Relaxo Footwears Limited ($530517)

Ladies and gentlemen, good day, and welcome to the Relaxo Footwear Limited Q4 FY '26 Financial Results hosted by IIFL Capital Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Gupta from IIFL Services Limited. Thank you, and over to you, sir.

Thanks, Githesh. Good evening, everyone. At IIFL Capital, it is our pleasure to host the management of Relaxo Footwear -- from the management, we have Mr. Ramesh Kumar Dua, Chairman and MD; Mr. Gaurav Kumar Dua, Co-CEO and Whole-Time Director; Mr. Ritesh Dua, Co-CEO; and Mr. Sushil Batra, Executive Director. We also have Mr. Ankit Jain, Company Secretary and Compliance Officer. Without taking more time, let me hand it over to Mr. Ankit Jain for the opening remarks. Over to you, Mr. Ankit.

Thank you, Sameer, for the introduction. So myself, Ankit Jain, Company Secretary and Compliance Officer of the company. So good evening, everyone, and thank you for joining us on Q4 and FY '26 earnings call. We appreciate your continued interest in our company, and we are pleased to walk you through our operational and financial performance for the quarter and financial year ended 31st March 2026. The earnings release and investor presentation are already available on the stock exchange website and our website for your reference. Before we move into Q&A session, I would like to highlight some of the key performance metrics for Q4 and FY '26. Revenue from operations stood at INR 751 crores in Q4 FY '26 as against INR 695 crores in Q4 FY '25, an 8.1% year-on-year growth. The revenue growth was driven by a strong volume growth amidst a recovery in general trade channel alongside continued growth in retail, e-commerce and large-format retail channel. EBITDA for the quarter stood at INR 124 crores, registering a growth of 10.6% year-on-year. EBITDA margin was at 16.5% in Q4 FY '26 as compared to 16.1% in Q4 FY '25. The growth was supported by continued focus on operational efficiencies, back-end optimization initiatives and prudent cost management measures undertaken by the company. despite the dynamic industry environment. Profit after tax for Q4 FY '26 stood at INR 68 crores compared to INR 56 crores in Q4 FY '25, registering a growth of 20.4% year-on-year. PAT margin expanded to -- reflecting the company's sustained focus on profitable growth. For FY '26, revenue from operations stood at INR 2,702 crores as compared to INR 2,790 crores in FY '25. EBITDA for FY '26 stood at INR 374 crores, while EBITDA margin stood at 13.8% in FY '26. Profit after tax for FY '26 stood at INR 179 crores as compared to INR 170 crores in FY '25 with an increase of 5.3% year-on-year growth. PAT margin in FY '26 stood at 6.6% in FY '26 as compared to 6.1% in FY '25. Now going forward, while the momentum exiting FY '26 is encouraging, we must tread with caution due to the uncertain external environment amidst the ongoing geopolitical situation causing inflationary pressure, which could affect consumer sentiment. While the company has recently taken some calibrated price increases to offset input cost inflation, the full impact on demand and consumption pattern is still evolving and requires [Technical Difficulty]

[Operator Instructions] First question is from the line of from Archana Gude from IDBI Capital. The line has got disconnected. I'll take the next participant. The next question is from the line of Avinash Karumanchi from MOFSL. I'm sorry, the line got disconnected. The next question is from the line of Sameer Gupta.

Firstly, sir, how should one read this result? So there has been a GST rate reduction wherein there was down stocking in the previous quarter, there would have been some upstocking this quarter. Also distributor count, if I see your presentation, has gone up from 550 last quarter to 630 this quarter. So if you adjust for these impacts or let me put it this way, if you can give any indication on growth at the retail level, it would be helpful for us to understand the exact quantum of growth, which is going on.

This is Gaurav Dua. And you have correctly said that there was quite optimism in the market in quarter 4. As you have mentioned that GST from 12% became 5% and distributors were carrying the stock. Now more or less stock has been liquidated through the pipeline, and we are seeing a good recovery in quarter 4.

So let's say, the retail -- you have reported an 8% growth, but this would also include distributor taking stock, filling their inventory. Last quarter was 0. So suffice to say that the actual normal growth rate is somewhere in between like 4%.

Actually, the full impact we started seeing after December onwards. So you can definitely see that 5% to 6%, we were able to grow in 2 quarters.

Got it, sir. That explains. Second, sir, and I think Ankit mentioned this in his opening remarks. So West Asia impact, first of all, input cost inflation, if you could quantify what kind of input cost inflation you are facing in your cost basket?

