Liberty Shoes Ltd Management Discussions

The discussion under this head covers the financial results for the year ended 31st March 2025 and other related developments concerning the business of the company.

Indian Economic scenario

Indian economic trajectory remains resilient amid global headwinds supported by the domestic demand and the structural reforms. Indias GDP have grown between 6.4% to 6.8% in the financial year 2025. RBI besides other reforms had also cut policy rates by 50 basis points collectively in Feb 2025 & April 2025 bringing the Repo rate to 6%. RBI while mentioning challenges because of the global conditions particularly global trade tensions arising from the Trump era tariff regime has observed that Indias growth flight appeared to be on recovery path.

As per the economic forecast Indias GDP growth is expected to remain between 6.7% to 6.8% in the next two fiscal years. The expected growth acceleration will be supported by accommodative monetary and fiscal policy, rising rural income and moderating inflation which should help to restore consumer confidence. Domestic consumption is going to play a important role in driving Indian growth specially in rural areas where terms of trade remain favouable with food and crop prices remaining higher than the prices of other commodities. The Middle class and affluent household are also expect to benefit from the budget 2025 personal income tax cuts providing a consumption boost over the ,next two years. Inflation is forecast to fall to 4.3% in FY2026and 4.0% in FY2027, in line with declining inflation in major advanced economies and easing crude oil prices. However, rupee depreciation, potentially triggered by volatile capital flows due to global policy uncertainties, could exert upward pressure on inflation. This is expected to be offset to some extent by falling crude oil prices, a major import for India.

The financial results for the year under consideration have to be observed in the various economic development happening in Indian economy.

The Footwear Industry-Structure and Development

The Indian footwear market, which was valued at USD 17.05 billion in 2023, is projected to grow to USD 50 billion by 2032, at a robust CAGR of approximately 13%. As of 2025, the market revenue stands at USD 33.86 billion, with the leather footwear segment accounting for the largest share at USD 11.71 billion. India remains the worlds second-largest producer of footwear, trailing only China. The global trends of higher per capita footwear consumption has started emerging in Indian footwear consumption which is a heartening trend for the entire industry and promising a matured domestic demand going forward.

The Indian footwear industry continues to be a vital contributor to the countrys economic landscape, generating substantial foreign exchange earnings and employment. The Government of India remains committed to transforming the sector into the worlds leading and highest-quality footwear manufacturing hub. With the strategic execution of Free Trade Agreements (FTAs), the promotion of joint ventures in non-leather footwear manufacturing, and support for domestic market expansion, the industry is well-positioned to capture new global opportunities. However, in order to fully capitalize on the emerging developments, continued investment in quality, compliance, and logistics infrastructure is critical. The industrys ability to remain agile in responding to global headwinds while leveraging its cost advantage and design capabilities will define its long-term success on the world stage.

A major step forward has been the introduction and enforcement of mandatory quality standards by the Bureau of Indian Standards (BIS), aimed at eliminating substandard imports and uplifting product quality across the value chain. The industry concerns especially around old inventories, compliance costs have been resolved through stakeholder consultations and the phased implementation of standards.. The governments support through scheme such as Integrated Development of Leather Sector (IDLS), Indian Footwear, Leather & Accessories Development Programme (IFLADP) continues to bolster competitiveness and modernization. Additionally, support for Mega Leather Clusters, and skill development initiatives through FDDI have created a conducive environment for sectoral growth. Few states have also announced incentives in terms of concessional and developed industrial land for setting up leather & footwear plants in their states. The ease of doing business initiatives of the Govt also help industry to increase its efficiency because of streamlining procedures and more transparency in regulations.

Liberty truly recognizing the importance of BIS standards have taken all requisite steps to be compliant of the regulations ensuring quality driven footwear in the markets and in offering import substitute products.

The retail landscape is evolving, with offline channels of malls, high street stores still dominating due to consumers preference for physical product trials. However, the online segment is experiencing rapid growth, driven by rising smartphone penetration, increasing internet access, and a young, digitally engaged consumer base. E-commerce platforms and brand-owned websites are providing wider choices, competitive pricing, and convenience-trends that are expected to further reshape the market. Liberty as highlighted in the Directors report is fully equipped with its strategic approach to take maximum advantage of the emerging e-commerce trends.

