RELAXO - Relaxo Footwears Ltd. Share Price

In the recent earnings call for Q4 and FY '25, Relaxo Footwears Limited management presented a cautious yet optimistic outlook for the company. The revenue from operations for Q4 FY '25 was reported at INR 695 crores, marking a decline from INR 747 crores in Q4 FY '24, attributed to softer volumes due to a challenging demand environment. However, for FY '25, total revenue stood at INR 2,790 crores with an EBITDA of INR 382 crores and a net profit of INR 170 crores, reflecting a margin of 6.1%.

Management shared that while current market conditions remain tough, particularly in the mid-range footwear segment, the upcoming transformation in their distribution model is expected to stimulate sales growth. The initiative involves transitioning from a primary to a secondary sales focus, improving operational efficiency and enhancing the quality of the distributor network.

Key forward-looking points include an anticipated capex of INR 100 crores for FY '26, aimed at launching new products and expanding retail outlets, with an addition of 50 more retail locations planned for this year. Management expressed confidence that these changes will help increase both top and bottom lines, with EBITDA margins expected to improve by at least 1% as operational efficiencies are realized.

Furthermore, management highlighted that sales growth may see an uptick in H2 FY '26, driven by ongoing improvements in their distributor system and the successful implementation of the Relaxo Parivaar app, which has already recorded strong retail engagement, with 50% sales captured through this channel.

Major Questions and Answers from the Q&A Section

1. Question: "Could you elaborate on if there are any structural challenges impacting volumes, either on the competition side or due to the restructuring of the distribution model?"

Answer: Our Hawai segment faces pressure primarily from rural and middle-income consumers, leading to a 2% sales drop in this segment from last year. Although we experienced lower volumes, we compensated with better sales from other segments. We're undergoing distribution model restructuring, facing resistance from some distributors who prefer not to be fully transparent. However, by the second half of the year, we anticipate improvements as we prioritize quality over quantity in our distribution.

2. Question: "What specific reasons impacted our gross margin?"

Answer: Our gross margin has actually improved by 0.7% due to some material advantages and a price increase that took effect earlier. Despite industry challenges, we've managed to keep our EBITDA margins steady through effective operational controls. Although gross profit margin for Q4 fell due to decreased inventory, this was primarily an accounting adjustment rather than a decline in actual profitability.

3. Question: "Can you provide guidance on future performance?"

Answer: While market conditions remain uncertain, we're optimistic. We anticipate a slight growth in both top and bottom lines in H2 as we're focused on improving operational efficiency. Our FY '26 guidance is cautious, but we expect a more favorable business environment to support gradual growth.

4. Question: "What is the capex guidance for the next year?"

Answer: We expect to allocate around INR 100 crores for capex next year. This will cover various expenses including opening new retail outlets, maintaining our production facilities, and investing in energy-efficient technologies.

5. Question: "Are we looking into export opportunities with the new UK trade deal?"

Answer: Yes, we are already in discussions regarding potential export opportunities in the UK, exploring both branded and private label options. Our product range is flexible enough to cater to different market demands, and we see potential in EVA footwear and our Sparx brand.

6. Question: "How do you see demand recovering post the recent challenges?"

Answer: Demand is stabilizing as retail outlets reopen, and we are optimistic about recovery in sales. While April was challenging, we expect improvements moving forward as we refocus on our distribution strategy and enhance our retail presence.

7. Question: "What strategies are in place to improve ROCE?"

Answer: We are working on cost efficiencies which will naturally enhance our EBIT and ROCE. Aiming for a 2-3% increase in ROCE over the next few years, we believe improving margins and operational performance will contribute significantly to this goal.

These summaries encapsulate the major inquiries from the Q&A session and provide clear insights into the answers delivered by the management during the conference call.