Industry Structure and Developments
The global footwear market is estimated to record a revenue of US$ 398.40 billion in
2023 and grow at a Compound Annual Growth Rate (CAGR) of 3.47% during 2023-2028. The
enormous growth of the footwear market is also attributed to changing lifestyles, increase
in health awareness, and changing fashion trends.
The organised retail sector in India has experienced phenomenal growth, primarily due
to economic growth, favourable demographics, increase in disposable income, urbanisation,
growth of rural consumption, popularity of digital payment and changing consumer
preferences.
Footwear is one of the largest retail segments in India. The Indian footwear industry
has evolved in the last few years in line with changing demographics, new players and
formats, and the growth of the organised retail sector. The Indian footwear market is
projected to grow at a CAGR of 15% to 17% from RS 920 - Rs 950 billion in FY 2021-22 to
reach Rs 1,380 -RS 1,450 billion by FY 2024-25. The organised footwear segment has been
growing at a faster rate and its market share is estimated to grow from 30.6% in FY
2019-20 to 36%-40% by FY 2024-25 and will reach Rs 530 - Rs 550 billion by FY
2024-25. The major growth drivers are the shift in perception of footwear from being a
utilitarian product to a fashion accessory, rising demand for branded footwear, double
income households and digital penetration. Further, the expansion of exclusive brand
outlets in Tier II and small towns and increased share of e-retail are also propelling the
growth of the organised footwear sector.
The footwear sector in India is now de-licensed and de-reserved and the government has
allowed 100% FDI through the automatic route for this sector. Campaigns such as ‘Make
in India and ‘Self-reliant India will boost domestic manufacturing and increase the
competitiveness of Indian manufacturers in the global market. These initiatives are
beneficial for the Indian footwear industry.
The footwear industry in India is poised for robust growth in the coming years. A shift
in consumer preference towards fashionable and premium products is expected to boost the
demand for higher ASP (average selling price) segments in the footwear industry. CRISIL
Research expects the ASP to grow from ~Rs 415 - Rs 430 in FY 2022 to 490 – RS
515 in FY 2025 at a CAGR of 5-7%. Further, the sports and athleisure (S&A) segment in
the footwear market in India is growing rapidly. The demand for sports and athleisure
footwear is expected to increase due to a heightened focus on health and fitness globally.
Company Overview
Khadim India Limited (also referred to as ‘Khadim or ‘the Company) is one
of the leading footwear brands in India with a legacy of over six decades. It is the
second largest footwear retailer in India in terms of number of exclusive retail stores
operating under the ‘Khadim brand, with the largest presence in East India and one
of the top three players in South India. The Company has the largest footwear retail
franchise network in India which contributes to Khadims success and brand equity.
The Company has established an identity as an ‘affordable fashion brand and
"Affordable fashion for everyone" remains at the core of its business objective.
Its wide range of footwear caters to the entire family for all occasions. The Company
operates through 846 retail stores and 700 distributors in 24 States and 4 Union
Territories as on March 31, 2023.
Khadim has a two-pronged business model – Retail and Distribution, each with its
predominantly own customer base, sale channels and product range. The Companys retail
business operates through exclusive retail stores (company-owned outlets and franchisees)
catering to middle and upper middle income consumers in metros and Tier I - Tier III
cities, who primarily shop in high street stores and malls. Its distribution business
operates through a wide network of distributors catering to lower and middle income
consumers in metros and Tier I - Tier III cities, who primarily shop in multi-brand
outlets (MBO).
According to CRISIL Research,Rs ~55.80% of the footwear industry lies in the Mass
category (ASP = Rs 500) and 26.6% lies in the economy range (RS 501 – Rs 1,000).
Khadim successfully caters to both categories through its retail and distribution
businesses. 58% - 60% of the Companys retail sales come from Tier II - Tier III markets
wherein 75% - 80% of its SKUs are below Rs 1,000. ~80% of its distribution sales come
from Tier II - Tier III markets wherein 85% of the SKUs are below Rs 500.
