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2025-03-05 04:29:16 pm | Source: Yes Securities Ltd
Sell Relaxo Footwears Ltd For Target Rs. 473 By Yes Securities Ltd
Sell Relaxo Footwears Ltd For Target Rs. 473 By Yes Securities Ltd

Volumes decline sharply, downgrade earnings; maintain SELL!

Result Synopsis

Relaxo Footwears Ltd (RLXF), registered a weak performance for Q3FY25. Company’s revenue declined by 6%YoY & 2%QoQ to Rs6.67Bn. However, the only cheer was the improvement in ASP from Rs152/Rs158 per pair in Q3FY24/Q2FY25 respectively to Rs167 per pair in Q3FY25. This improvement in realization cushioned the blow caused by 15%YoY decline in volume during the quarter (2-years volume CAGR stood at -1%). Volumes were under pressure owing to soft demand coupled with enhanced competitive pressure. For 9MFY25, volumes degrew by 9%YoY and ASP improved by 6% over similar period. Hence, overall revenue declined marginally by 3%YoY.

Gross margins came in at 57% Vs 57%/61% in Q3FY24/Q2FY25 respectively. However, EBITDA margins improved marginally to 12.5% Vs 12.2% in Q3FY24 and largely remained steady on sequential basis. The operating margins were steady owing to reduction in other expenses which as as%sales came in at 30.2% as compared to 31.3%/32.5% in Q3FY24/Q2FY25 respectively. For 9MFY25, gross margins came in at 60% Vs 57% in 9MFY24 and operating margins stood at 12.9% Vs 13.2% in 9MFY24. During the quarter, company opened up 7 new stores taking the total EBO count to 410. Cumulatively, for 9MFY25, RLXF opened up 11 new EBOs.

 

Our View

The performance in Q3FY25 was below our estimates by 8%/12%/22% on Revenue/EBITDA/PAT front respectively. Consequently, we have revised our estimates for FY25E/FY26E/FY27E downwards. Going ahead, we expect Volume/ASP growth of 3%/4% respectively over FY24-FY27E which should lead to revenue growth of 7% over similar period. With better realizations, we reckon operating margins to improve gradually to 13.1% over FY26E-FY27E respectively. We have revised our EPS estimate downwards for FY25E/FY26E/FY27E by 28%/19%/15% respectively, largely owing to lower volume growth Vs earlier expectations. On account of lower growth expectations, we have revalued the company at P/E(x) of 50x on FY27E EPS, arriving at a target price of Rs473. Hence, we retain our SELL rating on the stock.

 

Result Highlights

* Volumes declined by 15%YoY to 40Mn pair, (2-year CAGR stood flattish). ASP improved by 10%YoY over similar period to Rs167/pair.

* Revenue for the quarter stood at Rs6.67Bn, a degrowth of 6.4%YoY & 2%QoQ.

* Operating margins came in at 12.5% Vs 12.2%/12.9% in Q3FY24/Q2FY25 respectively, which was below our est by 50bps & 80bps below consensus est. EBITDA stood at Rs834Mn, a decline of 4%YoY & 5%QoQ.

* Net profit stood at Rs330Mn, a degrowth of 14.4%YoY and 10%QoQ.

 

 

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