Axis Securities Recommends Buy This Retail Stock For 13% Gains, Given 304% Returns In 5 Years

Axis Securities in its pick of the week has picked the Relaxo Footwears Ltd, the brokerage suggests buying for a target price of Rs 1,100. Relaxo has maintained healthy operating cash flow and asset turns. Moreover, its robust EBITDA Margins over the years have made it one of the most capital-efficient businesses in the industry.

Target price, CMP, 52 Week Low & High, Returns, Potential Gains

Relaxo Footwears' stock fell 1.10% today, closing at Rs 974.90/share. The stock is roughly 5.39% higher than its 52-week low level. Its 52-week low was Rs 925/share and its 52-week high was Rs 1,448/share.

In terms of returns, it has not given positive returns in the last 1 year, given a negative 11.13%. However, the stock did well over the long-term investment, with positive returns of 135.14% in 3 years and a whopping 304.44% in 5 years, respectively.

The share price has the potential to jump close to 13%, considering the brokerage's anticipated target price of Rs 1100/share and the CMP of Rs 974.90/share.

Open footwear on a recovery track

The company's Q4FY22 performance stood tepid, especially for the open footwear category (~75-80% of Relaxo's sales). On a positive note, its closed footwear reported robust recovery on account of the opening of schools, colleges, and work offices. The brokerage said, "We believe significant pent-up demand will be released as the rural economy revives, thereby benefiting the company's operating performance moving forward."

Normal Monsoon, Higher MSP

Normal monsoon forecast, the recent announcement of a hike in MSP, and higher remittances will be key catalysts aiding in the revival of the rural economy, which in turn, will kick-start the overall consumption cycle.

Low pressure on profitability

Hyper-inflation in key raw material prices, coupled with subdued volume growth, has been posing pressure on profits. However, we believe the company's margins are likely to inch up going forward as the pick-up in the volumes and market share gains from the unorganized/smaller players trigger operating leverage.

Superior financial matrix

Relaxo has maintained healthy operating cash flow and asset turns. Moreover, its robust EBITDA Margins over the years have made it one of the most capital-efficient businesses in the industry. "We believe a strong balance sheet with zero net debt and efficient working capital should help Relaxo prosper in the long run,' the brokerage has said.

Buy for target price of Rs 1,100/share

The brokerage said, "We recommend a BUY on the stock with a near-term Target Price of Rs 1,100/share implying an upside of 11% from the Current Market Price."

About - Relaxo Footwears Ltd

Relaxo is the largest footwear manufacturer in India. It manufactures quality and affordable footwear comprising slippers, sandals, sports, and casual shoes. The company boasts of several popular brands including Relaxo, Sparx, Flite, and the Bahamas which stand as leaders in their respective domains. Its product mix comprises Hawai and Bahamas which account for ~25% of total sales value (60% shoes & 40% sandals) while Flite and Sparks account for ~37% of total sales each.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.