According to the available data, around 60% of new online shoppers now emerge from Tier-3 and smaller towns—segments previously underserved in branded footwear. These markets are now becoming accessible due to rising smart phone penetration, rising disposable income, and increased comfort with online shopping platforms. In line with the trends, retailers are expanding product assortments online, investing in digital infrastructure, enhancing delivery speed, and leveraging influencer-driven social commerce. Liberty ,besides taking advantage of rising e- commerce platform , has also made its footwear more accessible to its customers thru the availability directly on Blinkit, a platform for seamless and quick service. Liberty with this launch is not only expanding its presence but also redefining the footwear shopping experience for a more connected, on demand world.

Consumer preferences continue to evolve with seasonal collections, fashion-driven designs, and increasing demand for comfort and multifunctionality. The growing emphasis on health and fitness has significantly propelled the athletic footwear category. Trends like athleisure, celebrity endorsements, and influencer marketing are shaping consumer buying behavior and brand affinity. Womens footwear remains a dynamic segment with diverse offerings, while childrens footwear increasingly emphasizes foot health, comfort, and age-appropriate design. There is a rise of consumer awareness towards sustainability which led to the growth of emerging trends such as ecofriendly and recyclable footwear. Material innovation, 3D printing, and digital design tools are also gaining traction recently.

Social media remains a powerful tool for trend discovery, product launches, and consumer engagement, further democratizing access to style and performance-oriented footwear.

In conclusion, with robust domestic demand, increasing global competitiveness, technological advancement, and a supportive policy framework, the Indian footwear industry is on a promising growth trajectory, well-poised to cement its place as a global leader in both volume and quality in the coming years.

Opportunities and Threats

The Indian footwear industry is undergoing a structural transformation driven by evolving consumer preferences, rapid urbanization, increased internet penetration, and a global shift toward sustainable and comfort-driven fashion. We at Liberty keep on evaluating the opportunities posed by these dynamic market forces and endeavors to remain agile enough to adapt our strategies to align with the evolving business requirements.

Opportunities:

At domestic front, the demand for both leather and synthetic footwear is rising progressively over the years. Particularly, the leather footwear segment presents a high- margin opportunity due to Indias historic expertise and skilled craftsmanship with the access to premium quality raw hides.

There has been rising interest in premium and formal shoes and parallely there is a sharp increase in demand for athletic and comfort-driven footwear, including EVA-based products, sneakers, and casual styles.

Industry players are investing in omnichannel strategies, leveraging e-commerce, social media marketing, and AI-powered customer personalization. This is providing brands an opportunity to reach Tier II and Tier III cities where they were earlier facing difficulties.

The Trade tensions between the U.S.-China and expected implication of U.S. tariffs on Chinese-origin footwear are forcing Global players to realign their global sourcing strategies and diversify away from China. This has opened a plethora of new opportunities for Indian exporters as India offers one of the most cost-effective footwear manufacturing ecosystems globally..

The enforcement of Regulatory tightening through the implementation of BIS (Bureau of Indian Standards) Quality Control Orders, help eliminating smaller and unorganised players due to increased compliance costs and timelines and also help industry from the competition thru cheap imports.

Threats

Indian footwear industry is facing serious threats from dutyfree and underpriced imports, particularly those routed through SAFTA nations (Bangladesh, Nepal, Sri Lanka)..

With the increasing awareness among consumers and preference towards ecofriendly and sustainable material, the leather segment, in particular, faces intensified scrutiny around environmental compliance and on the other hand, non-leather categories face pricing pressures from synthetic imports that benefit from relaxed origin rules under various trade agreements.

In addition, global macroeconomic factors-including fluctuating raw material prices, increased freight costs, and lack of certainty over trade policies from key export markets like the U.S remain major area of concern for the entire Indian economy.

Liberty, with its strong legacy, agile in-house manufacturing capabilities, and expanding digital presence, is well- positioned to capitalize on the evolving consumer demand across both premium and mass-market segments. By leveraging its expertise in leather craftsmanship, investing in omnichannel growth, and aligning with global sourcing shifts, the Company aims to strengthen its export and domestic market share. At the same time, Liberty continues to proactively address emerging threats through enhanced compliance, supply chain resilience, and strategic engagement with regulatory developments.

Outlook

The outlook for the Indian footwear industry remains robust, with market growth projected in the range of 8-12% annually as rising incomes, urbanization, premiumisation trends, and supportive government measures continue to drive demand.

