoes, we have not done any correction. So for 50% of the products of the total sales, 50%, which is that we have taken a correction. For the PU wear, Sports and Sparx, we have not taken any price correction.
And one more very important element we are missing is that GST has increased from 5 to 12.
Correct.
So that also has impacted a lot, in this lower segment 5 to 12, that has also impacted, raw material plus GST.
Correct. Correct. The second thing, like as one of the participants asked that there is a clear shift what we are seeing that the premium, semi-premium has been doing well and versus the mass segment has been facing the pressure. And there is the market which is moving over there? So how -- what are the things we are doing to promote and to expand the share of the semi-premium and the premium category for us?
We are increasing the capacity of, what we call it, our sports shoe manufacturing capacity, we are doubling of the capacity. And we are also focusing on online sales. Online sales is maximum of premium and these segments only, not slippers or low price articles. That is what will do.
How would you say Hawaii -- how are the priced Hawaii, they are also priced semi-premium or even they are also priced at the mass pricing?
Hawaii is meant for mass segment.
Okay. So 50% of our business comes from the premium and the semi premium segment is the way to look at it?
Yes, almost.
Okay. So -- and given that we have our own 400-store outlet distribution, any plans on that front, like what are the things we are looking to do over there to promote our products in the premium category?
Well, our retail outlets, they are doing well. And we are trying to see if need be, we'll do the expansion on that front.
Okay. But you're looking to do expansion in that front?
We are watching now how much business we can extract. After all, retail is contributing to around 8% of the business. So strategically, our idea of putting a retail outlet had been to focus all of our products so that we understand what is the consumer behavior and then we spread across multi-brand outlets. It is not the main -- it is just 8% to 10% of the business.
The next question is from the line of Divyata Dalal from Trident Capital.
I wanted to understand what would be the breakup of open footwear and close footwear in our revenue for the 6 months?
It is same like what it was last year. It's around 80% open and 20% closed.
Okay. So Sparx would be a part of the close footwear or some part of it will also be open?
Yes, it has both. It has open and closed. Both. Open is sandals and close is sports shoes.
Okay , fine. And in terms of our press release, we have mentioned that since we have taken the price cut, it has been welcomed by trade and consumers. So are we seeing some kind of volume uptake till now in Q3, like have you seen after taking price cut in September? Has there been some increase in volume on the Hawaii side?
Yes, it is helping, it has happened -- in the month of November, it would be much better. Because there is old inventory also in the system, it will take some time, but things are very promising.
Okay. So in terms of volume for next quarter also, we can assume that 80-20 would be the breakup of open and close?
Yes, yes, yes.
The next question is from the line of Harsh from [ Oculus. ]
So traditionally, we have been strong in the northern and the eastern market. However, in the Sparx category, we are just starting in the northern and eastern markets. So are we facing some headwinds in these 2 markets?
Can you repeat the question?
Yes, the traditional Relaxo has been very strong in the northern and the eastern market. However, in the Sparx sports shoes category, we are just starting off. I mean, majorly, our revenue is coming from South and the Western market. So what are the specific headwinds that we have faced in these 2 markets? I mean, why are we not take [indiscernible] right now in the Northern the Eastern market in Sparx sports shoes?
North also we are focusing. And North is little more competitive market than South, South and West. All manufacturing ways of footwear is this side. In North, West and South, there were no manufacturing basis of sports shoes and all that. So we got an easy entry into that market. But here, it is in the north side, it's -- environmentally, it's more competitive. But we are doing -- focusing, and I think things will be improving here also.
The next question is from the line of Akhil Parekh from Centrum Broking.
My first question, would you be able to quantify how much of the EBITDA margin erosion in the first half of the year is because of the inventory losses?
There is no, I think, effect of inventory on the EBITDA margin, it's mainly raw material prices, that is eating. Otherwise, generally, we never sell any below cost. It will never happen. So whenever we -- either decrease the prices, but it is never below the cost. So impact upon EBITDA is mainly due to the raw material prices.
Okay. And sir second question is on the price hikes we took last...
Sorry to interrupt. Sir, we are not able to hear you clearly.
Just one second. Is it better now?
Yes.
