Liberty Shoes Ltd Management Discussions.

The discussion under this head covers the financial results for the year ended 31st March 2021 and other related developments concerning the business of the company.

The Indian Footwear Industry-Structure and Development

India is the 2nd largest producer of footwear in the world and holding the status of 3rd largest footwear consumer globally. The annual production of footwear ,approx. over 2 billion pairs per annum in India, is on upward swing and majority of it being consumed in the domestic market. With the focus of Government on manufacturing sector, the future potential of the footwear industry is promising, particularly for established and organized players in the industry. The listing of footwear as a champion sector in recently announced "Make in India 2" initiative by the Govt. of India substantiate its growing potential for supporting the Indian economy thru much needed employment opportunities as also the foreign exchange earnings.

As a traditionally labor-intensive sector, the present industry has been undergoing transformation towards a more technological and highly specialized sector, where machine production with a systematic labor flow is deriving the industry to an international level. While the industry is currently dominated by the unorganized domestic SME footwear manufacturers, but with changing consumer behavior and their awareness and lifestyle, the branded footwear products with upgraded technology by medium and large players are likely to witness better sales in the near future. Despite the fact that India is already among the worlds top 10 largest footwear exporters nevertheless Liberty believes that India has whopping potential available in the overseas markets to grow its share further.

Our consumers have now become more technology savvy, comprehensively prone to on line marketing, mindful of fashion trends, demanding the latest trends and contemporary styles and fashionable in a certain manner. The growing footwear segment along with the burgeoning working-class population, increasing brand consciousness, rising discretionary income, has led to an enormous growth in footwear consumption. Reversing the trends, people today require footwear as per the occasion means different footwear for party and the different for office and so on.

Indian footwear market, has been dominated by growing mens footwear category which contributes almost 58% of the total Indian footwear retail market as against the womens footwear segment which contributes little less than mens segment but is all poised to grow at a much faster CAGR in next few years clearly indicating that future belongs to this segment and footwear players have to be insistent in this category to be the part of growth story. In term of product type, informal and sporty footwear in the past few years has emerged as leading segment in Indias footwear market with its contribution of approximately 67% of the total footwear retail market. The emergence of safety shoes, considering the workers wellbeing, as a new sector is also a healthy development for the overall footwear industry.

Opportunities and Threats


The Indian footwear industry , because of pandemic and the resultant shift in preferences of global buyers to other low cost manufacturing countries has been presented a plethora of opportunities to establish itself further in the growing global markets and attract foreign exchange inflows to strengthen Indian economy and upgrade its technological requirements if any.

The demand from the footwear consumers has been experiencing a swift expansion and witnessing a significant growth, predominantly due to awareness and further more from increased demand for trendy and comfortable footwear among all age groups and the appearance of innovative footwear products. Development of Tier II and Tier III cities, demographic changes including ever increasing demand of middle class population with the comfortable disposable income, changing lifestyles and consumption pattern, well being awareness, materialization and popularity of e-commerce business etc., are now leading to men , women and children all wearing a assortment of footwear in their daily lives. The per capita consumption of footwear in India though showing trends of improvement nonetheless still need more understanding and optimistic attitude to be at par with developed economies. Globally footwear market is closely aligned with consumer spending on fashion accessories including clothing, watches, eye glasses. Rapid growth in the spending on fashion accessories due to its easy availability & growing influence of social media is driving the footwear market also. Recent changes in consumer shopping trends and increasing inclination for buying high-end and designer shoes are probable reasons to activate the future growth.

With its natural strengths of huge raw material base of leather, easy understanding of language, traditional knowhow, well protected applicable laws and application of modern technology, Indian footwear in the global markets of late has improved its reputation as a trusted supplier of high quality goods. This augurs very well for the future of Indian footwear industry.Liberal 100% FDI has already been permitted in this sector under automatic route. Further more, the Government has recently implemented the Indian Footwear, Leather and Accessories Development Programme (IFLADP) wherein financial support is to be extended for core areas namely capacity augmentation and technological upgradation etc., Govt of India has also introduced incentives schemes for promotion of Indian footwear brands in the global markets. With the huge market potential coupled with required support measures, congenial business environment have made Indian footwear industry an attractive investment options.

There exists clear opportunities for start-ups also in the footwear sector, as there are good prospects for growth both on the domestic front and in exports, post COVID. The Mega Leather, Footwear and Accessories Development Cluster (MLFACs) will be coming up in various States like Haryana, Uttar Pradesh, Maharashtra, etc., which will be integrated production centres with plug-and-play model of factories and common facilities like testing laboratories etc., These MLFACs can be a good platform for Start-ups.

