Kewal Kiran Clothing Ltd Management Discussions

Economy Overview

In FY 2024-25, the Indian economy demonstrated resilience, underpinned by robust macroeconomic fundamentals, proactive policy interventions and sustained government capital expenditure. Despite ongoing geopolitical tensions and geoeconomic fragmentation, Indias growth story remained strong with real GDP growth of 6.5%. The country retained its position as the fastest-growing major economy. Key drivers of economic activity included improved consumption demand, net exports on the expenditure side, buoyant services sector and recovery in agricultural production on the supply side. The production linked incentive (PLI) scheme further helped to steer growth across several key manufacturing industries. As of November 2024, investment under PLI scheme reached 57% of the aggregate committed target under the scheme.

Inflation converged closer to the target during FY 2024-25 aided by easing input cost pressures, proactive supply management measures by the government and continued transmission of past monetary policy actions. Headline inflation moderated to an average of 4.6% during FY 2024-25 from 5.4% in the previous year, largely driven by a moderation in core (CPI excluding food and fuel) inflation to 3.5% and deflation in fuel at 2.5%. The moderation in core inflation was broad-based across goods and services. Among the major constituents, inflation in clothing and footwear fell to 2.7% during FY 2024-25 from 4.7% a year ago, reflecting lower domestic and international cotton prices and subdued export demand for textiles and wearing apparel.

Growth in private final consumption expenditure (PFCE) - the main component of aggregate demand - improved to 76% in FY 2024-25, buoyed by rural consumption demand, even though urban demand exhibited some moderation. The share of PFCE in real GDP increased to 56.7% in FY 2024-25. Good agricultural performance boosted rural demand as seen from its proximate indicators, viz., sales of two-wheelers, motorcycles and tractors, and volume growth of fast- moving consumer goods (FMCG) companies in rural areas. Urban demand, after remaining the driver of post-pandemic consumption, lost pace. Government final consumption expenditure (GFCE) grew at a modest 3.8% in FY 2024-25.

Indias merchandise exports grew marginally by 0.1% in FY 2024-25 as against a contraction of 3.1% a year ago. On the other hand, merchandise imports grew by 6.2% during this period as against a contraction of 5.3% a year ago. Conseguently, Indias merchandise trade deficit widened to $ 282.8 billion during FY 2024-25 from $ 241.1 billion a year ago. Nonetheless, strong services exports and a steady flow of inward remittances cushioned.

Indias CAD remained within sustainable level at 1.3% of GDP during April-December 2024 (1.1% a year ago).

Economy Outlook

India is poised to maintain its position as the fastest-growing major economy in FY 2025-26, driven by strengthening private consumption, robust bank and corporate balance sheets, favourable financial conditions and sustained government capital expenditure. Positive factors for inflation outlook include easing supply chain pressures, softening global commodity prices and anticipated higher agricultural production due to a likely above-normal southwest monsoon. While the export sector may face headwinds from rising geopolitical tensions, protectionist policies and potential tariff wars, Indias participation in 14 free trade agreements and six preferential trade agreements, along with ongoing negotiations with the US, Oman, Peru and the EU, could bolster trade growth.

Indias economic outlook for FY 2025-26 remains promising, driven by recovering consumption demand, sustained government capital expenditure amid fiscal consolidation, robust bank and corporate balance sheets, favourable financial conditions and resilient services growth. Improving consumer and business sentiment, coupled with sound macroeconomic fundamentals, further bolsters the growth trajectory. However, potential downside risks include uncertainty surrounding global trade due to protectionism, prolonged geopolitical tensions and global financial market volatility, which could also pose upside risks to inflation.

Manufacturing sector is expected to gain further traction in FY 2025-26 supported by improvement in domestic demand, higher capacity utilisation, healthy balance sheets of corporates and banks and consumer and business optimism. The governments focus on widening the manufacturing base and the policy support through the ongoing PLI scheme and National Manufacturing Mission announced in the Union Budget 2025-26 is expected to further strengthen Make in India initiative.

With inflation falling below the target in February and March 2025, supported by a sharp fall in food inflation, there is now greater confidence in a durable alignment of headline inflation with the target of 4.0% over a 12-month horizon. The benign inflation outlook and moderate growth warrant monetary policy to be growth-supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions.

These factors are expected to create new employment opportunities, improve labour income and strengthen domestic demand. The optimism about manufacturing and services sectors is also reflected in the forward-looking surveys conducted by the Reserve Bank. Taking into account these factors, real GDP growth for 2025-26 is projected at 6.5% with risks evenly balanced.

Going forward, global financial market volatility, geopolitical tensions, trade fragmentation, supply chain disruptions and climate-induced uncertainties pose downside risks to the growth outlook and upside risks to the inflation outlook. However, the Indian economy is poised to remain the fastest- growing major economy in 2025-26 by leveraging its sound macroeconomic fundamentals, robust financial sector and commitment towards sustainable growth.

