Relaxo Footwears tumbles after Q2 PAT falls over 67% YoY on declining volumes and rising RM prices

Relaxo Footwears slumped 5.34% to Rs 924.70 after the company reported 67.4% drop in net profit to Rs 22 crore in Q2 FY23 from Rs 69 crore in Q2 FY22.

The net profit margin was 3.3% in Q2 FY23 as against 9.6% in Q2 FY22.

Revenue from operations declined by 6.3% YoY to Rs 670 crore in the second quarter. This was primarily due to decline in volumes of the categories serving the mass segment who were under inflationary pressures with reduced affordability.

EBITDA fell by 49.1% to Rs 59 crore in Q2 FY23 from Rs 117 crore in Q2 FY22. EBITDA margin was 8.9% in Q2 FY23 as against 16.4% in Q2 FY22. EBITDA was under pressure due to high raw material prices, the company said.

Ramesh Kumar Dua, Managing Director said: The company's performance in the quarter is subdued due to a decline in the volume of categories serving the masses. The consumers were facing inflationary pressures which affected their affordability and they had started moving to cheaper alternatives even at the cost of quality. Hence, the company took an aggressive price correction in September 2022, to be competitive in the market.

In addition to this, we have been witnessing a very high volatility and unpredictability in the raw material (RM) prices, most of which are imported. Due to the long supply-chain, the Company maintains sufficient inventory to ensure there are no disruptions in the manufacturing process. Hence, there is a time lag for the costs to influence the pricing.

While this is beneficial during the increasing trends of the material prices, it affects negatively when the trend reverses and prices start falling. In the last few months, there was a sudden fall in a few of the key raw material prices. So, the company took corrective price revisions, further impacting the margins. This price rationalization approach has been welcomed by trade and consumers which would help us to clear high-value inventory in Q3 FY23, ultimately improving our volume numbers.

The company's efforts towards cost optimization by focusing more on in-house manufacturing and product premiumization with the launch of new products & ranges and e-commerce initiatives will aid us in capturing the increasing close footwear demand. This quarter has performed well in the other higher value categories, both in values as well as volumes.

The company would continue to focus on these categories. Further, the management is keeping a close watch on the pricing trends to ensure timely corrective actions.

Relaxo Footwears is engaged in production of Hawaii slippers, light weight slippers, canvas shoes, PVC footwear etc.

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