Bata & Relaxo are two close competitors on Footwear market. Both are good companies and have generated good wealth for investors in last few years. We will compare two of them on following parameters –
|Parameters||Bata India||Relaxo Footwears|
|Market Cap (Rs. crore)||14,500||9000|
|PAT Growth (5 Years)||5.43%||29.10%|
|Sales Growth (5 Years)||7.37%||14.81%|
|Free Cash Flow (Rs. crore)||214||90|
- As per their Market cap, both the companies have just got promoted from small cap to mid-cap category.
- If PE values seen alone both the stocks seem to be over-valued. The reason behind this is that these are the only 2 organized companies with a presence all over India, get allocated by everyone, have no issues in corporate governance and also have nice market shares. (Paragon is an unlisted company, that is why it cannot be considered here)
- Generally, it is said that P/E ration & ROCE should go hand-in-hand. So, looking at ROCE too, Bata India seems over-valued. On the other hand, ROCE of Relaxo Footwears in more and its P/E ratio is also less.
- In ROE too, Relaxo Footwears scores better than Bata India.
- The promoter holding of Relaxo Footwears is better than that of Bata India.
- Relaxo Footwears have brought down their D/E ratio from 1.2 to 0.2 over the last 5-6 years, which is a very good job, and as per the current scenario the company may soon become virtually debt-free.
- In P/B ratio, Bata India scores a little better as compared to Relaxo Footwears.
- There is a huge gap in the Net Profit (PAT) growth of the 2 companies.
- In sales growth too, Relaxo Footwears scores better than Bata India
- It should be noted that it is very important that free cash flow should always be positive. These are Trailing Twelve Month (TTM) free cash flow of these companies.
- Relaxo Footwear outscores Bata India in 6 parameters (P/E ratio, ROCE, ROE, Promoter Holding, PAT growth & Sales growth)
- Bata India outscores Relaxo Footwears in 2 parameters (D/E ratio & P/B ratio)
- Relaxo Footwears & Bata India are at par in 2 parameters (Market cap & Free cash flow)
- Thus, in quantitative analysis, Relaxo Footwears seems to be a better company than Bata India. (This is just quantitative, qualitative analysis will provide better insights in to the 2 companies)
Benefits of Being Promoted to a Mid-cap category
As these companies have now become mid cap companies, they can enjoy more and better allocations from the mutual funds. More institutional money might be invested in them.
Share Movements of Relaxo & Bata
|Bata India||Relaxo Footwears|
|3-Year Returns (CAGR)||33.24%||17.62%|
|5-Year Returns (CAGR)||17.30%||41.84%|
- Bata India
PAT growth & Sales growth in the last 3 years was very negligible. Same numbers of sales & PAT are continued from the last 3 years. But still the stock of this company has given returns of around 33.24%. Institutional investors think that Bata will yield great results in the future, that is why its future earnings have been discounted and given the stocks its current pricing.
- Relaxo Footwears
Relaxo has underperformed in the last 3 years. This is so because, the years before that were very rewarding for Relaxo Footwears and averaging has taken place now.
Here, the situation has completely reversed.
- Bata India
These numbers indicate that the future returns of Bata may get averaged or the returns might not be that good. Although, the #-year type of return values may continue in the future if the company live up to the expectations and achieves expected results
- Relaxo Footwears
These numbers are in hand with their 5-Year PAT and Sales growth.
Summary of Stock Movements
- The market has a lot of expectations from Bata India. If the results of Bata are good, then the stock may maintain or grow its position in the market. But if the results are not satisfactory, the Bata India stock will get beaten up by the market players.
- Comparatively, Relaxo doesn’t look that much over-priced.
- We are not suggesting anyone to immediately go and buy these stocks or invest in stock markets.
- The returns mentioned above are not fixed. They vary from stock-to-stock and time-to-time.