The quarter witnessed deteriorating operational metrics across the board, with revenue declining 3.96% sequentially to ₹628.54 crores whilst operating margins contracted sharply to 12.91% from 15.20% in the previous quarter. The company's profitability metrics remain under pressure, with PAT margin compressing to 5.75% from 7.47% quarter-on-quarter, raising concerns about the sustainability of earnings quality in the near term.
The September 2025 quarter marks the third consecutive quarter of year-on-year revenue decline for Relaxo Footwears, with sales falling 7.48% compared to September 2024. This sustained contraction reflects both sector-wide challenges and company-specific operational issues that have weighed on performance throughout the fiscal year. The company's inability to reverse this trend despite being in the peak festive season raises questions about demand dynamics and competitive positioning in the Indian footwear market.
Financial Performance: Margin Erosion Amplifies Profit Decline
The second quarter of FY2026 presented a concerning picture of deteriorating financial health at Relaxo Footwears. Net sales declined 3.96% quarter-on-quarter to ₹628.54 crores from ₹654.49 crores in Q1 FY26, whilst the year-on-year comparison revealed a steeper 7.48% contraction from ₹679.37 crores in Q2 FY25. This represents the lowest quarterly revenue figure in the past seven quarters, signalling intensifying headwinds in the footwear segment.
Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) plummeted 18.40% sequentially to ₹81.16 crores from ₹99.45 crores, marking the weakest operational performance in recent quarters. The operating margin contracted sharply to 12.91% from 15.20% in Q1 FY26 and 12.90% in Q2 FY25, reflecting significant cost pressures and operational inefficiencies. Employee costs, whilst declining marginally to ₹100.05 crores from ₹105.51 crores quarter-on-quarter, remained elevated relative to revenue, indicating challenges in aligning the cost structure with top-line performance.
Net profit declined 26.05% quarter-on-quarter to ₹36.16 crores from ₹48.90 crores, whilst the year-on-year decline was more modest at 1.55% from ₹36.73 crores. The PAT margin compressed to 5.75% from 7.47% in the previous quarter, representing a deterioration of 172 basis points. This margin compression was driven primarily by the sharp fall in operating profitability, which was only partially offset by a modest increase in other income to ₹12.26 crores from ₹11.32 crores quarter-on-quarter.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 628.54 | -3.96% | 36.16 | -26.05% | 12.91% | 5.75% |
| Jun'25 | 654.49 | -5.85% | 48.90 | -13.02% | 15.20% | 7.47% |
| Mar'25 | 695.15 | +4.24% | 56.22 | +70.28% | 16.12% | 8.09% |
| Dec'24 | 666.90 | -1.84% | 33.01 | -10.13% | 12.50% | 4.95% |
| Sep'24 | 679.37 | -9.20% | 36.73 | -17.21% | 12.90% | 5.41% |
| Jun'24 | 748.19 | +0.13% | 44.37 | -27.72% | 13.22% | 5.93% |
| Mar'24 | 747.21 | — | 61.39 | — | 16.11% | 8.22% |
The half-yearly performance for H1 FY2026 (April-September 2025) reveals a troubling trend, with revenue declining to ₹1,283.03 crores compared to ₹1,427.56 crores in H1 FY2025, representing a 10.12% year-on-year contraction. Net profit for the half-year stood at ₹85.06 crores, down from ₹81.10 crores in H1 FY2025, though this comparison is distorted by the weak base effect from the previous year. The sustained revenue decline coupled with margin compression suggests structural challenges that require urgent management attention.
Operational Challenges: Profitability Under Severe Pressure
The operational landscape for Relaxo Footwears has deteriorated markedly in Q2 FY26, with the company recording its lowest operating profit in recent quarters at ₹81.16 crores. This represents a significant 18.40% decline from the previous quarter and reflects the company's struggle to maintain pricing power in a competitive market environment. The operating margin of 12.91% stands well below the company's historical average and significantly trails the 16.12% achieved in March 2025, indicating a rapid erosion of operational efficiency.
Return on equity (ROE) has declined to 8.33% in the latest period from a five-year average of 11.65%, reflecting weakening capital efficiency and profitability. This deterioration in ROE, which measures how effectively the company generates returns for shareholders, is particularly concerning given that higher ROE values indicate better capital utilisation. The company's return on capital employed (ROCE) has similarly weakened to 11.18% from a five-year average of 16.70%, suggesting that the company is generating lower returns on its invested capital base.
