Angel Broking : Result Update: Relaxo Footwears - 2QFY2015

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Angel Broking -Relaxo Footwear - RU2QFY2013 - Result Updates

Relaxo Footwear - RU2QFY2013

Sharekhan Research -- Relaxo Footwears Ltd. - Domestic Consumption Play - Buy Price Target 885

Sharekhan recommends buying Relaxo Footwear with a target price of Rs885

Market cap – Rs816 crore
CMP- Rs680
Target price-Rs885
Key points
Enviable position present in the lucrative footwear segment: Relaxo footwears Ltd is present in the Indian organized footwear market which is growing at a CAGR of 15-18% over the last 5 years and is expected to continue to grow in the similar range for the next 5 years time frame. The company is present in this lucrative consumption segment with four top of mind recall brands- viz, Hawaii, Sparx, Flite and Schoolmate catering to different target audience across the socio economic as well as demographic strata. Its flagship brand Hawaii enjoys leadership positioning in the rubber slipper market, particularly in north, while its other brands also command significant segment share, visible from the fact that the company with its 29.5% CAGR growth over FY08-12 has outgrown the industry.

Buy Relaxo Footwear (Relaxo); target price of `420: Angel Broking,

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Relaxo Footwear (Relaxo) reported a disappointing performance for 2QFY2012.
The company’s revenue declined by 7.3% to `200cr qoq, mainly because of
muted volume growth. Operating margin slipped by 294bp to 8.4% on a qoq
basis. On the profitability front, the company reported profit of only `4cr, a dip of
60.1% qoq, in 2QFY2012 as compared to profit of `11cr in 1QFY2012. We
expect the company to report profit of `34cr and `56cr for FY2012E and
FY2013E, respectively. We maintain our Buy recommendation on the stock and
upgrade the target price to `420, based on a target PE of 9x for FY2013E.
Top line expected to grow at a CAGR of 18%: We expect Relaxo to post top-line
growth of 18% CAGR over FY2011-13E to `950cr on the back of a 12% increase
in realization and changing revenue mix (high-value brands Sparx and Flite
contributing 60% to the company’s revenue). Also, the company launched Flite
Pu-Fashion under the Flite brand in June 2011, which is expected to add ~`50cr
to the company’s top line by FY2013E.
Outlook and valuation: We expect Relaxo to post revenue CAGR of 18% over
FY2011-13E to `950cr, aided by a 12% increase in realization. Rubber prices
have seen a decline of ~16% in the past six months, which will lead to improved
margins going ahead. PAT is expected to grow at a CAGR of 44% over FY2011-
13E to `56cr in FY2013E. At `325, Relaxo is trading at 7.0x FY2013E earnings
and P/B of 1.8x for FY2013E. We maintain our Buy recommendation on the stock
with a target price of `420, based on a target PE of 9x for FY2013E.

Relaxo Footwears (CMP: `303/ TP: `420/ Upside: 39%) :: Angel Model Portfolio: November 2011

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�� We expect Relaxo to post an 18% CAGR in its top line over FY2011-13E to `950cr
on the back of a 12% increase in realization and changing revenue mix
(high-value brands Sparx and Flite contributing 60% to the company's revenue).
�� Relaxo has set up a new plant at Bahadurgarh, Haryana, for fashionable footwear
with state-of-the-art PU technology and additional features such as longevity,
skid-resistance and lightweight. The company launched Flite Pu-Fashion in
June 2011, which is expected to add ~`50cr to the company's top line by FY2013E.
�� The company's EBITDA margin is expected to improve by 225bp to 11.9x in FY2013
from 9.6% in FY2011 due to the expected softening of rubber prices. Earnings are
expected to grow at a CAGR of 44% over FY2011-13E, from `27cr in FY2011 to
`56cr in FY2013.
�� At `303, the stock is trading at attractive valuations of 10.8x and 6.5x for FY2012E
and FY2013E earnings, respectively. We recommend a Buy view on the stock with
a target price to `420, based on a target PE of 9x FY2013E earnings.

