Sell Relaxo Footwears; target of Rs 425: Motilal Oswal

Motilal Oswal's research report on Relaxo Footwears

Relaxo Footwears (RLXF) reported another weak quarter with revenue declining 6% YoY due to a 15% YoY dip in volume. The volume decline was majorly on account of weak consumer demand in the mass and value segments. Over the past few quarters, RLXF has also been facing competitive pressure from unorganized retailers. RLXF has been working on revamping its distribution system (consolidating the distribution network), which has led to a loss in volume market share; however, management expects the benefits to accrue after 2-3 quarters. We cut our FY25-26E revenue by 4-5% and EBITDA by 5-10% due to uncertainty in volume recovery and ~100bp cut in gross margin assumption. We build in a 5-7% CAGR in revenue/EBITDA/PAT over FY24-27E as we optimistically model a volume recovery from FY26.

Outlook

However, given the continued volume decline amid market share loss and weaker demand in the mass footwear segment, we downgrade the stock to Sell with a revised TP of INR425 (premised on 45x FY27E P/E).