The stock witnessed a sharp 6.11% surge to ₹393.15 on January 30, 2026, following the results announcement, though this represents a tactical bounce from oversold levels rather than a fundamental turnaround. Shares remain deeply in the red, down 28.26% over the past year and trading 34.32% below their 52-week high of ₹598.55, reflecting persistent investor concerns about the company's growth outlook and valuation premium.
The quarterly performance underscores the mounting challenges facing India's footwear sector, where discretionary spending has remained tepid amid inflationary pressures. For Relaxo, the combination of declining sales volumes, elevated input costs, and competitive intensity has created a perfect storm that continues to erode profitability. The company's inability to sustain the momentum from previous quarters signals deeper structural issues that require strategic intervention.
Financial Performance: Revenue Contraction Persists
Relaxo Footwears' Q3 FY26 net sales of ₹628.54 crores marked a sequential decline of 3.96% from ₹654.49 crores in Q2 FY26 and a year-on-year contraction of 7.48% from ₹679.37 crores in Q3 FY25. This represents the third consecutive quarter of declining revenues, with the company struggling to reverse the negative trajectory that has characterised its performance throughout FY2026. On a nine-month basis (Apr-Dec'25), revenues stood at ₹1,949.93 crores, down 8.25% from ₹2,125.72 crores in the corresponding period of FY2025.
| Quarter | Net Sales (₹ Cr) | QoQ Change | YoY Change | Operating Margin | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 (Q3) | 628.54 | -3.96% | -7.48% | 12.91% | 5.75% |
| Jun'25 (Q2) | 654.49 | -5.85% | -12.52% | 15.20% | 7.47% |
| Mar'25 (Q1) | 695.15 | +4.24% | -6.97% | 16.12% | 8.09% |
| Dec'24 (Q4) | 666.90 | -1.84% | — | 12.50% | 4.95% |
| Sep'24 (Q3) | 679.37 | -9.20% | — | 12.90% | 5.41% |
| Jun'24 (Q2) | 748.19 | +0.13% | — | 13.22% | 5.93% |
| Mar'24 (Q1) | 747.21 | — | — | 16.11% | 8.22% |
Operating profit (PBDIT excluding other income) for Q3 FY26 came in at ₹81.16 crores, down 18.39% sequentially from ₹99.45 crores, though marginally ahead of ₹87.66 crores in Q3 FY25. Operating margins contracted sharply to 12.91% from 15.20% in the previous quarter, reflecting the company's inability to pass on cost increases to consumers in a price-sensitive market. The margin compression was particularly pronounced compared to Q1 FY26's 16.12%, highlighting the deteriorating operating leverage.
Net profit of ₹36.16 crores in Q3 FY26 translated to a PAT margin of 5.75%, down from 7.47% in Q2 FY26 but marginally better than 5.41% in Q3 FY25. The sequential profit decline was driven primarily by lower revenues and margin compression, though the company maintained relatively stable tax rates at 25.98%. Employee costs at ₹100.05 crores showed a sequential decline, suggesting some cost optimisation efforts, though the benefits were insufficient to offset top-line pressures.
Margin Dynamics: A Worrying Trend
The 229-basis-point sequential contraction in operating margins from 15.20% to 12.91% represents one of the sharpest quarterly declines in recent periods. This deterioration reflects a combination of adverse product mix, competitive pricing pressures, and the company's limited ability to leverage fixed costs amid declining volumes. With margins now hovering near multi-quarter lows, Relaxo faces an uphill battle to restore profitability without a meaningful revival in demand.
Balance Sheet Quality: Fortress Status Under Pressure
Relaxo Footwears maintains a debt-free balance sheet with shareholder funds of ₹2,098.07 crores as of March 2025, providing a crucial cushion during this challenging phase. The company's net debt-to-equity ratio stands at a negative 0.01, effectively making it a net cash company—a rare attribute in the manufacturing sector. Fixed assets stood at ₹972.74 crores, with current assets of ₹1,234.60 crores comfortably covering current liabilities of ₹450.82 crores, ensuring strong liquidity.
