In the world of investing, stock market fluctuations are commonplace, with prices swaying due to shifts in economic conditions, investor moods, and corporate performance. However, certain stocks can endure extended periods of pressure, leading to significant declines in value. One such stock is Relaxo Footwear, which has recently experienced a notable downturn, causing a substantial loss in shareholder wealth.
Relaxo Footwear’s Decline
Recent data shows that Relaxo Footwear’s shares have closed lower in 14 out of the past 19 months, resulting in a staggering 58% drop to its current price of ₹415. This decline is even more pronounced when considering the stock’s peak of ₹1,448 in November 2021, marking a 72% decrease since that time. The stock has struggled particularly since then, with 26 out of the last 41 months showing negative performance.
Historical Context
From December 2016 to October 2021, Relaxo enjoyed an impressive rally, boasting a 565% increase. However, recent quarterly results have been disappointing, with the latest figures from December failing to meet market expectations due to slow volume growth. This slowdown is largely attributed to a decrease in consumer demand, particularly in the mass and value segments where Relaxo operates.
Competitive Landscape
The company is currently facing increasing competition from unorganised retailers, which poses a challenge, especially since it predominantly serves the value-for-money market—an area that represents 70% of the footwear sector. To combat this, Relaxo is revamping its distribution system, although this has temporarily impacted its market share. The management is optimistic that the restructuring will yield positive outcomes within the next 2-3 quarters.
Future Outlook
Despite these challenges, analysts like Axis Securities remain cautiously optimistic about Relaxo’s long-term potential. They cite several initiatives that could enhance the company’s performance, including:
- Cost optimization strategies
- Implementation of a Distribution Management System (DMS)
- A focus on premiumization in the high-growth sports and athleisure sectors
However, they also warn that the benefits of these strategies may take time to materialize, particularly in a sluggish demand environment compounded by rising competition from unorganised players.
Volume Growth and Recovery
Analysts at Motilal Oswal highlight the importance of a rebound in rural demand for Relaxo’s volume growth. They point out that improvements in the open-footwear category, enhanced average selling prices (ASPs) due to a better product mix, and an increased focus on closed footwear—especially within the sports and athleisure segment—are crucial for the company’s future success.
Technical Analysis
Anshul Jain, Head of Research at Lakshmishree Investment and Securities, notes that Relaxo has been in a persistent decline for 41 months, losing over 72% from its all-time high. The stock’s recent movements suggest a consolidation phase, but a sustained drop below ₹395 could lead to further losses. Without strong volume support or positive accumulation, the outlook remains bearish, and caution is advised for those considering new positions.
In summary, while Relaxo Footwear navigates a challenging landscape marked by competitive pressures and fluctuating consumer demand, the company is actively pursuing strategies aimed at revitalizing its market position. Investors will need to monitor these developments closely as the company works to turn its fortunes around.
