Buy Relaxo Footwear; target of Rs 860: Dolat Capital

Dolat Capital's research report on Relaxo Footwear

Relaxo's Q3FY19 revenues jumped 20.6% YoY to ` 5.5bn came in line with our estimates. This is attributed to strong volume growth during the quarter. For the seventh consecutive quarter, Relaxo has reported double digit volume growth. The company continues to witness better growth compared to peers. We anticipated higher revenues for Relaxo compared to Bata based on our recent channel checks. The addition of new stores, increased distribution reach and premiumization was in line with our estimates. Going ahead, we believe that the company would continue to increase its distribution reach in southern and western markets. Further, premiumization and moderation in RM costs would help it to gain margins. With GST rate change (18% to 5% for ` 500 – ` 1,000) we believe that the contribution of mid category would grow for the company, going ahead (15% to 20%). We also believe that with changes in tax structure, the organized sector would continue to outperform and Relaxo being a market leader in the economy category, is poised to take an advantage of the growing share.

Outlook

We have revised our FY19E and FY20E earnings estimate at `15.6 and `21.3 respectively as Q3 results. We are valuing Relaxo at 34x FY21E to arrive at a TP of ` 860. Maintain Buy.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More First Published on Feb 8, 2019 03:32 pm