Relaxo Footwears Limited — Q2 FY26 earnings call

Call held 14 Nov 2025

Management summary

Relaxo Footwear reported a challenging Q2 and H1 FY26 with revenue declines of 7.36% and 10.15% respectively, primarily due to soft mass market demand and pre-GST 2.0 purchase delays. Despite this, the company maintained stable EBITDA margins in Q2 and expanded H1 margins through stringent cost control and operational efficiencies, leading to PAT growth in H1. Management anticipates a gradual demand revival post-GST 2.0 implementation, expecting Q3 to be flat to slightly negative, with better growth in Q4 and FY27, while focusing on strategic product launches and distribution enhancements.

Highlights

  • EBITDA margin remained stable at 12.9% in Q2 FY26, supported by operational efficiencies and cost management.

  • PAT margins improved by 34 basis points year-on-year to 5.8% in Q2 FY26, reflecting disciplined cost control and stable pricing.

  • H1 FY26 EBITDA margin expanded by 101 basis points to 14.1%, driven by cost rationalization and efficiency initiatives.

  • H1 FY26 PAT increased by 4.9% year-on-year to ₹85 crores, with PAT margin improving by 95 basis points to 6.6%.

  • Rollout of GST 2.0 (5% tax rate for footwear below ₹2,500) is expected to strengthen competitiveness against the unorganized sector and improve affordability.

Concerns

  • Revenue from operations declined 7.36% YoY in Q2 FY26 to ₹629 crores, primarily due to demand softness in the mass market segment and delayed purchases ahead of GST 2.0.

  • H1 FY26 revenue declined 10.15% YoY to ₹1,283 crores.

  • High-price inventory in the channel is taking time to flush out, with real effects expected from December end and January onwards.

  • The industry faces an inverted duty structure post-GST 2.0 (imports at 18%, outward at 5%), with some part of the duty potentially unrefunded, though management expects it to be manageable.

  • Consumer sentiment remains muted, impacting demand recovery.

Key financials

2 periods

Q2 FY26

  • Revenue
    ₹629 Cr
    YoY -7.4%
  • EBITDA
    ₹81 Cr
  • EBITDA Margin
    12.9%
  • PAT
    ₹36 Cr
    YoY -2.7%
  • PAT Margin
    5.8%

H1 FY26

  • Revenue
    ₹1,283 Cr
    YoY -10.2%
  • EBITDA
    ₹181 Cr
    YoY -3.2%
  • EBITDA Margin
    14.1%
  • PAT
    ₹85 Cr
    YoY +4.9%
  • PAT Margin
    6.6%

What they filed

Q1 FY27: revenue up 7.8%, net profit up 12.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue679 667 695 654 629 −7%668 +0%751 +8%705 +8%
EBITDA88 83 112 99 81 −8%69 −17%124 +11%108 +9%
Net profit37 33 56 49 36 −3%27 −18%68 +21%55 +12%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Product Type
    20% Closed Footwear Contribution80% Open Footwear Contribution
  • Price Point
    90% Portfolio below ₹1,00098% Portfolio below ₹2,500
  • Brand Contribution
    40% Sparx25% Bahamas & Relaxo38% Flite

Capital allocation

high confidence
  • Capex ₹100 Cr
    • Operational efficiencies
    • Warehouse modernization
    • Building HO
    • Moulds
    Capex will be in the range of INR120 crores plus, which is similar to last year. And since we have enough capacity, this is more to do with operational efficiencies, warehouse modernization and building our HO, but broadly in this range, about INR100 crores to INR150 crores is the range that we are looking at for this year and next year.

Guidance & targets

Revenue Growth

  • Q3 FY26 Revenue Growth Revenue Growth · Q3 FY26 · Medium confidence same level or minus 3-4%
    And in the third quarter, we are expecting this either will be at the same level or minus 3-4% that I'm expecting.