Critical Operational Concerns
Margin Compression: Operating margin has contracted 229 basis points quarter-on-quarter to 12.91%, the lowest level in seven quarters, driven by elevated cost structures and weak pricing power.
Revenue Weakness: Q2 FY26 revenue of ₹628.54 crores represents the lowest quarterly sales figure in recent periods, with sustained year-on-year declines now extending to three consecutive quarters.
Profitability Erosion: Net profit declined 26.05% quarter-on-quarter, with PAT margin compressing to 5.75% from 7.47%, indicating deteriorating earnings quality and operational efficiency.
The company's balance sheet remains relatively robust, with zero long-term debt and a net cash position reflected in the negative net debt-to-equity ratio of -0.05. Total shareholder funds stood at ₹2,098.07 crores as of March 2025, providing a cushion against near-term operational challenges. However, the declining cash position, which fell to ₹22.00 crores in March 2025 from ₹40.00 crores in March 2024, suggests that working capital management has come under pressure.
Fixed assets increased to ₹972.74 crores in March 2025 from ₹1,028.25 crores in March 2024, indicating ongoing capital investments despite the challenging operating environment. The company's sales-to-capital-employed ratio of 1.36 times suggests moderate asset utilisation efficiency, though this has remained relatively stable over the five-year period. The consistent dividend payout ratio of 37.25% demonstrates management's commitment to returning cash to shareholders, though this may come under scrutiny if profitability continues to deteriorate.
Industry Context: Footwear Sector Faces Headwinds
The Indian footwear industry has encountered significant challenges in recent quarters, with demand softness and competitive intensity weighing on performance across the sector. Relaxo Footwears' underperformance relative to its peers is evident in the 15.03 percentage point underperformance against the footwear sector index over the past year, with the stock declining 38.08% compared to the sector's 23.05% decline. This relative weakness suggests company-specific issues beyond broader sectoral trends.
The company's market positioning has been challenged by evolving consumer preferences, with increasing competition from both domestic and international brands in the mass-market footwear segment. Relaxo's portfolio, which includes popular brands such as Sparx, Flite, and Bahamas, has historically enjoyed strong brand recognition in the affordable footwear category. However, the sustained revenue decline suggests that the company may be losing market share to more agile competitors or facing pricing pressures that limit its ability to pass on cost increases.
Competitive Positioning Concerns
Relaxo Footwears' relative underperformance against the broader footwear sector, with the stock declining 38.08% over the past year compared to the sector's 23.05% fall, highlights company-specific challenges beyond sectoral headwinds. The sustained revenue decline and margin compression suggest difficulties in maintaining competitive positioning in an increasingly crowded market.
The company's gross margin of 14.03% in Q2 FY26, whilst down from 16.13% in the previous quarter, reflects ongoing pressure on input costs and pricing. Raw material costs, particularly for rubber and synthetic materials used in footwear manufacturing, have remained elevated, constraining the company's ability to expand margins. Additionally, the labour-intensive nature of footwear manufacturing means that employee costs, which stood at ₹100.05 crores in Q2 FY26, represent a significant fixed cost burden that becomes more onerous when revenue declines.
Peer Comparison: Valuation Premium Not Justified by Performance
A comparison with industry peers reveals that Relaxo Footwears trades at a significant valuation premium despite delivering inferior operational performance. The company's price-to-earnings ratio of 60.93 times is elevated compared to the sector, particularly when considering its weaker return on equity of 11.65% versus peer averages of approximately 17%. This valuation disconnect suggests that the market may be overestimating the company's growth prospects or underappreciating the structural challenges it faces.
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Relaxo Footwears | 60.93 | 5.08 | 11.65 | 0.70 | -0.05 |
| Metro Brands | 84.38 | 16.51 | 20.30 | 1.81 | 0.38 |
| Bata India | 71.41 | 8.82 | 15.43 | 0.86 | 0.53 |
| Campus Activewear | 66.69 | 10.40 | 19.33 | 0.37 | 0.47 |
| Redtape | 41.85 | 9.45 | 24.38 | 0.18 | 0.90 |
| Sreeleathers | 24.40 | 1.10 | 5.33 | — | -0.02 |
Relaxo Footwears' ROE of 11.65% lags significantly behind peers such as Redtape (24.38%), Metro Brands (20.30%), and Campus Activewear (19.33%), indicating weaker capital efficiency and profitability generation. The company's price-to-book value of 5.08 times, whilst lower than some peers, remains elevated given its inferior ROE profile. This suggests that investors are paying a premium for a company that is delivering below-average returns on equity, raising questions about the sustainability of current valuations.
