Hold Relaxo Footwear; target of Rs 935: Sharekhan

Sharekhan's research report on Relaxo Footwear

Relaxo posted weak show in Q4FY2024 as demand conditions continued to remain under pressure, leading to ~4% decline in volume. Revenue fell by 2.3% y-o-y to Rs. 747 crore owing to 3.8% y-o-y decline in volume to 5 million pairs while realisation grew by 2.8% y-o-y to Rs. 149 per pair. Revenues missed our and the street’s average expectation of Rs. 783-791 crore. Softening of input costs aided in 812 bps y-o-y gross margins improvement to 60.3%. However, EBITDA margin improved by just 68 bps y-o-y to 16.1% (versus expectations of 14.2%), due to higher other expenses.

Outlook

Slowdown in consumption in the mass category affected Relaxo’s performance in FY2024. However, long-term growth prospects are strong, driven by strong portfolio of value-for-money footwear products, enhanced capacity of 10 lakh pairs per day and distribution expansion (especially in South Indian markets). Also, gradual improvement in volumes and correction in key input prices would help improve margin profile in the coming years. Stock trades at premium valuation of 79x/64x its FY2025E/26E earnings, which does not provide a favourable risk-reward. Considering the current weak demand environment and premium valuation, we retain our Hold recommendation on the stock with an unchanged PT of Rs. 935..