Source: RBI Annual Report Apparel Sector Overview

India is the worlds second-largest producer of textiles and garments. Indian textiles and apparel products have a history of fine craftsmanship across the entire value chain, from fibre, yarn and fabric to apparel with high global appeal. Indias cotton, silkand denim are highly popular in other countries and Indian apparel also has found success across fashion centres around the world. The Indian textile and apparel industry is highly diversified with a wide range of segments ranging from products of traditional handloom, handicrafts, wool and silk products to the organised textile industry in India. It is also the sixth-largest exporter of textiles spanning apparel, home and technical products. India has a 4.6% share of the global trade in textiles and apparel. The textiles and apparel industry contributes 2.3% to the countrys GDP, 13% to industrial production and 12% to exports. It is also the second-largest employer after agriculture, providing direct employment to 45 million peopleand 100 million people intheallied sector.The amount of Rs 10,683 crore ($ 1.44 billion) underthe PLI scheme is expected to be a major boost for textile manufacturers.

The scheme proposes to incentivise MMF (man-made fibre) apparel, MMFfabricsand 10 segments of technical textiles products.

Initiatives such as Make in India and Skill Development by the government in recent times have been highly instrumental in driving innovation and growth within the industry. However, the apparel sector in India, though at a growing stage, compared to those of the United States or China, remains very small and this sector has a lot more room for growth. India excels in natural fibres, especially cotton, reinforcing its status as a global textile leader. Cottons affordability and versatility play a crucial role in Indias market dominance. India is one of the largest consumers and producers of cotton with the highest acreage of 12.5 million hectares which is 38% of the global area under cotton cultivation. Emerging trends such as growing casual and athleisure wear demand and social medias impact on fashion choice are rewriting the rules. The Indian apparel market is expected to attain a strong global position soon with the backing of friendly policies, sustainable innovation and evolving consumer behaviour.

The Indian garment industry is poised for a strong recovery with ICRA projecting a revenue growth of 12-14% in FY 2024-25 and 9-11% in FY 2025-26 driven by the global China Plus One sourcing strategy and inventory correction by global retailers. This comes after apparel exports from India rose 11.6% YoY during April-January FY 2024-25 rebounding from a 10% decline in FY 2023-24. Further, the organised retail apparel sector is driven by rising demand from a normal monsoon, easing inflation and the festive and wedding seasons. The increasing preference for affordable, trendy fashion clothing that mimics high-fashion designs is expected to be a growth driver for the sector. As consumers increasingly aspire to wear stylish and branded clothes, the demand for domestic and international fashion labels is growing, leading to increased market growth.

Apart from economic indicators, the fashion sector plays a vital role in the cultural identity and social fabric of India. Apparel not only projects a persons personality and way of life but also reflects the rich heritage and varied traditions of the nation. This cultural significance is intertwined with the evolving market, as consumers seekto balance modern fashion trends with traditional elements. Moreover, e-commerce has changed the way Indians buy their clothes; traditional and contemporary fashion are more accessible than ever. This shift has expanded the consumer base and fostered a competitive environment, compelling brands to innovate continuously. Indias apparel market is transforming remarkably, characterised by vibrant growth and evolving consumer preferences.

Increasing disposable incomes, along with growing urbanisation, have improved the penetration of fashion across urban and rural geographies. Major opportunities include sustainable fashion: consumers increasingly lookfor eco-friendly materials and ethical manufacturing processes. Besides, technology-related developments such as AI-powered personalisation and social commerce also provide ways to increase the engagement of consumers and smoothen operations. The increasing adoption of athleisure and casual wear also points to dedicated investment areas, aligning with the health-conscious and style-savvy consumer. As brands tap into Tier II and III cities, and explore untapped rural markets, the industry is poised to solidify its standing globally. By embracing innovation and sustainability, stakeholders can achieve long-term growth by building Indias apparel market into a globally competitive force. The market for Indian textiles and apparel is projected to grow at a 10%CAGR to reach $ 350 billion by 2030.

Source: IRFFand https://textileinsights.in/icra-prnjects- grnwth-fnr-indian-garment-industry-in-fy25/

Company Performance Revenues

We achieved record operating revenues of Rs 1,00,27727 lakh as against Rs 86,049.86 lakh, registering an impressive growth of 16.53% YoY. Our growth momentum was not only fuelled by consolidation of Kraus Casuals Private Limited, reflecting the effectiveness of our strategic initiatives, but also supported by robust volume expansion, showcasing the effectiveness of our design capabilities, coupled with our efforts to enhance growth, particularly through improved inventory management practices. This remarkable revenue milestone reflects our expanding scale of business, driven by our relentless pursuit of double-digit growth. Changes in product mix sales as well as higher discounting due to end-of-season sale (EOSS) promotions, had a moderating effect on average realisation values, thereby affecting the overall sales value growth.

As we build on this momentum, this milestone lays a robust foundation for our future endeavours, positioning us for sustained success and further expansion.

