Relaxo Footwears Limited (RELAXO.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Relaxo Footwears' Q2 FY '26 Earnings Conference Call hosted by IIFL Capital. [Operator Instructions]. I now hand the conference over to Mr. Sameer Gupta from IIFL Capital. Thank you, and over to you, sir.

Thanks, Sudha. Good evening everyone. At IIFL Capital, it is our pleasure to host the management of Relaxo Footwears. From the management, we have Mr. Ramesh Kumar Dua, Chairman and MD; Mr. Gaurav Kumar Dua, Whole-Time Director; Mr. Prince Jain, CFO; Mr. Ritesh Dua, Executive VP, Finance; and Mr. Ankit Jain, Company Secretary and Compliance Officer. Without taking more time, let me hand it over to Mr. Prince Jain for their opening remarks.

Thank you, Sameer. Good evening, everyone, and thank you for joining us on our Q2 and H1 FY '26 earnings call. We appreciate your continued interest in our company and are pleased to walk you through our operational and financial performance for the quarter and half year ended 30th September 2025. The earnings release and investor presentations are already available on the stock exchange and on our website for your reference. Before we move into Q&A session, I would like to highlight some key performance metrics for Q2 and H1 FY '26. Revenue from operations stood at INR 629 crores in Q2 FY '26 as against INR 679 crores in Q2 FY '25. The moderation was primarily due to demand softness in the mass market segment and delayed purchases ahead of implementation of GST 2.0. However, we are now witnessing a gradual revival in demand following the rollout of new GST framework. EBITDA for the quarter stood at INR 81 crores. EBITDA margin remained stable at 12.9%, supported by continued operational efficiencies and prudent cost management. Profit after tax for Q2 FY '26 stood at INR 36 crores as compared to INR 37 crores in Q2 FY '25. PAT margins improved by 35 basis points year-on-year to 5.8%, reflecting disciplined cost control and stable pricing despite muted top line growth. During the quarter, we witnessed recovery across channels with general trade continuing to contribute higher share to overall sales. The rollout of GST 2.0, which reduced tax rate on footwear priced below INR 2,500 to 5% has strengthened our competitiveness versus the unorganized sector and improved affordability in the mass and mid-market segments. Our continued focus on cost control, operational efficiency and back-end optimization, helped maintain healthy profitability levels despite a challenging demand environment. For the first half of FY '26, revenue from operations stood at INR 1,283 crores as compared to INR 1,428 crores in H1 FY '25. EBITDA for H1 FY '26 stood at INR 181 crores versus INR 187 crores in H1 FY '25. However, EBITDA margin expanded by 101 basis points to 14.1%, reflecting the success of our cost rationalization measures and efficiency initiatives. Profit after tax for H1 FY '26 stood at INR 85 crores compared to INR 81 crores in H1 FY '25, an increase of 4.9% year-on-year with PAT margin improving by 95 basis points to 6.6%. Looking ahead, we remain optimistic about the recovery trajectory and expect momentum to strengthen in the coming quarters, supported by festival demand, GST benefits and our ongoing sales transformation initiatives. Our strategic focus remains on driving volume-led growth, expanding market share and ensuring sustainable profitable performance supported by our portfolio of affordable and high-quality products. Thank you. The floor is now open for questions.

[Operator Instructions]. The first question is from the line of Devanshu Bansal from Emkay Global.

Sir, you stressed on tailwinds from GST reduction. So just a few things I wanted to understand. One is currently, what is the anticipation for growth pickup because this is a very big step and the industry was sort of making vouching the government for reduction. So that is one. And secondly, currently, the high-price inventory is in the channel. So what time period do you foresee it will take to sort of flush out the entire high-price inventory, so that we see a round of primary bookings? Thirdly, sir, the industry checks also suggest that for certain categories, the industry has entered into an inverted duty structure. So do you foresee any sort of margin issues because of that? So these are the 3 questions that I wanted to [ understand?]

This is Gaurav Dua. So I'll answer your first 2 questions and third will be answered by our CFO. So your first question was regarding the GST. It is well appreciated by the footwear industry that GST has a reduction of price from 12% to 5%. This will definitely help us to grow as we will be more competitive in the market, and we will be able to face the unorganized competition. Secondly, regarding the stocks, we ourselves carry roughly around 30 to 35 days inventory. And the channel, which is distributor also carry around 45 days inventory. So the real effect we'll start seeing from December end and January onwards. So right now, distributors are more focusing on liquidating the old MRP, which is a little higher and bring a little correction in their inventory. Regarding inverted duty structure, Mr. CFO would...

This is Prince here. Inverted duty structure, yes, with the GST 2.0 implementation, our outward duty is now 5% and most of our imports remain at 18%. So yes, it'll fall into inverted duty structure. We have done broad level estimation, which suggests that while the refund formula from which GST allows will take care of bulk part of our inverted duty structure, but some part of the duty, which will not be refunded would still remain. So we are waiting and watching another 2 to 3 months how this pans out and then planning to take actions. As of now, we don't expect GST 2.0 implementation to have impact on our margins.

