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Relaxo Footwears Ltd
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Ladies and gentlemen, good day, and welcome to Relaxo Footwears Limited Q4 FY '23 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you.
Good evening, everyone. On behalf of Elara Securities India Private Limited, I would like to welcome you all to 4Q and Full Year FY '23 Post-results Conference Call of Relaxo Footwears Limited. Today, we have with us the senior management of the company, including Mr. Ramesh Kumar Dua, the Managing Director; Mr. Gaurav Dua, Whole-Time Director; Mr. Ritesh Dua, Executive Vice President Finance; Mr. Sushil Batra, Chief Financial Officer; and Mr. Ankit Jain, Company Secretary.
Without taking any further time, I would now like to hand over the call to Mr. Sushil Batra, and over to you, sir. Thank you.
Thank you, Prerna. Good afternoon, ladies and gentlemen. Thank you for joining us on this earnings call for the quarter and fiscal year ended 31st March 2023. The earning press release and the investor presentation had been uploaded on the stock exchange as well as at our website, and we hope you have had the chance to go through them.
Before we begin the question and answer, I will quickly go through the Q4 and FY '23 performance starting with Q4. In Q4 FY '23, we recorded a revenue of INR 765 crores as against INR 698 crores in Q4 FY '22, recording a growth of 10% year-on-year. On a Q-on-Q basis, the revenue increased by 12%. This is mainly due to volume growth across all categories. Our Q4 FY '23 EBITDA was at INR 118 crores, up by 6% year-on-year, from INR 111 crores in the corresponding quarter of previous year. EBITDA margins were at 15.4% in Q4 FY '23 as against 15.9% in the corresponding quarter. On a Q-on-Q basis, EBITDA margins have grown substantially by 481 basis points due to selling of low cost inventory along with [ costly ] old inventory.
PAT at INR 63 crores, on a sequential basis, that grew by [ 110% ] from INR 30 crores in Q3 FY '23. PAT margin for Q4 FY '23 was 8.3%. Our price correction efforts during the last quarter have resulted a good momentum, and we have continued our market share recovery in all major segments during this quarter without relying much on discount and offers.
Now moving on to full year FY '23. Despite the challenging environment last year, our strong team responded effectively and our commitment to maintaining our high standard of excellence have made us successful. Revenue for FY '23 was at INR 2,783 crores, up by 5% year-on-year from INR 2,653 crores in FY '22. EBITDA was at INR 336 crores as against INR 416 crores in FY '22. EBITDA margin was at 12.1% as against 15.7% in FY '22. Margins were affected primarily by the high pressure on raw materials pricing during most of the year. PAT was at INR 150 crores in FY '23.
We are now a debt-free company with robust cash flow operation due to our strong working capital management. During the year, the company incurred a CapEx of INR 174 crores. With the stabilization of raw fuel prices in Q4, we are currently experiencing strong demand and hold an optimistic view of the future. Our company strategically positioned to take advantage of the opportunities within the industry, allowing us to further expand our market share. Our key strengths lie in our in-house manufacturing capabilities, quality of our product and the strong recall of our brand.
We remain dedicated to upholding this strength and will persist. Please strive to maintain their integrity. We are confident that our continued efforts will lead positive outcome for us in the time ahead. Thank you. Now we can open the floor for questions.
[Operator Instructions] The first question comes from the line of Aliasgar Shakir from Motilal Oswal.
Congratulations to finally seeing a good market share trend in your company. I have 3 questions. First is on the current quarter. So I understand from our channel checks that post cleanup of the old inventory, market demand has picked up quite strongly. And in fact, Relaxo has not been able to meet all the distributor demand. So is this true in multiple geographies? And do you think we would have lost any revenue because of that factor, if you could just quantify what could have been the impact of that in this quarter? And has that been now subsided? Or we are still seeing demand not being able to fully be met?
Yes, this is Gaurav Dua. What you said is partly correct, that there is an upsurge in demand, and we are seeing it. One reason is that we have corrected the prices. And second, this is a peak season for us for open footwear. As we are 75% open and 25% closed, so this is the open footwear starting from January to June to July. So -- and regarding the shortages, we are managing. We have inventory with us and the uptake we are seeing across India for the open footwear.
Got it. So can you quantify if we would have lost any revenue because of that in this quarter? And has that been now subsided?
It was -- it happened in February because there were some IT issues, which has been corrected. And now we are able to cover. We have the inventory -- sufficient inventory.
Okay. Got it. Second question is on your margins. So while we have significantly reduced prices, we have seen impact on margins. So can you share, I mean, what is the trend we should expect in the coming quarters as raw material prices are also softening? So should we see that helping us and therefore the margin that we saw in this quarter should improve? How should we see that?