Costs

Cost of Goods Sold (COGS):

COGS includes costs of material consumed, purchase of stock in trade, change in inventories of finished goods, work in progress and stock in trade and manufacturing and operating expenses. COGS stood at Rs 58,624.92 lakh in FY2025 as compared to Rs 48,664.47 lakh in the previous year. The COGS percentage to Revenue from Operations stood at 58.46% in FY2025 as compared to 56.55% in FY2024. The increase in COGS was primarily driven by higher production levels, resulting from inventory management practices aimed at supporting growth, alongside the moderating impact of average realisation values.

Employee benefit expenses:

Employee benefit expenses increased to Rs 13,644.35 lakh in FY 2024-25 from Rs 10,530.71 lakh in FY 2023-24 with a rise of 29.57% which was primarily due to the consolidation of Kraus Casuals Private Limited and a marginal rise in salaries, wages, and allowances, reflecting an increase in employee strength and annual increments.

Selling and distribution expenses:

Selling and distribution expenses increased to Rs 4,903.46 lakh in FY 2024-25 from Rs 4,376.25 lakh in FY 2023-24. Though in absolute terms these expenses would have increased by 12.05%, however the selling and distribution expenses as a percentage of revenue from Operations decreased from 5.09% in FY 2023-24 to 4.89% in FY 2024-25.

The increase in selling and distribution expenses was primarily on account of increase in commission on sales and clearing and forwarding charges. We typically budget our selling and distribution expenses on a yearly basis. Flowever, seasonal dynamics and spread of marketing budget may vary on a quarterly basis. Considering these variable factors, we typically budget the selling and distribution expenses around the targeted range of 5-7%.

Administrative and other expense:

Administrative and other expenses increased and stood at Rs 4,040.95 lakh in FY 2024-25 as compared to Rs 4,763.95 lakh in FY 2023-24, a decline of 15.18%. Further, due to decline in absolute value coupled with increased sales and operating leverage, the administrative and other expense as percentage of revenue from Operations decreased from 5.54% in FY 2023-24 to 4.03% in FY 2024-25. The reason for the reduction in these expenses was primarily on account of recovery of old debtors and comparatively less expenses towards legal and professional fees as compared to the corresponding period.

Profitability

EBITDA (Operating Profit) and EBITDA margin (Operating Profit Margin):

EBITDA, excluding Other Income increased toRs 19,060.27 lakh in FY 2024-25 as compared to Rs 17,708.03 lakh in the previous year. EBITDA margin stood at 19.01% in FY 2024-25 as compared to 20.58% in the previous year. This EBITDA margin performance is resultant of the growth based balanced approach adopted by the Company to achieve higher market share keeping a reasonable margin profile. The Company has started participating in EOSS, providing support in terms of manpower, shop-in-shop as well as incentivising various channels for better reach and performance.

Profit Before Tax (PBT):

PBT stood at Rs 19,761.45 lakh in FY 2024-25 as compared to Rs 19,922.52 lakh in FY 2023-24 reflecting a marginal decline of 0.81% YoY.

Profit After Tax (PAT) (Net Profit):

The Company reported a profit after tax of Rs 14,919.10 lakh in FY 2024-25 as against Rs 15,407.57 lakh in FY 2023-24, a decline of 3.17%. Net Profit Margin stood at 14.18% in FY 2024-25 as compared to 17.17% in FY 2023-24. A significant contributor to this change was the increase in depreciation and amortisation expenses, which rose fromRs 1,036.96 lakh in FY 2023-24 to Rs 3,218.30 lakh in FY 2024-25. This substantial growth was primarily driven by additional amortisation of intangible assets resulting from the acguisition of Kraus Casuals Private Limited.

Earnings per Share (EPS):

The EPS for the year was Rs 23.44 as compared to Rs 25.00 in the previous year.

Return on Capital Employed (ROCE):

The ROCE for FY 2024-25 stood at 24.34%.

Return on Net Worth (RONW):

The RONW of the Company stood at 19.95% in FY 2024-25, as compared to 25.25% in FY 2023-24. The comparatively lower RONW was primarily on account of the decline in margins.

Financial Position and Cash Flows

Our primary sources of liquidity and capital resources are cash generated from operating activities. Our primary requirements for liquidity and capital are working capital and general corporate needs, including manufacturing-related expenses, operating costs, marketing and payroll related expenditures.

The financial risk profile of the Company is expected to remain strong backed by healthy capital base as on March 31, 2025, comfortable debt protection metrics and strong liquidity backed with cash flows from profitable operations. The Company continues to have strong liquidity of Rs 34,003.55 lakh as on March 31, 2025, in the form of cash and cash equivalents, bank balance and current and non-current investments (excluding investment in joint venture) against nil non-current term debt and a current debt of Rs 10,798.37 lakh. The Company has a strong financial position with net cash balance (Cash and Investments minus borrowings) of Rs 23,205.19 lakh.

