Relaxo Footwears - Q2FY21 Company Update - ICICI Securities

Relaxo reported steady Q2FY21 results with strong profitability growth and revenues gradually inching towards pre-Covid levels. Revenue for the quarter fell 7% YoY to Rs. 575.9 crore (up 58% QoQ). It has seen robust demand for low ticket size products like slippers/open sandals (~80% of product portfolio) that led to overall volume growth of 2% YoY in Q2FY21. On the back of benign RM prices and lower other expenses like marketing spends/trade discounts, EBITDA margins expanded significantly by 520 bps YoY to 22.0%. The management, however, has indicated that current margins are not sustainable owing to upward trend in RM prices and certain overheads reverting back with normalcy in sales. Other income grew 2.1x YoY to Rs. 5.0 crore (Rs. 1.9 crore pertains to lease rent waiver). Ensuing PBT increased 35% YoY to Rs. 100.4 crore. Owing to lower tax rate in the base quarter (25% vs. 3.8% in Q2FY20), PAT growth was restricted to 7% YoY to Rs. 75.1 crore. Given the dominant presence in Tier II/III cites and being the market leader in value priced segment (in terms of volumes), Relaxo is well placed to further consolidate its market share. The company's operations are almost at pre-Covid levels, having robust liquidity position.

Valuation & Outlook

Better working capital management has resulted in strong OCF generation worth Rs. 289.3 crore in H1FY21 (CFO/EBITDA: 157%). Furthermore, lower capex requirements (Rs. 33 crore in H1FY21 vs. Rs. 74 crore in H1FY20) has significantly strengthened liquidity position of Relaxo with cash & investments worth Rs. 256 crore as on September 30, 2020. Over the years, Relaxo has maintained balance sheet prudence with controlled working capital cycle (NWC days: 65 days), healthy asset turn of 2.5x and generating RoCE of 20%+. We roll over our estimates to FY23E and bake in revenue and earnings CAGR of 10% & 16%, respectively, in FY20-23E. Relaxo, through its strong balance sheet and brand patronage, is expected to tide over the current situation better than small peers. Hence, we reiterate BUY rating on the stock with a revised target price of Rs. 765 (previous TP: Rs. 715).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Relaxo_CoUpdate_Nov20.pdf

Shares of RELAXO FOOTWEARS LTD. was last trading in BSE at Rs.664.8 as compared to the previous close of Rs. 661.55. The total number of shares traded during the day was 18840 in over 1733 trades.

The stock hit an intraday high of Rs. 669 and intraday low of 655.1. The net turnover during the day was Rs. 12446759.

Source : Equity Bulls

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