Relaxo Footwears continues to successfully move towards normalcy with solid execution and healthy margins. T3FY21 revenue grew 12% year-on-year to Rs. 672.0 crore (up 17% QoQ). He has witnessed a high demand for small size products like slippers / open sandals (around 80% of the product portfolio). A solid distribution network encompassing mainly level II / III cities supported by strong revenue recovery. Relaxo continued to benefit from low commodity prices with gross margins improving 110 basis points yoy to 58.9% (down 250 basis points qoq). However, management remains cautious on the upward movement in RM prices. Due to positive operating leverage and tight leash on general operating expenses (personnel, other expenses as a percentage of revenue decreased 44bp, 368bp yoy, respectively) , EBITDA margins increased significantly from 520 bps yoy to 22.1%. Absolute EBITDA increased 46% year-on-year to Rs. 148.7 crore. Other income increased 82% year-on-year to Rs. 4.0 crore (Rs. 1.7 crore relates to rent waiver). Thanks to strong operational performance, PAT for the quarter grew 66% year-on-year to Rs. 90.1 crore. Given the strength of its balance sheet and its position as market leader in the cost price segment (in terms of volumes), Relaxo is well placed to further consolidate its market share and emerge stronger after the pandemic.

Assessment and outlook

Resilient performance during tough times bolsters our confidence in the business model and our ability to gain market share. While we believe that the current gross margins (59-61%) may not be sustainable in nature, we expect the improvement in EBITDA margin to continue through operating leverage and control measures. costs. Taking into account the performance of T3FY21, we are revising our earnings estimates up to ~ 7% for FY22 / 23E. We are creating revenue, 12% and 20% CAGR, respectively, in fiscal year 20-23E. Over the years, Relaxo has maintained the prudence of its balance sheet with a controlled working capital cycle (NWC days: 65 days), healthy asset rotations of 2.5x and generating a RoCE of over 20%. We believe that a strong FCF generation (~ Rs.590 crore in FY21-23E) and a marked improvement in RoIC (to cross 30% in FY22E) will be the main triggers for maintaining premium valuations. Therefore, we are improving the stock to BUY (from HOLD) with a revised target price of Rs. 950 (old TP: Rs. 890).

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RELAXO FOOTWEARS LTD. was last trading on BSE at Rs. 823.8 from the previous close of Rs. 837.15. The total number of shares traded during the day was 6,455 in more than 651 trades.

The share hit an intraday high of Rs. 850.8 and an intraday low of 821.7. The net turnover during the day was Rs. 5,379,607.

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