The dividend yield of 0.70% is amongst the lowest in the peer group, with Metro Brands offering 1.81% and Bata India providing 0.86%. Whilst Relaxo maintains a zero-debt balance sheet, which is a positive from a financial stability perspective, this advantage is not translating into superior operational performance or shareholder returns. The company's market capitalisation of ₹10,496.50 crores positions it as the third-largest player in the footwear sector, though this size advantage has not prevented the recent operational deterioration.
Valuation Analysis: Expensive Multiples Not Supported by Fundamentals
Relaxo Footwears trades at a price-to-earnings ratio of 60.93 times trailing twelve-month earnings, representing a significant premium to historical valuations and peer group averages. The company's valuation grade has been classified as "Very Expensive" since November 2024, reflecting the disconnect between current market pricing and underlying fundamental performance. With the stock trading at ₹421.65 as of November 14, 2025, down 40.17% from its 52-week high of ₹704.70, the market has begun to reassess the company's growth prospects.
The price-to-book value of 5.08 times appears elevated given the company's declining ROE and deteriorating operational metrics. Enterprise value multiples paint a similarly expensive picture, with EV/EBITDA at 27.59 times and EV/EBIT at 47.21 times, both significantly above long-term averages for the footwear sector. The EV/Sales ratio of 3.92 times suggests that investors are paying nearly four times annual revenue for a company experiencing sustained top-line contraction.
The dividend yield of 0.70% provides minimal income support for investors, particularly when compared to risk-free government securities yielding similar or higher returns. The latest dividend of ₹3.00 per share, declared with an ex-dividend date of August 21, 2025, represents a payout ratio of 37.25%, which appears sustainable given the company's cash position. However, the combination of low yield and deteriorating fundamentals limits the investment appeal from an income perspective.
Based on current operational trends and peer valuations, a fair value estimate for Relaxo Footwears would be in the range of ₹350-380 per share, suggesting 17-10% downside from current levels of ₹421.65. This estimate assumes modest revenue stabilisation and gradinal margin recovery over the next 12-18 months, which appears optimistic given recent trends. Any further deterioration in operational performance could result in additional valuation compression, with potential downside to ₹300-320 levels representing a reversion to more normalised P/E multiples of 45-50 times earnings.
Shareholding Pattern: Stable Promoter Base, Modest Institutional Interest
The shareholding structure of Relaxo Footwears has remained remarkably stable over recent quarters, with promoter holding steady at 71.27% across the five most recent quarters from September 2024 to September 2025. This unwavering promoter commitment provides a degree of stability and suggests confidence in the long-term prospects of the business, despite near-term operational challenges. The promoter group, led by Ramesh Kumar Dua (23.47%) and Mukand Lal Dua (20.57%), maintains strong control over the company with zero pledging of shares, which is a positive indicator of financial discipline.
| Quarter | Promoter | QoQ Change | FII | QoQ Change | Mutual Funds | QoQ Change |
|---|---|---|---|---|---|---|
| Sep'25 | 71.27% | 0.00% | 3.03% | +0.17% | 9.80% | -0.12% |
| Jun'25 | 71.27% | 0.00% | 2.86% | -0.21% | 9.92% | -0.60% |
| Mar'25 | 71.27% | 0.00% | 3.07% | -0.20% | 10.52% | 0.00% |
| Dec'24 | 71.27% | 0.00% | 3.27% | -0.14% | 10.52% | +0.56% |
| Sep'24 | 71.27% | — | 3.41% | — | 9.96% | — |
Foreign institutional investor (FII) holding has remained modest at 3.03% in September 2025, showing a marginal increase of 17 basis points from 2.86% in June 2025. However, the broader trend over the past year shows FII holdings declining from 3.41% in September 2024, reflecting lukewarm international investor interest in the stock. The presence of 106 FII investors suggests diversified foreign participation, though the aggregate holding remains relatively small.
