- 03 Nov 2022
- ICICIdirect Research
HIGHER RM PRICES DENT RELAXO'S PROFITABILITY. EBITDA MARGINS COME IN AT ALL-TIME LOW
RELAXO - 770 Change: -8.45 (-1.09 %)News:
Revenue trajectory for Relaxo continued to remain sluggish as higher RM prices and subsequent steep price hikes (~25% in FY22) have materially impacted demand since the target audience is price sensitive. Revenue for the quarter declined 6% YoY (flattish QoQ) to Rs 669.7 crore. Volumes declined 15% YoY to 3.9 crore pairs. Gross margins have slipped below 50% mark to one of its lowest levels at 48.9% (down 590 bps/520 bps YoY/QoQ basis) owing to significantly higher cost RM inventory (EVA & PU). Subsequently, EBITDA margins declined to an all-time low of 8.9% (down 445 bps YoY, 400 bps QoQ). Absolute EBITDA declined 49% YoY to Rs 59.4 crore
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Relaxo’s RM prices had escalated nearly 2.5x during Q1FY23 but now have started cooling off with prices correcting ~35% from their peak. The company has taken an aggressive price correction on its product portfolio in September 2022 following the decline in RM prices. The company may have utilised majority of its higher cost RM inventory during the quarter which significantly pressurised the margins in Q2FY23 (the same has also reflected in reduction in inventory by ~Rs 70 crore in H1FY23). Easing RM prices could enable the company to revert back to 50%+ gross margins in the ensuing quarters. However, with correction in ASP’s, key monitorable remains recovery in Relaxo’s volume trajectory which has stagnated in the past couple of quarters to ~ 4 crore pairs
Impact:
Negative