Relaxo Footwear - All about brand show - Angel Broking

Relaxo Footwear (Relaxo) reported a decent set of numbers for 1QFY2013. The company's revenue grew by 15.6% yoy to Rs.248cr, which was in-line with our estimate of Rs.250cr. On the operating margin front, it saw an improvement of 138bp yoy to 12.1% mainly due to softening of raw material prices. However, the margin contracted on qoq basis by 162bp on account of substantial rise in the employee cost and other expenses. Subsequently, the profit for the company grew by 39.6% yoy but declined by 19.8% on a qoq basis to Rs.15cr.

Expansion plans and celebrity endorsement to drive volume: The company is in an expansion mode and plans to incur a capex of Rs.60cr for building up a PU (Polyurethane) footwear plant (expected to get completed by FY2013) and Rs.25cr for building a warehouse (to be completed by FY2014E). In addition, the company plans to open 25-30 retail stores each year. It recently signed up leading celebrities for endorsement of its brands - Salman Khan for Hawaii, Katrina Kaif for Flite and Akshay Kumar for Sparx. We expect capacity expansion and aggressive marketing to complement each other and drive volume.

Outlook and valuation: We expect Relaxo to post a revenue CAGR of 18.5% over FY2012-14E to Rs.1,208cr with an operating margin of 13.0% in FY2014E. The PAT is expected to grow at a CAGR of 43.4% to Rs.82cr for the same period. At the current market price, Relaxo is trading at 7.5x FY2014E earnings. We maintain our Buy recommendation on the stock with a target price of Rs.684, based on a target PE of 10x for FY2014E.

Source : Equity Bulls

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