Hold Relaxo Footwears Ltd for the Target Rs. 450 by Axis Securities Ltd
Demand Environment Remains Subdued; Maintain HOLD
Est. Vs. Actual for Q4FY25: Revenue – MISS; EBITDA – MISS ; PAT – MISS
Changes in Estimates post Q4FY25
FY26E/FY27E: Revenue: -5%/-6%; EBITDA: -7%/-10%; PAT: -11%/-14%
Recommendation Rationale
* Disappointing performance: The company reported a weak performance as demand continued to remain muted. Relaxo’s revenue declined 7% YoY to Rs 695 Cr, falling short of expectations due to a 10% YoY drop in volumes (9% YoY decline in FY25). However, average realisation per pair improved by 3% YoY to Rs 153. Gross margins were impacted by inventory correction, while EBITDA margins remained steady at 16.1%, supported by a ~21% YoY reduction in other expenses, primarily due to lower ad-spends amid subdued demand. For FY25, ad-spends were maintained at 3% of sales.
* 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) Implementation of DMS and focus on secondary sales will take time to bear fruit. Although the long-term outlook appears favourable with initiatives such as cost optimisation, BIS implementation supporting organised players, implementation of DMS and removing nonperforming distributors 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 the short and medium-term outlook remains weak.
Current Valuation: 52x Mar’26 EPS (Earlier Valuation: 57x Dec’26 EPS)
Current TP: Rs 450/share (Earlier TP: Rs 550)
Recommendation: With a 7% upside from the CMP, we maintain our HOLD rating on the stock.
Financial Performance: The company’s revenue declined 7% YoY, with volumes contracting 10% to 4.5 Cr pairs, while ASP improved 3% to Rs 153 per pair. EBITDA declined 7% YoY to Rs 112 Cr, with margins remaining flat at 16.1% due to a reduction in other expenses. PAT dropped 8% YoY to Rs 56 Cr in Q4FY25
Outlook: The company delivered a subdued performance in Q4FY25, and we remain cautious in the short to medium term due to 1) The lack of signs of demand recovery, 2) Rising competition from unorganised players, and 3) The implementation of DMS and focus on secondary sales, which will take time to bear fruits. 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 450/share.
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