Relaxo Footwears - Value Growth Would Be Supported By Volume Growth: Dolat Capital

Dolat Capital Report

Relaxo Footwears Ltd.’s revenue grew by 8.8% YoY during H1 FY24, led by 28.6% YoY volume growth. However, the growth was restricted due to ~15% price reductions during past few quarters.

During H2 FY24, volume is anticipated to grow by ~25-30%. However due to ~8-10% price cuts, growth is expected ~15-16% (earlier guidance ~18-20%). We believe, going ahead volume growth would drive growth.

Over past few quarters, Relaxo’s gross margins were impacted due to significant inflation in economic d added, PUC and polymer prices which resulted in high cost inventory in the system.

However, softening of raw material prices in recent times and phasing out of high cost inventory in Q2 FY24 resulted in gross margins going back to normalized levels.

Furthermore, though Ebitda margins were lower at 12.8% during Q2 FY24. The management has guided that margins have scope to improve hereon. However, the company would take time to achieve normalised margins of ~15-16% due to increased competition and BIS implementation.

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