Liberty Shoes Ltd Management Discussions

The discussion under this head covers the financial results for the year ended 31st March, 2026 and other related developments concerning the business of the Company.

Indian Economic Scenario

The Indian economy continued to demonstrate resilience during FY 2025-26 despite a challenging global environment characterised by geopolitical tensions, trade disruptions, volatile commodity prices and continuing uncertainty in international trade policies. According to the Economic Survey 2025-26, Indias real GDP growth for FY 202526 was estimated at 7.4%, with growth supported substantially by domestic demand, private consumption and capital formation. Manufacturing activity also strengthened during the year, while services remained an important contributor to overall economic growth.

Domestic consumption continued to remain an important driver of economic activity. Rising incomes, increasing urbanisation, expanding digital penetration and improving connectivity are supporting the formalisation and expansion of Indias consumer markets. The growth of Tier-II and Tier-III cities and increasing access to organised retail and digital commerce are also creating new consumption opportunities for branded consumer products.

The Indian economy, however, continues to operate against a backdrop of global uncertainties. Geopolitical developments, changing tariff regimes, fluctuations in foreign exchange rates, commodity prices and freight costs can have an impact on input costs, consumer sentiment and export competitiveness.

The Companys business and financial performance therefore needs to be viewed in the context of these broader economic developments.

The Footwear Industry - Structure and Development

The Indian footwear industry continues to be one of the countrys important consumer and employment-generating sectors. India is among the worlds largest footwear producers and consumers, with a substantial domestic market supported by its large population, rising disposable incomes and increasing penetration of organised retail and branded footwear. The Council for Leather Exports continues to identify India as the worlds second- largest footwear producer after China.

The industry is undergoing a structural transformation from a predominantly fragmented and price-driven market towards a more organised, branded and quality-conscious market. Increasing consumer awareness, greater acceptance of branded products, premiumisation, comfort-oriented products and the growing influence of digital commerce are contributing to this transformation.

The footwear industry is also witnessing increasing segmentation across formal, casual, athleisure, sports, comfort, childrens and womens footwear, thereby providing opportunities for brands with diversified product portfolios.

Government Policy and Regulatory Environment

Government policy continued to focus on strengthening Indias domestic footwear manufacturing ecosystem, improving product quality, promoting employment and enhancing Indias position in global footwear markets.

The Focus Product Scheme for the Footwear and Leather Sector, announced in the Union Budget 2025-26, is aimed at enhancing productivity, quality and competitiveness. The scheme envisages support for design capacity, component manufacturing and machinery for non-leather quality footwear as well as leather footwear and products. The Government has indicated that the initiative is expected to facilitate employment for approximately 22 lakh persons, generate turnover of around Rs.4 lakh crore and increase exports beyond Rs.1.1 lakh crore.

BIS Quality Standards

The implementation of mandatory Bureau of Indian Standards (BIS) Quality Control Orders remains one of the most significant structural developments in the footwear industry.

During 2026, the Government further amended the footwear QCO framework. In June 2026, the applicable QCOs relating to footwear made from leather and other materials and footwear made from all rubber and polymeric materials were amended, including extension of the timeline for clearance of specified legacy stock up to 31st July, 2027. The amendments also provide for import of up to 4,500 pairs per year for research and development and non-commercial purposes, subject to prescribed conditions.

The progressive implementation of BIS standards is expected to promote formalisation, improve product quality and reduce the availability of sub-standard products in the market. It also places greater emphasis on quality systems, testing, traceability and regulatory compliance throughout the footwear value chain.

Liberty, recognising the importance of BIS standards, has taken requisite steps to comply with applicable regulatory requirements and remains committed to offering quality-driven footwear to its customers.

International Trade and Export Opportunities

The global footwear industry continues to witness changes in sourcing patterns as international brands seek to diversify their manufacturing and sourcing bases. This presents an opportunity for India, given its manufacturing capabilities, skilled workforce, large domestic ecosystem and increasing ability to produce value-added footwear.

A significant development during 2026 was the conclusion of negotiations for the India-European Union Free Trade Agreement announced on 27th January, 2026. The Government has highlighted significant opportunities for labour-intensive sectors including leather and footwear. The India- EU arrangement is expected to improve market access for Indian exports and enhance the competitiveness of Indian products in the European market, subject to completion of the applicable legal and implementation processes.

The EU represents a substantial opportunity for Indian leather and footwear exporters. The Governments fact sheet indicates that Indias exports of leather and footwear to the EU are approximately Rs.20,900 crore, against a much larger EU import market, thereby providing significant scope for increasing Indias market share.

At the same time, global trade tensions and changes in tariff structures, particularly in major export markets, remain important risks for the footwear industry. Companies will need to diversify markets, strengthen supply chains and improve product competitiveness to mitigate these risks.

