- 12 May 2022
- ICICIdirect Research
Higher inflationary RM pressure hampered volumes, profitability for Relaxo in Q4FY2RELAXO - 818 Change: 32.20 (4.10 %)
News: Revenue for the quarter declined 7% YoY (6% QoQ) to Rs. 698.9 crore. Significant increase in price hikes (to combat high RM prices) to have impacted volumes in Q4FY22. On account of input cost inflation and negative operating leverage, EBITDA margins declined by 587 bps YoY to 15.9%. PAT for the quarter declined by 38% YoY (down 10% QoQ) to Rs. 62.9 crore in Q4FY22
Views: On account of unprecedented increase in RM prices, Relaxo’s EBITDA margin in FY22 declined to 15.6% (vs. 21% YoY). In the previous year RM prices were benign which had resulted in significantly higher gross margins. Higher footwear prices impacted the volume demand during the year as revenue growth was restricted to 12% YoY in FY22. Furthermore, demand for open footwear (80%+ revenue contribution) has seen some moderation on account of relaxations in lockdown restrictions. On the balance sheet front, company has witnessed significant increase in inventory (up 60% YoY) with net working capital days increasing to 97 (vs. average 60 days). Subsequently, operating cashflows stood at Rs. 56 crore (vs. Rs. 513 crore in FY21). Company continues to have cash and investments worth Rs. 200 crore+. Given the recent increase in crude prices (35-40% of RM requirements), softness in demand, we expect near term headwinds to persist.