Sharekhan research report on Relaxo FootwearIn Q2FY2016, Relaxo Footwear (Relaxo)’s revenue growth of 15.7% YoY was driven by both volume and premiumisation improvement in the product mix. In a muted demand environment, this double-digit growth in revenue on an increasingly higher base (Q2FY2015 revenue grew at 25.7% YoY) is commendable and signifies the strong on-ground execution and brand salience efforts of the company. The growth in the revenue along with falling prices of raw materials (EVA and other chemicals that are crude derivatives) boosted the OPM by 170BPS in Q2FY2016. Driven by a healthy operating performance and increase in the other income, the reported net earnings grew by a strong 56.2% YoY. Adjusting for the one-off gain (reported in other income) on account of sale of investment in an associate company, the adjusted earnings grew by 39.2% on a Y-o-Y basis.Relaxo’s strong presence in the lucrative mid-priced footwear segment (through its top-of-the-mind recall brands like Hawaii, Flite and Sparx) along with its integrated manufacturing setup, lean working capital requirement and vigilant management puts it in a sweet spot to cash in on the strong growth opportunity unfolding in the footwear category due to a shift from unbranded to branded products. Thus, we remain positive on the stock at an unchanged price target of Rs635 and maintain our Buy rating. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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