Neutral Relaxo Footwears; target of Rs 900: Motilal Oswal

Motilal Oswal's research report on Relaxo Footwears

RLXF posted its worst performance in the last 10 quarters, dragged down by high raw material cost, price cuts, and general demand weakness. Revenue was in line, declining 6% YoY, while GM/EBITDA margin fell by 590bp/750bp YoY, resulting in a 67% PAT decline (big miss). We have cut our FY23 PAT estimate by 14% on lower GM, but expect RM to stabilize in FY24, along with a gradual demand recovery. We build in revenue/PAT CAGR of 12%/20% over FY22-24. RLXF has a strong cash generation capability, with a healthy RoE of 21% over FY17-21. However, valuations appear rich at 70x FY24 P/E, despite the recent earnings weakness.

Outlook

We maintain our Neutral rating. We ascribe a P/E of 55x on FY25 EPS to arrive at our TP of INR900. We maintain our Neutral rating.