I'm Ramesh Kumar Dua. Market remains challenging, and we have to be very cautious with respect to our pricing of our articles so that we always have a good market share as far as sales are concerned. The EBITDA margin that you have seen in this quarter is likely to continue, and there is likely to some improvement also.
Got it. This is very helpful. On the gross margin also, should we see improvement because of the raw material price softening?
Some improvement, yes.
Understood. And just last question on the closed footwear in the sportswear category. I understand that we have made a lot of changes in our design team, online team. If you could share some thoughts in terms of what is the strategy in the sportswear in terms of the new product development and what is the aim in the next 3, 4 years. Can we expect to reach about INR 1,000 crores in 3, 4 years' time? I mean, if you can just share what is your strategy there.
So if you talk about Sparx sports shoes, we have grown healthily. We have done roughly around 25% growth. And before that, last year, we put up a plant to cater to this need. So still, the plant capacity still we have. It will take 2 to 3 years to reach to that level, and you're talking about INR 1,000 crores, Sparx is already INR 1,000-plus crore brand.
Yes. But sports wear would be relatively lower? Or I mean, of course, Sparx is much bigger, but within that sportswear, if you could just quantify how much would that be?
So that is roughly around -- we do sports shoes and all sports category, roughly around INR 400 crores. So definitely, we have acceleration to become INR 1,000 crores. And it will take 2 years, 3 years, time will tell.
Next question comes from the line of Vikas Jain from Equirus.
For the first question, definitely, we have seen a market share which you have regained from [indiscernible] earlier competitors. So at this point of time, can you really say that you have regained almost all of the market share or some part of it is still left?
Can you repeat the question? It's not so clear.
I was mentioning about the market share. So have you like reached -- regained the entire market share and reached to what we were at the pre-COVID times? Or probably some part of it is still more or less to gain?
Yes, definitely, what we have lost market share in last quarter 1 or quarter 2 last year, we are seeing the good momentum now, and we are gaining the market share back. So definitely, we will recover -- we have recovered. Now we'll recover more.
Sure. Sure. Okay. Sir, second question with respect to the demand. Well, Ramesh sir did mention that the demand environment continues to remain challenging. So probably, is it like the -- how would you -- some comments with respect to how the underlying market is growing, and what do you think it will take for the market to normalize in what time period according to your estimates?
So actually, what we are hearing from the market that this Eid and this festive, there is a demand contraction happening in some parts of India. Rural India is still not able to cover up what -- contribute what it was contributing. But I think this is a temporary phenomenon. The inflation is now getting controlled, and we'll definitely see the uptake in coming quarters.
Understood. And sir, with respect to last -- again, like -- with respect to penetration in South India, so how can broadly break out revenues across on a geographic basis? What is the contribution from the all 4 North, West, East and South?
So North contribute maximum to around 42%; followed by East, 22%; 20% is West and 15% is South. And we are maintaining this from last year, it is similar.
Sure. And with respect to more distributors adding in the South, is that on time? Or how many have you added this year probably?
So it's not a great achievement in adding more distributors. We have maintained what we were having. So always, there will be a churn, new addition and some people leaving. So it's roughly around same.
Next question comes from the line of Kaustubh Pawaskar from Sharekhan.
So my question is on the price cut what we have taken to. So we have taken the price cut to reduce the pricing gap between the lower -- products which are around less than your price point products. But since you said that raw materials pricing had all corrected, have we seen any price reduction undertaken by those bottom of the [ pyramid ] players or lower price point players in the market? And because of which, again, the pricing difference what you were planning to reduce, it has again gone up. Any sense on that?
No. Now our prices are very competitive and there is no room for further price cuts. And even on competition, while we are very competitive, there's no issue. I don't think that there's any room -- competitor can do much about it.
Okay. So you don't see any further price that's happening in the market, right?
No, no. Not so.
Okay, okay. And sir, my second question, you have been consistently talking about expanding your capacity. So any guidance for CapEx going ahead and where you're planning to add capacity?
So last year, whatever capacity we wanted to expand, that had been expanded.
Okay. So there is not going to be...
This year only, money is going on malls, which are regular kind of things, some repair, molds and backward integration, some capital asset generation, that's it.
Okay. Any thoughts on your retail expansion front? By FY '23, how much was your reach and where you want to take it over the next 2 years?
Earlier, we were maintaining around 400. Now, we are expanding this year.
Can you provide some numbers on this, sir?
Earlier, we were earning 400 outlets. Now we are planning to have 465 this year.
Next question comes from the line of [ Omkar kugadrey ] from Shri Investments.
My question was regarding -- it's from your investor presentation. So from FY '21 to FY '23, the average realization has gone up, but the number of pairs sold has decreased. So -- and in this quarter, the average realization has gone down significantly. But number of pairs sold has been -- has increased dramatically. So like what's the management's view on this going forward? What would be the average cost of pairs or like how it is supposed to be in the future?