Input cost is on both sides. One is, I think material, which is impacting everyone. And then in few states, labor cost has also increased by government. So we are working on that. So raw material prices are, again, I think, settling down and coming down also. So we are working with the overall impact, how much it will affect, but definitely, it's a substantial impact which we are foreseeing. But we have passed on this to the price increase majorly. So things should be, I think, more or less at par with the cost increase, and let's see how it works.

Sir, one, if you could quantify the inflation. So let's say, if your cost was 100 in the previous quarter in 3Q or 4Q, where is it trending today? Is it 110? Is it 105? Labor cost, I can understand. And second is that what kind of quantum of price hikes have you passed on?

Sameer, we have taken 2 to 3 price increase in the market, and it was a gradual increase. Some was because of raw material and one was because of the labor, which increased in Haryana. So roughly around 15% to 18% is the increase in some category, it is lesser and some category, it is more. So we have calibrated what can be passed on in the market and took the call.

So on a blended level, you have taken a 15% to 18% price increase at the consumer level?

Correct. Correct. You're right.

And your cost increase would be roughly similar?

12% to 15%, EBITDA price increase, including, I think all states and all material on the cost of goods manufactured. That's what we are expecting plus labor cost.

So you have taken a higher price increase versus the cost inflation?

No, no. It's a price increase on -- at a blended rate. Cost of goods, which we are manufacturing, there is a price increase on both sides. One is the labor side, which is almost around 25% to 30% price increase on the labor in one state. In other states, it's around 10%, 10% to 15%. So it's a mix of all these things. That is the one part increase in the cost, then material cost, which went up like anything -- so 120 went up to 240, 250 like that. Now things are settling and coming down. So overall, we have to review everything. But price increase as on date because we had inventory, so that material impact was not much in first month at least April. And labor definitely has increased. So it's a mix of so many things. So we can say around 15% to 20% increase will be there overall on the cost side as on date.

Okay. Got it. So 15% to 20% is the increase in cost side and you have passed it on to the consumer entirely. So your margin is protected in a way.

Yes. That is we are trying to...

The next question is from the line of Archana Gude from IDBI Capital.

Sir, I've got 3 questions. Firstly, sir, can you give us some understanding on what has really changed post this GST 2.0 in terms of competitive intensity and demand front?

So Archana, that we have mentioned before that the GST came from 12% to 5%. So branded and layers, we became more competitive in the market. The taxes came down. So it helped the organized players. And secondly, there was a good demand recovery in quarter 4 at consumer level. So because of these 2 factors, we could see the growth level coming back.

And sir, has the demand continued in the first 2 months of Q1 we see some -- has the demand continued for the first 2 months for Q1? Or you see some subdued prices here and there?

It's too early to say, but definitely and May was better. May is still going on. Let us see how June goes.

Okay. Sir, earlier, we spoke about product premiumization by getting into sneakers and maybe high value portfolio. So how is that going on, sir? How has been the response? And any new products which can aid to margin expansion on the card?

Definitely, we are wiping our premium playbook and through sneakers and offering lifestyle-led products. So our main objective is that we do not have to lose the relevance in mass category. And plus we have to premiumize. So we are making our product mix accordingly.

But like anything planned for FY '27 or still in the progress?

See, this is a continuous process of premiumization. So like we have discussed before also that we are coming up with the [indiscernible] range, and we are coming with more price point. For example, in Spark, it was shoes in INR 999 to INR 1,700. Now we are thinking how we can cross offer more product at INR 2,500 also. So the price and the premium we are increasing.

Right, right. And sir, lastly, any guidance on CapEx for this year and next year?

CapEx we incurred around INR 130 crores last year. Last year we incurred around INR 130 crores. Next year, we have planned around INR 180 crores to INR 200 crores. So that's the plan for next year.

Okay. And that will be used for the existing capacity and not for any new capacity addition, right?

It will be a mix of both because it's a big amount we spent upon the mold. It's not an increase of capacity, and then we are making one, I think, administrative office also, some money will go there. And some VAT and some changes in the machine. So there is no big capacity expansion definitely, but good amount will be spent on the mold side also.

[Operator Instructions] The next question is from the line of Avinash Karumanchi from MOFSL.

Congrats on good set of numbers. So if you look at it like the improvement, this is the first quarter after 8 quarters where you have seen an increase in volumes. So is it only regarding the GST cuts that you are seeing? Or how is it?

