Angel Broking : Result Update: Relaxo Footwears - 2QFY2015

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Relaxo Footwears (Relaxo) reported a decent set of numbers for 2QFY2015. The

revenue for the quarter grew by an impressive 26% yoy to `332cr, driven by

volume growth across major brands and by premiumization. With an increase in

traded goods during the quarter, the gross margin declined by 75bp yoy to 56%.

However, owing to lower employee cost and other expenses as a percent of net

sales on a yoy basis, the operating margin improved by 114bp yoy to 11%,

although the same is below our estimate of 12.1%. Further, a decline in interest

outgo and a lower tax rate enabled the company to report a net profit of `17cr,

48.4% higher yoy, but 13.1% lower than our estimate of `20cr.

Product premiumization to drive growth: With steady volume growth through

improving retail distribution and expansion, the company will be able to post a

revenue CAGR of 20.7% over FY2014-16E to `1,756cr in FY2016E. Further,

focus on premiumization of high value products will improve the product mix,

thereby improving realization and margins going ahead. Realization per pair is

expected to improve from `111.8 in FY2014 to `134.5 in FY2016E. The EBIDTA

is expected to grow at a CAGR of 24.1% over FY2014-16E to `216cr in FY2016E,

while the EBIDTA margin is expected to improve by ~67bp over the same period to

12.3%. Resultantly, the company’s profit growth is expected to be higher than revenue

growth. We expect profit to grow at a CAGR of 34.4% over FY2014-16 to `119cr in

FY2016E.

Outlook and valuation: We remain positive on the company with the growth

triggers in place, which include – 1) sufficient capacity to cater to increasing

demand, 2) improving product mix and 3) optimized cost expenses. However, at

the CMP of `513, the stock is trading at 26.3x FY2016E earnings which we

believe is fair, and hence recommend a Neutral rating on the stock.