However, the company's return on equity (ROE) has deteriorated to 8.26% in the latest period from an average of 11.32%, reflecting the earnings pressure. Return on capital employed (ROCE) similarly declined to 10.43% from an average of 15.65%, indicating that the company is generating diminishing returns on its invested capital. The book value per share stands at ₹84.29, with the stock trading at 4.64 times book value—a premium that appears increasingly difficult to justify given the current earnings trajectory.
⚠️ Profitability Concerns
The sustained decline in both ROE and ROCE signals fundamental challenges in capital efficiency. With ROE now in single digits at 8.26%, Relaxo is generating returns barely above the risk-free rate, raising questions about whether the company can justify its current valuation premium. The compression in returns despite zero debt suggests operational inefficiencies rather than financial leverage issues, making a turnaround more complex.
Competitive Landscape: Struggling to Keep Pace
Relaxo's challenges become more pronounced when viewed against industry peers. The footwear sector has witnessed divergent performance, with organised players like Metro Brands and Campus Activewear demonstrating superior profitability metrics. Relaxo's ROE of 11.32% (average) lags significantly behind competitors, whilst its elevated P/E ratio of 56.15x suggests the market has yet to fully price in the earnings deterioration.
| Company | P/E (TTM) | ROE (%) | Dividend Yield | P/BV | Debt/Equity |
|---|---|---|---|---|---|
| Relaxo Footwears | 56.15 | 11.32% | 0.76% | 4.64 | -0.01 |
| Metro Brands | 73.14 | 20.30% | 1.91% | 15.67 | 0.38 |
| Campus Activewear | 62.26 | 19.33% | 0.40% | 9.71 | 0.47 |
| Bata India | 58.84 | 15.43% | 1.04% | 7.26 | 0.53 |
| Redtape | 37.62 | 21.73% | 0.20% | 7.93 | 1.05 |
| Sreeleathers | 21.69 | 5.76% | — | 1.03 | -0.02 |
The peer comparison reveals Relaxo's positioning as a mid-tier performer on profitability metrics whilst trading at a premium valuation. Metro Brands and Campus Activewear, both commanding higher P/E multiples, justify their valuations through superior ROE figures of 20.30% and 19.33% respectively—nearly double Relaxo's returns. Redtape, despite carrying higher debt, delivers stronger profitability whilst trading at a more reasonable 37.62x earnings.
Valuation Analysis: Premium Unjustified by Fundamentals
At a P/E ratio of 56.15x trailing twelve-month earnings, Relaxo Footwears trades at a significant premium to both its historical averages and intrinsic value. The company's price-to-book ratio of 4.64x, whilst lower than some peers, appears elevated given the deteriorating return profile. EV/EBITDA of 25.96x and EV/Sales of 3.69x further underscore the valuation stretch, particularly when juxtaposed against declining growth rates.
The stock's current price of ₹393.15 represents a 34.32% discount from its 52-week high of ₹598.55, yet remains 10.75% above the 52-week low of ₹355.00. This positioning suggests the market has partially priced in the earnings deterioration but continues to assign a premium based on historical brand strength and balance sheet quality. However, with the company's quality grade having slipped from "Good" to "Average" and financial trends turning negative, the valuation premium appears increasingly difficult to justify.
Market consensus on valuation has consistently flagged concerns, with the stock rated "Very Expensive" since November 2024. The lack of earnings growth—with 5-year EBIT growth at a negative 4.33%—makes the current multiple unsustainable. A fair valuation, based on normalised earnings and peer multiples, would suggest a price target in the ₹320-340 range, implying further downside of 14-19% from current levels.
