Target: ₹876

CMP: ₹784.25

We met Sushil Batra, CFO, Relaxo Footwear, to understand: the current business environment of the domestic footwear industry; management guidance on growth opportunities and challenges; and the outlook on earnings growth recovery in near term. The management guided that the demand is showing signs of improvement and raw material prices too have softened recently. Relaxo has taken the prudent step of price correction in two of its products which will aid in product off-take.

With adequate capacity expansion in Sparx (high-value product), we expect share of high-value product in total sales will eventually increase. Further, focus on increasing sales from e-commerce platform, branding and advertising as well as new product development will pave the way for sustainable earnings growth in future.

Relaxo was passing through tough times as the major raw material prices were up 2.5x-3x in a span of nine months. In order to pass on the increased cost, the company took three price hikes in eight months.

We believe Relaxo is on a recovery mode and earnings will improve from Q4-FY23, given issues related with high cost inventory, overall demand and raw material prices are behind now. Maintain HOLD with a target price of ₹876, assigning 60x PER on FY25E..