Khadim India Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

The global economy remained resilient in FY 2025-26 despite heightened geopolitical tensions, evolving trade policies and continued supply chain disruptions. Ongoing conflicts in the Middle East, coupled with rising trade restrictions and policy uncertainty, weighed on global trade, investment and commodity markets. However, stable labour markets, continued fiscal support and technology-led investments, particularly in Artificial Intelligence (AI), supported economic activity, while supply chain diversification and energy security measures helped strengthen resilience.

The global footwear market size was valued at USD 476.8 billion in 2025 and is projected to grow from USD 496.2 billion in 2026 to USD 675.6 billion by 2033¹, at a CAGR of 4.5% from 2026 to 2033¹. The global footwear industry is influenced by the increasing population and urbanisation, which create a demand for varied types of footwear, ranging from casual to sports footwear. Health awareness increases the sale of athletic and sports shoes, while fashion trends drive demand for style and design. Additionally, comfort and customisation are still essential factors determining growth, with consumers preferring shoes that express individuality and offer ergonomic advantages.

India remained one of the worlds fastest-growing major economies in FY 2025-26, supported by resilient domestic consumption, robust public investment and continued policy reforms. Despite external challenges arising from geopolitical tensions, trade uncertainties and volatile energy prices, the economy demonstrated strong resilience, underpinned by a diversified trade base and sustained domestic demand. However, at the fag end of FY 2025-26, the Gulf conflict has set in uncertainties as to the sourcing and pricing of petroleum-based raw materials.

Valued at USD 20.67 billion in 2025, the Indian footwear market is projected to reach USD 47.53 billion by 2034, growing at a CAGR of 9.7% during 2026-2034². Policy support through the Indian Footwear and Leather Development Programme (IFLDP) is expected to enhance manufacturing capabilities, facilitate technology adoption, improve skill development and strengthen export competitiveness. Supported by favourable demographics, rising domestic consumption and increasing integration into global value chains, the Indian footwear industry is well positioned for long-term growth.

COMPANY OVERVIEW

Khadim India Limited (also referred to as ‘Khadim or the ‘Company) is a footwear retail company with a long-standing presence in the Indian market. Headquartered in Kolkata, West Bengal, the Company has built a strong retail network and established itself as a trusted footwear brand, particularly in Eastern and Southern India.

FY 2025-26 marked an important milestone with the completion of the demerger of the distribution and manufacturing businesses into KSR Footwear Limited. As a result, the Company now operates as a focussed footwear retailer, with greater emphasis on retail operations, customer experience, and operational efficiency.

Guided by its philosophy of "Affordable Fashion", Khadim offers a wide range of footwear and accessories for men, women, and children across the casual, formal, school, and everyday wear categories. The Company continues to cater to its core middle- class consumer base while strengthening its presence in higher-value segments through brands such as British Walkers and Sharon.

As of March 31, 2026, the Company operated 851 branded retail stores across 23 States and 4 Union Territories. Khadims extensive footprint is supported by one of the largest footwear franchise networks in the country and a strong presence in East India.

Khadim follows an asset-light retail model, with a significant portion of its store network operated through franchise partners and all product requirements sourced externally. This approach provides flexibility, supports efficient capital deployment, and enables disciplined expansion.

The Company continues to strengthen its product portfolio through design-led development, consumer insights, and an understanding of evolving fashion trends. Khadim is also enhancing its omnichannel presence to provide a seamless shopping experience across physical and digital channels. Supported by a recognised brand, a wide retail reach, and a customer- focussed approach, Khadim remains focussed on strengthening its retail business and creating long- term value.

FINANCIAL HIGHLIGHTS

In the financial year 2025-26, the net sales of your Company from continuing operations decreased to A 3,670.95 million from A 4,180.33 million in the previous year, a decline of 12.2%.

The operating EBITDA decreased to A472.85 million as against A652.73 million in the previous year, down by 27.6%. The operating EBITDA margin decreased to 12.9% of net sales as against 15.6% in the previous year.