Relaxo Footwears (CMP: `319/ TP: `399/ Upside: 25%):: Angel Broking Picks for September 2011

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􀂄 Relaxo Footwears is estimated to report a 21.8% revenue CAGR, aided by a 16%
CAGR in volumes, leading to a 41.0% CAGR in net profit over FY2011-13E.
􀂄 We expect the company's operating profit margin to improve by 158bp from 10.5%
in FY2011 to 12.1% in FY2013E on the back of an estimated price rise of 8% yoy
in FY2011 and increased proportion of higher-value brands such as Flite and
Sparx in the revenue mix.
􀂄 Relaxo is now more focused on the branding of its high-value brands (Flite and
Sparx) and establishing its name in footwear other than Hawaii slippers. The
company has increased its advertisement expense by 55% to `20cr in FY2010
from `13cr in FY2009, which is expected to result in increased RoE of 24.2% in
FY2013E as compared to 19.8 in FY2011.
􀂄 At `319, the stock is trading at attractive valuations of 10.4x and 7.2x for FY2012E
and FY2013E earnings, respectively. We maintain our Buy view on the stock with a
target price to `399, based on a target PE of 9x FY2013E earnings.

Relaxo Footwears ( TP: `399/ Upside: 41%):Angel Broking, TOP PICKS

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􀂄 Relaxo is estimated to report a 21.8% revenue CAGR, aided by a 16% CAGR in
volumes, leading to a 41.0% CAGR in net profit over FY2011-13E.
􀂄 We expect the company's operating profit margin to improve by 158bp from 10.5%
in FY2011 to 12.1% in FY2013E on the back of an estimated price rise of 8% yoy
in FY2011 and increased proportion of higher-value brands such as Flite and
Sparx in the revenue mix.
􀂄 Relaxo is now more focused on the branding of its high-value brands (Flite and
Sparx) and establishing its name in footwears other than Hawaii slippers. The
company has increased its advertisement expense by 55% in FY2010 from `13cr
in FY2009 to `20cr in FY2010, which is expected to result in increased RoE of
24.2% in FY2013E as compared to 19.8% in FY2011.
􀂄 At `283, the stock is trading at attractive valuations of 9.3x and 6.4x for FY2012E
and FY2013E earnings, respectively. We maintain our Buy view on the stock with
a target price to `399, based on a target PE of 9x FY2013E earnings.

Relaxo Footwears:: Angel Broking Top Pick: June 2011

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Relaxo Footwears Ltd. (Relaxo), a part of Relaxo Group, primarily
produces footwear. The company has an installed capacity of
3.1 lakh pairs of footwear per day. We expect the company's top
line and profit to grow at CAGRs of 21% and 33%, respectively,
over FY2011-13E, as it is well poised for ~16% volume growth
on the back of a significantly untapped potential market.
We recommend Buy on Relaxo with a target price of `317 based
on a target PE of 8x for FY2013E.
Increase in disposable income will increase sales: According to
NCAER report, the number of households in India stood at ~21cr
in 2005, out of which 42.7% households were under urban BPL
or labour category. With increased disposable income of this
section due to programmes like NREGA, a shift to branded
products is happening. With relatively cheaper products and
established brand names, we expect an expansion in the market
share for players like Relaxo from unorganised players. On the
back of this shift, we expect Relaxo's volumes to grow at a CAGR
of ~16% over FY2011-13E.


Rise in raw-material prices to be passed on by FY2013E:
In FY2011, Relaxo's EBITDA margin declined due to increased
raw-material prices, both rubber and Ethyl Vinyl Acetate (EVA).
However, to improve its margin and offset the increase in
raw-material prices, the company has increased the average
prices of its products by an estimated 9% yoy. We expect the
company's profit to grow at a two-year CAGR of 33% to `48cr in
FY2013E. With almost 60% of revenue coming from high-margin
products (Sparx and Flite) and given the price rise, Relaxo is
expected to improve its margin by 132bp to 11.8% in FY2013E

Increase in share of high realisation products in revenue mix:
Relaxo, which was earlier only known for its Hawaii brand, has
now established itself in other categories such as sports shoes
and sandals. Some of its popular brands like Sparx and Flite in
these segments now contribute 60% to revenue. These higher
realisation products are likely to drive the company's top line at
a CAGR of 21% over FY2011-13E.
Branding: Relaxo increased its advertisement expense by 55%
in FY2010 from `13cr in FY2009 to `20cr in FY2010.
The company is now rigorously spending for the recognition of
its high-value brands (Flite and Sparx) through media
advertisement to establish its name in footwear other than Hawaii
slippers. The company is also actively advertising to establish its
brand name in Southern India, where it is still not present.


Outlook and valuation: At `250, the stock is trading at 9.4x and
6.3x its FY2012E and FY2013E earnings, respectively. We expect
the company's revenue and profit to witness CAGRs of 21% and
33%, respectively, on the back of price hike and ~16% volume
growth over FY2011-13E. We recommend Buy on Relaxo with
a target PE of 8x for FY2013E and a target price of `317 for an
investment period of 12 months.