My article on Relaxo is based on Sanjay Bakshi's thesis on the company way back in 2008 Relaxo is a low cost player, and its not easy to drive it out of the industry. Infact, it is a disruptor. By keeping margins low (due to high spent on ad and publicity), Relaxo is likely to keep competitors at bay. And because of its efficiency (as reflected by high turnover ratios), the company can still earn a very respectable ROE. Two things that explain Relaxo’s ability to earn high ROEs on a sustainable basis are brands and low cost advantage arising out of scale. So it enjoys a strong moat. This is not a business that is going to become obsolete anytime. Unlike high technology businesses neither will people go back to being barefoot, nor will the technology involved in this business change. And we love to invest in such businesses because they are so predictable. Relaxo is how it’s moved up the value chain over the years. Many many years ...
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