Relaxo Footwears Q2 Results Review - Margins Would Take Time To Normalise; Downgrade To 'Sell': Dolat Capital

Dolat Capital Report

Relaxo Footwears Ltd.’s revenues increased by 6.8% YoY – came in line with our estimate. The growth was supported by 20% increase in volumes but was restricted by ~15% price reductions during past few quarters. 

During last few quarter, gross margin expanded by 900 basis points. Lower raw material prices and rationalisation of high cost inventory during the last quarter has helped Relaxo Footwears to expand margins. 

However, sequential contraction in Ebitda margin was a negative surprise. Nevertheless, with increase in growth momentum, we expect margins to normalise gradually. 

We have downward revised our FY24/25E earning per share estimates by 19.8/14.6% at Rs 9.4/12.8 as Q2 performance was significantly below our estimate and introduced FY26E at Rs 15.5.

Valuing the stock at 55 times FY26E we arrive at a target price of Rs 850. Downgrade to 'Sell'.

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