Last year, we had done major correction in some of our categories like Hawaii, EVA. So that was the reason that the average selling price has gone down. And our volume has gone up. So that is why volume is going up because the average rate has gone down, only because of reduction in prices.
So from here on, what we can expect, a stabilization here? Or like...
Stabilization, very large stabilization.
Okay. You don't see any upside from here on?
On the whole year side because in this quarter, mostly open footwear was in demand. Closed footwear counts in winter season. So overall in the year, again, you will see our last year average price of INR 160 will be back.
Okay. So for the current financial year, you are expecting around INR 160 per pair realization?
Could be a little higher, also depending upon the shoes. If they're a little better, then things will be further. But around INR 160, INR 165, we can expect average.
Okay. And what about the number of pairs? I mean, what could be the ballpark estimate for that?
Definitely further. Last year, we have expected double-digit growth in volume for this year.
Okay. So around double-digit volume growth and around similar kind of average realization per pair or somewhat higher?
Yes.
Okay. As far as the ROE and ROC is concerned, what's your plan on next 2, 3 years since it has come down dramatically, again, from FY '21 to FY '23?
Definitely, it will improve in coming years because last year was a tough year, profits were under pressure, and we did CapEx also. Next year, definitely, it will be much better than this FY '23. We can compare with FY '22, it was well.
Because it has now come down to a single digit now. That's what -- that's why I'm asking.
Definitely. It should be at least between 15% to 20%, that is the intent and if things are well, so definitely, we'll achieve that.
Okay. As far as the demand outlook is concerned, how are you seeing currently this shaping up?
So currently, there is a little challenge in the market. There is a little demand contraction. But I think going forward, quarter 2, quarter 3 onwards, we will be better.
Okay. In the current quarter, you are facing some demand issues?
Yes. Because what we hearing from the market that's still rural is not back on track. It's going to take a little time.
Okay. Any update on what could be the export percentage? And how -- is there any opportunity for Relaxo? Or like the home market is so large that everyone bothered to think about -- or bothered to think about the export market?
[indiscernible] Of course, we have done around 4%, 4.5% of total revenue. And the way we are growing the last 2, 3 years' time, we're giving -- getting double-digit growth. And we are -- in the future also, we are expecting the same. Growth will sustain.
Okay. The margins or they are better than the home market or like how it is?
It is like similar.
Okay. And which are the major countries you are exporting to?
We're exporting to all these like regions we are growing, like Gulf, [ Oceania ] region or even Africa. . Even Central America is now showing back on track because during COVID time, that was badly affected. But that also is going up . So all markets are good.
Next question comes from the line of Ankit Kedia from PhillipCapital.
11% realization drop Y-o-Y and quarter-on-quarter. How much is due to price cut and how much is due to mix change on new -- you introduced INR 105 chapels also in the market last quarter. So can you give us that impact of mix process price cut?
The lowest-priced article that you're talking, that is very minimal. It has no -- any significance. It is just entry better kind of an article. But otherwise, whatever price cuts we could do on account of fall in our raw material prices that we have done, and that's it. No more price cut. They're competitive and optimistic. Since they're growing, we are getting our market share back.
And sir, in this 11% realization drop, can you quantify how much is due to mix and how much is due to price cut?
Very complicated. We have 400 article -- different articles, different pricing, different material consumption. So this is very difficult to quantify. I think everything are different.
Sir, is it fair to assume that the price cut in open footwear could be higher than the price cut in closed footwear, if I could take on a blended basis?
Yes, yes. Because more polymers are required in open footwear, like the EVA or Hawaii slippers. But in sports shoe, upper is a different material, bottom is different material. So you're right. In case of sports shoe, price cut was not [ in there ]. It was almost same.
Understood. So the reading is the 75% open footwear, we would have taken a double-digit price cut, while in closed footwear, which is around 25%, 30% of our business, we would have not tinkered with the prices much.
No, no, not much.
Understood. Sir, my second question is regarding promotions. We have seen higher promotional activity in the quarter in the market. Your competitors also in the month of January, February, March were very active by giving higher dealer commissions and even retailer commissions. So could you please elaborate how was our promotion activity in the quarter? And going forward, how are you looking at your A&P spend?
If we maintain the A&SP spend -- in terms of schemes, we always -- we have -- like depends categories to category. Why we have different types of schemes and [ shoe is the ] reason we have different type of schemes. So seeing the demand, seeing the market scenario, seeing the pricing, we decide what kind of scheme we have to run. And we will see that in the competition also. So we don't benchmark exactly. We see what is our need and then we load the scheme. So we do not exceed -- the competition is doing more, let's get more. We have to analyze other situations also.