Price correct -- price hikes we took last year, right? And the channel feedback was suggesting that some of our bigger competitors have not taken the hikes in context to what Relaxo took. So has the shift happened from Relaxo to the other big competitors? Or have they gone largely to the unbranded side?
It is most unbranded who were offering cheaper products, cheaper quality and since the affordability of the consumer has gone down. So for the time being, they shifted because their affordability was not there. That was one of the reasons.
Okay. So we have not lost market share to any of our bigger competitors, right? Would that be a fair understanding?
No, no, not at all.
Okay. Third and last question, on the volume front, if I look at volumes from FY '19 and probably for next year as well, broadly, they have stagnated at around INR 17 to INR 18 crores, INR 19 crores. Is there any saturation which we are seeing in terms of volume growth because the volume growth is kind of missing, I understand the pandemic was there, but which has been actually good for us. But if I look at last 5 years trend FY '19 to, say, '22, '23 as well, the volumes are, by and large, muted. So anything if you can highlight on that?
When people were not moving around, outdoor footwear was really totally stagnant or lowest. But this kind of footwear, people were -- I mean, indoor footwear, these kind of things were more. In a lockdown, there were a lot of people who are out, walking, going to villages and some -- all of sudden too much demand had emerged. That was one of the reasons. But now things will -- I don't say, maybe this year things may stagnated. But next year, again, we will have growth.
Like peak volumes we did in FY '21, which is around INR 19-odd crores, so would it be fair to say we will probably cross that number in, say, FY '24, that is next year?
I hope so.
The next question is from the line of Viraj from Banyan Tree Advisors. Viraj, your line is unmuted, please go ahead. As there is no response from the current participant, we will move onto the next that is from the line of Anush Mokashi from Yadnya Academy Private Limited.
Yes. Sir, my question is around [ EVUs. ] So basically, what we are looking at is there is a decline in the [ EVUs ] those 398 as of March '21, those have declined to 388 as of Q2. So can you please help us understand the reasons behind that?
No. Our -- we generally are maintaining at 400. But sometimes, a few stores which are not doing well then we rationalize and then we put stores.
Okay. And can you share...
Sorry, to interrupt, sir, your voice is breaking up, Mr. Mokashi.
[Technical Difficulty]
Can you share any guidance on it over the next few years? How much are we looking at?
We are presently maintaining around 400. That is what we'd like to have this year, 400.
Okay. And essentially, do we have any plans to go international [indiscernible] any guidance on that?
We are already exporting. Our share of export is around how much -- 4%.
Opening up or Sparx EVU...
No, no. Internationally, we are not opening any our EVUs. It is only domestic that we have exclusive for our brand outlets.
But as our test marketing, what we are doing is, we are opening the stores in 2 countries through our distributors to check the consumer taste there of our styles that we are promoting there that we are doing in 2 countries. And eventually, we will take a call how to go about it.
Okay. Got it. And just something confirm lastly, the equity margins at the distribution levels are much higher than the retailers...
Your voice is not very clear. You have to repeat it.
Sorry, apologies. But I'm assuming that [indiscernible] is much higher than the MBOs or the retail outlets we have. Am I right in that condition?
You mean multi-brand outlets.
Yes, yes, yes.
Or exclusive brand outlets, what do you say. How many number of you want to know?
No, no. My question is around the margins. Basically, the margins which we get at the level -- the distributor margin. Those are higher in EPOs compared to the MBO.
Definitely, margins are higher, but because you have to do so many expenses, rental, staff and so many things, so MBO is a different model, they have their own shop or just proprieties running the shop. So we give margin around 30% to the MBO and then they pass on some discount and they are earning around 25%, 30%. So that is more profitable but in case of EPO, definitely, there are margins are high, but expenses are also high.
The next question is from the line of Manish Poddar from Motilal Oswal EMC.
So a couple of questions. First is, what is the total CapEx for FY '24 and '25?
'24, '25, say, we have been, I think, spending around INR 1,800 crore every year. So this year, FY '23, we have on around INR 140 crores. So '24 and '25, it should be around INR 1,800 crores -- between INR 1,800 crore. It's an ongoing CapEx, we have always to expand.
Okay. Okay. In terms of just on this, when you say you've not lost market share, how do you get a gauge on that?
Sorry, we have not lost the market share, next, what you are saying.