The Company follows an asset-light model with a focus on the expansion of its store
network across India, premiumisation and optimum capacity utilisation for sustainable
growth. The expansion of store presence across geographies via a franchisee partner
network is an integral part of its growth strategy. Khadim has always believed in
designing its product in line with the latest domestic and global fashion trends. It
consistently invests in research and development to remain abreast with emerging trends
and update its product portfolio by enhancing design skills. Khadims strong design
capabilities have enabled it to create and grow sub-brands, drive premiumisation and
target and retain aspirational customers.
Operational & Financial Highlights
In the financial year 2022-23, the net sales for the Company increased to Rs 6,602.64
million as against Rs 5,910.80 million in the previous year, marking a rise of 11.70%.
The operating EBITDA increased to Rs 725.24 million as against RS 478.04 million in the
previous year, up by 51.71%. The operating EBITDA margin increased to 10.98% of net sales
as against 8.09% in FY 2021-22. Profit Before Tax was 225.71 million as against Profit
Before tax of RS 77.73 million in the preceding year, recording a growth of 190.40%. The
Profit After Tax for FY 2022-23 was Rs 175.07 million compared to Profit After Tax
of 64.59 million in FY 2021-22, showing a growth of 171.06%. The gross margin for retail
and distribution were 53% and 34.90% respectively.
Revenues - Segment-Wise
Retail Business
The Companys retail business has a widespread presence across 24 states and 4 Union
Territories under the brand name "Khadim" as on March 31, 2023. The asset-light
model expansion strategy of the brand continued to strengthen its retail presence in Tier
ll & lll cities. The retail segment caters to middle and upper-middle income consumers
in metros (including mini metros) and Tier I - III cities.
The Company expanded its retail footprint by opening 91 retail stores in FY 2022-23. As
of March 31, 2023, the total number of Khadims retail stores stood at 846 including
Company Owned Company Operated stores (COCO), Franchise Stores (BO/EBO) and Franchisee Run
and Managed stores (FRM). As part of the asset-light model, 74% of the retail presence is
through the franchise route and 91% of the product manufacturing is outsourced through the
Companys vendor network.
The Company offers a wide product range of footwear across various categories and price
points ranging between Rs 105 and Rs 4,199 across the mother brand "Khadim" and
sub-brands ‘Pro, ‘Lazard, ‘Softouch, ‘Cleo, ‘British
Walkers, ‘Turk, ‘Sharon, ‘Bonito and ‘Adrianna to cater to
customers of different age groups. The product range consists of leather/non-leather
sandals, slippers, boots, ballerinas, stilettos, moccasins, sports shoes and accessories
(socks, shoe polishes, brushes, leather belts, wallets, laptop bags, etc.)
The premiumisation of products within the spectrum of affordable fashion through
various sub-brands has led to an increase in ASP and higher gross margin. Khadim has
adopted the trinity approach of revamped product range which is trendy and vibrant,
redesigned and refreshed in-store experience and reinforcement of the affordable price
points to provide a better retail experience to the customers.
Distribution Business
The Companys distribution segment provides branded and affordable footwear in the Mass
footwear category. Khadims distribution business operates through a wide network of
distributors catering to lower and middle-income consumers in metros and Tier I - III
cities, who primarily shop in MBOs. The Company has an extensive distribution network base
of 700 distributors (447 in the East, 78 in the West, 106 in the North and 69 in the
South) as of March 31, 2023.
The Company sells trendy products ranging in price from Rs 75 to Rs 999. The product
range consists of EVA, basic and premium Hawaai, PVC, PVC DIP, PU, Stuck On products, etc.
under the mother brand "Khadim" and sub-brands Kalypso, Wash n Wear, Fliers,
FitNxt, Dunford, Pugo each having a targeted end user. The various sub-brands help to
achieve premiumisation in this business. The Companys Distribution business follows a
highly scalable model on the front-end with a mix of in-house and contract manufacturing.
Khadim manufactures 97% of the products to have better control on quality, supply and
cost. It aims to be a family brand in this business segment by expanding its product line.