Sure. And what is the A&P target for next year? And how much is it for this year, if you can quantify?
So like if you talk about A&SP, we do around 8% to 9%, and we are maintaining this from last 2, 3 years, and we try to maintain a similar pattern in this coming year also. So this includes [indiscernible] and promotion.
And how much would be pure advertising?
Roughly around 4.5%, 4%.
Understood, sir. And sir, if you can just share one of your competitors in sports shoes is going very aggressive in EBOs. While if I look at your EBO count for last 4 years, has been pretty much flat at 390-odd EBOs. Why haven't you expanded EBOs in last 4 years? What is the risk you see in EBO expansion, which has -- while COVID years were also there in 2 years. But still, the expansion has not been compared to the market where we are seeing competitors expand EBOs. So if you can just talk a bit on that?
No. We -- you're right that the last 2 years, we did expand. We wanted to make it a little more efficient because we have to control our bottom line also and our article, 75% open footwear, 25% sports shoe. The competition you are comparing with their only shoe outlets. So keeping in view, a balanced -- so our -- the strategy of our retail showroom is to showcase our products. Share of our retail outlet in the total scheme of things is around 8%.
Right. And is it fair to assume the margins in EBOs would be just near double digit and lower than the company average?
Yes. It's lower than company average, but I think the high single-digit margin, we are in that category.
Next question comes from the line of Manish Poddar from Motilal Oswal AMC.
So primarily 3 questions. One is, can you help me with primary and secondary numbers for this quarter?
Can you repeat again, can't hear you?
Primary and secondary numbers because you are saying that Q1 is still soft, But your volume numbers, when I look at 5.2% versus 4.2% of last year or 4.1% of this quarter -- last quarter, they seem to be doing decent . So I'm just trying to understand what am I missing?
I think it's volume growth. Are you [ referring to ] the number which you have mentioned in investments?
Yes. Volume growth.
We sold more open footwear in this quarter and note of demand was there. So that's why these numbers are very high as compared to earlier quarters.
Okay. But wouldn't that be the case in the base quarter also?
This quarter, the coming...
This current quarter, Q1, you're talking about?
No, no. I'm just saying when I compare Q4 FY '22, where you sold 4.2 crores pairs versus 5.2 crores pairs in this quarter, the mix would be similar, right, this point which...
Yes, yes. Also, I think it will be sustained.
Mix is also similar. You're right, Yes.
So this growth, is it -- the channel was running low on Relaxo products given our pricing and now it has stabilized? Is that a function of that? Or is it a lot of customer uptake also happening?
No, no. It is like what we lost market share in Q1, Q2, Q3. Now we are regaining that market share. So we're getting the space back at shares.
Okay, share space. Okay. And the second point is you are also doing pricing parity earlier. So where are we in the journey now? How is pricing across channels for you now?
Now, we are very competitive. That is why we are able to get the [ commissions ].
Okay. And just one last one, if you could give, let's say, for FY '23 as a whole, just a broad brand-wise split between Sparx, Flite PU, Flite EVA and Relaxo?
Sparx is around 40%; Flite is around 38% and rest is our Bahamas and Relaxo brand.
So Sparx 30%, Flite is 28% and the rest is...
Flite is 38%.
Okay. And how much would be Flite PU and EVA in that 38%?
You can say, 15%, 23%, like that.
15% to 18%. And just one last one in Sparx -- sorry, I didn't catch that one.
So you were asking in split of EVA and PU, EVA was 15% and PU was 23%.
Of the 38%, the breakup we are telling.
Just one last one. In Sparx, how much was closed in stocks?
Total closed has been around 25%.
45% sir?
I think the query is within Sparx you're asking.
Yes, within Sparx. So let's say, this INR 2,800 crores you are saying, Sparx is roughly 40% of sales, roughly INR 1,120 crores. How much is closed in that?
40% is closed and 60% is open in INR 1,000 crores.
In this [ 11 ]. Okay. So it's roughly INR 400 crores now.
Make it INR 450 crores.
Next question comes from the line of Gaurang Kakkad from Haitong Securities.
Congrats on a good recovery in volumes as well as margins. I have 2 questions. Firstly, can you give the trend in terms of how the EVA prices are currently panning out? And what was the Q4 average pricing of EVA for you?
Now EVA prices are stabilized. It's around INR 170, that is what -- this is at what rate we consume, although market maybe at INR 160 only . This -- the current -- the month of -- current quarter that is going on, it is around INR 160, INR 155. It keeps on changing a little bit here and there.
Okay. And last quarter, in the base, this would be very high, right, closer to INR 250, INR 300, Q4 FY '22?