Profit Before Tax was A 50.23 million as against Profit Before Tax of A 220.12 million in the previous year, down by 77.2%.

The Profit After Tax was A31.39 million as against Profit After Tax of A 193.97 million in the previous year, down by 83.8%.

Further, pursuant to the requirements of Indian Accounting Standards (Ind AS), the results of the Companys distribution business up to the appointed date of demerger have been disclosed as discontinued operations. Consequently, the financial results of the Company for the previous year ended March 31, 2025, have been presented accordingly. *

*Note: Applicable to all the figures as on March 31, 2025, mentioned herein.

OPERATIONAL HIGHLIGHTS

During the year, the Company implemented several measures to boost operational efficiency, including the following:

To standardise our warehouse operations, we have rolled out Microsoft D365 WMS across all Distribution Centres (DCs). This ensures our teams can seamlessly follow standard operating procedures.

An in-house Business Intelligence tool was designed to enhance supply chain tracking, tracing, and decision-making analytics.

Reduced space at Kundli (near NCR) for cost reduction.

Streamlined staffing to lower operational cost at DC level.

Aggressive stock reduction drive took place to optimise stock health and efficiency.

Negotiations with the respective vendors for reduction of monthly DC operational cost.

The weekly supply plan is collected from vendors. Further, vendor delivery performance is monitored daily to ensure on-time supply.

Deployment of a vendor management system to secure better tracking of supplier deliverables.

100% Quality Control implemented for premium brand British Walkers.

The Company renovated 12 number of existing COCOs during the year under review.

The Company opened 11 COCOs and 35 FRMs / TFMs during FY 2025-26.

BUSINESS OVERVIEW

Following the demerger of its distribution and manufacturing businesses into KSR Footwear Limited, Khadim India Limited operates as a focussed footwear retail company. The Company derives its revenue from the sale of footwear and accessories through its retail network and digital channels, with an emphasis on customer engagement, merchandising, and retail execution.

As of March 31, 2026, the Company operated 851 branded retail stores across 23 States and 4 Union Territories, comprising 189 Company-Owned Company-Operated (COCO) stores and 662 franchise- operated stores. Leveraging the franchise model, Khadim benefits from an asset-light and scalable retail structure. The Company enjoys a strong presence in Eastern and Southern India and has built one of the largest footwear franchise networks in the country.

Khadim offers a diversified portfolio of footwear and accessories for men, women, and children across casual, formal, school, fashion, and everyday wear categories. The Companys product range spans both leather and non-leather offerings across multiple price points, ranging from P123 to P6,499. The portfolio is marketed under the flagship Khadim brand and a range of established sub-brands, including British Walkers, Sharon, Lazard, Turk, Pro, Cleo, Softouch, Adrianna and Bonito. Supported by its diversified brand portfolio and multi-price-point strategy, the Company addresses a significant portion of the Indian footwear market across consumer segments and usage occasions.

The Company follows a fully outsourced sourcing model, with 100% of its product requirements sourced through contract manufacturing and outsourcing arrangements. This asset-light structure provides flexibility in sourcing, product development, and inventory management, while supporting efficient capital deployment.

The Company continues to strengthen its product portfolio through design-led development and consumer insights. At the same time, it is expanding its presence in higher-value categories through brands such as British Walkers, Pro, Sharon and Cleo, while maintaining its value-for-money positioning. Khadim also continues to enhance its omnichannel capabilities and focus on improving store productivity across its retail network.

Backed by a recognised brand, extensive retail reach and an asset-light business model, the Company remains focussed on strengthening its retail platform and pursuing sustainable long-term growth.

Scalable Asset-light Business Model

Khadims retail business is built on an asset-light operating model that supports growth while maintaining capital efficiency. As on March 31, 2026, approximately 78% of the Companys retail network operated through franchise partners, enabling wider market reach with lower capital requirements.

The Companys sourcing model further complements this structure. With 100% of product requirements met through contract manufacturing and outsourcing arrangements, Khadim benefits from sourcing flexibility, efficient inventory management, and the ability to respond to evolving consumer preferences.

