Relaxo Footwears gives ascending triangle breakout
The Indian multinational footwear manufacturer, Relaxo Footwears Limited is the largest footwear manufacturer in India in terms of volume and the second-largest in terms of revenue, with a market share of more than 5 per cent.
The business of Relaxo Footwears recovered at a faster pace with revenue returning back to 93 per cent of the pre-COVID levels in Q2, unlike some other retail or footwear companies. This was led by strong demand for open-ended value footwear products that contributed 80 per cent of revenues in H1. Volumes and realisations clocked at compounded annual growth rate (CAGR) of 10 per cent and 3 per cent, respectively over FY2017-20. Further, sustained innovation, a focus on improving penetration in southern & western parts of India, and a shift to branded products are some of the factors that are likely to aid sustained volume growth. Moreover, a better mix that is led by strong traction in premium products might drive realisations. Operating profit margin (OPM) improved to 17 per cent in FY2020 as against 14 per cent in FY2017. Therefore, most probably, the margins would keep rising in the years to come along with better-operating efficiencies and higher sales volume.
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Key takeaways:
1. Fundamentally sound company with 93 per cent recovery to the pre-COVID levels in Q2.
2. Technically, it formed an ascending triangle breakout pattern on the weekly timeframe. (A week is yet to complete though).
3. Pullback is likely to happen and hence, conservative traders can wait for the pullback while aggressive traders can add on the pullback to average out their positions.
4. Near-term support and resistance are placed at Rs 834 and Rs 928, respectively.
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Having said, on the technical end, Relaxo Footwears gave an ascending triangle breakout on the weekly timeframe. Prior to that, in February 2020, it made a life-time high of Rs 830 and moved into a major correction in March 2020 due to disruptions in the business because of COVID-induced lockdowns. In March 2020, it made a low of Rs 500, which was almost 40 per cent down from its all-time high. Though post that, it did start recovering but failed to breach its all-time high levels and traded in a sideways trend. However, this week, it seems that it has given a breakout from its sideways trend.
The above charts are of Relaxo Footwears. The first one is a weekly chart while the second one is a daily chart. As we can clearly see, on the weekly charts, it has given a breakout from the ascending triangle price chart pattern. Moreover, on the daily timeframe, we can see the same formation and that too with elevated volumes. Having said, it is likely to witness a pullback. Therefore, it would be wise to wait for a pullback in the range of Rs 834 to Rs 846 levels. However, aggressive breakout traders can definitely consider going long in the same but needs to adhere to strict stop-loss. Moreover, they need to wait for the week to end before entering into the trade. Hence, it would be more prudent to add this stock to your watchlist.
On Tuesday, the stock opened near the low at Rs 837.15, made a low of Rs 835, and closed at Rs 893.90 after making an all-time high of Rs 914.55.
Disclaimer:
This article is just for understanding purposes and should not be considered as a recommendation. Readers are advised to do their own research before making any investment decision. Further, DSIJ and its authors are not responsible for any kind of losses incurred.