You mentioned on the call that you have not lost market share. So I'm just trying to understand how we get a gauge on that. You drag shelf space, how do you get a sense of that, just trying to...
We have our sales officers. We have more than 300 sales officers visiting 50,000 outlets. So we keep a track the primary sales, the secondary sale, the shelf space and what we are seeing the volume degrowth in Hawaii and EVA category. So that clearly mentioned that the shelf has been taken by unorganized and -- unorganized players.
But now we are getting back.
Now we are getting back, yes, definitely, after taking price correction.
And just one last one. So is the demand environment at the bottom of the pyramid really that bad because when you look at a couple of data points, let's say, price increase taken by mobile players or you look at a couple of online guys in apparel, doing very well, some of that thing doesn't add up.
Yes. Because if you just read today newspaper Economics Times, clearly mentioned Rural India Big Pressure by Hindustan Lever, ITC, all. Rural India is really under pressure there because of inflationary pressure. And urban India is doing really well that you can easily see that. All urban brands, urban consumption is there in mobiles or in automobiles. But rural India, we are seeing a sharp decline in consumption also.
The next question is from the line of Abhishek, an investor.
So I have a couple of questions. My first question is around, as you mentioned, the opening remark, right, that the EVA prices in the domestic markets are around 200 kgs now -- INR 200 per kg. So does it mean that now there is an even playing ground for us and other unorganized players?
Yes, now it is better because now after taking price correction, we are at same level because we are buying at INR 200 and they're also buying at INR 200.
Right. So -- and are there any further price cuts expected by us?
No, no, no, I don't think so.
Okay. Got it. So my next question would be around the Sparx trend. So are there -- is there any competition from the organized sector from other listed or other main like large players in the sector, in this brand, other brand, Sparx brand?
Yes, there are a lot of organized players. And there is a competition, no doubt about it. But we have a different market, different product portfolio and the athleisure demand overall is increasing for every brand because the consumer trend is shifting to a fitness, lifestyle, health. So demand of athleisure footwear is going up, for the industry itself is going up.
We're doubling the capacity.
Got it. Got it. And my last question would be on the contribution of Sparx and -- from open -- from its open footwear and from close footwear. Is the open footwear competition that is sandals much higher compared to sports shoes?
No, it is -- the competition is both levels, sandals and shoes. It is not that competition is less in shoes or sandals. So it's an athleisure category. So it's a growing category and market is growing.
The next question is from the line of Tejash Shah from Spark Capital.
Just one question from my side. Usually, we have seen in a category where there is a large participation by unorganized sector. Inflationary period is always beneficiary for organized players because of the scale, ability to manage supply chain volatility and in procurement, planning, production. Understandably, they should have an upper end versus unorganized players. So in our case, it did not play out like that. So just wanted to understand, was it different in our case or there were some more headwinds or unprecedented headwinds which did not allow us to capitalize on this opportunity?
So as long as we rising, we were in a better position. It is only because there was a decline, decline of the price of our main material from INR 300 to INR 160. If you consume 1,000 tonnes a month, at that time, local market availability of the material came down at INR 160, INR 180. But we have a long supply chain, which we are buying -- our average price was INR 240 for the year. So it was just in this 3-, 4- or 4-month period when they became advantages because we have a long supply chain [indiscernible] short supply chain.
But this is once in a life, it happens, that prices go down and they became advantageous. It is very rare phenomena. It's just eventual time. Otherwise, we cannot -- it would be dependent at all on local sources. We can't say -- even serve -- our factory will to a halt. To have uninterrupted no disruption, manufacturing process, we have to maintain this sufficient inventory in the pipeline. During the lockdown period, even there was so much of scarcity of material and even getting containers to ship the material became a challenge. So we -- that is why we took little [indiscernible] add a little more stocking also just to avoid any manufacturing disruption.
Fair point. And sir, just one -- just expanding that point, what percentage of competition would be importing either raw material or finished goods from China, especially from unorganized?
I can't comment on that. I can tell you about ourselves.
Okay. No, I was asking about unorganized, not organized, but anyways...
Unorganized, their figures are not at all available to anybody. I don't know even they pay GST to the government. I can't say anything.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for your closing comments.
Thank you all for joining the call. This is all from our side. Looking forward to joining you again. Thank you.
Thank you. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.