Buy This Mid Cap Footwear Stock For Target Price Of Rs 1,120 To Get 11% Gains In 6-9 Months

Relaxo Footwears Limited, a mid-cap footwear company, gets a buy call from Axis Securities. The brokerage recommends 'buy' the stock of the company for a target price of Rs 1,120 apiece. According to the brokerage's estimated target price, the stock is likely to surge 11% in 6 to 9 months. Relaxo Footwears is a mid-cap footwear company with a market capitalization of Rs 25,178.87 crore.

Stock Outlook & Returns

The current market price of the stock is Rs 1,011.50 apiece. The 52-week low of the stock record on 12 May 2022 is Rs 925 apiece, and the 52-week high of the stock recorded on 04 November 2021 is Rs 1,448 apiece. 

Returns over the past 5 years

It has given a positive return of 1.09% in the past 1 week, 1.31% in the past 1 month and 2.53% in the past 3 months, respectively. Whereas, over the past 1 year, the stock has given a negative return of 15.93%. In the past 3 years, the stock gave a massive 109.2% of positive return. Whereas, in the past 5 years, the stock gave a multibagger return of 300.91%.

Overall footwear on a recovery track

The company's Q1FY23 performance was decent at the topline level as closed footwear saw signs of recovery post-opening of the schools, colleges, and offices. However, its open footwear category (~75-80% of Relaxo's sales) is yet to see a meaningful recovery as price increase and higher inflation is impacting the demand. We believe significant pent-up demand in rural and small towns to drive volumes going ahead as the rural economy starts its recovery journey. Moreover, Relaxo is likely to gain market share from weaker and smaller players as the latter got severally impacted post-pandemic and hyperinflation in raw material prices.

All eyes on key catalyst: Normal Monsoon & Higher MSP

This year's monsoon season being broad-based and normal along with the recent announcement of a hike in MSP and higher remittances will be key catalysts in the festive season that would aid in the revival of the rural economy. This, in turn, is expected to kick-start the overall consumption cycle in rural and small towns.

 

Profitability should start inching-up

The prevailing inflation in raw materials played a spoilsport in Q1FY23 profitability. However, we believe RM prices are likely to see a downward trend moving forward. Furthermore, several price hikes undertaken by the management are likely to get absorbed fully from Q2/Q3 onwards when old inventory would be completely phased out and price hikes would get absorbed at both dealer and consumer levels. This, in turn, would inch up the company's margins profile.

Superior financial matrix

Relaxo has maintained healthy operating cash flow and asset turnover ratios. 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. E.

 

Outlook & Valuation

Axis Securities said, "We believe value players such as Relaxo and V-Mart should see earnings and profitability improvement as rural and small towns recover coupled with market share gain from smaller/unorganized players, continued demand for quality value-for-money products in rural and smaller towns, strong festive season, and sustained product additions. Moreover, macro drivers such as lower per capita consumption in India and lower penetration will remain the company's long-term growth drivers."

Recommendation

Axis Securities said, "We recommend BUY with a Target Price of Rs 1120, implying an upside of 11% from the current levels."

About the Company

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 making any investment decision.