The Company has a very comfortable interest coverage ratio of 20.50 as on March 31, 2025 as compared to 46.70 as on March 31, 2024 and the Debt Service coverage ratio stood at 1.93 as on March 31, 2025 as compared to 23.12 as on March 31, 2024. The Debt-to-Equity ratio of the Company stood at 0.20x as on March 31, 2025 as against 0.03x as on March 31, 2024, showcasing the excess cash the Company is able to maintain on a consistent basis. Our interest coverage ratio decreased as well as Debt-to-Equity ratio increased primarily due to an increase in interest expenses resulting from higher borrowings to support growth initiatives and expansion plans. Despite this, our interest coverage ratio remains healthy, indicating our ability to comfortably service our debt obligations. Companys prudent cash conservation practices have helped it to weather difficult times and enforce upon the confidence to face any uncertainty in the future if it were to arise on account of external factors.

The Company had an increase in the net working capital cycle resultant of increase in debtor days and inventory days. The debtor days as pegged to operating revenues stood at 157 days. The debtors turnover ratio stood at 3.89 in FY 2024-25 as compared to 5.16 in FY 2023-24 primarily on account of increased credit period due to consolidation of Kraus Casuals Private Limited. The inventory turnover ratio stood at 6.54 in FY 2024-25 as compared to 12.98 in FY 2023-24, primarily resulting from inventory management practices aimed at supporting growth. The change in inventory turnover ratio is primarily due to a strategic shift in our inventory management approach, where we realigned our approach to ensure timely supply and meet growing demand, resulting in increased inventory levels. The current ratio stood at 2.46 in FY 202425 as compared to 4.79 in FY 2023-24. The current ratio decreased primarily due to strategic adjustments in our working capital management. As we continue to expand our operations, including due to consolidation of Kraus Casuals and increase production to meet rising demand, we have seen a corresponding increase in current liabilities, particularly in trade payables and short-term borrowings. Additionally, our inventory levels have been optimised to balance supply chain efficiency with the need for adequate stock to meet customer demand, which has also impacted our current asset position.

Despite this decrease, our current ratio remains within a manageable range, and were focused on maintaining a healthy balance between liquidity and growth investments.

The Company has declared a total dividend per share for FY 2024-25 to Rs 2/- per share.

Business Progressive Fund

The Business Progressive Fund stood at Rs 4,500 lakh as on March 31, 2025 as against Rs 4,000 lakh as on March 31, 2024. The Company had taken a first-of-its-kind initiative in FY 2012-13 by setting up a Business Progressive Fund. The genesis of this fund was to create and build up a reserve from the profits of the Company to address potential market volatility that are inherent to the industry due to potential macro-economic events that impact consumer sentiment and spending behaviour. Initiatives like these clearly showcase Companys outlookto run as a continuous operating Company withstanding the vagaries of uncertain situations.

Credit Rating

CRISIL has reaffirmed the Companys debt rating as AA-/Stable (high degree of safety), which will enable superior credit terms from the financial market and banks.

Brands

We cater to multiple categories including apparel and accessories with a strong portfolio of owned brands. Our brands operate across segments which include premium segment, premium semi-formal wear market segment, D2C fashionwear market segment, mid-market segment and focused kidswear and womens denim and casual wear market segment. Through our own brands, we cater to menswear, womenswear and kidswear across various products and price categories. We firmly believe that strong branding fosters aspiration, commands a premium and creates lasting connections with consumers. Plaving brands with high recall value provides a significant competitive edge. Today, we are proud to have evolved from a denim-focused Company to a leading lifestyle Company, resonating with a broader audience across age and gender.

Our portfolio of brands as detailed below resonate with the attitude and aspirations of todays youth, cementing our position as a trusted and long-term player in branded fashion:

• Killer

The Companys flagship brand Killer imbibes in it the cool confidence of todays youth and redefines denims, giving a bold character to them. Killer is a powerful and iconic brand and is regarded as one of the established and well- regarded denim brands in India. Killer continuesto be the flagship brand amongst our brand portfolio.

• Integriti

Reflecting and resonating the ambition and energy of youth, Integriti offers a credible, trusted and value proposition across work and casual wear and helps to offer product range to a different price segment.

• Lawman

Aglamorous, lifestyle brand, Lawman is aimed to be positioned as a D2C Brand for young adults. The brand plays a unigue role in bringing the glamour guotient to the fashion wardrobe.

• Easies

A blend of classic and contemporary preferences, Easies is reshaping corporate fashion in India through its range of semi-formal menswear, made from the most premium range of fabric and linen. Easies a well-established brand known for its collection of chinos and shirts has a dedicated customer following supported by the increasing trend of semi-formal wear.

• Junior Killer

Junior Killer is set to redefine the fashion landscape for young boys aged 4 to 16. This high street fashion brand offers a comprehensive wardrobe solution, from casual to sporty to classic styles. With meticulously designed pieces that cater to the evolving tastes and needs of todays youth, Junior Killer ensures that young boys can express their individuality with confidence and flair.