This combination of a franchise-led retail network and outsourced sourcing enables the Company to focus on merchandising, customer engagement, and retail execution, while supporting operational discipline and scalability.

Strengthening Digital and Omnichannel Reach

Khadim continues to strengthen its omnichannel capabilities to enhance customer convenience and brand accessibility. The Company complements its extensive retail network with its e-commerce platform and leading online marketplaces, enabling customers to engage with the brand across multiple channels. During FY26, digital channels contributed approximately 5% of the Companys revenue.

Digital platforms support wider market reach, improve customer engagement and provide valuable insights into evolving consumer preferences. The Company continues to focus on strengthening its online presence and leveraging digital channels to support customer acquisition, brand visibility and long-term growth.

MARKETING AND BRAND BUILDING

Khadim continued to strengthen brand visibility and consumer engagement during FY 2025-26 through a mix of festive, regional, digital and retail-focussed marketing initiatives. The Company undertook key campaigns including Bihu, School Campaign, Durga Puja, Diwali, Wedding, End of Season Sale (EOSS) and Eid, with a focus on strengthening brand recall and consumer connect across markets.

The Company also supported its retail expansion through store launch promotions and strengthened product and sub-brand visibility through initiatives around the British Walkers Premium Collection & Comfort Range, Sharon California Construction Collection and PRO Sneakers Range. These initiatives were complemented by digital engagement, influencer-led communication, visual merchandising and localised activations across key markets.

KEY STRENGTHS & OPPORTUNITIES Market Position and Consumer Reach

Khadims extensive retail network remains one of its key competitive strengths. Khadim enjoys a strong leadership position in Eastern India and is among the leading footwear retailers in Southern India. This widespread presence provides strong market access and brand visibility, enabling the Company to serve customers across diverse geographies and consumer segments.

Market Coverage

The Companys diversified product portfolio is another important strength. With products spanning multiple categories, brands and price points, Khadim can address nearly 85% of the Indian footwear market through its retail business. The Companys portfolio caters to men, women and children across value, mid-premium and premium segments. This market coverage enables the Company to respond effectively to evolving consumer preferences and fashion trends.

Operational Efficiency

Khadims franchise-led retail structure and fully outsourced sourcing model provide operational flexibility and capital efficiency. The asset-light model supports growth while enabling the Company to focus on merchandising, brand building and customer engagement. The Company continues to prioritise store productivity, inventory optimisation and disciplined capital allocation.

Industry Growth

The Indian footwear industry continues to benefit from favourable structural drivers, including rising disposable incomes, urbanisation, growing fashion awareness and the increasing preference for branded products. The ongoing shift towards organised retail is expected to create opportunities for established brands with strong retail presence and customer reach.

Premiumisation and Digital Opportunities

Evolving consumer preferences are creating opportunities across higher-value footwear categories. Through brands such as British Walkers, Pro, Sharon and Cleo, the Company continues to strengthen its presence in premium and aspirational segments while maintaining its value-for-money positioning. At the same time, increasing adoption of digital channels presents opportunities to expand customer reach, strengthen omnichannel engagement and enhance brand visibility.

Strategic Priorities

Going forward, the Company remains focussed on strengthening its product portfolio, brand visibility, store productivity and its omnichannel presence. Supported by its established brand, retail network and asset-light business model, Khadim remains well- positioned to pursue long-term growth opportunities in the Indian footwear market.

RISKS, THREATS, CONCERNS & MITIGATION

Risks / Concerns

Weak Consumer Demand and Discretionary Spending Pressure

Potential Impact	Mitigation Measures
Prolonged weakness in consumer sentiment, particularly in the value footwear segment, may affect footfalls, sales and profitability.	The Company continues to focus on product assortment, customer engagement, localised marketing initiatives and improving store-level productivity across its retail network.

Risks / Concerns

Industry Competition

Potential Impact	Mitigation Measures
The Indian footwear market remains highly competitive, with organised brands, regional players and online-first retailers competing across price points. Increased promotional activity may impact market share and margins.	Khadim continues to leverage its established brand, retail presence, sub-brand portfolio and value-for-money positioning. The Company is also strengthening premium offerings through brands such as British Walker, Pro, Sharon and Cleo.

