Relaxo Footwears Ltd is Rated Strong Sell

Current Rating and Its Significance

MarketsMOJO’s Strong Sell rating for Relaxo Footwears Ltd indicates a cautious stance for investors, signalling that the stock currently exhibits multiple risk factors across key evaluation parameters. This rating suggests that investors should consider avoiding new positions or potentially reducing exposure, given the prevailing financial and technical challenges. The rating was revised on 30 January 2026, reflecting a significant deterioration in the company’s outlook, but the detailed analysis below is based on the latest available data as of 27 February 2026.

Quality Assessment

As of 27 February 2026, Relaxo Footwears’ quality grade is assessed as average. The company has struggled with poor long-term growth, with operating profit declining at an annualised rate of -8.46% over the past five years. This negative growth trend highlights challenges in sustaining profitability and operational efficiency. Additionally, the latest quarterly results for December 2025 reveal a 19.6% fall in profit after tax (PAT), down to ₹26.54 crores, signalling weakening earnings momentum. These factors collectively weigh on the company’s quality score, reflecting concerns about its ability to generate consistent returns.

Valuation Considerations

Relaxo Footwears is currently rated as very expensive in terms of valuation. The stock trades at a price-to-book (P/B) ratio of 4.2, which is significantly higher than the average valuations of its peers in the footwear sector. This premium valuation is not supported by the company’s financial performance, as profits have declined by 4.4% over the past year. The elevated valuation, combined with deteriorating fundamentals, suggests that the stock may be overvalued relative to its intrinsic worth, increasing downside risk for investors.

Financial Trend Analysis

The financial grade for Relaxo Footwears is negative, reflecting several troubling indicators. The company’s cash and cash equivalents have dropped to a low of ₹25.22 crores in the half-year period, raising concerns about liquidity. Furthermore, the quarterly PBDIT (profit before depreciation, interest, and taxes) has fallen to ₹69.39 crores, marking a low point in recent performance. Return on equity (ROE) stands at a modest 8%, which is insufficient to justify the current valuation premium. These financial trends point to weakening operational health and profitability pressures.

Technical Outlook

The technical grade for Relaxo Footwears is bearish, consistent with the stock’s recent price performance. As of 27 February 2026, the stock has declined by 0.92% on the day, with a one-month loss of 4.23% and a three-month drop of 14.48%. Over the past six months, the stock has fallen 23.43%, and year-to-date returns stand at -13.17%. The one-year return is negative at -20.63%, underscoring sustained downward momentum. This bearish technical picture suggests limited near-term upside and heightened volatility risk.

Summary of Current Position

In summary, Relaxo Footwears Ltd’s Strong Sell rating is supported by a combination of average quality, very expensive valuation, negative financial trends, and bearish technical indicators. The company faces significant headwinds in profitability and cash flow, while its stock price reflects a valuation premium that is not justified by fundamentals. Investors should carefully consider these factors when evaluating their exposure to this small-cap footwear stock.

Implications for Investors

For investors, the Strong Sell rating serves as a cautionary signal. The combination of declining profitability, stretched valuation, and negative technical momentum suggests that the stock may underperform relative to the broader market and its sector peers. Those currently holding Relaxo Footwears shares may wish to reassess their positions in light of these risks, while prospective investors should exercise prudence and consider alternative opportunities with stronger fundamentals and more attractive valuations.

Sector and Market Context

Within the footwear sector, Relaxo Footwears’ performance contrasts with some peers that have demonstrated more resilient growth and healthier financial metrics. The stock’s small-cap status adds an additional layer of volatility and risk, particularly in a market environment where investors favour quality and stability. The current market backdrop, with heightened sensitivity to earnings and valuation, further emphasises the challenges faced by Relaxo Footwears.

Looking Ahead

Going forward, the company will need to address its operational inefficiencies and improve cash flow generation to justify any upward revision in its rating. Investors should monitor upcoming quarterly results and management commentary closely for signs of turnaround or strategic initiatives that could alter the current outlook. Until such improvements materialise, the Strong Sell rating remains a prudent reflection of the stock’s risk profile.

Conclusion

Relaxo Footwears Ltd’s current Strong Sell rating by MarketsMOJO, last updated on 30 January 2026, is grounded in a comprehensive evaluation of quality, valuation, financial trends, and technical factors as of 27 February 2026. The stock’s challenges in profitability, cash reserves, and price momentum, combined with an expensive valuation, present significant risks for investors. This rating advises caution and careful consideration before engaging with the stock in the current market environment.

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