The governments continued focus on Make in India campaign for leather and footwear, investment in industrial parks, and export incentives will support Footwear Industry expansion in both domestic and global markets. As part of Budget 2025-26, the Government has also announced a Focus Product Scheme for the footwear and leather sector which will support design, component manufacturing, and non-leather footwear production. In addition to this, Indian Footwear and Leather Development Programme (IFLDP) has already been implemented by the Government has so far remained fruitful to the Footwear sector at large. The recently announced Employment Linked Incentive Scheme for the Manufacturing Sector is expected to bolster job creation while enhancing competitiveness and capacity expansion for manufacturing companies.

The implementation of BIS (Bureau of Indian Standards) Quality Control Orders will be strengthening force for the Indian footwear industry. This regulatory shift is expected to accelerate formalisation within the sector, encourage investment in compliant manufacturing, and favour established players with strong quality infrastructure. Simultaneously, the ongoing global realignment of sourcing strategies away from China, driven by trade tensions and tariff barriers, positions India as a viable alternative to global brands.

Though the overall scenario is positive for the Sector, Liberty as part of Industry Network has been taking necessary steps to collaborate and ensuring focused support from the Government which will provide further impetus to growth at global scales.

Risks and Concerns

Risk and concerns, are essential for every business Industry which keep the efficient players in the game with elimination of temporary and incompetent players. Similarly the footwear Industry is not devoid of such risks some of which has been elaborated as under:

Rising interest rates scenario, inflationary trends, and currency depreciation have affected consumer sentiment and increased input costs. With the fear of Global recession is looming and tighter U.S. import controls could further impact exports negatively.

Growing environmental concerns are inviting higher regulatory scrutiny over Leather production. Further, shift of preference towards sustainable and ecofriendly materials may also drive consumers away from Leather Products. This requires significant investments in sustainable processes and third-party certifications to mitigate the risk.

With the increasing number of players in the organised Indian footwear market, brands face heightened competition and the constant need to innovate to stay relevant. . Rapidly changing fashion trends and shorter product life cycles require faster design and development turnarounds, increasing operational and inventory management pressures. In this evolving landscape, the ability to balance affordability, innovation, and brand differentiation remains a key challenge for domestic players.

The footwear industry continues to face rising input costs, particularly for chemicals, leather, and other key raw materials, a trend that has persisted since the postpandemic period. This has led to a significant margin pressure for manufacturer, affecting overall industry stability and competitive dynamics.

Recognizing the importance of risk management in a competitive market, Liberty has implemented robust processes to identify, assess, and mitigate risks inherent in the business environment. The companys board actively reviews the risk policy, while the audit committee oversees the effectiveness of risk management systems. This proactive approach enables Liberty to navigate uncertainties and challenges effectively, ensuring the sustained growth and success of the company in the dynamic footwear industry.

The envisaged risk and concerns before your Company are strategic and operational risks, rising occupancy cost, foreign exchange risks, financial and the social risks.

Your Company has a Contingent Liability of 2,369.16 Lakh as on 31st March, 2025 as compared to the previous year 2,143.43 Lakh as on 31st March, 2024 involving legal cases and other matters. Your Directors believe that the outcome of these cases is unlikely to cause a materially adverse effect on the Companys financials or business performance.

Internal control systems and their adequacy.

Liberty has a well recognized and comprehensive internal control structures across all functions to ensure that all assets are protected, to prevent and detect frauds and errors to maintain accuracy and completeness of its accounting records and to further enable it in timely preparation of reliable financial information. Liberty has established a well-recognized and comprehensive internal control framework across all functions to safeguard its assets, prevent and detect frauds and errors, and ensure accuracy and completeness of accounting records. Being in the retail industry, special emphasis has been placed on monitoring shortages through a dedicated audit team supported by requisite software solutions. These controls also facilitate the timely preparation of reliable financial information. Further, they are seamlessly integrated with the Companys risk management policy to ensure effective mitigation of identified risks. During the year, the controls were tested and no material weaknesses in their design or operation were observed. These controls have been integrated with the Companys risk management policy to ensure that control measures for the effective mitigation of risks identified are in place. During the year, such controls were tested and no reportable material weakness in the design or operation was observed.

The Company has in place a strong and independent Internal Audit Department which is responsible for assessing and improving the effectiveness of internal financial control and governance. To further strengthen the internal control system and their adequacy and evaluating them from time to time, the Company has appointed experienced firm of Chartered Accountants as Internal Auditors. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee and also places its report in the Audit committee meetings. However, audit is a continuous process and the findings of the internal auditors, though not very significant have been resolved in consultation with departments heads and concerned Directors.

Liberty has an independent Audit committee which acts in accordance with the terms of reference specified in writing by the Board including evaluation of internal financial controls and risk management system.

