Hold Relaxo Footwears Ltd For Target Rs.550 by Axis Securities
Demand Environment Remains Subdued; Maintain HOLD
Est. Vs. Actual for Q3FY25: Revenue – MISS; EBITDA – BEAT; PAT – BEAT
Changes in Estimates post Q3FY25
FY25E/FY26E: Revenue: -3%/-6%; EBITDA: -8%/-11%; PAT: -13%/-16%
Recommendation Rationale
* Disappointing performance: The company reported disappointing results as demand remained subdued. Relaxo’s revenue declined 6% YoY to Rs 667 Cr, missing estimates as volumes dipped 15% (vs. 10% dip in Q2FY25). However, the average realisation per pair rose 10% YoY to Rs 166. Gross margins remained flat, while EBITDA margins improved by 27 bps to 12.5%, driven by a ~10% YoY reduction in other expenses. Management reiterated that the ongoing implementation of the distribution management system will cause short-term disruptions but is expected to stabilize over the next 2-3 quarters.
* Short-term strain to persist: We remain cautious in the short to medium term due to 1) A sluggish demand environment, 2) Rising competition from unorganised players, and 3) fluctuations in operating costs, which impact profitability despite cost-saving efforts. Although the long-term outlook appears favourable with initiatives such as cost optimisation, BIS implementation supporting organised players, implementation of DMS and a premiumisation strategy focused on high-growth sports and athleisure categories, we believe the benefits from these positive factors will likely materialise with a delay.
Sector Outlook: Cautious
Company Outlook & Guidance: We maintain our HOLD rating on the stock as short and medium-term outlook remain weak
Current Valuation: 57xDec’26 EPS (Earlier Valuation: 60xJun’26 EPS)
Current TP: Rs 550/share (Earlier TP: Rs 700)
Recommendation With a 0% upside from the CMP, we maintain our HOLD rating on the stock.
Financial Performance:
The company’s revenue declined 6% YoY, with volumes falling 15% to 4.0 Cr pairs, while ASP improved 10% to Rs 166 per pair. EBITDA decreased 4% YoY to Rs 83 Cr, with margins improving by 27 bps YoY to 12.5% due to a reduction in other expenses. PAT dropped 14% YoY to Rs 33 Cr in Q2FY25, impacted by higher depreciation expenses and interest costs.
Outlook:
The company delivered a subdued performance in Q3FY25, and we remain cautious in the short to medium term due to 1) lack of signs of demand recovery, 2) rising competition from unorganised players, and 3) variability in operating costs impacting overall profitability despite cost-saving initiatives. We seek sustained signs of recovery; therefore, we maintain our HOLD rating on the stock.
Valuation & Recommendation:
We maintain our HOLD rating with a revised TP of Rs 550/share.
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