ICICI Direct's research report on Relaxo Footwears
Relaxo Footwears continues to successfully march towards normalcy with strong execution and healthy margins. Revenue for Q3FY21 grew 12% YoY to Rs 672.0 crore (up 17% QoQ). It witnessed robust demand for low ticket sized products like slippers/open sandals (~80% of product portfolio). Strong distribution network encompassing mainly tier II/III cities supported in sharp revenue recovery. Relaxo continued to benefit from benign raw material prices with gross margins improving 110 bps YoY to 58.9% (down 250 bps QoQ). However, the management remains cautious on the upward movement of RM prices. On account of positive operating leverage and tight leash on operating overheads (employee, other expense as a percentage to sales fell 44 bps, 368 bps YoY, respectively), EBITDA margins expanded significantly by 520 bps YoY to 22.1%. Absolute EBITDA grew 46% YoY to Rs 148.7 crore. Other income grew 82% YoY to Rs 4.0 crore (Rs 1.7 crore pertains to lease rent waiver). On the back of robust operational performance, PAT for the quarter grew 66% YoY to Rs 90.1 crore. Given the robust balance sheet and being the market leader in value priced segment (in terms of volumes), Relaxo is well placed to further consolidate its market share and emerge stronger post pandemic.
We upgrade the stock to BUY (from HOLD) with a revised target price of Rs 950 (previous TP: Rs 890).
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