Just small follow-ups, Gaurav and Prince. So obviously, Q3 may be impacted because of this. But starting Q4 and maybe for FY '27, what is a reasonable growth expectation from your business, right? So we have seen very muted trends over the last few quarters, years. So what is a reasonable expectation of growth from Relaxo? And to Prince, have you sort of taken this impact, the impact that is remaining after the refund formula through lower price cuts. So have you sort of baked in this impact through lower transfer of pricing cuts so that our margins remain intact. So if you could just confirm on that?

Sure, sure. Let me take the second question first, and then I will let MD answer the first one. Regarding the price corrections, we have taken full price corrections to the extent of GST cut. We have not retained anything right now. So -- and hence, that's why there is no impact, neither positive or negative as of now on our margins. But as I mentioned, how inverted duty structure pans out, we'll have to wait for next 2 to 3 months, very early to say, but we feel it is manageable.

And on the growth expectations?

Carry on.

Yes, on the growth expectations?

Yes, I got it. I am Ramesh Kumar Dua on this side. First of all, in the first quarter, we were minus 12%. Second quarter, we are minus 8%. And in the third quarter, we are expecting this either will be same or minus 3%, 4% that I'm expecting. And in the fourth quarter, that is January to March, I think we will have some growth, but that we cannot say we have to wait and watch the condition. We must appreciate still consumer sentiment still are muted. Because the economy -- because that is why government is doing so many things to push the economy. So we have to wait and see. But one thing is sure that now since we have become very competitive, the way industry performs, we will also perform a similar way or maybe better way. So let us see how the things shape up. Next year is definitely going to be a much better growth.

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

Yes. So I just wanted to understand that the other income for this quarter has gone up considerably. So is there any one-off item in that?

This is Prince here. No, actually, there are no one-off items. Our treasury base versus last year has been higher, and that has led to our other income being higher. And minor impact is because of the hedging gain that we have got because of the dollar rupee depreciation.

So this would be a similar number, which we can expect for the future, right?

Similar number, yes, we can expect. We are -- in future, we are also expecting given the inflation numbers are coming down, government may reduce the interest rates, which can boost our other income in the subsequent quarters.

Sure. Okay. That was helpful. Also, sir, if you could help me with the closed footwear contribution in terms of volume and sales. Also, do we have any plans for increasing the capacity in the closed footwear?

So Shraddha, Gaurav this side. So our closed footwear contribution is roughly around 20% and 80% is open footwear. And regarding capacity enhancement, we already have a good capacity. So it's not there right now.

Not required.

Not required, yes.

Okay, sir. Okay, sir. And just one last question from my side. If you could help with the advertisement spends for the current quarter.

Advertisement spend for the coming quarter and for the full year is expected to be around 4% of the revenue.

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

First question, sir, is that this quarter has multiple moving parts. There is early festive. There has been a rationalization of distributors exercise that we have been doing since past few quarters. General trade would have destocked following announcement of GST rate cuts, probably some restocking towards the last week of September. So if you can tell us normalized for these events in your assessment, what would be the actual volume and sales growth or decline this quarter?

So it's very difficult to right now assume because just October has ended. So definitely, in some parts of India, the distributor carrying a lot of stocks with them. So how long will it take to clear the stocks and new MRP hitting the market? It's very difficult to give exact numbers.

I was actually asking the September quarter normalized growth rate in your assessment, the end level, consumer level growth or decline in your assessment.

So the number that we have reported for quarter 2 is minus 7.5%. As Gaurav mentioned, it is very difficult to estimate because we don't have full visibility on the distributor level of stock and how much they have down stocked. So very difficult to estimate and say without the impact of downstocking, how much would have been the quarter 2 growth. I think it would have been better at least 200, 300 basis points but that's a ballpark estimate.

Okay. So -- and for my understanding, sir, just trying to understand this, why would the distributor not start purchasing now? Because typically, footwear is not on an MRP regime. You can just lower the price and sell it and the tax rate is adjusted already. So why should this impact overall primary sales?

So basically, distributors are a little worried about input. So they are worried that will they get -- how they have to adjust this input, GST input. They have bought stock at 12%, now they buy at 5%. Whatever the remaining stock they have, how they will be able to adjust it. So that's why they are preferring to clear the older stock first and then buy the new inventory and sell in the market.

Just to build on that, when GST 2.0 was implemented, while rationalization was on the cards, we were also anticipated government to provide some relief to the retailer and distributor and to the companies where inverted duty structure is coming into play. That would have sorted some sort of the problem for the distributor and retail. As of now, government has not provided relief to footwear industry or not to any other industry. So as of now, every business and our distributors have to deal with the closing stock or the stock they purchased prior to 22nd September in their own way. As of now, our distributors, the way they are managing, they are trying to reduce purchases. Same is what our retailers are also doing. They're trying to liquidate their pre-GST, old GST stock. And then once their inventory comes to a reasonable level, the purchases will start coming up. Is the broad level answer is what...

