Shares of Relaxo Footwear Ltd. traded flat in the early deals on Tuesday as brokerage firm Yes Securities initiated coverage on the stock with a ‘sell’ rating. The brokerage set the target price at Rs 718 per share, indicating a downside of over 10%, compared to Monday’s closing price of Rs 801.65 apiece on the BSE.
"We reckon RLXF should benefit from the premiumisation trend with increasing penetration of the 'Sparx' and 'Flite' brands," Yes Securities said.
But despite a healthy volume growth projection of around 7%, the company's valuation is expensive, according to the brokerage.
The brokerage projected revenue, operating profit and net profit growth of 10%, 16% and 22% respectively, between FY24 to FY26E. Analysts at Yes Securities valued the stock at P/E of 60 times on FY26E EPS.
"RLXF has traded at a premium multiple of P/E(x) of 90x (average one-year forward multiple), since FY18. At CMP, the stock trades at P/E(x) of 82x/68x on FY25E/FY26E EPS of Rs 10/Rs 12, respectively," the brokerage said.
Relaxo Footwear reported a muted performance in Q1 with consolidated profit slipping over 21% year-on-year to Rs 44 crore. The company had reported Rs 56 crore in profit in the year-ago period.
The topline or the revenue from operations, however, grew marginally to Rs 748 crore in Q1 from Rs 739 crore in the corresponding quarter of the preceding financial year.
Stock Movement
Relaxo Footwears stock rose as much as 0.72% before paring some gain to trade 0.24% higher at Rs 802.8 apiece, compared to a 0.05% advance in the benchmark Nifty 50 as of 10:26 a.m.
It has declined 14% during the last 12 months and has fallen by 11% on a year-to-date basis. The relative strength index was at 43.
Four out of 16 analysts tracking the company have a 'buy' rating on the stock, five suggest a 'hold' and seven have a 'sell', according to Bloomberg data. The average of 12-month analysts' price targets implies a potential downside of 1.8%.
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