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Tuesday, September 13, 2011

Relaxo Footwears Ltd:-Buy/sell/,growth prospects and recommendation,news and results,target price and analysis,view and outlook,multibagger

Calls review:Relaxo Footwears Ltd
Recommended price:86(15.9.09)
Present price:368

Scripscan:Relaxo Footwears Ltd

Story:Relaxo Footwear Ltd is one of the large listed players in the footwear segment in India. It has one of the largest production capacities in the country. The recent performance of the company reflected in the Q4FY09 and Q1FY10 results has been quiteimpressive and the company could repeat this going forward.Constant capacity additions and strong brand value could enhance the company’s presence in the country and the fact that the company is looking into increasing exports of its products means that it could do well in the coming quarters. The two new plants are coming up in September 2009 and April 2010. The real impact of both could be felt only in FY11. When compared to its close listed peer Liberty shoes, RFL trades at a steep discount in terms of P/E ratio.RFL also plans to set up wind farms of an aggregate capacity of 6 MW at a cost of Rs.35 cr over FY10/FY11. This will be partly funded by debt of Rs.25 cr. Apart from generating a new source of income by way of power sales and being entitled to carbon credits, it will also result in tax savings for the company. RFL has announced Sept 19, 2009 as the book closure for determining the shareholders who would be paid dividend of Rs.0.75 per share. The stock could go ex-dividend on Sept 17, 2009, meaning that investors who buy the stock till Sept 16,2009 would be entitled to receive dividend.We think that RFL could record net sales of Rs 510 crores (up 25%) in FY10 and report an EPS of Rs 28.8. Given the fact thatit is engaged in a fast moving products industry, has a brand name and has a retail presence, there is scope for expansion of its P/E going forward. It has thepotential to quote at 4-4.5x FY10 (E) EPS, translating into stock price of Rs 115-130 in thenext 2-3 quarters. Investors could look to buy the stock at the current market price of Rs 86.05 and add if the scrip falls to Rs 63 – Rs 66 band.

Present update:Relaxo Footwear is one of the largest footwear manufacturers in India.With a production of 90 lakh footwear per year, it is second only to Bata India, and will benefit from the declining rubber prices.It plans to add 15-20 retail outlets every year.Relaxo is also trying to expand geographically by trying to market aggressively in south India and also export its products to Europe, Africa and other Asian countries. Exports were just 3 % of the total sales last year.The company has hiked prices across products. This will boost overall margins. The company is also working hard to bring down its working capital cycle by taking higher advances from the distributers. Working capital increased in FY'11 due to higher capital blocked in raw material inventory. All these steps should help to improve profitability and thus the return on equity.It has been a 4 bagger in the last 2 years and further from here can be a 4 bagger in the next 3-4 years.

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