    — Ramesh Kumar Dua

Advertisement Spend

  • Ad Spend as % of Revenue Advertisement Spend · coming quarter and full year · High confidence around 4%
    Advertisement spend for the coming quarter and for the full year is expected to be around 4% of the revenue.

    — Prince Jain

Capex

  • Annual Capex Capex · FY26 and FY27 · High confidence INR 100-150 crores
    about INR100 crores to INR150 crores is the range that we are looking at for this year and next year.

    — Prince Jain

What to watch in Q3 FY26

Channel inventory liquidation and primary bookings

December end and January onwards
Current Distributors carrying ~45 days inventory, focusing on clearing old MRP stock.
Target Significant increase in primary bookings and normalized channel inventory levels.

Why it matters

Crucial for sales recovery and reflects the true underlying demand post-GST 2.0 implementation.

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.

Risks & concerns

  • Demand softness in mass market segment

    high

    Primary reason for revenue moderation in Q2 FY26.

    Management acknowledged

  • Delayed purchases ahead of GST 2.0 implementation

    high

    Contributed to Q2 FY26 revenue decline as channel partners awaited new tax regime.

    Management acknowledged

  • High-price inventory in the channel

    medium

    Distributors are focused on liquidating old MRP stock, delaying new primary bookings until December/January.

    Management acknowledged

  • Inverted duty structure post-GST 2.0

    medium

    Outward duty at 5% while most imports remain at 18%, leading to some unrefunded duty, though management expects it to be manageable.

    Analyst acknowledged

  • Muted consumer sentiment

    medium

    Despite GST benefits, overall consumer sentiment remains subdued, impacting demand recovery.

    Management acknowledged

  • Competition from unorganized sector and fake products

    medium

    Ongoing challenge, though GST 2.0 is expected to improve competitiveness against unorganized players.

    Analyst acknowledged

Q&A highlights

6 direct
Impact of GST reduction on growth, inventory, and inverted duty structure Direct
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.

Addresses the primary reasons for Q2's muted performance and outlines the expected recovery timeline and challenges like inverted duty structure.

Asked by Devanshu Bansal

Growth expectations for Q3 and Q4 FY26, and FY27 Direct
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 at the same level 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. But still consumer sentiment still are muted.

Provides specific short-term guidance for Q3 and a qualitative outlook for Q4 and the next fiscal year, indicating a cautious recovery.

Asked by Devanshu Bansal

Sustainability of increased other income Direct
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.

Clarifies that the increase in other income is structural and likely to continue, providing confidence in non-operating income.

Asked by Shraddha

Normalized Q2 growth rate adjusting for GST impact and destocking Partial
So the number that we have reported for quarter 2 is (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.

Offers a clearer perspective on the underlying demand by estimating the growth without temporary disruptions, suggesting a stronger underlying performance.

Asked by Sameer Gupta

Distributor reluctance to purchase new stock post-GST Direct
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.

Explains the channel's cautious behavior and the reason for delayed primary sales despite lower GST rates, highlighting the inventory overhang.

Asked by Sameer Gupta

Competitiveness against fake products and unorganized players post-GST Partial
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.

Addresses the competitive landscape and how GST 2.0 is expected to enhance the company's position against unorganized players, although the issue of fake products persists.

Asked by Devanshu Bansal

Impact of reduced MRPs on channel partner commissions Direct
No, same trade discount, whatever it is. It is not based on price, whether it is price INR2,500 or it is INR200, our trade discount is same. And it will remain same. No change after GST.

Clarifies that channel partner economics (trade discounts) are not negatively impacted by the GST-driven reduction in MRPs, ensuring channel support.

Asked by Devanshu Bansal

Industry-wide sales decline and D2C competition Direct
The organized players must be suffering, the way we are, even you will see Bata results also got affected this quarter. So all these players are definitely going through. And particularly the companies who are serving middle segment or low segments, they are more affected.

Confirms that the sales decline is not isolated to Relaxo but is an industry-wide phenomenon, particularly affecting organized players in the mass and mid-market segments.

