Sell Relaxo Footwears Ltd for the Target Rs 290 by Motilal Oswal Financial Services Ltd
Recovery continues, but growth visibility remains limited
* Relaxo Footwears (RLXF) sustained its recovery in 1QFY27, with revenue growing 8% YoY to INR7.1b, broadly driven by higher realizations. ASP rose 10% YoY to INR166, while volumes declined 2% YoY.
* Gross margin expanded sharply by ~480bp YoY to 66.7%, supported by higher ASP, but the benefit was largely absorbed by a sharp increase in opex.
* Demand recovery remains encouraging, though management remains cautious, given the elevated input costs and geopolitical uncertainty.
* Retail expansion remains a key priority, with the EBO network targeted at ~500 stores by year-end (vs 429 currently), alongside greater focus on premium products.
* We tweak our estimates to reflect the current performance, implying FY26- 28E Revenue/EBITDA/PAT CAGRs of 7%/11%/9%, respectively.
* Valuations remain demanding at ~45x FY28E P/E. We reiterate Sell with a revised TP of INR290, based on 30x Sep’28E EPS.
Key highlights from the management commentary
* Fashion Footwear: The company is actively expanding into the fashionforward footwear segment, which requires specialized production lines and more complex manufacturing processes. The transition involves modifications to conventional assembly layouts and workflows, resulting in lower daily output.
* Capacity: Total manufacturing capacity has been reassessed at 910,000 pairs/day vs 1.05m pairs/day earlier, following the ongoing reconstruction and renovation of the RFL-I and RFL-II plants
* The redevelopment is aimed at improving infrastructure and safety compliance while leveraging higher Floor Area Ratio (FAR), providing scope for future capacity expansion.
Valuation and view
* Demand recovery continued in 1QFY27, supported by improving channel demand and a more favorable operating environment. The recovery is encouraging, although geopolitical disruptions and rising inflationary pressures could temper momentum ahead.
* RLXF is stepping up retail expansion, premiumization, and product innovation, with the EBO network targeted at ~500 stores by year-end. These initiatives should support growth, although visibility on a stronger growth trajectory remains limited.
* We remain cautiously constructive on the recovery, but visibility on its durability remains limited. Higher pricing to offset input-cost inflation, alongside a potentially weaker consumption environment, could constrain volume momentum going forward.
* We tweak our estimates to reflect the current performance, implying FY26-28E Revenue/EBITDA/PAT CAGRs of 7%/11%/9%, respectively.
* Valuations remain demanding at ~45x FY28E P/E. We reiterate Sell with a revised TP of INR290, based on 30x Sep’28E EPS.
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