Below INR 250, quarter 1 -- for quarter 1 of this year -- of the past year in '22 and '23.
Right. And currently, the prices are stable at around INR 155, INR 160, which is what the Q4 pricing -- average pricing was.
Correct.
Okay, okay. And secondly, on the EBO outlet strategy, so you have been at those 400 outlets for some time now. And it's heartening to see that there is some plans in terms of expanding that by around like 15% this year. Now is it that we've got the model right in terms of EBO and now we can target healthy margins in the business? Or is it more so given that EBOs are largely Sparx brand focused. So we want to target aggressively and go aggressively on the Sparx brand. So what's the strategy out here?
Naturally, once we are having more efficiency in our stores, so we have started expanding this year, and we will continue the momentum the way things are.
Okay. So like every year, you will have around 60, 70 store expansion in the EBO going ahead?
We hope so.
Okay. And this high single-digit margins largely is sustainable or we can target to aim more closer to double-digit or even a bit higher once it's like fully scaled up and maybe 2, 3 years down the line?
Yes, naturally. Down the line, things will improve further. But we have to be always cautious setting a new competition, having a competitive pricing. So -- but things will improve because once the sales improve, then efficiencies improve, overheads start getting low. So ultimately, your bottom line improves.
Next question comes from the line of Jasdeep Walia from Clockvine Capital.
So my first question is just a clarification on sales of Sparx brand in FY '23. Now last year, you had said in FY '22 fourth quarter call that Sparx has 37.5% of overall sales, which makes the sales of Sparx INR 1,000 crores in FY '22. And this year, in the opening comment, you said it has grown 25%. So Sparx brand sales should be INR 1,250 crores this year. And in your -- in one of the conversations you had with one of the people who asked questions, you said Sparx brand sales is only INR 1,100 crores. So what is the correct number for sales of Sparx brand in FY '23?
No, no, we have not told it's 25% growth. Where will you -- from where you got it?
25% growth, what we said was sports shoes, only sports shoes, not Sparx. It is sports shoes.
Sparx brand, it covers so many other things, sandals and open footwear also. And that number is related to only shoe, closed footwear.
Okay. And so what has been the overall growth in Sparx brand in FY '23?
Overall growth is around 10% to 12%.
13% is the overall growth of Sparx category, all put together sandals, shoe, SFG, so we made everything under the Sparx brand name.
Got it. And sir, I'm assuming fourth quarter is an off-season for Sparx, right? So most of your sales in fourth quarter would be just open footwear sales, right?
Correct, correct.
So fourth quarter is what percentage of overall sales of Sparx in a typical year?
If we do check, 30% -- 35%, sorry.
[indiscernible] this quarter 1.
35% we had.
So 35% of Q4 sales is Sparx brand?
Correct. Yes.
Got it, sir. Got it. And sir, I have a query on your EBOs. So you mentioned that competitors opened more EBOs because they open EBOs only for their shoe brand. So why don't you do the same? Why don't you open only Sparx EBOs? So then you would have the same economic size of your competition, right? Then the economics would be good.
Thanks for suggestion. We'll consider it.
Got it. And in the current 400 EBOs, there are no Sparx branded EBOs, right, only Sparx branded EBOs?
No. So far, no.
Got it. Sir, my last question, sir, what is the composition of your exports? Is it only open footwear? Or is it Sparx band?
No. Actually, it is more of open footwear. I would say, around 60% of our international business comes from Hawaii, open footwear. As you say, basic like Bahamas and basic Relaxo brands put together.
Next question comes from the line of Gaurav Jogani from Axis Capital.
So my first question is with regards to the multiple price cuts over the last 2, 3 quarters that we have seen. So has it led to some kind of multiple price points at the distributor end? And could this possibly lead to a change in the tow stocking or some kind of inventory level change at the distributor level?
You're correct. Like we have done multiple rounds of price cuts. So they had different types of MRPs, distributors and retailers. But now all of them have been cleared. It took 3 to 6 months to clear all the old MRP products. Now currently, as for demand, and we have the current prices available in the market, and there's no problem of stocking with the distributors. Currently, they are running short because of the season.
Okay. And sir, yes, that was my follow-up question actually. Because of this clearance of the old prices that you have taken in the channel over the past 3 to 6 months, so could there be a case wherein because of this activity that you have taken in the past, the base for FY '24 becomes weaker and because of which we could see a higher volume growth for FY '24 because of that?
Yes, yes, you will definitely see that.
Okay. So would it be prudent to expect at least 15% to 20% kind of a volume growth for FY '24 in that case?
We're targeting that currently.
Yes. We're looking to...
On double-digit growth in volume.
