Khadim India Limited (KHADIM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of Khadim India Limited hosted by MUFG Intime. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Omkar Bagwe from MUFG Intime. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of Khadim India Limited. Today to discuss the results, we have with us from the management: Mr. Rittick Roy Burman, the Managing Director; and Mr. Indrajit Chaudhuri, the Group CFO. They will take you through the results and business performance, after which we can begin the question-and-answer session. Before we begin the conference, I would like to mention that this conference contains certain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. The actual results may differ materially. These statements are not guarantee of the future performance of the company and involve risks and uncertainties that are difficult to predict. I now hand the conference over to the management.

Yes. Thank you. Hi. Good evening, everyone. On behalf of Khadim India Limited, I'm pleased to welcome you all to today's conference call, where we will be discussing our Q2 and H1 FY '26 results. We sincerely appreciate your time and continued interest in the company's performance, and we hope you have reviewed the financial results and investor presentation available on the stock exchanges. The second quarter of FY '26 witnessed a continuation of mixed demand trends across markets. While consumer sentiment remained cautious in certain regions due to persistent inflationary pressures, early signs of recovery were visible in urban and semi-urban areas aided by improving footfalls. Despite these dynamics, we continue to execute our strategic priorities with discipline, focusing on product innovation, brand building and strengthening our retail network. During the quarter, the company also implemented GST successfully across its network, ensuring a smooth transition with the benefits effectively passed on to the consumer. Our partnership with Skechers announced earlier is progressing well. The initial phase of integration has been encouraging with strong consumer response across the select pilot stores. The association is expanding our reach into the premium and lifestyle footwear segment, complementing our existing portfolio. The Athleisure range launched in the previous quarter has also gained healthy traction, supported by the growing consumer preference for style. We are now scaling up the product line, and expanding its availability across key stores. And both our sub-brands, British Walkers and Sharon continued their steady performance during the quarter. British Walkers maintained its growth momentum in the men's formal and semiformal segments, while Sharon continued to build strong connect with women customers through its refreshed product range and sharper in-store presentations. We are also seeing encouraging results from localized marketing initiatives and improved visual merchandising in our stores. As we approach the festive season, which started early this year, our focus remains on maximizing the opportunities through enhanced product availability, marketing activations and franchisee engagement. We have strengthened retail preparedness by optimizing inventory and refreshing store layouts to further elevate the consumer experience. Now let me take you through the financial performance for the quarter and the half year ended 30th September 2025. For Q2 FY '26, revenue from operations stood at INR 1,016 million. Gross profit was INR 478.7 million, translating to a gross margin of 47.1%. EBITDA came in at INR 137.9 million, reflecting an EBITDA margin of 13.6%, while profit after tax stood at INR 16.8 million with a PAT margin of 1.7%. For H1 FY '26 revenue from operations stood at INR 1,973 million with a gross profit of INR 935 million and a gross margin of 47.4%. EBITDA for the first half was INR 261.2 million, delivering an EBITDA margin of 13.2% and profit after tax stood at INR 25.4 million, resulting in a PAT margin of 1.3%. At the end of the quarter, our retail footprint stood at 893 stores comprising 210 company-owned outlets and 683 franchise-operated outlets. Sales through e-commerce channels are doing decently, and we remain confident in our strategy of building a balanced and scalable retail network while deepening brand relevance across consumer segments. Our focus continues to be on driving profitable growth through product innovation, disciplined cost management and sharper execution across channels. With this, I conclude my remarks, and we'll be happy to take any questions.

[Operator Instructions] The first question comes from the line of Arnav Sakhuja from AMBIT Capital.

So is there any update on the listing of our distribution subsidiary, KSR Footwear Limited?

It is very near to listing, maybe early next week, it will be listed. We are means -- very close to the listing thing.

Okay. So you said by early next week it will be listed.

Yes.

Okay, sure. And just coming to my next question. So our -- connected some channel checks which indicated that the discount that we offered in Q1 fell in Q2, but yet in our numbers, we haven't seen the gross margins improve quarter-on-quarter. So now that the GST cut has been implemented, can we expect some gross margin improvement in the second half?

Yes. Because the GST was included in the last 9, 10 days of this quarter. So this year -- this quarter, we'll have the full quarter of the GST thing. Yes, we expect a margin improvement from the first and second quarter in third quarter.

Any other specific reason as to why the gross margins didn't improve quarter-on-quarter?

