Centrum Broking believes footwear industry a long-term structural story, sees 16% upside in Relaxo

With the revival in the economy and improving demand, a domestic brokerage firm Centrum Broking believes the Indian footwear industry is a long-term structural story with multiple growth drivers in place. It initiates coverage on three footwear companies – Relaxo, Metro Brands, and Bata India.

“The sector grew at a healthy CAGR (Compound Annual Growth Rate) of 9 per cent from Rs 475 to Rs 720 billion over FY15-20 before being disrupted during the pandemic. With Covid becoming a thing of the past, is expected to grow at an 8 per cent CAGR over FY20-25 to Rs 1050 billion,” it added.

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India’s per capita footwear at 1.9x is well below the global per capita of 3x and developed countries (US, UK) per capita of 7x, the brokerage firm said in a report, adding further that premiumization, casualization, and digitization are the possible key trends going forward.

Organized footwear retail (LFS, EBOs, and E-commerce combined) is expected to grow at 13 per cent CAGR over FY20-25 led by the e-commerce channel by 16 per cent CAGR; while Kids’ and women’s footwear may lead the growth with 11 and 10 per cent CAGR over FY20-25 respectively, it added.

Though the long-term trends remain conducive, Centrum Broking believes near-term margins to remain under check with inflationary pressure. The brokerage expects minimum upside at current prices with a large part of the near-term growth already factored in.

Centrum Broking assigned Buy ratings to Realxo Footwear with a target price of Rs 1,187 per share, with an upside of 16 per cent, and Reduce ratings to Metro Brands and Bata India with target price of Rs 576 per share, 4 per cent downside, and Rs 1,910 per share, 2 per cent downside, respectively.