Okay, sure. And sir, my next question is with regards to, again, on the pricing part, while we see prior to the -- I mean, the increase in the GST from 5% to 12% in products below INR 1,000. And even if you compare it versus the pre-GST era, I think the taxation on this segment is now higher. So how does it -- how is it impacting demand at the lower end? And do you see -- do you think there will be a permanent shift from some of these lower-end footwear to maybe some price -- high-priced footwear that you see in the future?
It's been 1 year since that tax has gone up from 5% to 12% and market had adjusted to the new price structure of 12%. And now I think market is comfortable with the new pricing structure in GST structure. And we do not see any new player entering because of this or runouts getting higher. We have taken the correction in prices and we have regained our shelf space.
Things are fairly stabilized now.
Okay, okay. Sure. And sir, the third and the last question is with regards to the overall the demand patterns that you see in this category, because we are seeing a higher growth in the [indiscernible] segment versus -- in terms of the open footwear. So what kind of strategy the company is doing apart from these Sparx brand that it is running? Is there another sub-brand that the company is trying to experiment to introduce more designs or it will be only basically done through the Sparx brand itself?
No, no. Currently, no more brand. We are focusing on these brands and accordingly, our price segmentation has taken place. So there's no plan of, I think, any new branded in the category.
Okay. And sir, in terms of the margin structure, if you see there is a lot of volatility in the margins over the last 3 years if you see, because on peak level, on an average, we have gone to 20% kind of EBITDA margins. And even in the bottom, we have touched 10% kind of EBITDA margins. So as per you, what kind of margins are sustainable in the business model that you operate, which is at a distributor like model? So what kind of margins should have one built at a steady-state case for a business like Relaxo?
Currently, we are, I think, aiming 15 %, 16% current margin, so that thing gets fairly stabilized. We remain competitive. And then better efficiency may add further. Let us wait-and-see how the things pan out.
Sir, my question was more not on the near term, but more broader and a long-term question. Is this a business wherein we can target EBITDA margins also near 20%? And the reason I'm asking this question is because ours is a business where we're largely focus on price where the customer is more price conscious. So if we try to take the margins a bit higher, is there a case where you can attract more competition at that point -- at that price points?
Definitely we have to be very cautious on this count. We should not just in an ambition to raise EBITDA and then we start losing market share. So -- but we have to always watch all the conditions, all the market scenario, all our efficiency level, then we have to improve our [ vacant type shelves ] and become more competitive. At the same time, retail can also improve in that case. So always you have to be alert and watchful of all those conditions.
So if I summarize or understand it better, I think you would like to keep your margin in a tight range wherein you remain competitive versus the competitors, but at the same time, also drive profitability for the business.
Yes.
Next question comes from the line of Sachee Trivedi from Trident Capital.
My question is actually, I would say, my first point is almost a complaint, if you will. We are almost a $2.5 billion to $3 billion market cap company. But our engagement with the investors is extremely limited. And we do an earnings call every other quarter, and any attempt to get in touch with the management is basically we don't even get a response. Could we improve this, please?
Yes. We can consider this.
So basically, if I reach out, then at least will I get a response back?
Yes.
Yes, you will get the response. We have IR agency also. You can touch them or you can touch our [indiscernible]. So definitely, they will respond.
Okay. Fine. I'll try again. My second question is, a few years ago, I had heard that you are the contract manufacturer for Nike shoes in India. Is that still true? And could you talk about that?
That was long back. It was more than 40 years back when we were doing the contract manufacturing for them.
Okay. Okay. Fine. And then my final question is in terms of price margin and -- I mean, we are told that you can either fix the price or fix the margin. Which one of those do you fix? Or do you fix both and then work on the cost?
So we have to be mindful of both the things. We have to fix our margin also and we have to aim for our market penetration and turnover also. Both the things, we have to balance out. We can't just look at one thing.
Next question comes from the line of Akhil Parekh from Centrum Broking.
Just continuing on the previous participant's question. Sir, how should we look at Relaxo, right? I mean, pricing has been an issue for us in the past as well in FY '18, '19, and one of the larger peers entered into our territory and started undercutting on prices. We couldn't increase our ASP. Like if I look at '17, '18 and '19, the ASPs were largely practiced at around about INR [ 125 ]. And in '23, again, we saw similar things. So should we consider Relaxo as more of a volume plus operating leverage story and less of a branding story? Because it looks like despite being a large footwear brand, we do not hold the pricing power. Is that understanding correct?
No, no. Last year, it was a totally different scenario because of the raw material [indiscernible], not a because of any brand problem because when the material that we've got at INR 300, and then it falls to INR 150 and local market was able to get at lower. So they got for some time, some edge, I mean, competitive edge. But now things have stabilized.
That's correct. But we had to roll back the prices, right, at least in open footwear, which is 75% of our portfolio?
