Relaxo Footwears hits 52-week low after net slumps 67%, inflation crimps margins

The company reported a decline of 67 percent in its net profit at Rs 22.40 crore

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Share price of Relaxo Footwears opened 5 percent lower on November 3 after the company reported a decline of 67 percent year-on-year in its net profit at Rs 22.40 crore for quarter ended September 2022.

At 9:30am, the stock was quoting Rs 925 apiece on the National Stock Exchange, down by 5.28 percent. It hit a 52-week low of Rs 910 after open.

Its revenue from operations was down 6.26 percent to Rs 669.65 crore during the period under review as against Rs 714.43 crore in the corresponding period of the previous fiscal.

“This was a result of a decline in volumes of the categories serving the mass segment who were under inflationary pressures with reduced affordability,” its earning statement said.

The company’s earnings before interest, taxes, depreciation, and amortisation or EBITDA came in at Rs 59 crore as compared to Rs 117 crore in the same quarter last fiscal. “EBITDA was under pressure due to high raw material prices. EBITDA margin declined by 748 bps to 8.9 percent in Q2FY23 from 16.4 percent in Q2FY22,” the company said.

While the volume growth numbers will be announced in the earnings concall, according to ICICI Securities, back of the envelope calculations suggest YoY decline in volumes to around 4 crore pairs.

“Easing raw material prices could enable the company to revert back to 50 percent+ gross margins in the ensuing quarters. However, with correction in average selling price, key monitorable remains the recovery in Relaxo’s volumes,” ICICI Securities noted.

Motilal Oswal Financial Services said that the company’s aggressive price correction on its product portfolio in September impacted Q2FY23 results significantly. It has a Neutral rating on the stock with target price of Rs 976.

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