Neutral Relaxo Footwears Ltd For Target Rs. 810 - Motilal Oswal Financial Services
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* RLXF’s price cuts in the last few quarters have translated into healthy market share recovery from the unorganized players, driving healthy 24% volume growth. Subsequently, revenue/EBITDA increased 10%/6% YoY (in line). The 200bp YoY decline in gross margins was due to the price reduction.
* The cleanup of old high-priced inventory and the steady costs of raw materials could potentially lead to growth and improved margins in the future. We have largely maintained estimates building Revenue/PAT CAGR of 18%/53% over FY23-25. RLXF has a strong cash generation capability, with a historically healthy 20%+ RoEs. The stock trading at 60x FY25 P/E appears rich, hence, we reiterate our Neutral rating on the stock.
Revenue/PAT down 8%/57% YoY; RM prices cooling off
* Revenue increased 10% YoY to INR 7.6b in 4QFY23 (4% above est). This was due to a price reduction of around 11% QoQ in 3QFY23, which resulted in QoQ volumes growth of 24%.
* Gross profit increased 5% YoY to INR4b; however, margins were down 200bp YoY to 52.2%. This could be due to the price cut taken and high RM prices.
* EBITDA increased 6% YoY to INR1.2b in 4QFY23 (5% above est), led by a 5% YoY decrease in employee expenses. Margin decreased 50 bp YoY to 15.4% (v/s 15.9% in 4QFY22), below the management guidance of 16-17%.
* PAT was flat YoY at INR 633m in 4QFY23 (5% above est). Margin stood at 8.3% v/s 9% in 4QFY22.
* The company declared a dividend of INR2.5.
* FY23 revenue was up 5% YoY to INR 27.8b, while EBITDA/PAT were down 19%/34% YoY to INR3.3/1.5b.
Highlights of the management commentary
* After the price reduction, market demand is expected to improve 2HFY24 onwards with double-digit volume growth and ASPs are expected to see no further cuts.
* “Sparxx” brand crossed INR10-11b revenues, with sports contributing ~INR4b, growing by 25% YoY in FY23. The company aims to increase this figure to INR10b over the next two to three years.
* The management expects margins to improve with easing RM prices. It anticipates EBITDA margins to recover to 15-16% in the near term.
* The company expects FY24 capex to be lower than the INR1.7b in FY23, which was primarily allocated toward capacity expansion.
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