Yes. So it was both things. Like we are still an open footwear dominant player. So because of the season, Q4 and Q1 is bigger for us. Second thing was definitely GST. And thirdly, there was a good demand in the market.

Okay. And second thing, if I heard it right, you have taken price hike in the range of 18%, 20%. Is this right?

15% to 18% correct.

So we have seen a similar situation in FY '22, where we had to take 20% plus kind of price hikes and that has impacted our volume significantly. Last time also, we argued that we'll have 6 months of inventory of raw materials, while other organized players have maintained lesser quantum. -- cost side now?

So this time, we are cautious in buying raw material. We have not bought like what we did 2 years back. So we are very cautious in buying and passing the price to the consumer. So we are very -- we are watching the trend what is happening in the market, and it is across industry, footwear industry. All the players have taken the increase of prices. not only Relaxo. But last time, last time price -- raw material prices hike was very steep. So it went from INR 100 to INR 300. Now this time, it is there, but not that high level. Now things are settling also. So it is, I think, almost coming down every day... The global scenario is not. But even today, I think things are not -- things are settling globally also, but it will take time. Let's hope things will be much better, but we don't see a repetition of last time what happened.

No. Okay. And if things normalize, then you would be rolling back the price hikes, right?

No. I don't think there is any possibility that raw material will soon settle down. So this price increase will remain.

Okay. I'm not asking from the next quarter's perspective or something in that sense. But if you like next 2 years or 3 years, how should we look at the gross margins?

Gross margin, definitely, we will try to improve overall, but we have to be very cautious about the passing the cost to the consumer. We have to be competitive. We have to see the competition also. The gross margin definitely intended to improve and overall operating margins should also improve. That's what we are trying. So it will be just journey on the betterment side.

I mean what would be the levers of that improvement? That's what I'm asking.

So like we have discussed before, we are going to open 100 new outlets this year. And we are going to change our product mix, plus there will be some more addition in terms of distributors and retailers. So a lot of action we are going to take to at least grow the market and margin. The next question is from the line of Shradha Kapadia from SMIFS.

Congratulations on good set of numbers. So recently and right now also you mentioned that there is an increase in focus on the women and the kids category. So if you could let us know the current contribution and the medium-term target, which the management has for the same?

Can you repeat the question?

So there is more focus on women and the kids category, current contribution and the medium-term target?

So like for us, men's contribution is 70%, 25% is ladies and 5% is kids. So our more focus will be on ladies and kids to improve this percentage. Right now, it is quite low, but definitely going to improve.

Sure. Sir, similarly for the premium products, if you could help with the current contribution.

So we were playing at INR 999 in sports shoe till INR 1,800. Now this time, we have rearranged our portfolio, and we are going to launch more products starting from INR 999 without leaving that base till INR 2,800 MRP. So it's quite -- it's not -- I mean to say -- I can't say exactly what number contribution we'll get from the premium portfolio.

The next participant is from the line of Sameer Gupta from IIFL.

Just a follow-up. So 15% price hike, just wanted to understand the thought process. Now when I look at our inventory, we have 75 days on sales, so that will translate to around 150 days on COGS. And aren't we a little early in taking sharp price hikes because if I look at the competitors, let's say, Bata and Redtape and metro. We haven't seen any major price hike announced over there so far. So one, do you foresee a volume impact in the near term, let's say, volume growth momentum will moderate substantially, might even decline in the coming quarters. Do you foresee that? And two, I just wanted to understand the urgency in taking price hikes, sir.

There were 2 reasons what we have mentioned before. One was the raw material, which shot up like anything in the month of April itself. And secondly was the wages, the increase in Haryana, the wages was more than 30% increase in the wages. So there were the 2 reasons that we had to take the price increase. So regarding the raw material, definitely, we are seeing that raw material is now softening, but the wage increase, we don't think it will come down. So the cost pressure will be there in terms of the -- that price hike cannot be taken back. And secondly, it depends upon the other place, which state they are operating from. So we cannot comment upon that, what impact of wages they had. But raw material is across.

Got it. And let's say, when you're saying RM will soften, unless you are like the wage cost is still much higher. And if you -- like do you foresee taking like price cuts or increasing trade discounts if the raw material were to come down significantly, else you will see a margin expansion, right?

So we are closely monitoring the market, how the uptake will be in the market. So it's too early to give any guidance on this.

[Operator Instructions] The next question is from the line of Shraddha Kapadia from SMIFS.

If you could help us with any future guidance for purpose revenue as well as the margins considering this is the quarter in many times that the company has reported such a good number of growth.

