Company Update : Relaxo Footwears Ltd by Motilal Oswal Financial Services Ltd
Tepid performance continues, revenue/EBITDA decline 7% YoY
* Revenue declined ~8% YoY to INR6.3b (8% miss) in 2QFY26, owing to persistent weakness in mass market segments and transitory impact of GST 2.0 implementation.
* Volume declined ~5% YoY to 41m pairs, while ASP was stable QoQ (-3% YoY) at INR151.
* After GST change, Relaxo is witnessing a revival in demand.
* Gross profit declined ~8% YoY to INR3.8b (8% miss) and gross margin was stable YoY at 61% (~25bp miss).
* Employee costs and other expenses declined by 6% and 8% YoY, respectively.
* EBITDA at INR812m declined ~7% YoY (13% miss). EBITDA margin was stable YoY at 12.9% (~85bp miss) due to operating deleverage.
* Other income grew 85% YoY to INR123m (25% ahead of our est. of INR98m).
* As a result, PBT at INR488m declined by a modest ~2% YoY (15% miss).
* Reported PAT at INR362m declined ~2% YoY (16% miss), with margins expanding ~35bp YoY to 5.8%.
1HFY26 performance
* Revenues at INR12.8b declined 10% YoY.
* Volume fell ~10% YoY to 84m pairs, while ASP declined ~1% YoY to INR151.
* Gross profit fell ~10% YoY to INR7.9b as margins were largely flat at 61.4%.
* However, tighter cost control, employee (-5% YoY) and other expenses (-16% YoY) cushioned profitability.
* EBITDA at INR1.8b declined by a modest 3% YoY, with margins at 14.1% expanding 100bp YoY.
* Pre-Ind AS EBITDA stood at INR1.5b (down 5% YoY), with margins at ~11.5% (up ~60bp YoY).
* Reported PAT at INR851m grew 5% YoY, as lower EBITDA was offset by higher other income (up 95% YoY) and flat depreciation YoY.
* Inventory/receivable days were stable at 85/39, while payable days increased to 37 (from 32 YoY). Core WC stood at 87 days (vs. 94 days in 1HFY25). In absolute terms, CWC declined 17% YoY to INR6b, led by 11% decline in Inventory.
* OCF (after lease payments) increased 80% YoY to INR2b, largely owing to working capital release of INR0.8b (vs. build-up of INR0.2b YoY).
* Capex rose ~20% YoY to INR782m.
* FCF generation stood at INR1.2b (vs. modest INR0.4b in 1HFY25), driven largely by favorable WC movement.
Management commentary:
* The GST rationalization on footwear (to 5% for INR2.5k) improved competitiveness of organized players such as Relaxo (vs. the unorganized market) in the mass and mid-market segments.
* However, General Trade (GT) channel was impacted by distributor downstocking to clear out old inventory. Management expects this slowness in GT to be transitory.
* EBITDA margins were maintained, supported by operational efficiencies and disciplined cost control.
* Management expects demand to strengthen over the next 2-3 quarters as distribution expands and revised price inventory flows through.
* The company continues to focus on volume-led growth to regain its market share while maintaining profitability.
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