• Kraus Jeans

Kraus Casuals Private Limited, known for its Kraus Jeans brand, specialises in womens denim and casual wear. This brand is focused with our goal to accelerate our entry into the womens denim segment, complementing our existing portfolio of brands and expanding our reach within the womens fashion casualwear market.

Product Wise Sales

Over the years, we have successfully transformed from a denim-centric Company to a lifestyle brand, driven by a strategic focus on expanding our product categories resonating with a broader audience across age and gender. This approach has not only elevated the aspirational value of our brand by offering a broader range of products but also increased our share of the consumers wallet. Today, our product portfolio encompasses a diverse mix of high-guality bottom wear and top wear, including jeans, trousers, shirts, t-shirts and range of winterwear.

Some of the key products of the Company which primarily drives sales are as follows:

• Jeans: Jeans sales stood at Rs 46,275.57 lakh contributing to 46.39% of the total income from sales of apparel and lifestyle accessories in FY 2024-25 as compared to Rs 45,246.30 lakh in the previous year contributing to 52.91% of the total income from sales of apparel and lifestyle accessories. Though there has been an absolute growth in terms of value from this category, the percentage fall in revenue contribution from jeans (denims) clearly reflects the concentrated effo rts of the Company to diversify its reve nue streams across product categories.

• Shirts: Shirts contribution to total income from sales of apparel and lifestyle accessories stood at 20.97% with sales of Rs 20,919.36 lakh in FY 2024-25 compared to Rs 18,614.32 lakh in the previous year

• Trousers: Trousers sales stood at Rs 12,083.94 lakh in FY 2024-25 as compared to Rs 6,485.67 lakh in the previous year. Trousers contributed 12.11% of total income from sales of apparel and lifestyle accessories revenues as compared to 758% in the previous year

• T-shirts: T-Shirts sales stood at Rs 5,888.96 lakh contributing to 5.90% of the total income from sales of apparel and lifestyle accessories from Rs 4,345.78 lakh in the previous year

Sales and Distribution Channel

The Company leverages a multi-channel distribution model, striking a balance between directly operated and franchise- operated exclusive brand outlets (EBOs), large format stores (LFS) and multi-brand outlets (MBOs). This strategic approach enables us to drive sales growth while maintaining operational discipline to mitigate inventory and payment risks.

While traditional distribution channels have been pivotal to our profitability, our long-standing relationships with channel partners have been a key success driver. To stay relevant in todays market, we are adopting a calculated approach to online channel and also expanding our presence in national chain lifestyle stores, balancing visibility with sales and margin expectations. Our strategic focus on expanding our Exclusive Brand Outlet (EBO) network, comprising comprising Company-owned Company-operated (COCO), Company- owned Franchisee-operated (COFO), and Franchise-owned Franchise-operated (FOFO) models, serves multiple purposes.

It helps diversify our revenue streams, acts as a growth engine and enhances brand awareness. Alongside our domestic market focus, we maintain a consistent presence in the export channel, ensuring a international footprint.

The Company with its widespread presence with growing network of exclusive brand outlets (EBOs) and increasing presence in large format stores (LFS) has been able to diversify its reach across India, enhancing brand visibility and driving growth. The distribution network spreads across 609 EBOs, widespread MBO presence serviced through 80+ Distributors covering 4,000+ MBO stores and presence across 2,700+ counters in the large format stores.

The channel wise sales performance of the Company are clubbed undertwo major categories - (i) Retail and (ii) NonRetail category. Retail category channel would constitute sales from EBOand LFS channel and Non-Retail category constitutes sales from MBO, Factory Retail/Seconds sales, Exports and E-commerce sales. In FY 2024-25, the Company has seen very robust performance in the Retail Channel sales which contributed to 54.08% of total income from sales of apparel and lifestyle accessories as against 46.96% in the previous year, primarily led by increase in the number of EBOs. NonRetail Channel contributed 45.92% of total income from sales of apparel and lifestyle accessories as against 53.04% in the previous year.

As our Exclusive Brand Outlet (EBO) network and Large Format Store (LFS) presence expand, we are poised to leverage our brand eguity and customer trust. Our goal is to implement a balanced distribution strategy that prioritises profitability and cash generation while evaluating the cost-benefit trade-off of increased visibility and potential sales. To mitigate risks, we will also focus on robust receivable management by capping sales to any single party at a comfortable limit, ensuring business continuity in unforeseen circumstances.

Retail Stores

The Company has 609 existing retail stores as on March 31, 2025 and 52 stores are in work in progress phase. Of the 609 stores, 404 stores are Killer brand EBOs, 109 stores are in K-Lounge format, 83 are Lawman & Integriti Brand EBOs, 12 are Kraus Jeans Brand EBOs and 1 is a factory outlet format. The Company has added net 121 stores during the FY 2024-25 and continues to focus on adding more such EBOs.