Mutual fund holdings declined to 9.80% in September 2025 from 9.92% in June 2025 and 10.52% in March 2025, indicating gradual institutional divestment. With nine mutual funds holding positions in the company, the declining stake suggests that domestic institutional investors are reducing exposure amid concerns about operational performance and valuation. Insurance company holdings remain negligible at 0.00%, whilst other domestic institutional investors (DIIs) hold a marginal 0.08%, up from 0.03% in the previous quarter.
Non-institutional holdings, which include retail investors and non-promoter corporate entities, stood at 15.82% in September 2025, declining marginally from 15.93% in June 2025. The overall institutional holding of 12.91% (combining FII, mutual funds, insurance, and other DIIs) remains relatively low for a company of Relaxo's size and market capitalisation, suggesting limited institutional conviction in the current investment case. This modest institutional participation may contribute to higher stock price volatility and limited liquidity during periods of market stress.
Stock Performance: Severe Underperformance Across All Timeframes
Relaxo Footwears has delivered deeply disappointing returns across all meaningful timeframes, with the stock declining 38.08% over the past year compared to the Sensex's 8.44% gain, resulting in negative alpha of 46.52 percentage points. The stock's performance has deteriorated progressively, with year-to-date returns of -32.13% significantly underperforming the Sensex's 7.66% gain by nearly 40 percentage points. This persistent underperformance reflects both deteriorating fundamentals and negative market sentiment towards the stock.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.29% | +1.09% | -3.38% |
| 1 Month | -1.30% | +2.56% | -3.86% |
| 3 Months | -3.46% | +4.38% | -7.84% |
| 6 Months | -1.72% | +3.44% | -5.16% |
| Year-to-Date | -32.13% | +7.66% | -39.79% |
| 1 Year | -38.08% | +8.44% | -46.52% |
| 2 Years | -53.18% | +29.56% | -82.74% |
| 3 Years | -54.30% | +36.51% | -90.81% |
The medium-term picture is equally concerning, with the stock declining 53.18% over two years and 54.30% over three years, whilst the Sensex delivered positive returns of 29.56% and 36.51% respectively during these periods. This sustained underperformance of over 80 percentage points on a two-year basis and 90 percentage points on a three-year basis represents one of the worst relative performance records in the footwear sector. The stock has also underperformed its sector benchmark by 15.03 percentage points over the past year, with Relaxo declining 38.08% compared to the footwear sector's 23.05% fall.
From a technical perspective, the stock is currently trading below all key moving averages, including the 5-day (₹429.96), 20-day (₹436.16), 50-day (₹453.49), 100-day (₹459.18), and 200-day (₹452.14) moving averages. This bearish technical setup suggests continued near-term weakness, with the stock finding support near its 52-week low of ₹375.35. The current price of ₹421.65 represents a 40.17% decline from the 52-week high of ₹704.70, indicating significant wealth destruction for investors who entered at higher levels.
The stock's beta of 1.35 indicates higher volatility than the broader market, with an annualised volatility of 31.48% compared to the Sensex's 12.26%. This elevated volatility, combined with negative returns, has resulted in a negative Sharpe ratio, indicating poor risk-adjusted performance. The risk-adjusted return of -1.21 over the past year places the stock in the "Medium Risk Low Return" category, an unattractive combination for most investors. The technical trend has been classified as "Mildly Bearish" since November 11, 2025, with multiple indicators including MACD, Bollinger Bands, KST, and Dow Theory signalling bearish or mildly bearish conditions.
Investment Thesis: Multiple Warning Signals Flash Red
The investment case for Relaxo Footwears has deteriorated significantly, with the company's proprietary Mojo Score declining to 35 out of 100, placing it firmly in "SELL" territory. This low score reflects the confluence of negative factors across valuation, quality, financial trends, and technical indicators. The valuation grade of "Very Expensive" is particularly concerning given the deteriorating operational performance, whilst the quality assessment of "Average" suggests that the company's long-term competitive positioning has weakened from its historical "Good" rating prior to May 2023.
The financial trend assessment of "Flat" for Q2 FY26 understates the severity of the situation, as the company has recorded its lowest quarterly revenue and operating profit in recent periods. The five-year sales growth of just 4.87% and negative EBIT growth of -2.14% highlight the structural challenges facing the business. The company's average ROCE of 16.70% and ROE of 11.65%, whilst respectable in absolute terms, have been declining and now lag peer group averages, indicating deteriorating competitive positioning.