Consumer Trends and Retail Landscape

Consumer preferences in the Indian footwear market continue to evolve rapidly.

The demand for comfort, functionality, fashion and versatility is increasing. Athletic and athleisure footwear, sneakers, casual footwear, EVA-based products and lightweight constructions continue to gain consumer acceptance.

There is also increasing demand for premium and better-designed products as consumers become more brand conscious. Womens footwear and childrens footwear remain important growth segments, while the traditional formal footwear segment continues to evolve with changing workplace and lifestyle patterns.

The retail landscape is undergoing a significant transformation. Physical stores, malls and high- street retail continue to remain important because footwear is a category where consumers often prefer physical trials. At the same time, e-commerce, brand-owned digital platforms and social commerce are expanding the addressable market.

The growth of quick-commerce platforms is also creating a new channel for footwear, particularly for impulse, convenience and immediate-need purchases. Liberty has expanded its digital accessibility through platforms including Blinkit, thereby improving customer convenience and enabling the brand to participate in the emerging quick-commerce opportunity.

The increasing penetration of smartphones and digital payments, particularly in Tier-II, Tier-III and smaller towns, is expected to further support the growth of online footwear consumption.

Technology, Design and Sustainability

Technology is increasingly influencing the footwear value chain—from product design and development to manufacturing, inventory planning, marketing and customer engagement.

Digital design tools, data analytics, artificial intelligence-enabled customer insights, demand forecasting and digital marketing are creating opportunities for footwear companies to improve product development and operational efficiency.

At the same time, consumers are becoming increasingly conscious of environmental and sustainability considerations. This is driving greater attention towards responsible sourcing, efficient use of materials, recyclability, sustainable manufacturing processes and reduction of waste.

The industry is therefore expected to increasingly balance design, affordability, comfort, quality and sustainability.

Opportunities and Threats

The Indian footwear industry is undergoing a structural transformation driven by rising incomes, urbanisation, premiumisation, digitalisation, changing lifestyles and increasing consumer awareness. Liberty continues to evaluate these evolving market dynamics and align its business strategy with emerging opportunities.

Opportunities

1. Growing Domestic Consumption

Indias expanding middle class, increasing disposable income and urbanisation are supporting growth in branded footwear consumption. The large domestic market provides considerable long-term opportunities for organised footwear companies.

2. Premiumisation

Consumers are increasingly willing to pay for improved design, comfort, quality and brand value. This provides opportunities for companies having established brands and diversified product portfolios.

3. Growth in Athletic and Comfort Footwear

The increasing focus on health, fitness and casual lifestyles is supporting demand for sports, athleisure, sneakers, EVA and comfort-oriented footwear.

4. E-commerce and Omnichannel Retail

E-commerce, brand-owned websites, marketplaces and quick-commerce platforms provide opportunities to expand geographical reach without proportionate dependence on physical retail infrastructure.

5. Tier-II and Tier-III Markets

Increasing internet penetration, digital payments and improving logistics are making smaller towns increasingly accessible to organised footwear brands.

6. Global Sourcing Diversification

Global brands are increasingly looking to diversify sourcing beyond traditional manufacturing locations. Indias manufacturing ecosystem and skilled workforce provide opportunities to participate more actively in global supply chains.

7. India-EU Trade Opportunity

Improved market access arising from the India-EU FTA presents an opportunity for Indian footwear manufacturers and brands to increase their presence in the European market, subject to implementation of the agreement and applicable rules of origin and regulatory requirements.

8. Government Support

The Focus Product Scheme and other policy measures directed towards productivity, quality, design, machinery and component manufacturing can strengthen Indias footwear manufacturing ecosystem.

Threats

1. Imports and Price Competition

The industry continues to face competition from low-priced and under-invoiced imports. Changes in trade agreements and rules of origin can also affect the competitive environment.

2. Raw Material Prices

Leather, synthetic materials, rubber, EVA, chemicals, packaging materials and other inputs remain subject to price volatility. Sustained increases in input costs may put pressure on margins.

3. Global Trade Uncertainty

Changes in tariff policies, geopolitical developments, currency movements and international trade restrictions may affect export competitiveness and sourcing costs.

4. Regulatory Compliance

The implementation of BIS standards requires continuous investment in testing, quality systems and compliance. While this is expected to strengthen the organised industry over the long term, it can increase compliance costs in the short term.

5. Sustainability Requirements

Increasing environmental scrutiny relating to leather manufacturing and growing consumer preference for sustainable products may require additional investment in processes, materials and certifications.

6. Increasing Competition

The organised footwear market is becoming increasingly competitive with the entry and expansion of national and international brands as well as digital- first brands. Shorter product cycles and rapidly changing consumer preferences require faster product development and efficient inventory management.