Risks / Concerns

Changing Fashion Trends

Potential Impact	Mitigation Measures
Rapid shifts in customer preferences may impact product relevance and inventory turnover.	The Company continuously refreshes its product portfolio, strengthens merchandise planning and leverages consumer insights to align offerings with evolving lifestyle trends.

Risks / Concerns

Growth of E-commerce and Digital Competition

Potential Impact	Mitigation Measures
Online penetration and aggressive pricing by digital marketplaces may affect store traffic and customer retention.	Khadim is expanding its omnichannel capabilities and focussing on own digital platforms. The Company also aims to enhance online sales contribution and customer engagement across channels.

Risks / Concerns

Inventory and Working Capital Management

Potential Impact	Mitigation Measures
Inefficient inventory management may lead to higher markdowns, working capital pressure and reduced profitability.	The Company remains focussed on inventory optimisation, disciplined procurement and merchandise planning. Management has also prioritised working capital efficiency and inventory rationalisation initiatives.

Risks / Concerns

Execution Risks in Premiumisation Strategy

Potential Impact	Mitigation Measures
The pace of consumer adoption in premium categories may impact expected returns from brand-building initiatives.	Khadim continues to strengthen premium offerings in a calibrated manner while retaining its core value-for-money positioning.

Risks / Concerns

Macroeconomic and Inflationary Pressures

Potential Impact	Mitigation Measures
Inflationary trends and economic uncertainty may affect discretionary spending, particularly among value-conscious consumers.	The Companys diversified product portfolio across categories and price points enables it to respond to varying demand.

Risks / Concerns

Supply Chain Dependence

Potential Impact	Mitigation Measures
Disruptions in sourcing, logistics or vendor operations may affect product availability and lead times.	Khadim maintains relationships with multiple sourcing partners to strengthen inventory planning.

Risks / Concerns

Regulatory and Compliance Risks

Potential Impact	Mitigation Measures
Changes in taxation, labour regulations, consumer protection requirements or industry standards may affect operating costs and compliance obligations.	The Company maintains internal controls and compliance mechanisms to ensure adherence to regulatory requirements.

OUTLOOK

While the near-term demand environment remains uncertain, the Company remains optimistic about a gradual recovery in consumption trends. The long-term outlook for the Indian footwear industry continues to be supported by rising disposable incomes, urbanisation, fashion consciousness and the shift towards organised retail.

Going forward, Khadims strategic priorities will remain focussed on strengthening its core portfolio, driving premiumisation and improving operational efficiencies. The Company will continue to enhance its product offerings and strengthen the presence of brands such as British Walker, Pro, Sharon and Cleo to address evolving consumer preferences. Khadim also remains focussed on improving store productivity, strengthening conversion rates and delivering a superior customer experience across channels.

The Company will continue to pursue a disciplined approach towards network optimisation. During recent past, underperforming stores have been rationalised, reflecting managements focus on profitability rather than network expansion alone. Future store additions will be guided by strategic location selection, productivity considerations and long-term value creation. As part of its growth strategy, the Company intends to expand its retail footprint across selected markets in Eastern and Southern India. Khadim will continue to enter new markets through COCO stores and subsequently strengthen its presence through franchise-led expansion.

Digital channels are expected to remain an important growth driver. Khadim continues to strengthen its online presence through its owned platforms and targeted digital marketing initiatives. The Company remains focussed on increasing the contribution of e-commerce sales while enhancing customer engagement across its omnichannel ecosystem.

The Company emphasises executing its strategic priorities with discipline and agility. Continued emphasis on premiumisation, productivity improvement, network optimisation and digital growth is expected to support sustainable business. By aligning its offerings with evolving consumer preferences and strengthening execution across channels, Khadim aims to enhance competitiveness, profitability and create value for stakeholders.