Outlook, Opportunities and Threats

In the year gone by, the Company saw a very strong sales performance and the high levels of inventory turn that the business has delivered. This performance was possible due to strong sales execution. Notwithstanding the uncertainty over the short to medium term, India is expected to return to a strong growth trajectory in the apparel and retail sector, given the underlying growth drivers reflecting the changing consumer trend and increasing usage of casual wear in offices as well as home. Fashion consciousness and retail therapy have become a core part of human lifestyle and are likely to recover and gain momentum eventually. With growing multiple channel of distribution, the market its within easy reach to the end consumer driving growing demand for the apparel sector.

On account of inflationary pressure as well as understanding the difficult art of carrying out manufacturing and inventory management has lead to a challenging environment for many apparel manufacturers and eventually lead to many shutting down operations. Further, the industry has also seen a general concentration towards a few manufacturers who have been able to wave through these difficulties. With the rise of multiple distribution platforms on account of digital formats as well as national chain stores, the sourcing of the finished apparel products across categories especially for branded apparels will hold key towards fulfilling the rising demand from consumers in India. We believe only companies with inherent manufacturing expertise, balance sheet strength and well-established network backed with strong brand appeal would emerge stronger and more committed of pursuing sustainable and profitable growth catering to the rising demand.

Based on its well-capitalised balance sheet, prudent financial practices, debt-free status and disciplined cost control, the Company has the ability to protect interests of all its stakeholders. With the added strength of its superior manufacturing practices, strong brands and robust pan India distribution network the Company is well positioned to meet the near-term challenges and emerge stronger and more committed to its long-term vision of pursuing sustainable and profitable growth.

Risk and Concerns

The fashion wear industry is susceptible to discretionary spending fluctuations, particularly during periods of high inflation, which can dampen consumer confidence and impact sales. Intensifying competition has led to pricing pressure, while the influx of foreign brands with substantial advertising budgets has increased marketing costs for established players like ours. To stay competitive, we must continuously innovate and adapt to evolving fashion trends and consumer preferences, offering products that are both stylish and affordable. Failure to do so may result in unsold inventory or markdowns, affecting our bottom line.

As a fashion apparel brand, our success hinges on meeting customer expectations and staying attuned to rapidly evolving preferences. If our products and designs fail to resonate with our target audience, or if we misjudge demand, our business may suffer. To thrive, we must anticipate and respond to shifting customer tastes, continuously updating our product offerings to stay relevant and appealing.

Accurately forecasting customer demand and trends is vital to our business success. If we overestimate demand, we risk accumulating excess inventory that may not sell in time or at all. Conversely, underestimating demand can lead to stockouts, missed sales opportunities, and disappointed customers. Failure to anticipate and adapt to changing customer preferences can result in lost customers, obsolete inventory and pricing pressure, forcing us to sell at discounted prices. Moreover, a decline in demand or misjudging design trends can lead to increased market acceptance of competitors products, potentially substituting our offerings and resulting in lower sales, excess inventory and distressed sales at or below cost price.

KKCL is uniguely placed in the sector with an integrated business model from designing, manufacturing and sourcing, distribution and logistics, and retailing. The Company has inhouse team of designers that track national and international trends to create innovative fashionable products that consumers would relate to.

Our design, merchandising, marketing and procurement teams work together to develop innovative design concepts across product categories. With years of growth and refinement, our design process and experienced marketing team enable us to create differentiated products that respond to evolving market trends and customer preferences. The Companys state-of- the-art manufacturing facilities ensure quality and timely deliveries in a short period of time.

Credit Risk

Credit risk is the risk that a counter-party will not meet its obligations under a financial instrument or customer contract. Our operations involve extending credit for periods of time, ranging typically from 75 to 130 days, to our distributors, franchisee operated exclusive brand outlets, large format national chain stores, multi-brand stores and online retailers and consequently, we face the risk of the uncertainty regarding the receipt of these outstanding amounts.

To mitigate credit risk related to trade receivables, we closely monitor the creditworthiness of debtors through internal systems that are configured to define credit limits of customers, thereby, limiting the credit risk to pre-calculated amounts. We assess increases in credit risk on an ongoing basis for amounts receivable that become past due. Credit risk is managed by monitoring the recoverability of such amounts continuously, while at the same time internal control systems are in place to ensure the amounts are within defined limits. In respect of trade receivables, we consider provisions as per our internal framework. If our distributors, franchisees, large format national chain stores, multi-brand stores and online retailers delay or default in making payments in the future, our profit margins and cash flows may be adversely affected. We assess and manage credit risk on the basis of assumptions, inputs and various market driven factors. The Company has also instituted steps to mitigate or reduce the risk of recovery by taking bank guarantees and / or security deposits from the channel partners. These steps assist the Company to strengthen the recovery process and reduce the uncertainties associated with recovery.

Commodity risk

We are exposed to the price risk associated with purchasing our raw materials, which form a significant component of our expenses.