7. Changing Fashion Trends

Footwear is increasingly influenced by fashion, social media and digital trends. Failure to anticipate changes in consumer preferences can result in inventory obsolescence and markdown pressures.

Outlook

The outlook for the Indian footwear industry remains positive, supported by Indias strong domestic consumption base, rising disposable incomes, urbanisation, premiumisation and increasing formalisation of the sector.

The industry is expected to benefit from increasing adoption of branded footwear, growth in athletic and comfort categories, expansion of organised retail and rapid development of e-commerce and omnichannel distribution.

Government initiatives aimed at strengthening domestic manufacturing, improving quality standards and enhancing Indias export competitiveness are expected to support the sectors medium- and long-term development. The Focus Product Scheme for the footwear and leather sector is particularly relevant to the industrys efforts to improve design capabilities, component manufacturing, machinery and productivity.

The India-EU FTA also has the potential to create a meaningful new opportunity for Indian footwear exporters by improving access to one of the worlds largest consumer markets.

However, the industry will continue to remain exposed to raw-material price volatility, currency fluctuations, changing tariff regimes, global economic uncertainties and competitive pressures.

Liberty with its established brand presence, manufacturing capabilities, distribution network and growing digital presence, remains well positioned to participate in the long-term growth of the Indian footwear market. The Company will continue to focus on product innovation, quality, brand strengthening, operational efficiency, omnichannel distribution and prudent cost management.

Risks and Concerns

Risks and concerns are inherent in every business and require continuous monitoring and mitigation.

The principal risks affecting the footwear industry and the Company include:

Raw Material Risk: Volatility in prices of leather, synthetic materials, rubber, EVA, chemicals and other inputs may affect margins.

Demand Risk: Changes in consumer sentiment, inflation and discretionary spending can affect demand, particularly in price-sensitive segments.

Competition Risk: Increasing competition from organised domestic brands, international brands, private labels and digital-first players may exert pressure on market share and margins.

Regulatory Risk: Changes in BIS standards, quality control requirements, environmental regulations, labour regulations and other statutory requirements may increase compliance costs.

Foreign Exchange Risk: Changes in foreign exchange rates may affect the Companys export revenues, imported inputs and overall competitiveness.

Trade Risk: Changes in tariff policies, FTAs, rules of origin and geopolitical developments may affect international trade.

Inventory Risk: Rapid changes in fashion and consumer preferences can lead to shorter product life cycles and inventory obsolescence.

Sustainability Risk: Increasing environmental expectations and regulatory requirements may require investment in sustainable materials and processes.

Technology and Cyber Risk: Increasing dependence on digital commerce, technology and data systems exposes businesses to cybersecurity and technology-related risks.

The Company continues to maintain appropriate systems and processes for identification, assessment and mitigation of these risks. The Board and the Audit Committee periodically review the Companys risk management framework and the effectiveness of the mitigation measures.

Internal Control Systems and their Adequacy

Liberty has a well-established and comprehensive internal control framework across its various functions, designed to safeguard the Companys assets, prevent and detect fraud and errors, ensure the accuracy and completeness of accounting records, and facilitate the timely preparation of reliable financial information.

The internal control framework is integrated with the Companys risk management system, enabling the identification of key risks and implementation of appropriate controls and mitigation measures.

The Companys Internal Audit function independently evaluates the adequacy and effectiveness of internal controls and reports its observations and findings to the Audit Committee. The Audit Committee periodically reviews the internal audit reports, adequacy of financial controls, risk management systems and compliance framework, and monitors the implementation of corrective and remedial measures.

The Company continues to strengthen its internal control environment through periodic review and improvement of processes, technology-enabled controls, appropriate segregation of duties, compliance monitoring and timely corrective action on observations identified through internal audit and other review mechanisms.

During the year under review, the internal control systems were reviewed and tested across relevant functions, and no material weakness in the design or operating effectiveness of such controls was reported. The Company believes that its internal control framework is adequate and commensurate with the size, scale and complexity of its operations.

Discussion on Financial Performance

During the Financial Year 2025-26, the Company continued to maintain healthy revenue momentum, supported by its diversified product portfolio, retail and digital expansion, institutional business and continued focus on product innovation and customer-centric offerings.

The Company recorded Gross Sales of Rs.73,999.11 lakh, as compared with Rs.67,548.06 lakh in the previous year, representing a growth of approximately 9.55%. The growth was supported by continued traction across key business channels, expansion of the retail network, increasing contribution from digital channels and institutional business, and a broader and more relevant product assortment.

Profit Before Tax (PBT) declined by 28.27% to Rs.1,497.26 lakh, while Net Profit stood at Rs.1,118.95 lakh, as compared with Rs.1407.39 lakh in the previous year. The moderation in profitability, despite revenue growth, was primarily due to higher input and raw material costs, regular increases in minimum wages and the consequent increase in employee benefit costs, together with other operating cost pressures during the year. These factors impacted operating margins and partly offset the benefit of higher sales.

