RELAXO - Relaxo Footwears Ltd. Share Price

The management of Relaxo Footwears Limited provided a cautiously optimistic outlook during the earnings conference call for Q2 and H1 FY '26. They reported that revenue for Q2 FY '26 was INR 629 crores, a decrease from INR 679 crores in Q2 FY '25, attributed to demand softness and delayed purchases ahead of the GST 2.0 implementation. EBITDA for the quarter was INR 81 crores with a stable margin of 12.9%. Profit after tax was INR 36 crores, slightly lower than INR 37 crores in the prior year, but PAT margins improved to 5.8%.

Looking ahead, management expects a recovery in demand, especially with the recent rollout of GST 2.0 which has reduced the tax rate on footwear priced below INR 2,500 to 5%. Management indicated that this would enhance competitiveness against unorganized players and improve affordability in the mass and mid-market segments. The company projects a gradual revival in demand, particularly with festival purchasing and the effects of GST benefits expected to materialize in the coming quarters.

Management's forward-looking points include:

1. Full-year revenue guidance reflecting growth, with expectations of improved performance beginning Q4 FY '26.
2. An anticipated increase in consumer sentiment attributable to new pricing dynamics.
3. Expectations for next fiscal year to return to growth trajectories of 10% or more as the market stabilizes post-GST changes.
4. Continued focus on operational efficiencies and cost control helped maintain margins and profitability despite challenges.

Management emphasized that over 98% of their portfolio remains competitively priced below INR 2,500, thus positioning the company favorably for growth as market conditions improve.

Major Questions and Answers from the Q&A Section

1. Question (Devanshu Bansal): "What is the anticipation for growth pickup post-GST reduction? And how long do you foresee to flush out high-price inventory?"

   Answer (Gaurav Kumaar Dua): "The reduction in GST from 12% to 5% will enhance our competitiveness, enabling growth against unorganized competition. We carry about 30-35 days of inventory, with distributors holding around 45 days. We expect to see effects from December onward as they liquidate the old high-MRP inventory."

1. Question (Devanshu Bansal): "What reasonable growth expectation do you foresee for Q4 and FY '27 after muted trends?"

   Answer (Ramesh Kumar Dua): "In Q3, we expect to see a decline of around 3-4%. However, Q4 may show growth as conditions improve. Consumer sentiment remains muted, but the competitive positioning post-GST gives hope for better performance next year."

1. Question (Shraddha): "Has the other income increase this quarter been due to any one-off item?"

   Answer (Prince Jain): "No, the increase is due to our higher treasury base compared to last year and some minor hedging gains. We expect similar other income numbers in the future, especially if interest rates decrease."

1. Question (Sameer Gupta): "How would you assess normalized growth for this quarter amidst multiple factors affecting sales?"

   Answer (Prince Jain): "Q2 reported a volume decline of about 7.5%. Normalizing for channel inventory effects, the growth could have been better by approximately 200-300 basis points, but this is a rough estimate due to uncertain distributor stock levels."

1. Question (Akhil Parekh): "Has the implementation of BIS impacted Chinese imports?"

   Answer (Ramesh Kumar Dua): "BIS implementation has not significantly reduced Chinese imports in our category. While we have registered with it, it has had a limited impact on our key brands."

1. Question (Prerna): "What is the current split between open and closed footwear, and do you plan to increase capacity?"

   Answer (Gaurav Kumaar Dua): "Closed footwear accounts for about 20% of our sales. We currently have sufficient capacity and don't have immediate plans for expansion, focusing instead on operational efficiencies."

1. Question (Sameer Gupta): "What strategies are in place to regain market share after recent declines?"

   Answer (Ramesh Kumar Dua): "The primary reason for our declines was GST adjustments. With rates lowered, we expect to compete better and regain market share through product innovation and maintaining consumer relevance."

1. Question (Devanshu Bansal): "How are you handling low-margin situations due to reduced MRPs post-GST?"

   Answer (Ramesh Kumar Dua): "Trade discounts remain unchanged post-GST, ensuring no disadvantage for partners. They will focus on overall sales growth, and the increased volume will offset lower per-unit margins."