✓ KEY STRENGTHS
- Zero debt balance sheet with net cash position provides financial flexibility and stability
- Stable promoter holding at 71.27% with no pledging demonstrates strong promoter commitment
- Established brand portfolio including Sparx, Flite, and Bahamas with strong market recognition
- Consistent dividend payer with 37.25% payout ratio demonstrates shareholder-friendly approach
- Adequate interest coverage of 15.59 times provides cushion for financial obligations
- Strong distribution network across India in mass-market footwear segment
- Manufacturing capabilities with fixed assets of ₹972.74 crores supporting production capacity
⚠ KEY CONCERNS
- Three consecutive quarters of year-on-year revenue decline with Q2 FY26 sales down 7.48%
- Sharp operating margin compression to 12.91% from 15.20% quarter-on-quarter
- Net profit declined 26.05% QoQ to ₹36.16 crores, lowest in seven quarters
- ROE declined to 8.33% from five-year average of 11.65%, indicating weakening capital efficiency
- Expensive valuation with P/E of 60.93x not justified by deteriorating fundamentals
- Stock underperformed sector by 15.03 percentage points and Sensex by 46.52 percentage points over one year
- Declining institutional holdings with mutual funds reducing stake from 10.52% to 9.80%
- Negative five-year EBIT growth of -2.14% highlights structural profitability challenges
- Low dividend yield of 0.70% provides minimal income support to investors
Outlook: What to Watch in Coming Quarters
The outlook for Relaxo Footwears remains challenging, with multiple headwinds likely to persist in the near term. The company's ability to stabilise revenue and arrest margin compression will be critical factors to monitor in the coming quarters. Management commentary on demand trends, competitive dynamics, and cost management initiatives will provide important insights into the company's ability to navigate current challenges. Investors should pay close attention to whether the company can reverse the three-quarter trend of year-on-year revenue declines and restore operating margins to historical levels above 15%.
POSITIVE CATALYSTS
- ▲Revenue stabilisation and return to positive growth trajectory
- ▲Operating margin recovery towards historical 15-16% range
- ▲Successful cost optimisation initiatives improving profitability
- ▲Market share gains in key product categories
- ▲Improvement in working capital management and cash generation
RED FLAGS
- ▼Further revenue decline extending beyond three quarters
- ▼Operating margins falling below 12% indicating severe stress
- ▼Continued institutional selling and declining shareholding
- ▼ROE falling below 8% threshold indicating capital inefficiency
- ▼Stock breaking below 52-week low of ₹375.35
From a technical perspective, the stock's position below all key moving averages and bearish indicator readings suggest continued near-term weakness. A decisive break below the 52-week low of ₹375.35 could trigger further selling pressure, potentially driving the stock towards ₹320-350 levels. Conversely, a sustained move above the 20-day moving average of ₹436.16, accompanied by improving volume and delivery participation, could signal a short-term relief rally, though the fundamental challenges would remain unaddressed.
"With three consecutive quarters of revenue decline, operating margins at seven-quarter lows, and expensive valuations not justified by deteriorating fundamentals, Relaxo Footwears faces a challenging path to recovery that requires urgent operational improvements."
The broader footwear sector's challenges, including competitive intensity and evolving consumer preferences, are likely to persist. Relaxo's ability to differentiate its product portfolio, strengthen its brand positioning, and improve operational efficiency will determine whether it can stabilise performance and restore investor confidence. The company's strong balance sheet and zero-debt position provide some cushion, but these financial strengths alone cannot compensate for sustained operational underperformance.
The Verdict: Operational Deterioration Warrants Caution
Score: 35/100
For Fresh Investors: Avoid initiating positions in Relaxo Footwears at current levels. The combination of deteriorating operational metrics, expensive valuations (P/E of 60.93x), and sustained revenue decline presents an unfavourable risk-reward profile. Wait for clear signs of revenue stabilisation, margin recovery, and improved competitive positioning before considering entry. Fair value estimated at ₹350-380, suggesting 17-10% downside from current price of ₹421.65.
For Existing Holders: Consider reducing exposure or exiting positions, particularly for those holding at higher cost bases. The stock has declined 38.08% over the past year and 53.18% over two years, with limited near-term catalysts for recovery. The persistent underperformance against both the Sensex and footwear sector, combined with deteriorating fundamentals, suggests further downside risk. Maintain strict stop-loss discipline if choosing to hold, with support at ₹375.35 (52-week low).
Fair Value Estimate: ₹350-380 (17-10% downside from current levels)
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
