The discussion under this head covers the financial results for the year ended 31st March 2023 and other related developments concerning the business of the company.
The Footwear Industry-Structure and Development
Before we present our elaboration for the footwear industry, it would be imperative to understand its importance in the Indian economy through its contribution of employment generation as also foreign exchange earner. For this contribution for number of years the footwear industry has now started gaining attention of the policy makers.
India presently is the 2nd largest producer of footwear globally. The leather and non-leather segments, driven by a robust domestic market, make up the Indian footwear industry. According to Invest Indias report on the Non-leather footwear Industry in India, the sector in India is projected to increase eight-fold by 2030. Due to changing consumer preferences, 86 percent of footwear consumption has become non-leather by volume globally, and India is witnessing a similar trend. However, leather footwear continues to be a significant part of the industry and is a major export category for India.
The domestic footwear retail market in India estimated at 72,000 crore in FY 2020 is projected to grow at a CAGR of ~8% to reach 1,05,000 crore by FY 2025. The unorganized segment still dominate this market which needs to be corrected for the overall improvement in terms of competition, pricing and quality is concerned. In the domestic arena Mens footwear currently dominates market with approximately 48% share, however growth in womens footwear segment will outpace the growth in mens to account for an almost equal share by value in FY 2025 against the current share of 41%. While casual segment is the largest segment accounting for almost 67% of the total market in FY 2020, sports and athleisure is one of the fastest growing segments.
Of late the industry has witnessed encouraging trends wherein higher disposable income is allowing Indians to move up the value chain and ask for products for different use occasions, further leading to the surfacing of new product segments in footwear in terms of price, performance, and aesthetics. This, in turn, is fuelling growth in individual categories, be it slippers, sandals, or shoes, driving industry leaders to innovate their offerings continually. There has also been a massive shift in consumer perspectives regarding footwear. Consumers no longer look at shoes and footwear to serve just function but are now gradually moving towards footwear for fashion.
Indian consumers increasingly want to buy products and brands that are made in India. Indian brands especially in the value segment have developed distribution capability to address the dispersed demand, product understanding and pricing framework for the Indian micro-markets. Exposure to global trends and fashions have increased overall brand consciousness among Indian consumers, especially the younger generation in urban areas. Aspiration levels have also improved over time with an increase in disposable incomes and appreciation of branded products across segments. Besides the urban India, the rural India is also contributing significantly to the growth of acceptance of branded products. Brand endorsements by celebrities and eminent personalities in sports and cinema have led to an increase in brand awareness among the Indian youth. In the current context, social media has played a critical role in facilitation of faster dissemination of information.Health and wellness have become an important lever to drive premiumization, specially post COVID-19 as the consumer has become more aware about health and fitness. Sports and Athleisure products have benefited from increasing consumer interest in exercise and sporting activity because of the health and wellness trend, as well as the rising demand for comfort. It has become an important differentiator so much so that many businesses have pivoted around this platform.
Liberty regularly study the market trends and timely introduce the new products in the growing market to further strengthen its position. We also understand that from the existing level of industry the future growth going forward would be predominantly driven by:
Increasing urbanization, growing aspiration levels to international fashion brands and more focus towards branded footwear and organized retail.
The entry of MNC in the Indian market is the classic illustration of that focus.
Easy availability and assortment width with the advent of online channel and other channels of modern trade. A rise in the percentage of online sales as more and more contemporary retailers use a variety of channels to connect with ustomers of all ages and income levels.
Surge in sale of sports and athleisure footwear with increasing focus towards sports and events including adventure trips.
Increasing middle class population and working population resulting in increasing disposable income of consumer and higher spending on lifestyle products; leading to shift from unbranded to branded play driving the average selling price of the segment.
Increase in number of working women driving the growth of womens footwear market.
The transformation of footwear from a utilitarian item to a fashion statement.
Opportunities, Risk and Challenges
Opportunities:
The Indian footwear market in the last decade or so has expanded as a result of a shift toward high-value goods and peoples view for footwear from a functional item to a fashion statement. Consumer preference is gradually shifting away from mass-market Footwear categories toward premium categories, driven by brand awareness and the demand for trendy designs.
The growth in the Indian fashion and lifestyle market has given a spur to the footwear industry as well. It has developed as a fashion and style category from a basic need-based industry. Currently, a major part of Indias fashion market is digitally influenced. Due to the increasing demand, the e-commerce model has penetrated the footwear industry, providing ample opportunities for the industry, especially in tier II and III cities. Further the emergence of the online channel has increased competition because more players can now showcase their product lines to draw customers. The increased competition has forced footwear brands to release new designs and styles more quickly in order to remain relevant and this in turn prove beneficial to the consumers.