Mainly, we have given discount in July, August also. In September, we have pulled out the discount in the Eastern region. But in other regions, the discount continued because of the low muted demand. So that's why the margin remains same. But in the third quarter, it will definitely improve.

And since the GST cuts has been implemented, are we seeing better footfalls in the stores?

Till now, I mean, during the Puja time, there was footfall. But after Puja in the Eastern part of the country, we have not seen the better footfall in the Diwali times and all here. But however, during this -- this month is the season of marriage, we expect the footfall to grow in this month from 15th November to 15th December. And after that, there is a winter season coming up. And there also, we expect a good footfall. And also the prices has been reduced. We have already -- from last year, we have started this price reduction. In GST also, we have reduced the prices. So now the price reduction is more or less complete. Now we expect that footfall will rise in the lower category market. We have seen, as Rittick has told, premium brand is growing both in British Walkers and Sharon, but impact is coming in the mid segment. But with the GST cut down, we expect that there will be a growth in this region also.

[Operator Instructions] The next question comes from the line of Deepan Sankara Narayanan from Trustline Holdings.

So firstly, the price cuts happened at mother brand Khadim is also one of the key reasons for drop in gross margins year-on-year?

Yes. There was a drop in the prices of Khadim mother brand. So that has reduced the prices. But with the GST improvement, we expect that it will be better in the third quarter.

Okay. Okay. And how has been the performance of COCO and franchisee stores for Q2?

Q2, more or less the sale -- you have to see in the -- if compared to last year, the sales has come down. both in COCO and franchisee. So last year second quarter, we have done around INR 109 crores compared to INR 101 crores this year. So there is a challenge. There was also store closure during this last year, around 30 COCO, the loss-making COCOs has been closed. So that has also impacted the lower sales in this quarter. But if you compare the Puja to Puja, we are almost at par with our last year Puja sales.

Yes. We are almost at par in spite there was a -- on the week when the Puja -- week before the Puja for 2, 3 days, there was almost like a flood-like situation also in our city in Calcutta. So water and all have little bit entered our shops also, some of the shops, not all. So there was a scene like that also this time when Puja. But due to our expansion and our product innovation and everything, if we compare Puja to Puja, our sales have been almost similar of -- to last year.

Okay. And so what happens for this KSR listing? Now I heard that it's coming next week. But what has been the key reason for such a long delay, right? So we are not seeing any of the companies putting such a delay in demerger. So any specific reason why this kind of delay has happened?

No, firstly, the delay in the last year -- con call, I have already told that there was a shift of this authorized capital from Khadim India to KSR. So that took time from the ROC and also from the Ministry of Corporate Affairs. So that took some around 2 to 3 months' time for that transfer. Otherwise, there was an expenditure in relation to the increase of authorized capital in KSR. And after that, then it took time from the NSE and BSE coming up with some queries. So hope all the queries has been met. And we have also published in the newspaper. Early next week, we will be able to get the listing done in both the stock exchange.

[Operator Instructions] The next question comes from the line of Devanshu Bansal from Emkay Global.

Sir, from a macro perspective, government has sort of reduced GST significantly, at least for our category, for footwear, which is under INR 2,500 has been moved to 5%. So over a medium term, how do you see this step as in was this price -- because in earlier calls, you have always mentioned that there is a lot of stress on the consumer and prices, et cetera, et cetera. But now with all this GST reduction, how do you see the consumer demand evolving. We have reported almost 7%, 8% revenue decline in H1. How do you see maybe things for H2 and then going beyond FY '26? So just from this metric itself from GST perspective, how should the industry trends sort of evolve for you?

See, this is a very welcome move from the government because in this segment, there was a lot of pressure due to GST on the pricing. It has been -- it is a welcome move. And we expect that this will enhance both our retail business and also in our distribution business because previously, when the GST was implemented, the rate was 5% for around 3 to 4 years. And that time, the demand -- there was no problem in the demand in relation to the product in the lower segment. But after this GST implementation after the COVID, we have seen that after this 12%, the demand in this 1,000 category has declined for not only us but for the entire industry. So hopefully, after this GST cut down and with the increase up to INR 2,500, we have also passed on the benefit and also we have reduced the prices. We'll definitely see some growth because this will give a lot of price competitiveness in the retail industry. And we hope that the demand comes back and the volume takes up. So that is the challenge. This is the -- wedding season is coming soon, and we will see -- we'll definitely see some growth in this segment.