Shareholding Pattern: Institutional Confidence Waning
Promoter holding in Relaxo Footwears has remained rock-solid at 71.27% across the last five quarters, with zero pledging—a positive indicator of management confidence. However, institutional investor behaviour tells a different story. Foreign Institutional Investors (FIIs) have marginally reduced their stake from 3.27% in December 2024 to 3.01% in December 2025, whilst mutual fund holdings declined from 10.52% to 9.77% over the same period.
| Quarter | Promoter | FII | Mutual Funds | Insurance | DII |
|---|---|---|---|---|---|
| Dec'25 | 71.27% | 3.01% | 9.77% | 0.00% | 0.11% |
| Sep'25 | 71.27% | 3.03% | 9.80% | 0.00% | 0.08% |
| Jun'25 | 71.27% | 2.86% | 9.92% | 0.00% | 0.03% |
| Mar'25 | 71.27% | 3.07% | 10.52% | 0.00% | 0.03% |
| Dec'24 | 71.27% | 3.27% | 10.52% | 0.00% | 0.02% |
The gradual reduction in institutional holdings, particularly amongst mutual funds (down 75 basis points over the year), reflects growing concerns about the company's near-term prospects. With only 10 mutual funds holding positions and zero insurance company interest, institutional conviction remains tepid. The absence of insurance holdings is particularly noteworthy, as these long-term investors typically favour quality franchises with stable earnings—a category Relaxo is struggling to maintain.
Stock Performance: Severe Underperformance Across Timeframes
Relaxo Footwears' stock performance has been dismal across virtually all timeframes, with the shares declining 28.26% over the past year against a 7.18% gain in the Sensex—a negative alpha of 35.44 percentage points. The underperformance extends across longer periods, with 2-year returns of -53.48% (vs Sensex +15.65%) and 3-year returns of -51.26% (vs Sensex +38.27%), highlighting sustained value destruction.
| Period | Relaxo Return | Sensex Return | Alpha | Sector Return |
|---|---|---|---|---|
| 1 Week | +10.06% | +0.90% | +9.16% | — |
| 1 Month | -1.85% | -2.84% | +0.99% | — |
| 3 Months | -11.08% | -2.53% | -8.55% | — |
| 6 Months | -18.60% | +0.97% | -19.57% | — |
| YTD | -2.73% | -3.46% | +0.73% | — |
| 1 Year | -28.26% | +7.18% | -35.44% | -23.45% |
| 2 Years | -53.48% | +15.65% | -69.13% | — |
| 3 Years | -51.26% | +38.27% | -89.53% | — |
The stock's beta of 1.35 indicates higher volatility than the broader market, with a risk-adjusted return of -0.90 over the past year—firmly in "high risk, low return" territory. Volatility at 31.39% (vs Sensex 11.21%) underscores the elevated risk profile. Even against the footwear sector, which declined 23.45% over the year, Relaxo underperformed by 4.81 percentage points, suggesting company-specific challenges beyond sector headwinds.
The recent 10.06% weekly gain represents a technical bounce from oversold levels rather than a fundamental reversal. The stock trades below all key moving averages—5-day (₹368.59), 20-day (₹386.98), 50-day (₹399.02), 100-day (₹424.93), and 200-day (₹435.84)—indicating a firmly established bearish trend. Technical indicators across weekly and monthly timeframes remain predominantly bearish, with MACD, Bollinger Bands, and KST all flashing negative signals.
"With the stock down over 50% in three years and trading at 56x earnings despite deteriorating fundamentals, Relaxo exemplifies the risks of paying premium valuations for declining growth stories."
Investment Thesis: Caution Warranted Despite Strong Brand
Relaxo Footwears' investment case rests precariously on a few positives amidst mounting negatives. The company's debt-free status, strong promoter holding, and established brand portfolio provide a foundation, but these attributes are insufficient to offset the deteriorating operational performance. The proprietary Mojo score of 21/100 places the stock firmly in "Strong Sell" territory, reflecting the confluence of bearish technicals, negative financial trends, and expensive valuation.
