AKI India Ltd Management Discussions

1. Industry structure and developments:

Indias leather, footwear and leather products industry occupies an important position in the countrys manufacturing and export landscape and is a significant source of employment, particularly across manufacturing clusters and MSMEs. The sector has an extensive value chain covering raw material sourcing, tanning, leather processing, footwear manufacturing, leather goods, accessories and related products.

The sector is also an important contributor to Indias merchandise exports. During Financial Year 2025-26, Indias exports of leather and footwear reached approximately USD 4.75 billion, with value-added footwear and leather goods being important contributors. Tamil Nadu continued to be a leading exporting state, accounting for approximately USD 1.59 billion, or nearly 37% of Indias leather and footwear exports.

Manufacturing and Supply Network: India has a well-established leather and footwear manufacturing ecosystem covering raw material sourcing, tanning, processing manufacturing, and distribution. Important production and manufacturing clusters are located in Tamil Nadu, Uttar Pradesh, West Bengal, Maharashtra and other states. The industry comprises organised manufacturers as well as a large number of MSMEs and specialised units catering to domestic and international markets. Government-supported cluster development and infrastructure initiatives continue to strengthen the industrys manufacturing capabilities.

Domestic Market: Domestic Demand for leather products is growing due to rising incomes, urbanization, and changing consumers preferences and increasing demand for branded and fashionable products. Footwear represents one of the largest segments, followed by leather accessories, garments, bags and other lifestyle products.

Export Market: Indias leather and footwear industry has a strong export-orientation, with major markets including the European Union, the United States, and Southeast Asia. Indian leather goods are valued for their quality and craftsmanship, but face competition from countries such as China, Vietnam, and Bangladesh, particularly in price-sensitive segments. To strengthen Indias competitive position, manufacturers need to focus on quality, design, innovation, productivity, sustainability, global branding and timely delivery.

International Market Outlook: Globally, the leather goods market is evolving with shifting consumer expectations. Ethical sourcing, eco-conscious production methods, and traceability are becoming critical factors influencing purchasing decisions. Demand is rising for products that offer both style and sustainability. Digitalization, personalization, and faster turnaround times are also shaping the global leather trade.

Regional Insights: Regionally, North America and Europe continue to be strongholds for leather exports due to stable demand and high consumer standards. The Asia-Pacific region is emerging as a high-growth market, driven by increasing affluence and western fashion influence. Trade policies, tariffs, and economic fluctuations across different regions also play a vital role in shaping the industrys growth trajectory.

Competitive Positioning: The competitive environment in the leather sector is intense, with several established Indian and global brands vying for market share. Players compete on parameters such as quality, design innovation, pricing, and delivery capabilities. In recent years, the industry has witnessed strategic collaborations, mergers, and acquisitions aimed at expanding global footprints, improving technological capabilities, and strengthening supply chains.

1. Revenue Performance: The company recorded strong revenue growth, particularly in footwear and international markets. E-commerce and direct-to-consumer channels also contributed significantly to overall sales. Cost Management: Rising raw material, labour, and logistics costs increased expenses. However, efficient procurement and operational controls helped limit the impact on overall costs. Profitability: Gross and operating margins remained stable, supported by effective pricing and higher sales volumes. Net profit also improved despite inflation and currency fluctuations. Capital Investment: Capital expenditure focused on facility modernization, automation, and research and development to improve operational efficiency and support future growth. Product Innovation: The company expanded its portfolio with sustainable, stylish, and functional leather products in line with changing consumer preferences and global market trends. Sales and Marketing: Digital marketing, influencer collaborations, and customer engagement initiatives strengthened brand visibility and supported sales growth. Supply Chain Management: The company improved supply chain resilience through supplier diversification, better inventory planning, and digital tools for efficient logistics tracking.

C. Challenges and Opportunities:

I. Environmental and Regulatory Challenges:

The leather industry relies heavily on water and chemical-intensive processes, which can lead to wastewater generation, pollution, and waste management concerns. Increasingly strict environmental regulations in India and global markets are pushing manufacturers to adopt cleaner production methods, advanced waste-treatment systems, and sustainable technologies. Although meeting these standards may increase operational costs, it also creates opportunities to improve resource efficiency, reduce environmental impact, and develop more sustainable manufacturing practices.

II. Global Competition:

Indian leather manufacturers face strong competition from countries such as China, Vietnam, and Bangladesh, which benefit from lower production costs and efficient manufacturing systems. To strengthen their position in global markets, Indian companies need to focus on product quality, innovative designs, differentiation, and stronger international branding. At the same time, growing global demand for environmentally responsible and ethically produced goods provides India with an opportunity to become a leading supplier of sustainable leather products.

III. Technological Advancements:

Investments in modern technology can also help lower operating costs and meet increasingly strict quality and environmental standards. Additionally, the growth of e-commerce provides opportunities for leather companies to reach international customers directly, expand their market presence, and reduce reliance on traditional retail channels.