We procure raw materials comprising of fabrics and accessories from various third-party raw material suppliers, for the purpose of manufacturing our products. These third- party raw material suppliers are located in various states across India with whom we negotiate terms with. Our inventory levels may be hampered in case such third-party raw material supplier delays or fails to provide the raw materials for the purpose of manufacturing apparel. The performance of our Company largely depends on our ability to arrange for such third-party raw material suppliers who would provide the raw materials to manufacture our products in sufficient quantities at competitive prices and of desired quality.

We typically do not enter into long terms arrangements with our vendors and typically source raw materials based on periodic purchase orders and price negotiations. Our cost of goods sold is impacted by the amount of raw materials procured by us and the price at which such raw materials are procured may fluctuate from time to time due to a number of factors beyond our control, including economic factors, seasonal factors, environmental factors and changes in government policies and regulations. Therefore, fluctuations in the price and availability of raw materials may affect our business, cash flows and results of operations. Further, we cannot be assured that the suppliers will continuously provide the raw materials at adequate pricing and as per our agreed-upon terms. There is a possibility that any of our third- party raw material suppliers may discontinue their relationship with us which would adversely impact our business operations. We may experience reductions or interruptions in supply of our raw materials which may delay the manufacturing of our products.

Inflation risk

India has experienced fluctuations in inflation in the recent past. High fluctuation in inflation rates may make it more difficult for us to accurately estimate or control our costs.

Any increase in our raw material expenses on account of inflationary pressure, employee benefit payments or other expenses as a result of increase in inflation in India, which we are unable to pass on to our customers, whether entirely or in part, may adversely affect our business, cashflow, results of operations and financial condition. Especially, the apparel sector in which the Company operates is a price deflationary sector wherein the price points across apparel category have tend to remain constant over a long period of time inspite of inflation, thereby it is very critical for Companies like us to keep a continuous check on how best cost could be controlled to achieve the desired margins.

Internal Control Systems and Their Adequacy

Sound internal control systems are a prereguisite for building and enhancing shareholder value in the long run and managing risk effectively is fundamental to the way we manage our business. The Company always looks to move gradually and seeks to make sensible and balanced business decisions through our riskappetiteand balanced business framework. We have established a risk management framework underpinned by a comprehensive suite of policies, operational processes, procedures and governance structures. These are important in maintaining adeguate internal measures commensurate with the size and complexity of operations. Internal control systems comprising policies and procedures are designed to ensure sound management of our operations, safekeeping of our assets, optimal utilisation of resources, reliability of our financial information and compliance. The systems and procedures are periodically reviewed and routinely tested and cover all functions and business areas.

The Company has a sound system of internal controls commensurate with the size of the Company and the nature of its business to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and that transactions are authorised, recorded, and reported correctly and adequately. The Companys internal control are supplemented by internal audits, review by management and documented policies, guidelines and procedures. The internal control is designed to ensure that financial and other records are reliable for preparing financial information and for maintaining accountability of assets.

The key constituents of the internal control system are:

• Business Planning and Review: Establishing and periodically reviewing business plans to ensure alignment with strategic goals

• Riskand Opportunity Identification: Continual assessment of key risks and opportunities to stay ahead of potential challenges and leverage growth prospects

• Organisational Structure and Financial Authority: Clearly defined organisational roles and financial authority limits to streamline decision-making and accountability

• Strengthening Controls: Ongoing identification and enhancement of areas reguiring improved internal controls

• Operational Procedures: Implementing procedures to ensure efficient and effective business processes

• Compliance Monitoring: Systems in place to monitor adherence to statutory regulations and industry standards

• Evaluation Principles: Well-defined criteria for assessing new business proposals and capital expenditures

• Management Information System: A robust system providing accurate and timely information to support decision-making and operational oversight

• Internal Audit and Review: Strong internal audit mechanisms supplemented by management reviews and documented policies

The Company has appointed a reputed firm of Chartered Accountants to conduct its Internal Audit. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal controls systems and suggests improvement for strengthening them. The Company has a strong Management Information System, which is an integral part of the control mechanism. The Company continues to strengthen its risk management and internal control capabilities by improving its policies and procedures and introducing advanced risk management tools.

Human Resources

Our employees are a vital asset, driving our competitive edge in the industry. A highly motivated and professional team fuels our Companys performance. We have invested significantly in strengthening our workforce, particularly in retail operations and inducting experienced professionals to support our renewed growth strategy.

Our success hinges on attracting, training and retaining talented frontline associates, managers and creative professionals. As an egual opportunity employer, we foster a diverse and inclusive work environment that leverages employees skills, knowledge and leadership abilities to drive operational growth. To boost employee morale and alignment with our strategic vision, we have enhanced internal communication mechanisms and promoted initiatives for business excellence.

