Relaxo Footwears Ltd Upgraded to Hold by MarketsMOJO on Technical and Valuation Improvements

Technical Trends Shift to Mildly Bullish

The primary catalyst for the upgrade lies in the technical analysis of Relaxo Footwears’ stock price movements. The technical grade has improved from a sideways trend to a mildly bullish stance, supported by several key indicators. On a weekly basis, the Moving Average Convergence Divergence (MACD) and the Know Sure Thing (KST) oscillator both signal mild bullish momentum, while monthly MACD and KST also reflect a similar positive trend. Bollinger Bands on the weekly chart show a bullish pattern, although the monthly bands remain mildly bearish, indicating some caution in longer-term volatility.

Other technical measures present a mixed picture: the Relative Strength Index (RSI) on both weekly and monthly charts shows no clear signal, while daily moving averages remain mildly bearish. The Dow Theory weekly assessment is mildly bullish, but monthly trends show no definitive direction. On-Balance Volume (OBV) is bullish on the monthly scale but neutral weekly, suggesting accumulation over a longer horizon. These combined signals have contributed to a more favourable technical outlook, justifying the upgrade in the technical grade and supporting the Hold rating.

Valuation Adjusted from Very Expensive to Expensive

Relaxo Footwears’ valuation grade has also been revised, moving from very expensive to expensive. The company currently trades at a price-to-earnings (PE) ratio of 48.88, which, while high, is more reasonable relative to its previous valuation extremes. The price-to-book value stands at 3.97, and the enterprise value to EBITDA ratio is 23.48, reflecting a premium but not an excessive one compared to peers.

Other valuation metrics include an enterprise value to EBIT of 40.51 and an EV to capital employed of 3.94, indicating that the market continues to price in growth potential despite recent flat financial results. The PEG ratio is notably elevated at 9.31, signalling that earnings growth expectations are priced at a steep premium. Dividend yield remains modest at 0.85%, while return on capital employed (ROCE) and return on equity (ROE) are relatively low at 9.74% and 8.13% respectively, underscoring the expensive nature of the stock.

When compared with peers such as Metro Brands, which is rated very expensive with a PE of 66.62, and Bata India, considered attractive with a PE of 52.55, Relaxo’s valuation appears more balanced but still on the higher side. This reclassification to expensive rather than very expensive reflects a slight moderation in market exuberance and a more cautious investor stance.

Financial Trend Remains Flat with Mixed Signals

Despite the technical and valuation improvements, Relaxo Footwears’ financial trend remains largely flat. The company reported flat financial performance in the fourth quarter of FY25-26, with operating profit growth declining at an annualised rate of -10.87% over the past five years. This sluggish growth has weighed on investor sentiment and contributed to the stock’s underperformance relative to benchmarks.

Return on capital employed (ROCE) for the half-year ended March 2026 was at a low 10.78%, while cash and cash equivalents stood at ₹24.19 crores, the lowest in recent periods. Return on equity (ROE) is modest at 8.13%, reflecting limited profitability relative to shareholder equity. The company remains net-debt free, which is a positive balance sheet attribute, but this has not translated into significant financial momentum.

Over the last year, Relaxo Footwears’ stock price has declined by 17.10%, underperforming the BSE500 benchmark and the Sensex, which fell by 6.10% and 9.87% respectively year-to-date. Over longer horizons, the stock’s returns have been disappointing, with a 3-year return of -62.02% and a 5-year return of -68.15%, contrasting sharply with Sensex gains of 21.18% and 46.30% over the same periods. Even the 10-year return of 48.55% pales in comparison to the Sensex’s 189.56% growth, highlighting persistent underperformance.

Technical and Valuation Factors Drive Upgrade Despite Weak Returns

The upgrade to Hold from Sell is primarily driven by the improved technical outlook and a more tempered valuation grade. The mildly bullish technical signals suggest potential for price recovery or at least a stabilisation phase, which investors may find encouraging after a prolonged period of sideways or negative price action. Meanwhile, the shift from very expensive to expensive valuation indicates that the stock is no longer at extreme premium levels, offering a somewhat fairer entry point relative to its earnings and asset base.

However, the company’s financial fundamentals and long-term growth prospects remain a concern. The flat quarterly results, low profitability ratios, and poor long-term returns caution investors against overly optimistic expectations. The stock’s performance relative to the Sensex and sector peers underscores the challenges Relaxo Footwears faces in regaining investor confidence and delivering sustained growth.

Investment Outlook and Considerations

Investors considering Relaxo Footwears should weigh the improved technical signals and more reasonable valuation against the company’s subdued financial performance and weak long-term returns. The stock’s current price of ₹350.20, up 2.56% on the day, remains well below its 52-week high of ₹531.45, indicating significant room for recovery but also reflecting past volatility and investor caution.

Given the company’s net-debt free status and stable promoter holding, there is a foundation for operational stability. However, the lack of robust earnings growth and the high PEG ratio of 9.31 suggest that expectations for future growth are priced in at a premium, which may limit upside potential unless the company can demonstrate a clear turnaround in profitability and revenue expansion.

In summary, the upgrade to Hold reflects a balanced view: technical improvements and valuation moderation provide some support, but financial and growth challenges temper enthusiasm. Investors should monitor upcoming quarterly results and sector developments closely to reassess the stock’s trajectory.

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