Stock Update

Mixed performance, growth momentum to sustain

Key points
Relaxo Footwears
ŠŠ
Strong volume led revenue growth: For
Reco: Buy | CMP: Rs843 Q4FY2019, revenues of Relaxo Footwears Limited
(Relaxo) grew by 15.5% y-o-y to Rs. 635.7 crore,
Company details
driven largely by double-digit volume growth, and
was broadly in line with our expectation of Rs. 635
Price target: Rs969 crore. Gross margin remained flat at 53.2% due to
Market cap: Rs10,457 cr the pressure on raw material cost and change in
product mix. However, operating margin declined
52-week high/low: Rs957/660 by 280 BPS because of an increase in employee
NSE volume: (No of shares) 82,682 as well as other expenses due to higher spends
on advertisement. Operating profit registered
BSE code: 530517 de-growth of 2.7% standing at Rs. 95.2 crore as
NSE code: RELAXO against Rs. 97.8 crore in Q4FY2018. Despite a
decline in operating profit, the Adjusted PAT
Sharekhan code: RELAXO remained almost flat for the quarter standing at
Free float: (No of shares) 3.6 cr Rs. 54.4 crore.
ŠŠ Outlook: Topline growth to sustain, margins
Shareholding pattern expected to improve gradually: Relaxo’s FY2019
revenues grew by ~18% largely driven by double
digit volume growth. The management is confident
Public &
of maintaining double-digit revenue growth, a mix
Others Foreign Institutions
20% 3% 6% of value and volumes. The margins are expected
to improve on the back of softening of raw material
prices as well as price revision measures expected
by the company. As regards the product mix, Sparx
and Flite growing faster than other divisions and are
Promoters
expected to sustain the growth momentum. Sparx
71% is performing well in the South and West markets
of India and the company is planning to introduce
the brand in East India in the coming quarters.
For Flite and Bahamas, the company intends to
Price chart expand the brands in the West. In addition, the
950 e-commerce channel (~6-7% of the top-line) is
900 performing well and is expected to grow at a fast
850
pace. With ~75,000 identified relevant stores, the
company has a distribution reach in approximately
800
35,000 to 40,000 stores. Relaxo has a 5% share
750
in the footwear industry space and thus, has a
700 huge scope for expansion going ahead. Moreover,
650 a shift in consumer preference from unorganized
600 to organized players teamed with innovation will
help the company post double-digit revenue
Jan-19

May-19
May-18

Sep-18

growth FY2020 and FY2021.

Price performance ŠŠ Valuation: Maintain Buy with a revised price

target of Rs. 969: In view of the drop in OPM
(%) 1m 3m 6m 12m during FY2019, we have marginally reduced our
Absolute 3.4 16.3 10.0 27.5 earnings estimates for FY2019 and FY2020 by
~4.8% and ~1.4%, respectively. We believe that
Relative to Sensex 6.5 13.2 3.0 18.5
premiumisation of products, economies of scale
and better cost efficiencies at the manufacturing
May 13, 2019 8
Sharekhan Stock Update

as well as back-end level will help the company
maintain double-digit revenue growth and OPM
at 14-15% over FY2020-21. The footwear industry
is turning from being a basic need to fashion,
comfort and performance-oriented industry. Given
the company’s strong business prospects, we
maintain our Buy recommendation with a revised
price target (PT) of Rs. 969.
ŠŠ Key risks: Any significant increase in rubber prices
or crude oil derivative and higher competition from
new or existing players will act as key risks to our
earnings estimates.

Valuations Rs cr
Particulars FY17 FY18 FY19 FY20E FY21E
Net Sales 1652.0 1948.6 2292.1 2696.9 3197.2
OPM (%) 14.0 15.5 14.1 14.7 15.5
PAT 120.0 161.1 175.4 221.9 285.5
EPS (Rs.) 10.0 13.4 14.1 17.9 23.0
PER (x) 84.4 63.0 59.6 47.1 36.6
EV/EBITDA (x) 44.6 34.0 32.5 26.4 21.0
RoCE (%) 28.9 34.6 23.8 23.9 24.9
RoE (%) 21.9 23.6 18.8 18.5 20.0

Results Rs cr
Particulars Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%)
Net Revenues 635.7 550.4 15.5 551.3 15.3
Raw-material cost 297.5 257.6 15.5 260.2 14.4
Staff cost 67.0 55.2 21.3 64.8 3.3
Other expenses 176.0 139.8 25.9 153.6 14.6
Total expenses 540.5 452.5 19.4 478.6 12.9
Operating profit 95.2 97.8 -2.7 72.7 31.0
Other Income 1.3 0.6 121.7 3.0 -55.2
EBITDA 96.5 98.4 -1.9 75.6 27.6
Interest expenses 1.7 2.5 -29.4 2.0 -14.4
Depreciation & Amortization 16.1 13.8 17.1 16.7 -3.7
PBT 78.7 82.2 -4.3 56.9 38.3
Tax 24.3 28.7 -15.5 21.3 14.2
Reported PAT 54.4 53.5 1.8 35.6 52.8
EPS 4.5 4.5 1.8 3.0 52.8
BPS BPS
GPM (%) 53.2 53.2 0 52.8 40
OPM (%) 15.0 17.8 -280 13.2 179

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

May 13, 2019 9

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