Marketing and Branding
Khadim is an established, home-grown brand that caters to customers across all age
groups and for all occasions. It offers fashionable footwear at affordable prices for the
masses. It carries a powerful legacy and the brand has always moved with time while
staying true to its roots. The Companys unique trinity offering of refreshed in-store
experience, affordable pricing, and fashionable range of products deliver a delightful WOW
experience to consumers. The Company continues to reinforce its consumer connect approach
through various focused marketing initiatives that aid in consumer engagement and resonate
with brand image. It consistently makes the necessary investments in digital marketing,
curating content that connects with young audiences and being active on social media
channels to attract target audiences.
During FY 2022-23, the Company boosted its marketing initiatives to increase brand
visibility. It has launched well-crafted social media campaigns that connect with the
desires and aspirations of the younger audience. The Company continues its association
with leading Indian cricketer Shardul Thakur as its Brand Ambassador to capitalise on his
popularity and to target young consumers, especially Gen Z and millennials. "Its Wow
Its Khadim" campaign featuring Shardul Thakur highlights the Companys offering of
new fashionable range of products at affordable price points and the refreshed in-store
ambience provides the consumers a delightful shopping experience. The Company also
collaborated with two immensely popular YouTubers of West Bengal, Kiran Dutta (The Bong
Guy) and Indrani Biswas (Wonder Munna) to create a "Never Before Campaign" in
West Bengal just before Durga Puja in the local language to connect with the audience more
efficiently. Further, the Company showcased its Durga Puja collection through an unique
initiative in prominent cities where Durga Puja is celebrated with great fervour. Giant
cut-outs of Khadims Durga Puja collections were installed at strategic locations in and
around West Bengal, Tripura and Assam. This helped to increase the brand visibility during
the festive season.
The Company initiated multiple Social Media campaigns during the year. It switched to
WhatsApp marketing over mass messaging with the aim to communicate directly with the
consumers and attract their attention. It helped the brand to reach out to individual
consumers with comprehensive information on new launches, offers, sale, etc., and to share
product images, promo codes and link to the website in one single message. This initiative
helped the brand to deliver its message directly to the target audience, boost the
conversion rates generating sales and establish long-term relationships with the
consumers.
The Company also adopted multiple new-age strategies to expand its network across the
country and collaborated with franchise partners. The Company explored various strategies
such as lead generation campaign on Meta in vernacular languages and promotional WhatsApp
campaign to pan-India retailers and brokers with referral commission. The Company also
tied-up with influencers such as Franchise Batao (Dr. Ashish Aggarwal) on YouTube to
promote its franchise business. Further, the Company continued Khadim Near Me activities
at various housing complexes and registered office building of Khadim to promote the brand
and its products as well as to generate revenue.
Outlook
The Company is optimistic to deliver strong growth going ahead. It is well positioned
to capitalise on the growth of the organised footwear retail segment, expanding middle
class, and their surging aspirations and spending.
Khadim believes in the philosophy of ‘affordable fashion for everyone. It has
always strived to provide affordable footwear for the entire family for every occasion. It
continues to launch new products at pocket-friendly prices to drive sales volume. It also
introduced a variety of athleisure products across all demographics to cater to surging
demand for athleisure footwear.
The Company is focused to maximise revenue potential through all channels. With its
vision to be an omni-channel brand, it is focused on enhancing its omni-channel facility
to provide a seamless customer experience. E-commerce is a key focus area for Khadim. It
has partnered with major e-commerce platforms including Amazon, Flipkart and Myntra and
enhanced the reach of its own platform www.khadims.com to widen its product offerings and
improve its services to increase consumer base. The Company continues its Customer
Relationship Management (CRM) program to improve its customer service relationships,
assist in customer retention and drive sales growth.