The company's quality grade has slipped from "Good" to "Average" over the past year, reflecting the sustained pressure on profitability metrics. Five-year EBIT growth at -4.33% indicates a structural decline in operating performance, whilst the recent quarterly results suggest the trend remains intact. The financial trend turned negative in March 2024 and has persisted through Q3 FY26, with key metrics like operating margin, profit before tax, and earnings per share all hitting multi-quarter lows.
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Debt-Free Balance Sheet: Zero long-term debt with net cash position provides financial flexibility and cushion during downturns
- Stable Promoter Holding: 71.27% promoter stake with zero pledging demonstrates strong management commitment
- Established Brand Portfolio: Sparx, Flite, Bahamas, and Relaxo brands command market recognition and distribution reach
- Strong Liquidity: Current assets of ₹1,234.60 crores comfortably cover current liabilities of ₹450.82 crores
- Consistent Dividend Payer: 37.25% payout ratio with ₹3 per share dividend demonstrates shareholder-friendly approach
- Operational Scale: ₹2,789 crore annual revenue base with pan-India distribution network
KEY CONCERNS ⚠
- Persistent Revenue Decline: Three consecutive quarters of sales contraction with Q3 FY26 down 7.48% YoY
- Margin Compression: Operating margins at 12.91% down from 16.12% in Q1 FY26, near multi-quarter lows
- Deteriorating Returns: ROE at 8.26% and ROCE at 10.43%, well below historical averages and peer levels
- Expensive Valuation: P/E of 56.15x unjustified by negative 5-year EBIT growth of -4.33%
- Institutional Exodus: Mutual fund holdings down 75 bps to 9.77%, zero insurance company interest
- Weak Stock Performance: Down 28.26% in 1 year, 53.48% in 2 years with negative alpha across all timeframes
- Negative Financial Trend: Key metrics (PAT, operating margins, EPS) at multi-quarter lows with no turnaround signals
Outlook: What to Watch
POSITIVE CATALYSTS
- Revival in consumer discretionary spending driving volume growth
- Successful price increases to offset input cost inflation
- Operating margin expansion above 15% sustained for two quarters
- Market share gains in key product categories
- Strategic initiatives to improve product mix and premiumisation
RED FLAGS
- Further sequential revenue decline in Q4 FY26
- Operating margins slipping below 12% levels
- Continued institutional selling, particularly by mutual funds
- ROE remaining below 10% for consecutive quarters
- Breach of ₹355 support level indicating fresh downside
The path forward for Relaxo Footwears hinges critically on its ability to arrest the revenue decline and restore operating margins to the 15-16% range. Without a meaningful improvement in consumer demand and the company's pricing power, the current trajectory points to further earnings pressure. Management's commentary on demand trends, competitive dynamics, and strategic initiatives will be crucial in determining whether the company can engineer a turnaround or faces a prolonged period of underperformance.
The Verdict: Exit Recommended
Score: 21/100
For Fresh Investors: Avoid initiating positions. The combination of declining revenues, margin compression, deteriorating return ratios, and expensive valuation creates an unfavourable risk-reward profile. Better opportunities exist in the footwear space with companies demonstrating superior growth and profitability metrics.
For Existing Holders: Consider exiting positions to limit further downside. The stock's inability to reverse negative trends despite three quarters of deteriorating performance, coupled with bearish technical setup and institutional selling, suggests limited near-term catalysts for recovery. The 28% decline over the past year may extend further if Q4 FY26 results disappoint.
Fair Value Estimate: ₹320-340 (18-14% downside from current levels of ₹393.15)
Relaxo Footwears exemplifies the risks of holding onto premium valuations when fundamental performance deteriorates. Whilst the company's brand strength and debt-free balance sheet provide long-term optionality, the near-term outlook remains challenging. Investors would be better served waiting for concrete signs of operational improvement and valuation correction before considering re-entry.
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.
