Hold Relaxo Footwears Ltd for the Target Rs. 520 by Axis Securities Ltd
Subdued Revenue; Operating Margins Strengthened
Est. Vs. Actual for Q1FY26: Revenue – MISS; EBITDA – BEAT; PAT – BEAT
Changes in Estimates post Q1FY26 FY26E/FY27E: Revenue: 0%/1%; EBITDA: 1%/3%; PAT: 6%/9%
Recommendation Rationale
• Demand weakness, but margins stay resilient: Relaxo reported a sharp 13% YoY revenue decline, driven by a 14% drop in volumes amid muted consumer sentiment in the mass and mid-market segments. Competitive intensity remained elevated in general trade, with regional players gaining share post the GST rate hike from 5% to 12%. Despite the challenging demand environment, realisations improved 1% YoY to Rs 151 per pair. EBITDA margins expanded by 198 bps to 15.2%, supported by operational efficiencies, tight cost control, and backend process optimisation.
• Short-term strain to improve gradually: 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, 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 but with a delay.
Sector Outlook: Cautious
Company Outlook & Guidance: Though we have increased our FY26/FY27E estimates, we continue to maintain our HOLD rating on the stock. Current Valuation: 55x Mar’26 EPS (Earlier Valuation: 52x Mar’26 EPS ) Current TP: Rs 520/share (Earlier TP: Rs 450) Recommendation: With an 8% upside from the CMP, we maintain our HOLD rating on the stock
Financial Performance: The company’s revenue declined ~13% YoY, with volumes contracting 14% to 4 Cr pairs, while ASP improved 1% to Rs 151 per pair. EBITDA improved by 0.6% YoY to Rs 99 Cr, with margins gained by 198 bps to 15.2% due to a reduction in other expenses and staff costs. PAT improved by 10.2% YoY to Rs 49 Cr in Q1FY26.
Outlook:
The company delivered a mixed bag of numbers in Q1FY26, 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 520/share
Key Risks to Our Estimates and TP
• Increase in competitive intensity, prolonged demand recovery, and RM inflation.
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