RELAXO - Relaxo Footwears Ltd. Share Price

Management Outlook:
Relaxo Footwears anticipates gradual demand recovery in H2 FY25, driven by improved consumer sentiment during the wedding season and festive demand. The company remains cautiously optimistic about volume recovery but expects FY25 volume growth to remain flattish due to subdued H1 performance. Management emphasizes a balanced approach between margin protection and market share retention, focusing on cost optimization, premiumization, and expanding retail/distributor networks. EBITDA margins are expected to stabilize around current levels (12"“13%), with long-term targets of 15"“16% through operational efficiencies and product mix improvements.

Major Points:

1. Financial Performance:

   • Q2 FY25 revenue declined 5% YoY (INR 679 crores) due to weak demand; H1 revenue at INR 1,428 crores (down 4% YoY).
   • Margins: EBITDA margin stable at 12.9% in Q2 (vs. 12.8% YoY), but PAT fell to 5.4% (vs. 6.2% YoY) due to higher depreciation.
   • Capex: INR 49 crores incurred in H1; FY25 capex estimated at INR 100"“110 crores for capacity upgrades.

2. Market Challenges:

   • Weak rural demand, down-trading to unorganized/local players, and slow recovery in Eastern markets.
   • Rising competition from unorganized players (benefiting from lower RM costs and BIS exemptions) and imports.

3. Strategic Initiatives:

   • Premiumization: Focused on Sparx (closed footwear) and Disney/Marvel collaborations to drive ASP growth (+6% YoY in Q2).
   • Distribution Expansion: Added ~15,000 retailers in 2 years (now 70,000+); targeting deeper penetration in under-indexed regions.
   • E-commerce: Developing exclusive online portfolios to avoid channel conflicts with general trade; cautious on discounting.
   • Cost Controls: Reduced advertising spend (3% of sales vs. 4% earlier); optimizing manufacturing and supply chain.

4. Inventory & Demand:

   • Elevated channel inventory due to weak footfall; expects gradual normalization with seasonal demand.
   • Near-term growth hinges on wedding/festive demand in Q3 FY25 and rural recovery.

5. Regulatory Risks:

   • Awaiting clarity on GST reduction (12% to 5%) and stricter BIS enforcement to level the playing field against unorganized players.

Management remains committed to long-term growth through brand-building, quality focus, and omni-channel expansion.

Question 1 (Videesha Sheth, Ambit Capital):
"My first question was on the commentary that you made in the press release regarding consumers down-trading to lower price points due to unorganized competition and your call to not dilute prices. How do you see that impacting volumes and market share in the near term?"
Answer: Management acknowledged temporary volume/market share loss due to unorganized players undercutting prices but emphasized long-term recovery through retail expansion and cost optimization. Demand improvement is expected in Q3 due to wedding season.

Question 2 (Shirish Pardeshi, Centrum Broking):
"Is there regional variation in demand, given Relaxo's larger exposure to North India?"
Answer: Demand weakness is pan-India but most pronounced in the East due to slower payments. North, South, and West saw marginal declines.

Question 3 (Prerna Jhunjhunwala, Elara Capital):
"How has closed footwear performed post-capacity expansion, and what is the strategy to improve mix?"
Answer: Closed footwear growth remains muted. Focus includes expanding distribution, e-commerce (with caution to avoid excessive discounts), and premiumization. Sparx is prioritized for growth (8"“10% target).

Question 4 (Sameer Gupta, IIFL Securities):
"What triggered competitive intensity, and how will Relaxo counter it?"
Answer: Lower raw material prices enabled unorganized entrants. Relaxo is optimizing costs, enhancing product portfolios, and addressing regional needs. BIS exemptions for smaller players worsened pricing pressure.

Question 5 (Ankit Kedia, PhillipCapital):
"How is Relaxo balancing market share retention versus margin protection?"
Answer: A balanced approach: avoiding price cuts to protect margins while expanding retail reach (70,000+ retailers) and improving distributor networks. Long-term focus on quality and brand strength.

Question 6 (Sachee Trivedi, Trident Capital):
"Why hasn't Relaxo adapted to structural shifts toward closed footwear and online channels?"
Answer: Open footwear (2/3 of sales) remains mass-market and incompatible with e-commerce due to low prices. Online growth is cautious to avoid conflict with general trade. A separate e-commerce portfolio is planned.

Question 7 (Aditya Khetan, SMIFS Institutional Equities):
"What is the full-year volume growth outlook?"
Answer: Volumes are expected to remain flat in FY25 due to H1 declines. Recovery depends on festive/wedding demand and retail expansion.

Question 8 (Lavita, Mirae Asset):
"Are there portfolio gaps in open/closed footwear, and what's the marketing strategy?"
Answer: Aligning with trends (e.g., sneakers, athleisure) and introducing premium designs. Marketing shifts to digital platforms while reducing ad spend (3% vs. 4% earlier) and focusing on trade schemes.

Question 9 (Devanshu Bansal, Emkay Global):
"Why are inventory levels up 10%?"
Answer: Inventory rose due to subdued demand and factory operations. Slow festive sales in September/October contributed.

Question 10 (Sameer Gupta, IIFL Securities):
"Will GST reduction to 5% ease pressure from unorganized players?"
Answer: Industry representations for GST cuts are ongoing, but no commitments from the government. Relaxo continues advocating for fair policies.