Relaxo Footwears: Q4FY24 Result Review - A Mixed Bag with Operational Challenges; HOLD Recommendation Maintained

Relaxo Footwears Ltd’s (Relaxo) Q4FY24 result was a mixed bag as net sales was lower than our estimates, while margins were beat. The company managed to perform well on ASP front in Q4FY24, primarily on account of hike in price taken to pass on increased raw material prices. However, that took a hit on the sales volume. Net sales was down by 2.3%YoY to Rs7,472mn, while EBITDA improved by 2% YoY to Rs1,204mn. The company reported net profit of Rs614mn, marginally down by 3% over Q4FY23. The company has guided double digit top-line growth over FY25-26E with the EBITDA margin in the range of 15-16%. We have broadly maintained our estimates for FY25E/FY26E. We like Relaxo given its scale of operations, wide distribution reach and strong brand recall. Maintain HOLD with a revised TP of Rs920 (earlier Rs933), assigning 65x PER on FY26E.

ASP Impact on Sales Volume: Relaxo's Strategic Moves and Growth Projections

Increase in ASP weighed on sales volume: Relaxo’s sales volume was at ~50mn pair, down by 3% YoY, while NSR improved by 2.3% YoY to Rs149/pair. Relaxo has launched a new retail app and touched 50,000 retail outlets and Dealer management system to increase efficiency in the supply chain of the company. The management has guided double digit volume growth, majorly led by higher volume. We anticipate ASP to be volatile, in-line with raw material price movement in future.

On a sustainable growth path, HOLD with a TP of Rs920: After many quarters, Relaxo’s growth is driven by ASP rather than volume in Q4FY24. We believe the company will do well on net sales as a combination of ASP/Volume growth, while operating margin would be in the range of mid-teens. Relaxo’s focus on strengthening distribution network bodes well for long term growth. HOLD with a TP of Rs920.