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Relaxo Footwear and Mayur Uniquoters – Review & BUY

October 6, 2012

The large size of Indian population is a blessing in disguise for Footwear Retail Chains. It is is treading growth path, backed by benign demographics, rising affordability, increasing incomes and evolving tastes. Organized Retailer control 30% of the Footwear market in India. Bata took the initial lead to expand 8 years ago and has seen the fruits of its investments. Today, we’d like to recommend two stocks in the footwear industry – Relaxo Footwear and Mayur Uniquoters as recommended by Anand Rathi Research in a report. Both Bata and Relaxo are looking at expanding distribution network. Bata is emphasising on tier II/III cities, whereas Relaxo pan India.

The Report on Relaxo Footwear is as Follows,

Relaxo is currently focused on growing revenues from its premium brands – Flite and Sparx. Towards this, the company has already set up a manufacturing unit for polyurethane – a key chemical used in making its shoes – which will commence production from Q3FY13. This, together with rapid network expansion, will aid revenues to post 23% CAGR over FY12-15.

Margins are likely to expand 250bps owing to: (a) falling raw material prices, especially of EVA and rubber (more than 50% of RMC); (b) freight costs stabilising at 3% of sales with new warehouses; and c) reducing third-party purchases.

We assign a one-year-forward PE of 13x and derive target price target of 960. It has historically traded at 6-17 PE.At the CMP of 725, the stock trades at PE of 15.1x FY13e and 9.9x FY14e EPS of 48.1and 73.6 respectively.

On Mayur Uniquoters, the report says as follows,

Mayur is setting up a fifth coating plant with capacity of 0.6m metres per month, to grow revenues at 19% CAGR over FY12-14e. Also, its knitted fabric unit is likely to commence production from Nov-12.

Capacity expansions, and the ensuing economies of scale and lower fixed overheads, keep Mayur striving for consistent product improvement. It now intends to produce own knitted fabric, which will bring about even higher realisation and margin.

Mayur has historically traded at P/E of 3-12x. We assign 12x PE to arrive at FY14 Target Price of 520. At CMP of 402, the stock trades at PE of 11.6x /9.2x FY13e/14e EPS of 35/43 respectively.

In the backdrop of CWG, 2G, CoalGate and more scams that will be uncovered, we’d like to stick to consumer stocks independent of the Government-Corporate Nexus. The following chart Shows comparison of Bata Vs Relaxo Footwear VsMayur Uniquoters on EPS, Valuations, etc

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