On the other hand, the governments efforts to improve the countrys infrastructure, including ports, airports, and highways, will improve the countrys connectivity and provide a better business environment for the industry. Besides this the Central Govt. has been making rigorous efforts for giving strength to the Indian footwear Industry by introduction of commercial and technical norms for curbing imports from China, employment generation, infrastructure development, promotion of Brand and reputation, setting up institutional facilities, technological upgration through introduction of various sub schemes under IFLADP which has been extended up 2026 and the proposed Production linked incentive scheme for footwear Sector etc. The central Govt. has also been focusing on skilling programs, employment opportunities, tax incentives, and infrastructure development which will also make it easier for overseas companies to set up operations and grow in India. The governments efforts to empower the countrys youth and simplify the business process will provide a conducive environment for the industry to thrive.
Liberty is optimistic that going forward the footwear industry is poised to play a key role in the countrys economic growth in the coming years, as India becomes a hub for manufacturing and exports.
Threats/Challenges/Risk and concern:
The footwear Industry has largely been unorganized and scattered in different parts of the Country, though it is moving towards being organized sector and number of unorganized players are plummeting down. The Organised players are pushing themselves for adoption of new technologies and introduction of innovations in their marketing and manufacturing processes to encounter strong price competition from unorganized players and small scale players.
Quality, design technical and aesthetic, relevant pricing inventory turns are becoming lesser-The footwear industry, like other fashion-oriented industries, has a shorter design life span and requires a large number of stock keeping units ("SKU") in terms of varieties in colour, design, sizes, and types. On account of this, key footwear players typically tend to introduce new designs frequently to stay relevant and attract customers. Managing the supply chain to make it more responsive to frequent introductions of new design is a key challenge for retailers
The major threats and challenges are stiff competition from domestic and International brands, rapidly change in customer preferences, disrupting supply chain, nonavailability of raw material, inflation, increasing interest rates and its impact on availability of retail space, rate of economic growth, fiscal and monetary policies of governments, geo political tensions, unemployment trends, exchange rate fluctuation, availability and retention of talent, tackling counterfeit goods, product quality management, innovation and new product development, impact of strategic and marketing initiatives, data security, force majeure factors and other matters that influence consumer confidence and spending.
Liberty, recognizing the importance of risk management in a competitive market, 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 Shoes 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. Liberty monitors its major risks and concerns at regular intervals. Appropriate steps are taken in consultation with all concerned including the Management Committee and the Audit Committee of the Board to identify and mitigate such risks.
During the normal course of business operations, your company has been subjected to several legal cases in connection with or incidental there to. These litigations include civil matters, Direct and indirect tax related cases , old labour law matters and infringement of intellectual properties like trade mark and designs etc. filed by and against the company. These cases are being pursued with due importance and in consultation with outside legal experts wherever required in respective areas.
Your Directors believes that the outcome of these cases is unlikely to cause a materially adverse effect on the Companys profitability or business performance. Your Company has a Contingent Liability of 2,192.23 Lakh as on 31st March, 2023 as compared to the previous year 1,335.39 Lakh as on 31st March, 2022.
Internal Control System and its 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. 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 reputed 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.
During a routine internal audit, a deviation in settlement of one vendor and also purchase of asset has been noted and the audit team, in consultation with the Management Committee, has taken requisite and decisive action to prevent its reoccurrence.
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
The Companys current year operations and financial performance has been remarkable due to companys continuous thrust on improvement and availability of full year of operations without the impact of COVID-19 pandemic. The Companys performance improved to its highest level and reached to pre-covid level and ended with highest ever operating profits during the year. The Earning per share (EPS-Basic & Diluted) of your Company for the financial year ended 31st March 2023 remained at 7.58 as compared to the EPS for the previous financial year ended 31st March 2022 at 1.32.
The EBDITA margin during the year under review attained improvement as compared to previous financial ended 31st March 2022.
On account of improved collection from trade receivables, improved inventory turnover and better vendor payment management led to overall improvement in working capital cycle.
The cash flows and internal accruals were efficiently used for working capital and the working capital borrowings despite higher drawing power remained at 7,579.92 Lakh, during the financial year ended 31st March 2023 as compared to 5,092.41 Lakh during the previous financial year ended 31st March 2022. The long term loan availed a Guaranteed Emergency Credit Line 2.0 as per the Scheme of Government of India introduced to counter COVID impact along with some vehicle loans remained at 1,124.37 Lakh (Including Current Maturities) during the financial year ended 31 st March, 2023 as compared to 1,424.03 Lakh during the financial year ended 31 st March 2022.
Your Company has not availed any particular/specific term loan for funding of its capital expenditure and the entire routine capital expenditure has been funded through internal accruals. The capital expenditure incurred for purchase of furniture & fixtures, new moulds, innovations & technology and supporting machinery at plants as well as towards other normal capital expenditure in furtherance to the business operations of the Company was 2,349.16Lakh (Other than Leasehold rights) during the year under review as compared to ^1,083.65 Lakh in the previous year. In addition to the same, during the year in accordance to the Ind-AS-116, the Company has recognized its leasehold rights at present value aggregating to 3,693.21 Lakhs on account of addition and adjusted 879.48 Lakhs on account of termination of earlier recognized contracts and the same have been made part of the Intangible Assets.