Can you repeat the question, please?

Any future guidance.

Outlook, we are confident. Definitely we will sustain what we performed in Q4, but definitely, geopolitical situations are so uncertain. It's tough to give a very solid statement. But still, we are very confident. We will maintain and definitely intent is to improve our margins. Growth will come and there is a price increase volume, we have to maintain that also. So we are watching all this. I think competitor internally, geopolitical -- and we are confident definitely last 2 quarters, if you see Q4 is much better. So things have started coming up and consumer sentiments are also not that down, GST is helping us. And overall, our treasury and overall balance sheet and so many factors are favoring us. So we are very confident the future, at least near future should be, I think, a good one.

Any numbers that you could help us to quantify?

Quantifying the last year, we maintained operating margin of around 13.8%. That is the full year, Q4 was much better. So we don't expect Q4 will be repeated definitely. But we intend to do better than last year overall operating margin, which is 13.8%. So it should be better, maybe 1% plus. That is the intent definitely, we are trying to.

And anything if you could highlight majorly on the GT since you have mentioned that the GT has helped grow. So any changes or anything which you have witnessed?

In GT, what we have seen is that there is recovery of demand in quarter 4, and it is going to continue what we are seeing. But we are closely monitoring after the price increase, how the consumer reacts. So we are keeping a close watch and let's see -- we have changed our product mix also to -- we launched some products in different categories, not to leave the earlier price point also.

Okay. So the newer would be the higher price points like you already mentioned?

Correct. Moreover, we have plan for expansion in our own EBO model. We intend to open 100 stores. That is, I think, plan, and we are doing some new and new redesigning of the sous with new good experience. So we have done one trial, so getting good response. So after that, we are very confident good footfall and good return -- profitable return should come from that segment. So -- and on the e-commerce side also, we are working. A lot of things we have done. So a lot of growth, we expect that will come from that channel. So these are, I think, new initiatives will add a lot of growth. So we are confident things should be better.

Since you mentioned the EBO also, is there any target like Tier 1 cities, Tier 2 and 3 cities, if you have any plans or if you could help us understand more about the same?

So now we are going to open outlet across India. Like earlier, it was basically North and East based. Now we have identified some gaps in West. And going forward, definitely, we will enter Southern market also seeing and understanding the consumer preferences.

The next question is from the line of [ Yogesh Bhatia ] from Sequent Investments.

Congrats on good set of numbers. I have a couple of questions. So I -- apologies, I joined the call late. Can you explain the reason why margins were higher in this quarter? Is it some specific inventory gain or we've taken price hike, and that's why we don't expect this to sustain? What is the reason?

Your question is why the margin was higher in quarter 4?

Yes.

There are 2, 3 reasons for that. One was that a lot of back-end work is done in the plant to reduce the cost. Secondly, our volume has grown a lot. So the fixed cost remains same. The contribution has increased because of the volume and value -- and plus, we have curtailed or reduced the discount given in the market also.

So there is no inventory gain or anything of that sort?

We have taken a small increase in quarter 4. That is also one of the reason of improvement in margins.

Okay. And sir, my second question was, we mentioned somewhere in the call that we plan to set up 100 new EBOs. So can you explain us that what is the time line to do this network expansion? And as of now, how many EBOs do we operate?

As of now, we have around 400-plus EBOs, but with new designs and new format, we have started. We did one trial. So we are very aggressive. In first half, we will be able to open at least 30%, 40% of the 100. So by December, most of the should be ready by December, that is the intent.

In this 400, we will add 100 or this 400 we will redesign and the number will remain still 400..

We will add 200, we will add 100 and 400 will continue with the same format, and we will change some, but all the 100 will be new.

Okay. And sir, my last question is our volume has been more or less flat versus INR 75 crores. Q4 volume significant. So I wanted to what do you feel about volumes in the next.

I'm sorry to interrupt, sir. Your voice is echoing a lot.

Sir, can I repeat the question?

Yes.

Yes. So sir, I was saying that last year to this year, our volumes have more or less remained flat. But this quarter, we have seen a significant jump in the volumes. So I wanted to know what do you feel about the volumes for the next 2 years? How do you see that happening? Not very guidance, but qualitatively, what do you feel about volumes? And secondly, do you think that the mix will change significantly for Relaxo or the price range will remain at INR 155, INR 160 per pair going ahead?