Yes, what we are seeing is at secondary level, their stocks are moving. So that is more important that the consumer offtake is happening. So I think they will be easily covering -- clearing their stock what they have. So consumers are excited to listen that the new prices are happening in the market and it's lower than before. The footfall has increased.

Got it, sir. Just another one on the same point. So the announcement happened on 3rd September. So I would assume the distributors and retailers would have stopped buying at that point, and you mentioned 45 days channel inventory. So it has been a reasonable time now that the old price inventory would have got cleared. Your thoughts.

Yes. But we are supplying across India. So there are some distributor who keeps a lot of stock with them. And in some places like North India where they keep less stock, there, we are seeing the results, they are buying the newer stock and selling in the market. So for whole India to be covered completely, we are seeing in December -- mid of December, we'll start seeing the impact.

And you still expect a primary decline in third quarter?

As of now...

No. It could be better than what it is in this quarter, very insignificant loss, if at all, it will be there. Maybe we'll be at same level. Last year, we may achieve that turnover. We have to wait and see.

Okay. Because in the first question, you mentioned like minus 4% or something. Did I hear it correctly?

Yes. No, no. It was 80% this quarter. Next quarter could be minus 4%, maybe even better results may be there.

Okay. Okay. Fair, sir. Second question, sir, percentage of portfolio, which is below INR 1,000 and between INR 1,000 and INR 2,500, if you can help me with that.

Yes. So its majority is below INR 1,000. So you can say more than 90%, it is less than INR 1,000 and even more also, we have to check.

Yes. And this is Prince here. Now with the revised limit of INR 2,500, more than 98% of our portfolio is priced below INR 2,500.

The next question is from the line of Prerna from Elara Securities.

Just wanted to understand your product strategy in terms of open footwear versus closed footwear. In this challenging times, what -- how are you thinking of increasing the share of closed footwear when this open footwear is facing challenges to sell or whatever challenges we are having at the macro level. Could you help us understand whether how this strategy is moving because you are planning to increase the share of closed footwear and that is not happening since a few years now.

Our focus remains, we have to handle all the categories of footwear, what we are having, not that only one category because all categories are important. If you see the share of our closed footwear is 20%, 80% still is open footwear. So we can't neglect open footwear also. And if you go brand-wise, Sparx is 40% and our Bahamas Relaxo combined is 25%, Flite is around 38% or something. So all channels require -- and all categories do require focus, and we can't afford to neglect any. We have to focus on all.

I completely agree, sir. But -- the whole point is that closed footwear share improvement could also bring in improvement of margins, and that is what we were assuming that this should happen. And the share is not improving. So hence, if you could help us understand what is the growth rate in open footwear versus closed footwear, that would really help us to understand the company better.

Even last year, full year, it was 80-20 only. And now also it is 80-20.

Okay sir, the declining...

80 global...

Yes, yes decline is uniform.

Okay. And sir, also please help us understand how are the new launches in the company? And which segments are you focusing? Are you focusing on sneakers and other categories as well, which are higher value and now that GST is at 5% up to INR 2,500, will you be launching in a higher price inventory, et cetera? So some thoughts on premiumization would help.

Definitely, as we have told you before also that we are focusing on athleisure and sneakers. So that is continued. The effort is there on that. We are launching product accordingly. Secondly, we are going to launch premium PU, which comes under Flite. So our objective is to how we can increase the ASP and provide the relevant product to the consumer. So efforts are being put in. Like in Flite last year, we launched Urban Basic. Again, it was a premium range. So every year, we try to -- if we get the opportunity to launch a new category, we definitely do.

Okay. And third question is on competition. Is the competition [indiscernible] still after GST implementation? Or is it the subdued demand? Or is it both?

Competition is always active, but like when the GST was 5% and raised to 12%, there was influx of a lot of unbranded and smaller players. And the prices of raw material also came down that time. But now after GST being again rationalized from 12% to 5%, now we are more competitive in the market, and we will gain market share.

Okay. And prices continue to remain stable from that period?

Yes. Yes.

[Operator Instructions]. The next question is from the line of Akhil Parekh from B&K Securities.

Sir, my first question is on the BIS front. Has the implementation been done? And where do we stand? And has the Chinese imports now dramatically reduced since the imposition of BIS?

No, we have already implemented QCO long back, and we're continuing with that. It is a government's policy and that we have to -- we have done already.

No. But has the Chinese imports reduced because of the BIS implementation?

It is very insignificant. The category we are playing in like our Bahamas, [ wide slippers ] Flite brand, it was insignificant. And the category that we are making in our Sparx brand also, that kind of a thing, I don't think we had any impact on it. It was government decision to do that, although we had registered for that also, I was in favor of some import must happen. That keeps the company -- industry on the edge and competition is only which makes the industry strong. By avoiding competition, nobody becomes strong. But if the government is to do that, and that's okay.

Okay. So when you say that we will become more competitive against the unorganized players, so does that mean they are just manufacturing it domestically and not the imported players?

No. When we say getting competitive in the -- because of GST coming 12% to 5% and also 18% to 5%, that makes us more competitive.