Because the cost of raw materials which was just too much. That was the reason.
Okay. Second question is on the price infiltration by the wholesaler. We did get some feedback in the market. The wholesalers were kind of leading to some price infiltration for Relaxo. And we were taking some corrective actions in terms of installing software at the distributor level. Has -- any thoughts on it? And have we done the implementation on the IT part?
We have implemented DMS, distributor management system. Right now, it is the second version. First version was implemented 3 years back. And the latest version 2.0 is -- out of 700 distributors, 650 distributors, we have implemented 100. So it is a continuous process. We are going to increase the implementation, and we are taking steps to control the infiltration, both infiltration by the distributors or wholesalers. It's a continuous process. It cannot stop. We have to really -- the help of technology control this.
But any time line or deadline we have like where we will be done with this complete installation across all 650 distributors?
[Technical Difficulty]
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Ladies and gentlemen, thank you for being on hold. The management line has been reconnected. Thank you, and over to you.
So there is any question from Akhil or..
Yes, yes. So my question was on the deadline, what kind of a deadline we are planning to install this DMS 2.0 across all our 650 distributors?
By this year end, we'll complete this full implementation of DMS 2.0. And whatever complaints we get from distributor or wholesalers, we are taking appropriate actions for infiltration.
This should kind of create price parity for the wholesaler and the distributor, right, because of this?
Correct, correct.
Okay. And last on the capacity and CapEx guidance, if you can. What capacity do you stand at? And for FY '24, what kind of CapEx we are envisioning? That's all from me.
We already have good capacity. So last year, we spent a lot of money on the capacity and [indiscernible] So this year, we don't have any big plan, but definitely, routine CapEx, mold and some repairs and some infrastructure creation that will be there. But already, we have good capacity to capture the demand of next 2 years at least.
Yes. In absolute term, like where do we stand in capacity?
Absolute terms, we have a capacity of [indiscernible]. And last year being a tough year, so that [ deflation ] was around 50%, 55% at company level.
Next question comes from the line of Prerna.
So just wanted to understand the long-term vision, where do we want to see ourselves in the closed footwear category and in the next 5 years. So how much should be the sports footwear as a percentage of revenue share?
I think we are thinking of having at least double-digit growth for the next 5 years. And overall share of shoe business will definitely increase because of the -- where we see things, growing use of athleisure. But it would be maybe 30% of share of shoes in our scheme of things. But otherwise, also -- other segments are also important, and they are also growing.
Okay, okay. So sir, in -- if we try to understand the demand scenario in both open and closed footwear, how would you see whether it is robust? Or it is still muted? Some color on demand outlook that you are witnessing in different regions?
We have to keep our products relevant, competitive and value for money to the customer, then things will grow. Any category if become uncompetitive, demand become muted and then it goes negative. So whatever categories we are going to win, we have to be watchful of these things.
So currently, you are saying that we are -- our price points are most -- are all in place to get double-digit growth.
Yes.
Okay. And sir, what was your capacity utilization in the closed footwear category?
Can you repeat the question?
What will be your capacity utilization in the closed footwear capacity?
Around 60%.
Next question comes from the line of Mithun Soni from Geecee Investments.
Yes. I have a couple of questions. So you indicated we have 3 brands, and there is a pricing pressure which we may face at the lower end of the brand like Relaxo, basic chappals. How would you say our pricing -- we will have some -- relatively, we will have a stronger pricing power in terms of -- to get the pricing from the customer for a brand like Sparx or for Hawaii or Bahamas?
Because our brands are quite strong, even the old brand like Relaxo, as old 40 years old. But at the same time, we have to be mindful that market is competitive and our pricing has to be competitive. We have to serve quality footwear at affordable price, then only you can sell large volumes of product. And that is what we are following.
Okay. So can you share like for the open footwear, what would be the realization for the, say, slipper for -- like how would you -- for us, what will be the average realization for open footwear for Sparx versus for Relaxo? Our realization...
No, no. You are comparing Sparx slippers with Relaxo slippers. They are totally different technology, different things. You can't compare those slippers with this. I think you want to know the price, Relaxo, it will be really around INR 100 as far as our -- no, no, only slippers. Do you want to know slippers?
Yes, only open footwear.
Open footwear.
The idea is that -- what I'm trying to say is that it's a more aspirational product. So coming to the next question is that how do we see -- like Sparx is a much more aspirational product. So what is our now a plan for Sparx over the next 4 to 5 years? One of the participants also asked that we have 400 EBOs. Can we -- is there a possibility or a potential that we can rebrand those stores as a Sparx stores and to really get the mileage for the Sparx as a brand?