KEY RATIOS

Key Ratios	FY 2024-25	FY 2025-26	Change (YoY)	Reason
Debtors Turnover Ratio	0.35	0.51	43.25%	Due to reduced turnover on account of the demerger
Inventory Turnover Ratio	0.35	0.35	0.98%	NA
Interest Coverage Ratio	1.24	1.19	-3.63%	NA
Current Ratio	1.43	1.38	-3.57%	NA
Debt Equity Ratio	0.45	0.73	60.85%	Due to reduced net worth on account of the demerger
Operating Profit Margin	10.71%	12.88%	20.31%	NA
Net Profit Margin	0.83%	0.86%	2.69%	NA
Return on Net Worth	2.27%	1.88%	-17.38%	Due to reduced net worth on account of the demerger

HUMAN RESOURCES

The Company understands that effective Human Resource Management is fundamental in achieving success through high performance, a customer- centric culture, and fostering happy and value-oriented employees. Efficient management of our workforce is crucial for meeting transformational objectives and plays a vital role in supporting managers with their day-to-day responsibilities - from hiring and employee development to providing valuable insights to senior leadership. These efforts strengthen our strategic planning and decision-making capabilities by laying down a solid foundation of data and knowledge. Ultimately, we recognise that effective workforce management is key to organisational success and progress towards our overarching goals.

At the core of our strategy is a strong focus on nurturing our human capital through comprehensive training programs. These initiatives are designed to systematically enhance employees knowledge, skills, attitudes, and teamwork abilities. Our training programs are strategically crafted not only to improve personal competencies essential for current job performance but also to prepare employees with the skills necessary for future career advancement. Moreover, our recruitment processes are consistently aligned with established procedures and business needs, ensuring we attract the right talent for our organisation. We have implemented various measures and programs to boost employee engagement and foster a deeper sense of commitment among our workforce.

As part of our commitment to diversity and inclusion, the company is implementing targeted strategies aimed at attracting, retaining, and nurturing top talent, regardless of race, gender, religion, age, culture, sexual orientation, disability, or background. In addition, we are dedicated to supporting young individuals in securing apprenticeships that provide them with practical skills essential for navigating everyday workplace challenges in the corporate world. In conclusion, our sustained investment in human resource management and employee development will continue to drive our Companys success and ensure we cultivate an environment where all employees can thrive.

As of March 31, 2026, there were 496 permanent employees on the rolls of your Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has implemented strong internal control mechanisms and follows a set of policies, procedures, and systems designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with applicable accounting standards. It also ensures the accurate recording of transactions with internal checks, prompt reporting and strict adherence to applicable accounting standards and compliance with applicable statutes, policies, procedures, guidelines and authorisations. This helps in establishing and implementing an Internal Financial Control (IFC) framework to ensure compliance with the Companies Act and support the Directors Responsibility Statement.

The Internal Audit department conducts periodic audits at all locations and functions based on the Annual Audit Plan approved by the Audit Committee and promptly addresses any deviation in internal control procedures. Significant Internal Audit Observations and status of implementation are submitted to the Audit Committee every quarter for its review by the Head of the Internal Audit Department. As a part of their audit procedures, the Statutory Auditors review the efficacy and adequacy of the Internal Audit function and have full access to all the reports and findings of the Internal Audit Department.

CAUTIONARY STATEMENT

Statements contained in the Management Discussion and Analysis Report describing the Companys objectives, expectations, estimates, projections, outlook, and assumptions may constitute "forward- looking statements" within the meaning of applicable laws and regulations. These statements are based on certain assumptions and expectations of future events and are subject to various risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied in such statements.

Important factors that may influence the Companys operations include changes in economic conditions, consumer demand, competitive intensity, regulatory developments, taxation policies, technological advancements, supply chain disruptions and other factors beyond the Companys control. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.

Readers are cautioned not to place undue reliance on these forward-looking statements and are advised to undertake their own assessment and evaluation before making any investment or business decisions. The statements contained in this report should be read in conjunction with the risks, assumptions and uncertainties discussed elsewhere in this Annual Report.