After delivering 6,572% returns, this footwear maker is stepping ahead

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Helping its customers take small yet comfortable steps this footwear maker took a giant leap on Dalal Street. Relaxo Footwears share price has delivered 6,572% to investors in the last 10 years. The mid-cap firm’s share price has risen from Rs 13.64 on April 18, 2011, to Rs 893.50 on April 16, 2021 today. An investment of Rs 1 lakh in Relaxo Footwears in April 2011, has grown to Rs 66.71 lakh today.

This phenomenal price rise came on the back company taking concentrated steps to strengthen its manufacturing backbone that provides a competitive advantage over its peers. Followed by widening of a distribution channel to have a pan-India footprint and focusing on improving the share of premium products. All these efforts saw its net sales rising at a compounded annual growth rate (CAGR) of 14.88% from Rs 691 crore in March 2011 to Rs 2,410 in March 2020. During the same period, its bottom line grew at an even faster rate to Rs 226 crore from a mere Rs 27 crore registering a CAGR of 26.75%. Even its PAT margin also more than doubled from 3.87% in March 2011 to 9.4% in March 2020. Apart from financial performance company’s brands namely Relaxo, Sparx, Flite, Schoolmate and Bahamas have become household name especially in tier II, III & IV cities.

Step Ahead

Analysts are bullish on the prospects of Relaxo Footwear for the long term. Anand Rathi sees over 33% upside and has set a price target of Rs 1,193 for the counter. In its research report released on 9th April, the brokerage said the company has a strong financial risk profile, characterized by robust internal accruals, limited debt, and healthy debt protection indicators. The company’s liquidity position remains comfortable with cash and equivalents of Rs 49.5 crore as of December 31, 2020.

“Relaxo is expected to benefit from the healthy demand from its diversified product portfolio catering to different casual footwear requirements. The company is also likely to benefit from the gradual shift in the industry towards organized players due to the impact of Goods and Services Tax (GST) and Covid-19. Moreover, it has maintained healthy operating cash flows, asset turns (~3x) and consistency in EBITDA Margins over the years making it a capital-efficient business,” said the brokerage firm.

Relaxo over the years has established a healthy distribution network, with over 650 distributors catering to approximately 50,000 retailers that sell around 6 lakh pairs of footwear manufactured daily at its eight state-of-the-art manufacturing facilities.

Citing this strong reach and manufacturing prowess Axis Securities is also bullish on the stock and has a price target of Rs 1,013 with a potential upside of around 14%. Axis Securities expects the company to be the beneficiary of market share gains as most players in the unorganized segment mainly dominant in the mass and value category would be facing liquidity constraints. We remain positive on the stock from a long-term perspective given immense growth potential. We expect the company to register Revenue/EBITDA/PAT CAGR of 16/21/25% over FY20-23E.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)