No. Our strategy is not only selling Sparx on those outlets. Our strategy is to showcase all our other article also. Sparx is one of the categories. We may consider having only Sparx for a few of the stores, not all because we have to sell or showcare all our categories across whether it's our Flite brand, Bahamas brand, Relaxo brand. That's it.
Okay. And what is your plan for the Sparx -- the entire Sparx -- what is the sort of growth plan we are looking at...
No. We're seeing that under discussion. When we will come out with it, you will automatically know. At that moment, we can comment.
Next question comes from the line of [ Jasmin Surana ] from BT Capital.
I had a quick question on like e-commerce standards. What is the contribution you're getting from e-commerce standard? And the follow-up on that would be, what is our next strategy for DTC channel?
So currently, we are having 11% contribution coming from online channels. And what is your second question?
Is there any specific strategy that we're looking at to tail it up? Or what is the trend going to be like in the coming year?
Yes. Strategy, we are going to have new channel partners, or you can say, the platform. We are going to add new platforms. So currently, we were with -- sorry, Myntra, Flipkart and Amazon, We're going to add Agio and other -- Tata CLiQ and other platforms also. So it's a continuous process of growing the market. We will be selling as brand reseller also on these platforms.
Okay. And another question on the exporting country. You said that you're exporting to the Gulf, [ Oceanic ] countries, Africa and Central America. Would it be possible to get a number on the contribution from each of the countries that we are exporting to?
Country-wise [indiscernible] right now because they are -- we are exporting to more than 30 countries.
Okay. No, so the major ones that we're exporting to, would it be possible to get a number?
So we can tell you the region wise. Gulf would be around 30%, 35%, then we have Central America will be around -- maybe around 5% to 6%, then Africa would be around 35% to 40% again. Then we have [indiscernible], which is the latest and rest of the business.
Okay. And so I just wanted to understand since we've seen so much of volatility in the EVA prices in the last year, are there any plans for that to be hedged against those prices in the coming years or so? Because we saw the prices going down to INR 180. And as sir mentioned again, the prices have come back to INR 250, I believe. So are we -- is there any plan to be hedged against those?
No, no. Raw material materials prices are fairly stable. So things are quite stable and there is nothing to worry at the moment. I don't know what is your concern.
[Operator Instructions] Next question comes from the line of Abhishek Gadwe, an individual investor.
I have a couple of questions. The first question is, is it safe to say that we have regained all our lost market share in the previous year and previous quarter -- this quarter? Or is it -- there is some still left to gain back from the unorganized sector?
Almost we have covered the loss what we -- occurred in Q1 and Q2, almost. But still, we have to gain back.
Possibly.
You can expect it to go up.
Yes, yes.
Right. Right. And my next question is on the EVA pricing, the EVA prices. Last time -- in the last quarter, I remember when I asked, they were around INR 200 per kg, I think, if I remember correctly. What are the prices looking right now? And do we expect them to fall even further going forward? And -- or do we expect them to rise back to INR 200 levels? Or do we see that there is stabilization now at least for next couple of quarters?
No, it is now around INR 160, sometimes we get that INR 155. So that's the way we are getting INR 150 to INR 160.
Right. And we don't see the prices having any volatile moves going forward? They're more or less stable now.
More or less stable.
Okay. And my last question is on the volume growth, what is the volume growth you are targeting for next year, FY '24?
Double digit.
All right. When you say double digit, is it like lower teens, like around 11%, 12% or high teens, around 19%...
It depends upon the basic article. It could be around 15%. But then there are other article like sports shoes also, that also we have to see. The average around, it could be a double digit in the minimum, but we aim to be higher.
Okay. So it's safe to assume 15%.
Yes.
Next question comes from the line of Ankit Kedia from PhilipCapital.
Sir, government is -- from 1st of July talking of introducing BIS in footwear. A lot of your competition is from unorganized market, which impacted your demand now. So with BIS been implementing from 1st of July, how do you see unorganized markets play? And do you think market share's regain for organized players like you will be higher in open footwear, while reports could also be tough in the sports footwear category from 1st of July? There could be inventory disruptions for importers. And in Sparx also, we could see some market share gains?
No. For the time being, the quality control standard certification has been laid out. And the real possibility that this date is going to be standard because even government is not ready. And meanwhile, a lot of clarifications are required from our side, and we have raised the queries to BIS. So accordingly -- but we are internally -- whatever quality specification they have laid down, whatever it is in the making, we are already meeting those standards. Nothing to worry.
So I agree, nothing to worry, but will you gain share because your competitors may not be ready and you might be ready? So it will be beneficial for you. How do you think if those standards are laid out immediately and you can gain share?
No, no. Because there is a small exemption for micro or small, and the companies whose turnover is up to INR 50 crores, there will be exemption. So they will have their still space in the market.
Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question-and-answer session. I would now like to 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. Thank you.
Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.