Sir, 2 follow-ups. One, you mentioned that when GST was 5%, you mentioned that growth was pretty impressive. So if you could just highlight what were the growth trends that we were seeing in that period of time? And secondly, from a price competitiveness, you indicated that things have improved. So are you talking about your price comparison with, say, players who were not paying GST and they were sort of benefiting from that? So as in do you expect that there will be accelerated shift from unorganized towards players like us? So if you could just throw some light there?

Yes. During 2017 to -- before COVID, there was a growth of -- in the retail industry of 7% to 8% we have already seen in those years. After that, COVID came in and then this into January 2022, the GST rate was increased. And from there, the demand in the lower segment has gone down. Definitely, with the GST coming to 5% and till INR 2,500, we expect that there will be demand coming back because in a lot of sectors, the demand was muted. So hopefully, means once this quarter pass, we'll have a clear picture on the demand thing. And also in regard to your -- we have also -- from the last year, we are trying to reduce the prices to make our product competitive in the market. Yes, now since the GST is 5%, so there will be definitely the bridge between the unorganized and organized will be lower, and we can see better demand in both the -- in retail market and also in the distribution market.

Fair enough, sir. And secondly, on the balance sheet side, I wanted to understand. So as of September '25, I see that overall inventory plus receivable combined is about INR 340-odd crores for us, right? And from a sales perspective, when we see broadly, I guess, on an annualized run rate of H1 FY '26, it's about INR 400-odd crores. So this is a fairly long inventory and receivable cycle that we have, right? So why is it so high because this is not the case with other retailers. And secondly, what are the steps that we are taking to sort of optimize this? So yes.

See in the debtors, we have also our institutional debtors of around INR 32 crores to INR 35 crores, so which is in -- there is no sale of institute because we have stopped sale. So that debtors is included here, which is not a part of the sale compared to you. And also, definitely, the stock level and debtors level is high because as you have seen in the first 2 quarters, we have reduced the stock by giving discount and flushing out the obsolete stock. Now the stock level has come down. Yes, the debtors level is high. They are -- we are also trying to reduce the debtors because their sale is also -- the demand is -- secondary sale in the franchise is also less. So they are unable to make the payment within the time frame and within the days. Definitely, there also, we are taking control so that we can reduce the debtors. So this year -- so, the working capital cycle is high. We are taking measures to reduce the working capital cycle to the extent possible. Already in stock, we have done. Now we are taking serious steps in the debtors also.

Sir, stock, et cetera, you said that you have given discounts and all, right? So primary billing can happen. But if the secondary growth is not happening, then franchisees will not make fresh purchases. So I wanted to check as in what is the growth difference between primary and secondary. Obviously, you have liquidated the stock, but that stock [indiscernible]

No, no, we have stock -- we have liquidated the stock in our own COCO and also forced the franchisee to give discount so that their stocks are also liquidated. And we are now depending on their secondary sale, we are making the primary sales. For that reason also, you can see that the sales for -- in the primary has come down from the last year. So we are also taking into consideration their stock also so that their stocks are liquidated, they can repay us. So the primary.

Yes. What is the level that you would ideally desire it to be, right, in terms of days, how much inventory should be there, how much receivable days should be there for your business...

See, in case of retail, around 90 days stock days should be there. And in case of franchisee, they should also have 90 to 120 days because from ours to theirs take some time of 15 to 20 days of reaching to their [ depot ] or their...

So -- and in terms of credit period as in to your vendors, typically, how much leeway do you get?

Around 90 days.

From your vendors also, you get 90 days of credit period?

Yes.

60 to 90 days.

This is on COGS or sales? This is on COGS or sales you're saying-- 90 days of COGS?

This is on sales. No, no, this is on sales.

So you're saying your inventory -- your working capital cycle is ideally 0 then?

No, we have stock and debtors also.

E" /> So you're saying -- okay. So you're saying 90 days on overall revenue, not on COCO revenue. Overall revenue you are saying inventory should be 90 days.

This is 90 days stock, 90 days debtors and 90 days creditors. So overall, my working capital cycle is 90 days.

