Angel Broking neutral on Relaxo Footwears

Angel Broking's report on Relaxo Footwears

"Relaxo Footwears (Relaxo) reported a decent set of numbers for 2QFY2015. The revenue for the quarter grew by an impressive 26% yoy to Rs 332cr, driven by volume growth across major brands and by premiumization. With an increase in traded goods during the quarter, the gross margin declined by 75bp yoy to 56%. However, owing to lower employee cost and other expenses as a percent of net sales on a yoy basis, the operating margin improved by 114bp yoy to 11%, although the same is below our estimate of 12.1%. Further, a decline in interest outgo and a lower tax rate enabled the company to report a net profit of Rs 17cr, 48.4% higher yoy, but 13.1% lower than our estimate of Rs 20cr."

"We remain positive on the company with the growth triggers in place, which include – 1) sufficient capacity to cater to increasing demand, 2) improving product mix and 3) optimized cost expenses. However, at the CMP of Rs 513, the stock is trading at 26.3x FY2016E earnings which we believe is fair, and hence recommend a Neutral rating on the stock", says Angel Broking research report.

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