Additionally, the focus of the Company has been on retaining and grooming the best talent available. The Company continues to invest in building competence in the organisation through employee training and development and compensation structure that rewards performance. In addition to compensation that includes salary, allowances (including performance linked bonuses) and reward plans, we provide our employees with other benefits which include insurance coverage and paid leave. We have instituted inclusivity initiatives for our employees and have in place a rewards and recognition programme and award employees based on performance and the impact they have made. The Company continued to maintain excellent industrial relations with all its employees at manufacturing facilities. Further, we are also committed to maintaining high standards of workplace health and safety and we will continue to improve the same on ongoing basis. Our Human Resources department continually focuses on employee engagement and motivation, recruitment, continuous development and addressing employee grievances, if any, in a timely manner.

Our human resources policies focus on recruiting talented and gualified personnel, whom we believe integrate well with our current workforce, irrespective of their seniority, department or location. Our employee programmes are focused on taking regular feedback and facilitating interaction between new employees and senior management. We have medical and accident insurance for our employees and have also introduced wellness and physical health programmes.

As of March 31, 2025, the Company had 1763 employees.

The employee base includes our KMPs, senior management personnel, corporate office staff, showroom staff and staff employed at our manufacturing facility. In addition, we have entered into arrangements with third party personnel companies for the supply of contract labour which we appoint on a part-time basisto support our seasonal needs of labour, for example during large-scale product launches, festive periods and discount campaigns. The number of contract labourers varies from time to time based on the nature and extent of work contracted to independent contractors.

Technology

The Company believes that a robust IT infrastructure and keeping abreast with technological innovations is essential for ensuring strong operational efficiencies and enhancing productivity. We continue to focus on building and improving our IT capabilities while promoting innovation throughout our processes. We have implemented a range of technological initiatives across our operational network with the aim of enhancing the operational efficiency.

The Company has been using logic ERP as an end-to-end solution which caters to most of the operational and financial operational areas as follows:

a) Procurement: Right from raising purchase order to in-ward (GRN) of raw material / semi-fished / finished goods and posting of accounting entries relating to purchases is executed in this module

b) Order processing / Billing: Generating sales order and subsequent reservation/delivery order, converting D.O to ready for despatch (RFD) and finally converting those RFDs into invoices with posting of accounts are part of this module. Additionally, E-way bill and E-invoice generation is part of this module

c) Production: Production module covers generating a job order on the basis of the sales order. Subsequent movement of production lot size through various process such as cutting, stitching, washing, finishing, conversion of semi-finished goods to finished product, with segregation of product into fresh/seconds/ damaged, processes through this module. The finished goods once segregated are transferred to finished warehouse for order processing. In between issue of raw material reguired for every process is recorded with guantity and value. For every process, tailor payment is generated based on the rates defined and lot completed, this again is the base for wages generation and linked with payroll module

d) Payroll: Inthe payroll module, the salaries of staff and wages of workers are and generated. As mentioned above, data of wages flows through production module and is processed automatically through reverse calculation. Attendance for salary is pulled through Cosec (Attendance-managing software) for monthly processing

e) Finance and Accounts: Finance is the core to the entire system as it is linked with all the above modules. All accounting entries related to all the above modules are posted automatically in this module. Apart from posting of accounts, trial balance generation and balance sheet related data are part of the finance and accounting module

f) WMS: Warehouse management system is the latest module which has been implemented for efficient warehouse management. This would contribute in organising the warehouse helping in streamlining the warehouse as far as order processing and inventory management. On account of this module racking and stacking of material is done in such a way that it reduces the time in locating material and ensures accurate and timely delivery of goods

IT Infrastructure for the B2Band B2C business operations:

Apart from the above modules which form core of the ERP, the Company has a separate system created for the B2B (Distribution channel) and B2C - POS (Retail Channel) which are operated as independent modules with offline connectivity with the core module. Schemes and offers are part of the POS which also includes online discount approval through mobile app and e-invoice as the key features. In these modules, sales and inventory of both the channels are maintained.

The Franchisees and distributors have the option to opt for accounts module if required.

Apart from the above, the Company has a strong hardware and network infrastructure with multiple layers of security in form of fire wall and end point security such as anti-virus not to mention multiple layers of switches and devices which are controlled and managed in active directory environment.

In order to ensure business continuity, the organisation has maintained DR facility using ARC server as a tool.

Such technology applications have allowed us to quickly and efficiently expand our operations. With the implementation of our technology initiatives, we intend to streamline our operations further and expect to decrease our operational expenses which we believe will drive our revenue growth.

Cautionary Statement

This discussion contains certain forward-looking statements withinthe meaning of applicable securities laws. Readers are cautioned not to place undue reliance on these forwardlooking statements, which reflects managements analysis describing our objectives and expectations based on certain information and assumptions. Our operations are dependent on various internal and external factors within and outside the control of the management. We assume no responsibility in respect of the forward-looking statements herein, which may undergo changes in future on the basis of subseguent developments, information or events. Actual results may differ from those expressed or implied herein.