Last Updated : Feb 08, 2018 05:40 PM IST | Source:

Accumulate Relaxo Footwears; target of Rs 655: Dolat Capital

Dolat Capital recommended accumulate rating on Relaxo Footwears with a target price of Rs 655 in its research report dated February 05, 2018.

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Dolat Capital's research report on Relaxo Footwears

Relaxo reported Q3FY18 revenues jumped 24.9% YoY to ` 4.6bn above our estimates. We anticipated lower revenues based on our recent channel check. However, with the addition of new stores, increased online sales and premiumization was beyond our estimates. The gross margin expanded by 50bps to 56.9% - benefited from the premiumization. EBITDA jumped by 41.2% YoY to ` 719mn. A 190bps rise in staff cost was partially offset by 320bps dip in other expense. Consequently, EBITDA margins expanded by 180bps to 15.7% – came above our estimates. RPAT spiked by 56.9% YoY to ` 382mn – came in-line with estimates. Our channel checks beheld the key brands like “Sparks” are growing faster in western markets. However, growth is slightly mellowed in the northern market. Other players like “Action” are gaining traction. However, considering strong growth for Relaxo, Khadim, we believe that GST tailwinds are over and the footwear market would grow on favorable base.  Though no channel trader or the company is confirming about the shift in market from unorgnised to organized, we believe the organised market is growing faster compared to unorganised.


Going ahead, we believe that the company would continue to increase its distribution reach in southern and western markets. Further, premiumization would help it to gain the margins. In addition, with GST in place, we believe the organized sector would continue to outperform and Relaxo being a market leader in the economy category, is poised to take an advantage of the growing share. We have increased our FY19 earnings estimate from `14.6 to ` 15.2 considering strong Q3 performance. We are valuing Relaxo at 43x FY19E to arrive at a TP of ` 655. Maintain Accumulate.

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First Published on Feb 5, 2018 05:37 pm
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