The Audit Committee, on behalf of the Board, assesses the adequacy and effectiveness of the internal control system in detecting fraud, irregularities or infringement of laws, rules and regulations or material control failures on a regular basis by reviewing the work and findings of Internal Audit Department.

The Executive Directors/CFO certification provided elsewhere in the Annual Report confers the adequacy of internal control systems and procedures followed by the Company.

Discussion on Financial Performance

During the Financial Year 2024-25, Liberty Shoes Ltd. delivered a strong financial performance, achieving Gross Sales of 67,465.57 lakh, reflecting a 6% growth from 63,577.14 lakh in the previous year. This performance was driven by the Companys strategic focus on product innovation, retail and digital expansion, and operational excellence.

Profit before Tax (PBT) surged by 36.5% to 2,087.39 lakh, while Net Profit increased by 21.5% to 1,356.13 lakh. Enhanced cost management, improved operating leverage, and disciplined financial practices contributed to the improved profitability.

The Company launched a new line of performance-oriented footwear featuring advanced design and comfort technologies to meet evolving consumer preferences. In retail, Liberty added more than 50 new Exclusive Brand Outlets (EBOs), especially across Tier II and Tier III cities, strengthening its pan-India footprint. Omni-channel sales also saw significant traction. In the institutional segment, Liberty recorded substantial growth in the Defence and Safety footwear verticals, selling over 14 lakh pairs, while also deepening its OEM partnerships with prominent domestic brands.

Working capital was effectively managed through targeted inventory optimization and improved receivable collections. The working capital borrowings, despite higher drawing power, remained at 6,936.21 lakh as compared to 6,812.63 lakh in the previous year. Long-term vehicle loans increased to 500.46 lakh (including current maturities) as compared to 236.38 lakh in FY 2023-24. No specific term loan was availed for capital expenditure, which continued to be funded through internal accruals.

The capital expenditure for the year stood at 2,294.22 lakh (excluding leasehold rights), primarily used for upgrades in moulds, machinery, and purchase of furniture & fixtures besides normal capital expenditure in furtherance to the business operations of the Company. The amount of capital expenditure includes 392.50 Lakh incurred towards Capital work in progress specifically for the purpose of construction of central warehouse of the Company at its Plant at Libertypuram, Kutail, Haryana to reduce dependency on rental premises with the increase of business operations of the Company. In compliance with Ind-AS 116, leasehold rights amounting to 2,509.76 lakh were recognized, with 89.08 lakh adjusted for terminated contracts. Additionally, fully depreciated tangible assets amounting to 1,278.44 lakh were written off along with their accumulated depreciation.

Non-current investments stood at 0.45 lakh, and other financial assets increased to 831.49 lakh in FY 2024-25 from 725.42 lakh in FY 2023-24.

Material Developments in Human Resources/ Industrial Relations

People remain central to Libertys growth strategy. The Company continues to build a dynamic, skilled, and engaged workforce aligned with its long-term vision. Focus areas during the year included structured hiring, career progression, digital HR tools, and employee engagement.

The Company rolled out multiple training and capability enhancement programs with special emphasis on customer service, retail excellence, and manufacturing efficiency. Leadership development, succession planning, and direct communication between senior management and ground- level teams were prioritized.

Liberty remains committed to creating a safe and inclusive workplace. The Company adheres strictly to its zero- tolerance policy against harassment and conducted awareness sessions across offices under the POSH Act. Notably, no complaints were filed during the year.

Cordial industrial relations continued across all units. An external HR audit was successfully conducted at the Gharaunda Plant and is planned to be extended to other units. As of 31st March 2025, the employee strength stood at 2075, compared to 2,047 in the previous year.

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

In compliance with the requirement of the Listing Regulations, the key financial ratios of the Company along with explanation for significant changes (i.e. 25% or more as compared to the immediately previous financial year will be termed as "significant changes"). No ratio changed more than 25% during the year. Notable ratios include:

Particulars	2024-25	2023-24
1 Debtors to Sales (in Days)	58	53
2 Inventory to Turnover	90	101
3 Interest Coverage Ratio	2.70	2.19
4 Current Ratio	1.91	1.85
5 Debt Equity Ratio	0.33	0.34
6 Operating Profit Margin (%)	7.42%	7.30%
7 Net Profit Margin (Excluding Exceptional Items)(%)	2.40%	2.48%
8 Return on Net Worth (Excluding Exceptional Items) (%)	7.50%	7.76%

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.