D. Government Support and Initiatives:

I. Policy Initiatives:

The Government of India has introduced several targeted initiatives, such as the Indian Footwear and Leather Development Programme (IFLDP), to focus on the infrastructure development, environmental sustainability, additional investment, employment generation and increased production in the leather and footwear sector.

In addition, various export-oriented policies, including duty drawback schemes and other export incentives, have been implemented to strengthen Indias position in international markets. These initiatives provide financial support to exporters, reduce cost pressures, and encourage greater participation in global trade.

II. Skill Development:

To address the industrys workforce challenges, the Leather Sector Skill Council (LSSC) was set up. It plays a key role in training and certifying workers across various functions, aiming to raise productivity and product quality.

Skill-building efforts now emphasize modern competencies such as sustainable practices, advanced manufacturing, and creative design—ensuring that the Indian workforce remains relevant in a rapidly evolving global market.

III. Investment Promotion:

The leather industry has gained significant opportunities through the 100% FDI policy, which allows foreign investors to establish and expand their operations in India. This policy has encouraged increased capital investment, the adoption of advanced technologies, and the implementation of modern business practices, contributing to the overall growth and competitiveness of the sector.

Furthermore, the Productivity Linked Incentive (PLI) scheme is designed to encourage new investments, enhance production capacity, and boost productivity. These initiatives aim to strengthen Indias position as a leading global hub for leather manufacturing and promote the industrys growth in international markets.

E. Future Outlook:

I. Growth Prospects:

• The Indian leather sector is expected to witness steady expansion, fueled by increasing domestic consumption and growing demand in international markets. Embracing eco-conscious and ethical manufacturing practices will be essential for unlocking new business opportunities.
• As global markets recover from the disruptions caused by the COVID-19 pandemic, the leather goods segment is likely to see renewed demand—offering a favourable environment for Indian exporters to regain momentum.

II. Strategic Focus Areas:

• Sustainability: Environmental responsibility is becoming a central focus, with manufacturers adopting green tanning techniques, improving waste management, and integrating recycling processes. Companies aligning with these sustainable practices will be better positioned in eco-sensitive global markets.
• Innovation and Technology: Future success will heavily depend on the industrys ability to modernize. Investing in R&D and upgrading to advanced production systems will enable better product quality, faster turnaround, and the ability to cater to changing consumer trends in both design and material use.
• Market Diversification: While traditional markets like the European Union and the United States remain crucial, Indian leather exporters are actively exploring emerging regions such as Latin America, Africa, and Southeast Asia. Expanding into these markets will reduce dependence on a few regions and spread business risk more effectively.

1. Risks and concerns: The leather industry faces risks from low-cost Chinese imports, rising demand for non-leather substitutes, and counterfeit products. Technology obsolescence is a concern, affecting efficiency and competitiveness. Government policy shifts and global economic instability also impact performance. Diverse consumer preferences worldwide make it challenging to meet all market needs. Maintaining consistent quality while keeping prices competitive is crucial for sustaining growth.

G. Internal control systems and their adequacy:

The Company has implemented internal control systems that are well-aligned with the scale and complexity of its operations. These controls are designed to safeguard company assets, prevent loss or misuse, and ensure that all financial transactions are accurately authorized, recorded, and reported. The systems are regularly reviewed to maintain effectiveness and compliance.

H. Discussion on financial performance with respect to operational performance:

The financial performance of the Company for the Financial Year 2025-26 is described in there as a part of Board of Directors of the Company.

I. Material developments in Human Resources / Industrial Relations front including number of people employed:

The Company follows a people-centric HR philosophy aimed at fostering a high-performance culture where employees are encouraged to reach their full potential. A structured performance management system has been implemented to align individual goals with organizational objectives and drive continuous improvement. The work environment promotes personal growth, accountability, and team collaboration. Industrial relations during the period remained positive and harmonious. The Company continues to maintain a committed and efficient workforce.

J. Segment-wise or Product-wise performance:

The Company operates in single Segment i.e. Leather & Leather Goods.

K. Key Financial Ratios:

In accordance with the SEBI (Listing Obligations and Disclosures Requirements) Regulations 2018 (Amendment) Regulations, 2018, the Company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in Key sector specific financial ratios. In this regard, the Company has no significant changes in any key sector specific financial ratios to report.

L. Cautionary Statement:

This Management Discussion and Analysis may contain certain forward-looking statements relating to the Companys objectives, plans, projections, and expectations, as defined under applicable laws and regulations. These statements are based on current assumptions and estimates, and actual results may differ materially due to various known and unknown risks and uncertainties. Factors such as economic conditions, regulatory changes, tax policies, political developments, and natural disasters, many of which are beyond the Companys control and that may significantly impact operational performance and outcomes.

Registered Office: D-115, Defence Colony, Jaimau, Shiwas Tannery, Kanpur Nagar, Jaimau, Uttar Pradesh, India - 208 010

Place: Kanpur

Date: 1st September, 2026

By the Order of the Board of AKI India Limited

Sd/-

Mohammad Asjad

Director

DIN: 10052579

Sd/-

Mohammad Ajwad

Managing Director

DIN: 07902475