Relaxo Footwear - 2QFY2013 Result Update - Angel Broking

Relaxo Footwear (Relaxo) reported lower than expected numbers for 2QFY2013. The revenue for the quarter stood at Rs.242cr marginally lower than our expectation of Rs.248cr, while it grew by 21.6% yoy from Rs.199cr in 2QFY2012. The EBITDA margin witnessed an expansion of 204bp yoy to 9.9% during the quarter; however, it was lower than our expectation of 12.5%. Subsequently, the profit for the quarter grew by 139.4% yoy (on a lower base of Rs.4cr for 2QFY2012) at Rs.10cr, which was 32.9% lower than our estimate of Rs.15cr.

Expansion plans and brand revamp 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 has also roped in 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 12.5% in FY2014E. The PAT is expected to grow at a CAGR of 41.6% to Rs.80cr for the same period. At the current market price, Relaxo is trading at 12.0x FY2014E earnings. We maintain our Buy recommendation on the stock with a revised target price of Rs.933, based on a target PE of 14x for FY2014E.

Source : Equity Bulls

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