Okay. Okay. And sir, lastly, because 7%, 8% growth is -- would -- what's your sense is? Does the -- isn't it very conservative because the prices itself have reduced by 7%, 8%. And if you were growing at 7%, 8%, then this pricing reduction should actually add on to the underlying growth trend, right? So the 7%, 8% seems to be very low if you're sort of indicating for a -- say [ FY '28 kind of ]

See for the last 3 years, 3.5 years, we are landing up in negative growth. So now taking up growth of 15%, is I think it is not possible. But however, if it is -- this is a retail industry, if the customer comes, if the sales happen, then it will happen. We are estimating that whatever growth we were used to do when the GST was 5%, that I have told you.

Okay. And sir, anything -- any comments on competitive landscape in the area of operations that you operate? Is it -- can you give us some confidence around market share protection or maybe whatever insights you have? Because obviously, if 2, 3 years of decline -- basically, the industry must not have seen such kind of a decline, right? So any comments there?

Yes. I'm coming in on that. So basically, we have been taking a lot of steps from before also. So past many years, we were seeing volume degrowth and such sort of problems. So then first, we took a price cut in our mother brand Khadims. So what happened after that is we saw a good amount of what you call that market share regainment in the below INR 500 price range of products. We saw a decent amount of growth in that. I would say double-digit growth below INR 500 crores, okay? And then comes the premium -- the question of premium products, which I mentioned in my opening comments also, both British Walker and Sharon, these 2 brands, they are also doing very well. British Walker is growing in double digits. And our Sharon, which is a premium ladies open footwear brand, that is also growing in double-digit ranges. We have tied up with Skechers also. So whatever steps we had taken, we are seeing growth in that. But yes, what Indrajit-da was saying that the mid-price point from, say, INR 500 to INR 1,000, INR 1,500, there the products -- the demand of products has been a little you can't really put a number. It's not what we want it to be. So now that the GST has reduced, many of these products like INR 500 to INR 1,000 [Foreign Language] or INR 1,000 to INR 1,500 because the GST has reduced, we'll be able to give a lot of different types of products, which previously used to be at a higher MRP. Consumers used to find it very expensive. So now we expect that once we start giving products in this range, INR 500 to INR 1,500, we will be able to arrest the big degrowth that is happening in this price point. I already told you INR 0 to INR 499, we took action. We have seen growth. Above this British Walker and Sharon, we have seen growth. Then in British Walker brand, if I talk, we have launched very good shoes at INR 3,000 and above. The pricing is INR 3,000 above. It goes up to INR 5,000. It's various type of shoes, wide fit shoes are there. Then there are shoes with what we call that crushed leather shoes, which have a very premium antique -- not antique, like it has got a premium classy look, which you can wear at a party or a wedding. So there are lots of collections like this, which we never used to have before, this crushed leather collection or the wide fit range which we used to have in British Walker always, but we have increased the lines. And we aim to increase more designs in this British Walker, also in Sharon also, we used to operate with a certain number of lines, 50, 60 lines. Sharon has got like the California construction comfort in it, then the lightweight EVA soles are there. So here, we would like to increase the number from 50, 60 to a higher number. So we hope that -- we are hopeful that these things are done, we should get a decent growth. So that's it.

Fair enough. Sir, I wanted to sort of ask a couple of follow-ups here. One, as you mentioned that less than INR 500 and above INR 1,500 are still giving you double-digit growth and the major pain point is INR 500 crores to INR 1,500, right? So firstly, if you could provide the revenue mix for all these 3 price segments for you as of now? This is number one. And secondly, at INR 500 to INR 1,500, which is the peer that is doing very well in your area of operation. So if you could just help me better understand -- that would help me better understand the market.

I think this will provide you -- give a mail to us. We'll provide you these details. Okay?

Okay. And on the peers, sir, and which players are doing well in this INR 500 to 1,500 brackets?

See peers, we cannot comment. But all I can say is that with the GST cut and with our own product innovation from INR 500 to INR 1,500, which is ongoing right now, I think we would be pretty much competitive. And we would be providing a lot of value to consumers, and they should buy from us. Because for a very long time, we were not there in the below INR 500 range, and we have given -- and we have seen certain effects of that. So similar effects should be able to be seen from INR 500 to INR 1,500 as well because we are doing a lot of product engineering and product innovation in it. So we should be able to see some improvement in that as well.

Fair enough. And sir, over a medium term. This is the last question. Yes, last question.

Mr. Devanshu, please rejoin the queue. You may ask your follow up later on. Thank you.

Okay. Yes.

The next question comes from the line of Nachiket Kale, an individual investor.