The GST rationalisation on footwear priced up to Rs.2,500 per pair, effective from September 22, 2025, from 12% to 5%, was a positive development for the industry and supported affordability and consumer demand. However, as the benefit was available only for part of the financial year and was largely intended to improve consumer value and affordability, it did not translate into a corresponding improvement in the Companys profitability during the year.

The Company continued to strengthen its product portfolio across performance, casual, lifestyle and value segments, with greater emphasis on design, comfort, functionality and evolving consumer preferences. The retail network was further expanded, particularly across Tier-II and Tier-III cities, while the Companys D2C and marketplace presence continued to gain traction. The institutional and safety footwear business also remained an important contributor, supported by demand from manufacturing, infrastructure, construction and other institutional sectors.

The Company remained focused on inventory optimisation, receivable management and working capital discipline. Working capital borrowings stood at Rs.7,386.96 lakh as compared with Rs.6,936.20 lakh in the previous year, broadly reflecting the increased scale of operations. Long-term vehicle loans, including current maturities, stood at Rs.590.50 lakh as compared with Rs.500.46 lakh in FY 202425. No specific term loan was availed for capital expenditure, with the Companys capital expenditure requirements being substantially funded through internal accruals.

Capital expenditure during the year amounted to Rs.2,095.27 lakh, excluding leasehold rights, and was primarily towards moulds, machinery, furniture and fixtures and other business-related capital requirements. In accordance with Ind AS 116, leasehold rights amounting to Rs.2,598.90 lakh were recognised, with Rs.137.59 lakh relating to terminated contracts adjusted accordingly. Fully depreciated tangible assets amounting to Rs.1,720.18 lakh, together with the corresponding accumulated depreciation, were written off during the year.

Non-current investments stood at Rs.0.45 lakh, while other financial assets increased to Rs.924.99 lakh from Rs.831.49 lakh in the previous year.

The Company continues to focus on manufacturing productivity, product mix improvement, cost optimisation, inventory efficiency and working capital management to improve operating leverage and strengthen profitability.

Material Developments in Human Resources/ Industrial Relations

People remain an important enabler of the Companys growth and operational performance. During the year, the Company continued to focus on talent acquisition, capability building, employee engagement, leadership development and strengthening of HR processes, aligned with its evolving business requirements.

Training and development initiatives were undertaken across functions, with emphasis on customer service, retail excellence, manufacturing productivity, functional capabilities and leadership development. The Company also continued to strengthen performance management, career development and succession planning processes, supported by increasing use of digital HR tools and data-driven HR practices.

The Company remains committed to maintaining a safe, inclusive and respectful workplace and continued its awareness and compliance initiatives under the Prevention of Sexual Harassment of Women at Workplace Act, 2013 (POSH Act). The Company maintained its zero-tolerance approach towards harassment and continued to promote awareness across its locations. No complaint was received during the year, subject to confirmation with the final POSH annual disclosure.

Industrial relations remained cordial across the Companys manufacturing and other operating units. HR processes and compliance practices continued to be reviewed periodically, including through external HR assessments, with the objective of strengthening workplace practices and statutory compliance.

The Company has also initiated necessary measures towards implementation of the applicable provisions of the new Labour Codes, including alignment of HR policies and processes with the revised statutory requirements.

As at March 31, 2026, the Companys employee strength stood at 2,602 as compared with 2,075 as at March 31, 2025, reflecting the Companys continuing requirements arising from business expansion and operational growth.

Details of significance changes in key financial ratios along with detailed explanations

In compliance with the applicable provisions of the Listing Regulations, the key financial ratios of the Company and explanations for significant changes, wherever applicable, are provided below. A change of 25% or more, as compared with the immediately preceding financial year, has been considered significant. Notable ratios include:

Sr. No. Particulars	2025-26	2024-25
1 Debtors to Sales (in Days)	55	58
2 Inventory to Turnover	87	90
3 Interest Coverage Ratio	1.98	2.70
4 Current Ratio	1.91	1.91
5 Debt Equity Ratio	0.33	0.33
6 Operating Profit Margin (%)	6.09%	7.42%
7 Net Profit Margin (Excluding Exceptional Items)(%)	1.50%	2.40%
8 Return on Net Worth (Excluding Exceptional Items) (%)	4.74%	7.50%

The Interest Coverage Ratio declined from 2.70 to 1.98, primarily due to the moderation in operating profitability during the year. The Net Profit Margin declined from 2.40% to 1.50% and Return on Net Worth declined from 7.50% to 4.74%, reflecting the impact of higher input and employee benefit costs and other operating cost pressures on profitability.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations, or predictions may be forward-looking. Actual results may differ materially from those expressed or implied due to various factors beyond the Companys control.