The Company is focusing on premiumisation, product innovation, and demand traction to
improve margins and boost growth in the coming years. It will continue with the expansion
of stores at various strategic locations across India to strengthen its retail presence
and deepen its reach beyond Tier II & Tier III cities. Its brand presence and product
range enable it to address ~85% of the total Indian footwear market potential through its
retail and distribution business. The Company targets to enter into new markets through
Company Owned Company Operated outlets (COCO) and further augment presence in such markets
through franchisees once the brand is well established. It aims to penetrate existing
markets in Eastern and Southern India and capitalise on retail brand recall and target
markets in West and North India.
Key Ratios
In accordance with the SEBI (Listing Obligations and Disclosure Requirements)
Regulations 2015, the Company complies with the requirement to provide details of key
financial ratios along with detailed explanations thereon in case of a change of 25% or
more compared to the previous financial year. The key financial ratios are depicted below:
| Sl. No. Ratios |
FY 2023 |
FY 2022 |
Change (YoY) |
Reason |
| 1 Debtors Turnover Ratio |
0.28 |
0.23 |
23.50% |
NA |
| 2 Inventory Turnover Ratio |
0.27 |
0.28 |
-3.82% |
NA |
| 3 Interest Coverage Ratio |
1.78 |
1.34 |
32.40% |
The increase was mainly on account of a higher operating margin |
| 4 Current Ratio |
1.35 |
1.22 |
10.85% |
|
| 5 Debt Equity Ratio |
0.53 |
0.61 |
-13.35% |
|
| 6 Operating Profit Margin |
10.98% |
8.09% |
35.81% |
The increase was mainly on account of higher gross margins and
cost-control measures |
| 7 Net Profit Margin |
2.65% |
1.09% |
142.66% |
The improvement is largely due to higher profits on account of general
improvement in retail business due to the reduced impact of the pandemic |
| 8 Return on Net Worth |
8.66% |
3.50% |
147.30% |
Higher net profits resulted in improved return on net worth |
Opportunities
Indias annual per capita consumption of footwear in 2019 was approximately 1.9 pairs,
which is lower compared to the global average of 3.2 pairs. This indicates significant
potential for growth in the future. Indian footwear consumption in terms of volume is
projected to grow at a CAGR of 8-10% between FY 2022-25 with total footwear consumption
estimated to reach ~2.9 billion pairs by FY 2024-25. The Indian footwear market is
well-positioned to achieve healthy growth in the coming years, aided by a growing young
and working population, increasing aspirations and affordability, growing popularity of
e-commerce, the impact of social media and exposure of global fashion trends among others.
Footwear is one of the biggest order volume contributors to the overall e-commerce
industry. Indian consumers are more receptive to buying footwear online, which will
further boost the demand for footwear.
With a clear growth strategy in place, the Company is confident in its trajectory and
remains steadfast in expanding its business. Buoyed by Indias projected rapid growth and
its strong presence in the domestic market, Khadim is geared to capitalise on the
unfolding opportunities in the footwear retail sector and further accelerate its growth
momentum.
Risk, Threats, Concerns and Mitigation
1) Higher inflation and subdued demand: Persistent inflationary pressure and the
rising cost of living may impact consumer sentiment and reduce spending on non-essential
products, which may impact the demand for footwear.
Mitigation: The Company prioritises the evaluation and enhancement of its
product portfolio with a prime focus on cost-effectiveness. It focuses to provide
customers with a wider variety of products at varied price points. The Company also offers
discounts and promotions periodically to attract customers and incentivise them to buy its
products.
2) Fast-changing trends: The Company is sensitive to fast-changing consumer
trends and the inability to respond to customer expectations can adversely impact the
business.
Mitigation: The Company consistently upgrades its product portfolio with
innovative designs based on extensive research into emerging trends and customer
aspirations. Its wide range of brands and robust product portfolio offers a great variety
of options to customers. Moreover, the Company focuses on digital campaigns for brand
building and growing customer interest in the brand and its products.
3) GST Rate hike: The GST rate hike from 5% to 12% on footwear priced below
1,000 impacted the footwear industry. An increase in GST rates would lead to higher costs
of products for the end consumers and could impact the customers buying ability and
sentiment, leading to the cancelation or postponement of purchase decisions or the
selection of a product with a lower value.