The non current investments and other Financial Assets were at 0.45 Lakh and 713.10 Lakh during the financial year ended 31 st March 2023 as compared to 0.45 Lakh and 726.64 Lakh respectively during the previous financial year ended 31 st March 2022.
The beginning of the year witnessed the pent up demand with the opening of schools, colleges, institutions, offices after evaporation of COVID 19 impact in the Country. The Company managed its all resources of people, technology, available infrastructure in terms of e-commerce and offline stores for maximizing its revenue. In order to remain competitive and also available amongst consumers mind, the Company has strategically taken the step of major advertising campaign for Companys owned brand LEAP7X.
With the increase of sale during the year under consideration, the overall payout on account of franchise fees/royalty to promoters partnership firms with whom the Company has arrangements, has also increased by 346 Lakh as compared to previous year. Despite the substantial expense on account on advertising and franchise/royalty and other overheads, the Company has posted notable operating profits during the year due to better product mix having high margin, leveraging of its fixed cost & manufacturing capacities. The efficient working capital utilization has been the prime focus of the management during the year and despite substantial increase in CAPEX and also relatively higher sales against the previous year, the borrowings/working capital limits have been used to the extent of 65% only against the total sanctioned limits available with the Company.
As highlighted in Directors Report also, your Company has observed & recognised huge potential available in e- commerce segments and has been focusing on expansion of digital footprint through its own website and other market places like Amazon, AJIO & Flipkart.
These market places have yielded product placement for diversified customers all over India. The newly introduced segment of perfume has received overwhelming response embraced confidence trust of overseas customers where these products are available through e-commerce partners in USA, UK, Australia and UAE. The other segments like institutional, retail, franchisee and distribution segment of the Company have shown promising response from the consumer expressing their confidence and loyalty towards the brand.
The other highlights of the financial performance of the Company during the year ended 31st March, 2023 have been stated in the Directors Report for the year ended 31st March, 2023, which appears separately in the Annual Report.
Material developments in Human Resources/ Industrial Relations front and Number of people employed
Liberty takes immense pride in its diverse and talented workforce, representing multiple geographies and generations. The company acknowledges the pivotal role of its Human Resources in driving excellence across various fields and contributing to the overall growth of the organization. With a strong belief in the value of its employees, Liberty continuously endeavors to upgrade and enhance their skills, keeping them agile and responsive in a dynamic business environment. The HR structure is thoughtfully designed to align with the companys strategic objectives, providing simultaneous support for business growth and employee development. Liberty recognizes that a motivated and skilled workforce is critical for achieving its goals and maintaining competitiveness in the market. Through various talent retention and development initiatives, the company nurtures leadership capabilities and fosters a culture of continuous learning, ensuring that its Human Capital remains a driving force for long-term value enhancement.
Furthermore, Liberty proudly declares that during the reviewed period, no cases were filed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013, reaffirming the companys commitment to providing a safe and respectful work environment. Cordial industrial relations with staff and workers further strengthen the harmonious work atmosphere. Liberty understands that its employees are key to its success, and by investing in their growth and well-being, the company aspires to retain its position as a preferred employer and an industry leader. Upholding ethical standards and fostering an inclusive workplace, Liberty seeks to sustain the dedication and excellence of its workforce in achieving the organizations objectives.
As on 31st March, 2023, the total employeess strength of the Company stood at 2090 as compared to previous years 1,805.
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"), has been provided here under:
Sr. No. | Particulars | 2022-23 | 2021-22 |
1 | Debtors to Sales (in Days)* 1 | 51 | 77 |
2 | Inventory to Turnover (In Days)* 2 | 101 | 140 |
3 | Interest Coverage Ratio*3 | 2.50 | 1.36 |
4 | Current Ratio | 1.75 | 1.89 |
5 | Debt Equity Ratio | 0.44 | 0.34 |
6 | Operating Profit Margin (%) | 6.64% | 5.91% |
7 | Net Profit Margin [excluding exceptional items](%)*3 | 2.11% | 0.60% |
8 | Return on Net Worth [excluding exceptional items] (%)*3 | 6.93% | 1.55% |
1. On a/c of higher volume of business/sales/purchases, realizations and payments during the year in comparison to the previous year.
2. On a/c of higher volume of business/sales/purchases, realizations and payments during the year in comparison to the previous year.
3. Yielding of higher Net Profits in comparison to previous year wherein the overall business was recouping from the pressure of Covid-19.
Cautionary Statement: Statements in the Managements discussion and analysis, describing the Companys objectives, expectations and industrial outlook, may constitute forward looking statement within the meaning of applicable laws. The actual results might differ materially from those either expressed or implied.
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