Saurabh Mukherjea's exit not end of woes for Relaxo Footwears. Stock hits 52-week low on poor Q3

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Relaxo Footwears has been in the news for all the wrong reasons. Rising raw material prices and growing competition have been eating into the company's profits, recently prompting star fund manager Saurabh Mukherjea to exit his stake in the footwear maker.

The October-December 2022 period (Q3) was no different for the company. Its revenue from operations fell 8 percent on-year to Rs 681 crore weighed down by subdued demand in mass segment articles.

Profit after tax fell 57 percent YoY to Rs 30 crore in the third quarter, and net profit margin stood at 4.4 percent as against 9.4 percent a year ago.

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At 10am, the stock was quoting at Rs 776.25 on the National Stock Exchange (NSE), lower by 3.54 percent, recovering slightly after hitting a 52-week low of Rs 773.55.

The stock is down 22 percent in the past six months and 40 percent in the past one year.

EBITDA (earnings before interest, taxes, depreciation and amortisation) at Rs 72 crore, fell 41 percent on-year. EBITDA margin contracted to 10.6 percent from 16.4 percent. This was due to aggressive price corrections in open footwear as well as the liquidation of high cost inventory in the pipeline for the current quarter, the company said.

While Relaxo registered a marginal improvement in volumes on a sequential basis, pain in rural demand and loss of market share to unorganised players continued to affect its finances, analysts believe.

Its price-to-earnings ratio of 99x on trailing twelve-month basis does not provide any comfort, either.

Domestic brokerage Motilal Oswal Financial Services has cut its FY24/25 estimates for net profit by 14 percent/7 percent after the Q3 numbers. It has a 'neutral' rating on the stock with a target price of Rs 750.

On January 20, Marcellus Investment Managers, the portfolio management services (PMS) provider founded by Saurabh Mukherjea, said it has exited Relaxo Footwears after calling its 'chappals' (flip flops)  an 'instrument of enormous wealth creation'.

Also Read: Saurabh Mukherjea’s Marcellus ends love affair with Relaxo Footwears after calling its chappals wealth creators

“On one hand, the price differential gave smaller players an opportunity to take up the bottom end of the market by offering cheaper footwear. On the other hand, organised players like VKC took the mid and higher end of Relaxo’s market by keeping their prices competitive,” the newsletter said.