Mitigation: The Company is committed to offer quality products at affordable prices
to cater to the needs of price-sensitive consumers.
4) Competition risk: Footwear retailing is a highly competitive and fragmented
space with a large number of unorganised retailers and organised players who have similar
product lines leading to pressure on margins. The situation is further aggravated by the
competition from national and international organised retailers.
Mitigation: The Companys value proposition lies in its being a family store and
its wide product portfolio which gives it a competitive advantage. Additionally, the
Company has been working to expand its market presence by bolstering its retail presence
and distribution network, in addition to expanding its franchise network to further
strengthen its market penetration.
Human Resources
The Company believes that robust Human Resource Management ensures success through high
performance and customer-centric culture with happy and value-oriented employees. The
Companys HR strategy and plans are deeply rooted in its organisational goals. It
emphasises on the overall development of its employees. Hence, training of the employees
is aimed at systematic development of knowledge, skills, aptitude and teamwork.
Training is designed for the development of personal skills necessary for the
performance of the present job and to prepare them for future growth. Internal process in
the Company in terms of recruitment has been maintained as per laid down process and
business requirement. The Company has taken various initiatives to enhance the engagement
and commitment of employees.
The Company is focused on delivering specific initiatives to recruit, retain and
develop the highest quality people regardless of race, gender, religion, age, culture,
sexual orientation, disability or background. In addition, the Company has partnered with
the National Apprenticeship Promotion Scheme of the Government of India to help young
people to get into apprenticeships to enhance their practical skills required to tackle
everyday work challenges in the business world.
As on March 31, 2023, there were 765 permanent employees (including 17 female
employees) on the rolls of the Company.
Internal Control Systems and Their Adequacy
The Company has a robust and dynamic Internal Financial Controls (IFC) framework which
commensurate with the size, scale, and complexity of the Companys operations. The
Companys internal financial control framework is in line with the requirements of the
Companies Act, 2013. The Company has laid down Standard Operating Procedures (SOPs) and
policies to guide and standardise the business operations. All the Business heads are
responsible to ensure compliance with these policies and procedures. The Code of Conduct
for Senior Management and Employees of the Company ("Code of Conduct") commits
the Management to financial and accounting policies, systems and processes. The Corporate
Governance Policies and the Code of Conduct stand widely communicated across the Company
at all times.
The scope and authority of the Internal Audit function is defined in the Internal Audit
Charter which is approved by the Audit Committee of the Company. To maintain its
objectivity and independence, the Internal Auditor reports to the Chairman of the Audit
Committee. The Internal Auditor develops an annual audit plan based on the current risk
profile of the business activities of the Company and the same is approved by the Audit
Committee, which also reviews compliance to the plan. The Internal Audit team under the
guidance and supervision of the Internal Auditor monitors and evaluates the efficacy and
adequacy of internal control systems, its compliance with operating systems, accounting
procedures, and policies at all locations of the Company. Based on the report of the
Internal Auditor, process owners undertake corrective action(s) in their respective
area(s) and thereby strengthen the internal controls of the Company.
Significant audit observations and corrective action(s) thereon are presented to the
Audit Committee. The Audit Committee at its meetings reviews the reports submitted by the
Internal Auditor.
Cautionary Statement
The Management Discussion and Analysis may contain some ‘forward-looking
statements regarding anticipated future developments, financial performance, and
operational outcomes of Khadim India Limited. These ‘forward-looking statements by
their very nature involve assumptions from the Company and are subject to inherent risks
and uncertainties. There is a significant risk that the assumptions, predictions, and
other forward-looking statements will not prove to be accurate. Readers are cautioned not
to put undue reliance on forward-looking statements as multiple factors could lead to
assumptions, actual future outcomes, and events to differ materially from those expressed
in the forward-looking statements. Hence, this document is subject to the disclaimer and
qualified in its entirety by the assumptions, limitations, and risk factors included in
the Management Discussion and Analysis of Khadim Annual Report for FY 2022-23.
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