Company Update : Relaxo Footwears Ltd By Motilal Oswal Financial Services Ltd
Volume decline continues to drag performance; EBITDA decline 7% YoY (6% miss)
* Revenue declined 7% YoY to INR6.9b (7% miss), due to muted demand in mid-range footwear and declining volumes on account of internal restructuring of the distribution model.
* Volume declined 10% YoY to 4.5m pairs, while ASP was up 3% YoY to INR153/pair.
* Gross profit declined 15% YoY to INR3.8b (15% miss), with gross margins contracting 535bp YoY to 54.9% (~515bp miss).
* Employee expenses and other expenses declined sharply by 11%/21% YoY, with Opex as a % of sales declining to 39% (vs 44% YoY).
* EBITDA at INR1.1b declined 7% YoY (6% miss) due to weaker revenue growth.
* EBITDA margin was stable YoY at 16.1% (~15bp ahead) as lower GM was offset by lower opex.
* PBT at INR754m declined 8% YoY (3% miss) as lower EBITDA was partly offset by lower depreciation (down 2% QoQ) and higher other income (up 60% YoY).
* Reported PAT at INR562m was down 8% YoY (3% miss), with margins at 8.1%.
FY25 performance: A subdued year
* Revenues at INR28b declined 4% YoY, due to the muted overall consumption scenario and heightened competition from the unorganized sector.
* Volume declined 9% YoY to 17.8m pairs, while ASP was up 5% YoY to INR156/pair.
* Gross profit declined ~3% YoY to INR16.4b, as margins expanded ~70bp YoY to 58.8%, largely due to price hikes implemented in open footwear.
* Nevertheless, operating deleverage led to ~6% YoY decline in EBITDA to INR3.8b, with margins contracting ~25bp YoY to 13.7%.
* Interest/depreciation rose 7%/11%, respectively, while other income declined 7%.
* As a result, PAT at INR1.7b declined 15% YoY.
* Inventory days declined slightly to 177 (from 179 YoY), receivable days moderated to 41 (from 45 YoY), while payable days declined sharply to 63 (from 176 YoY).
* However, OCF (incl. lease payments) almost doubled YoY to INR3.4b, largely led by the working capital release of INR0.8b (vs (-) INR1.2b YoY). FCF generation stood at INR2.3b (vs. outflow of INR0.7b in FY24).
* Relaxo paid dividend of INR747m and repaid borrowings of INR185m. Overall net cash position improved ~INR1.2b YoY to ~INR1b.
Product-wise performance:
* Hawai: Volume declined ~14% YoY, while ASP grew ~3% YoY to INR80/pair, leading to ~12% YoY decline in revenue and ~200bp decline in revenue contribution to 23%.
* Flite: Revenue declined ~4% YoY as volume declined ~6% YoY, while ASP increased ~2% YoY to INR149/pair. Revenue contribution was stable YoY at 37%
* Sparx: Sparx was the only bright spot for Relaxo in FY25, with ~1% YoY revenue growth, as 4% YoY volume growth was partly offset by 3% ASP decline. Sparx’s revenue contribution was up ~200bp YoY to 40%.
* Channel-wise performance: Relaxo witnessed ~4-5.5% YoY decline in general trade, modern trade, and exports, while retail business grew 6% YoY as the company added ~13 net retail outlets in FY25.
* Region-wise performance: Relaxo’s performance was significantly impacted in East (-28% YoY) and South (-14% YoY), while it was stable YoY in West. North was the lone bright spot, marking 7% YoY growth, with contribution of North in Relaxo’s mix rising to 51% (from 45% YoY).
Management commentary:
* During FY25, Relaxo underwent a strategic consolidation phase marked by subdued top-line performance due to weak demand in the mid-range segment and a deliberate internal restructuring of its distribution model to strengthen long-term agility.
* Management believes that FY25 was the bottom and expects a growth recovery going forward. It believes the effect of restructuring and other investments should start reflecting in results from 2HFY26.
* The company is prioritizing profitable growth in FY26. Management expects top-line to remain steady with a potential upward bias. However, it expects improvement in EBITDA, led by operational efficiencies, digital initiatives, and a sharper product focus.
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