Relaxo Footwears slips 10% on weak March quarter results

In Q4FY22, EBITDA margin was down 596 bps to 15.9% due to steep increase in raw material prices and extra support to trade towards GST rate differential on inventory.

Shares of Relaxo Footwears slipped 10 per cent to Rs 928 on the BSE in Thursday’s intra-day trade after the company reported weak operational performance in March quarter (Q4FY22). Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins declined 596 basis points (bps) to 15.9 per cent from 21.8 per cent, due to steep increase in raw material prices and GST rate differential on inventory.

At 09:59 am; the stock traded 6 per cent lower at Rs 965.55, as compared to 1.7 per cent decline in the S&P BSE Sensex. Earlier, it had hit a 52-week high of Rs 1,447 on November 4, 2021.

Besides that, the company’s profit after tax (PAT) declined 38 per cent year-on-year (YoY) to Rs 63 crore from Rs 102 crore, on account of higher operational expenses and weak sales. Meanwhile, revenue from operations was down 7 per cent YoY to Rs 698 crore from Rs 748 crore in a year ago quarter.

"Revenue during the quarter was affected due to disruptions caused by Omicron variant of COVID, GST rate hike from 5 per cent to 12 per cent w.e.f. January 1, 2022 on footwear priced below Rs 1,000 and subdued demand due to high inflation. Margins were affected by dual impact of substantial increase in raw material prices and normalisation of selling, marketing and admin expenses in FY22 in comparison to FY21 being the pandemic year," the management said.

Going forward, in view of no immediate relief from continual extraordinary inflation, the management remains cautiously optimistic of strong recovery across categories, especially in high value closed footwear category after re-opening of offices, schools and colleges.

However, analysts at ICICI Securities expect commodity inflation and demand softness to act as tailwinds in the near term. "On the balance sheet front, company has witnessed significant increase in inventory (up 60 per cent YoY) with net working capital days increasing to 97 (vs. average 60 days). Subsequently, operating cashflows stood at Rs 56 crore (vs. Rs 513 crore in FY21), with cash and investments worth over Rs 200 crore. Given the recent increase in crude prices (35-40 per cent of RM requirements), softness in demand, we expect near term headwinds to persist," the brokerage firm added.