Relaxo Footwears Ltd. share price target

We recommend a BUY on RELAXO FOOTWEAR with a Target Price of Rs 728 an upside of 9% from CMP of Rs. 668 and Stop Loss Rs 607

Plan to set up new manufacturing plant at Bhiwadi To cater to the growing demand, the company has commenced commercial production at its new plant at Bhiwadi (Rajasthan) for manufacturing flip flops (Hawaii range). It has proposed to add capacity of 100K pairs/day in Bhiwadi plant with total investment of Rs 900mn which will be funded through internal accruals. The capacity will be added within three years and is likely to take Relaxo's total capacity to 800K pairs/day...

Outlook and Valuation: We continue to bank on Relaxo in the medium to long term as the best placed stock in the space on account of a good rural and urban mix and excellent track record of the management, coupled with good financial stability.

Disruption owing to nationwide lockdown till first week of May and significant disturbances during remaining period led to contraction of revenue and gross margins for Relaxo Footwear in Q1FY21. Revenue for the quarter de-grew by 43.9% YoY to Rs 363.6 cr

Relaxo Footwears has a strong portfolio of brands (Sparx', Flite', Bahamas') that mainly cater to the mass segment (ASP ~| 139). Around two-third of revenues are derived from slippers/open sandals (non-discretionary in nature) while rest are through premium affordable sports shoes. Hence, it has seen better traction in revenue recovery. The company is likely to enhance its focus on value products rather than premium products in the next two quarters. Relaxo has, over the years, established a healthy distribution network, with 800+ distributors catering to ~50000 retailers....

The footwear players in the industry are moving towards premium categories whereas Relaxo over the year has focused on the mass and value category footwear where competition from other branded players is low. We, Initiate coverage with BUY rating on the stock with a target price of Rs 697.

Outlook and Valuation: Relaxos strong balance sheet and free cash flow in the past few years will help weather the covid period better than its competitors.

Relaxo exited FY20 with revenue growth of 5% YoY to | 540.6 crore. Topline was mainly driven by realisation growth of 8% YoY to | 135/pair. Volumes for FY20 fell 2.7% YoY to 17.9 crore pairs (management indicated volume growth till mid-March was at 6-7%). Favourable product mix and benign raw material prices resulted in gross margin expansion of 370 bps YoY to 56.9%. Subsequently, EBITDA margins improved 170 bps YoY to 15.7% (adjusted for Ind-AS 116). The management indicated that while north, east and central regions have gradually picked up pace, western region continues to...

Relaxo Footwears Limited (Relaxo) posted mixed numbers in Q4FY2020 with revenues declining by 15% y-o-y (affected by lockdown) but higher gross margins leading to a 282 bps rise in reported OPM to 17.8% (comparable OPM improved by ~70 bps to 15.7%). FY2020 revenues grew by 5.2%y-o-y affected by lockdown in the fag end of Q4FY2020 (9MFY2020 revenue grew by 12.9%). Volumes declined by 2.7% in FY2020 affected by a lockdown in the last 1015 days of March and higher sales of premium products (~20% of overall revenues). Q1FY2021 performance would be affected by no sales during the lockdown period. Gradual opening of lockdown would help in recovery in...

Revenue declined 15% YoY to Rs 5.4bn in Q4FY20 - came below our estimate. Nationwide lockdown resulted in drop in revenues. Sharp fall in volumes was partially offset by price hikes implemented prelockdown period. Further price hikes would depend on the demand scenario. We believe that the margins would remain high considering larger contribution of distribution business compared to retail business. In the long run, we believe that the company would continue its strong performance by increasing penetration in South and West and is likely to further benefit from premiumization. Relaxo should continue to outpace...