Asked by Prerna

3 min read 8 chapters

Detailed narrative

Q2 & H1 FY26 Financial Performance Overview

Relaxo Footwear reported a revenue of ₹629 crores in Q2 FY26, marking a 7.36% year-on-year decline from ₹679 crores in Q2 FY25. EBITDA for the quarter stood at ₹81 crores, maintaining a stable margin of 12.9%. Profit after tax (PAT) for Q2 FY26 was ₹36 crores, a slight decrease from ₹37 crores in Q2 FY25, but PAT margins improved by 34 basis points to 5.8%. For the first half of FY26, revenue was ₹1,283 crores, a 10.15% decline from ₹1,428 crores in H1 FY25. However, H1 FY26 EBITDA expanded by 101 basis points to 14.1%, and PAT increased by 4.9% to ₹85 crores, with margins improving by 95 basis points to 6.6%.

Impact of GST 2.0 and Channel Dynamics

The moderation in Q2 revenue was primarily attributed to demand softness in the mass market segment and delayed purchases ahead of GST 2.0 implementation. The new GST framework, which reduced the tax rate on footwear priced below ₹2,500 to 5%, is expected to enhance competitiveness against the unorganized sector and improve affordability. However, the channel is currently focused on liquidating old inventory with higher MRPs, with the full impact of new pricing and primary bookings expected to be visible from December end and January onwards. Management noted that distributors are cautious due to concerns about adjusting input GST on old stock.

Cost Control and Operational Efficiency

Despite the challenging demand environment and revenue moderation, Relaxo Footwear successfully maintained healthy profitability levels. This was achieved through a continued focus on cost control, operational efficiencies, and back-end optimization. The company's cost rationalization measures and efficiency initiatives were key drivers for the 101 basis points expansion in EBITDA margin for H1 FY26 and the stable 12.9% EBITDA margin in Q2 FY26.

Product Portfolio and Strategic Focus

The company's product portfolio consists of approximately 20% closed footwear and 80% open footwear. Over 98% of the portfolio is priced below ₹2,500, with a majority (over 90%) below ₹1,000. Brand-wise, Sparx contributes 40% of sales, Bahamas & Relaxo combined contribute 25%, and Flite accounts for 38%. The strategic focus remains on volume-led growth, expanding market share, and ensuring sustainable profitable performance through a portfolio of affordable and high-quality products. The company is also focusing on athleisure, sneakers, and launching premium PU products under Flite.

Outlook and Growth Expectations

Management remains optimistic about a recovery trajectory, expecting momentum to strengthen in coming quarters, supported by festival demand and GST benefits. For Q3 FY26, the company anticipates revenue to be either at the same level as last year or a decline of 3-4%. Some growth is expected in Q4 FY26 (January to March), and FY27 is projected to be a much better growth year. However, consumer sentiment remains muted, and the company will continue to monitor market conditions closely.

Capital Expenditure Plans

The planned capital expenditure for FY26 and FY27 is estimated to be in the range of ₹100 crores to ₹150 crores annually, similar to last year's spend. This capex is primarily allocated towards operational efficiencies, warehouse modernization, building the company's Head Office, and moulds, rather than significant capacity expansion, as the company currently possesses sufficient capacity.

Distribution and Digital Transformation

Relaxo is actively working on enhancing its distribution network by adding new distributors and rationalizing non-performing ones, an ongoing monthly process. The company has also implemented the Relaxo Parivaar app (RPA), which is driving significant growth in secondary sales. The RPA app's contribution to overall sales has increased from 50% last year to 60% this year, indicating a 20% growth at the secondary level.

Other Income Contribution

The considerable increase in other income for the quarter is not a one-off event. It is primarily driven by a higher treasury base compared to the previous year. Additionally, a minor positive impact resulted from hedging gains due to dollar-rupee depreciation. Management expects similar levels of other income in future quarters, potentially boosted if government reduces interest rates.

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