So Yogesh, it's a journey like -- for increasing ASP is going to take time. But definitely, we are focused towards premiumization. We are changing our product mix, but it's going to take time to see the impact in ASP. It's not a short term, it's a long-term phenomenon. Every year, we are going to increase our ASP.

But with the EBO expansion and e-commerce growth, which we are foreseeing, so ASP will improve definitely because I think GT, there will be pressure. But on these 2 channels, lot of premiumization is going to happen, and it will increase overall ASP at company level.

Right, right. And sir, what do you feel about volumes for the next 2 years?

Next 2 years, I think we are cautious. We have to be cautious. Intent is there, again, around I think 4% to 5% definitely, we want to grow our volume. Price increase we have already taken. So let's see how it impacts. But overall, we want to grow at least 4% to 5% in volume with prudent [indiscernible]. Our EBO expansion is 25% right now, then I don't think volume expansion can only be 4%, 5% because our network is only expanding 20%, 25%.

Agree, but EBO business is not that great. In our overall, it's around 10%. So if we increase the 25%, it's a high-value item. So volume will increase definitely, but not with that degree with that degree. So overall, at company level, when you are talking 4.5, it's a INR 17 -- INR 18 crore pair we sold last time. So that's going to be not that easy, but definitely, we intend to.

If I may ask one last question.

Yes, please.

Sir, can you please give me the breakup of our network, like how many EBOs, how many NBOs touch points we have? What is the breakup for that?

So we have mentioned in our investor report also that we are currently supplying to 70,000 outlets, that's NBO outlets. And we are -- our own outlet EBOs are 420 outlets. These are our own. Plus, we are available in e-commerce platform. We started with now quick commerce also being present in Blinkit and Zepto, where we are getting a good response. Plus we are exporting to 30 countries.

[Operator Instructions] The next question is from the line of Archana Gude from IDBI Capital.

I have 2 bookkeeping questions. Can you help me with the revenue contribution from Spark, Bahamas, Relax and slightly in FY '26?

So we have 3 major brands. So our contribution in SPARK is around 40% Hawaii around 25% and - yes it's 35%, yes. This is the ratio among all these 3 major brands.

Sir, how has been the spark journey in last 4, 5 years, any major category which you feel is really supporting the margin expansion more than the top line can be looked at any thoughts on which has been really helping us at margin level?

So there is a good demand coming from sneakers and spoke shoe category, which we think has a great future ahead. we are going to focus more on ladies and kids category, which currently is contributing less, but has a good future.

In terms of our expenses, what was the amount in FY '26? And how do we see for coming year?

The amount of -- sorry, can you come again?

Ad expenses. Yes, full year FY'26.

So our expenditure is roughly around 4% to 5%, and it varies between brand to brand, whatever the requirement is. And secondly, a major -- not major, I may say big expenditure is also on performance marketing on platforms like Amazon and Flipkart. So that is dependent upon again, brand to brand.

And we'll continue to see the same kind of ratio, 4% to 5% of net sales for '25?

That is correct. We try to maintain what we are going to spend on.

Spend will be like this, but we are changing, I think, overall digital strategy and so many things.

Yes, that is said that the focus will be now more on digital front. And as you have seen the customers moving from television to digital. So the spend is also accordingly going to shift towards those medium where consumer is present.

We look forward seeing good numbers like what we delivered in Q4 going forward.

The next question is from the line of Sameer Gupta from IIFL.

Sir, just one follow-up. So this 100 EBOs that you plan to do, our INR 180 crores to INR 200 crores CapEx guidance, does it include the CapEx for these EBOs?

In our case, spend is not that great. In case of that is inclusive, by large inclusive. So each store will -- we are going to spend around INR 30 lakh to INR 35 lakhs per store, not more than that. So if you go for 100, it will be INR 30 crores, INR 35 crores, that's all. a big spend. So that's part of INR 200 crores.

Got it. And given there will be retailing costs in the first few years, there will be a margin dilutive impact also. So given that you have also guided for 100 basis points expansion, this is despite the retail expansion, right?

Yes, definitely, because we have done trial also, there is a good footfall, good response, high-value product we are able to sell, and we have grown with exclusive article for EBO in addition to our GT. So margins, we have already expanded our margin in these stores. So we don't see much pressure will come on the overall margin, and we are expecting 1%, which I referred, will be maintained at company level.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thank you, Sameer. This is all from our side, and we thank you all of you for joining the call. Looking forward to speaking with all of you again in the next call. Thank you.

Thank you very much, members. On behalf of IIFL Capital Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.