Liberty always keen for experimentation with new ideas and innovations and feel indebted to fulfill the expectation that its consumers have from it. Continuing its pursuit of introducing new brands for keeping innovation in its product basket, Liberty has been able to establish notable presence of its own brands like Healers, Leap7X in the respective categories and also got encouraging response for its recently launched brand "AHA" . In the post pandemic scenario to follow social distancing norms and to comply with the traveling and lock down restrictions, consumers have preferred their buying of footwear through on line channel , creating additional extended channel of sales for footwear players and Liberty in line with market dynamics has further reinforced its e -commerce platform.

Liberty is very optimistic that the footwear Sector has very good potential for growth and development both on the domestic front and in exports in the years to come.

Liberty strives its best to stand by its values which is the strength of its brand.


Liberty acknowledges the facts that Indian footwear Industry has been facing significant obstacles due to testing internal and external environment like challenge from China and other low cost footwear manufacturing markets, lack of accurate and authentic statistics, non-availability of fully equipped Footwear Research Institute, lack of branding in Indian footwear, fragmented industry structure, fast changing fashion trends which are difficult to adapt by the Indian footwear industry with stiff competitions from the International players coming in to the Indian market. This sector has also been facing headwinds due to present Tax and Trade Regulations in India. Being highly labor intensive industry, having huge manufacturing overheads, interest cost, rentals as well as Retailers Margin required to absorb the cost of showroom rentals, HR cost, showroom furnishing, loss of margin during clearance/end of season sales, the present rates of GST are on higher side and need to be rationalized for all type of footwear/accessories which would result in reduction of ultimate cost to consumer, demand creation and will help the industry to grow for the success of Make in India Initiative.

With Indias domestic market driving the sector, the sector will need to keep up with the changing taste and preferences of the Indian consumer which presently proved as a threat to this industry. The another looming threat is how to prepare company with future adapting portfolio and establish company in channel of future growth.

The Covid-19 Pandemic

2020-21 started amidst a strict nationwide lockdown in India-with tough restrictions on economic activity and mobility-and an unprecedented uncertainty about the eventual impact of the Covid-19 pandemic. Soon enough, however, it was clear that the crisis would severely impact economic performance and disrupt livelihoods and businesses.

Liberty, and indeed the entire Footwear Manufacturing sector in India, saw a collapse in their business activity following the lockdown. Liberty, however, moved swiftly to meet safety and health-related challenges of its people, ensure business continuity under lockdown, adapt the organization to operate efficiently in the new environment and prepare to ramp-up operations as restrictions were gradually lifted. Libertys performance was building towards recovery post Q2 of FY 2020-21 but the outbreak of 2nd wave of COVID-19 again hit the economy towards the end of the year and has once again resulted in significant disruption to Libertys business as most of the states have announced partial/ complete lockdown. To achieve its pre-covid sales level, besides Libertys own efforts, the overall consumer & economic sentiments have to be improved with the much needed Govt. stimulus. Even with the aggressive Covid-vaccination drives, the consumer sentiment would take some more time to revive.

The performance of Liberty may be appreciated during the financial year 2020-21 which reflects how the Company navigated the environment as the crisis unfolded and the same is given in Directors Report at page no. 40

Economy and market outlook

India, presently , is the fastest growing economy in the world and a fifth largest overall . The impact of pandemic have taken a heavy human toll, not in just affecting lives and the human health but also by impacting their source of income and livelihoods. The earlier projected economic indicators have indicated a slid of over 8% in Indian GDP and the projection of rebounding of growth in ongoing fiscal is also facing significant downside risk due to the reappearance of 2nd wave of COVID.

Experiencing the health care challenges during the second wave and expectation of imminent 3rd wave local protocols imposed by the state Governments may stay for some more time dampening further the pessimism amongst consumers sentiments .

In order to improve economic sentiments and accelerating the pace of growth in the near future the following pivotal factors have to be implemented

• Improvement of health infrastructure, awareness of vaccine benefits and low morality rate

• Introduction of additional incentives for promoting investors confidence back in the economy

• Pent up demand from the respective segments of consumers who have earlier deferred their buying

• Employment generation and increase in disposable income amongst all strata of society

• Global economic rebound as projected by IMF

• Extended stimulus from Govt. and the introduction of PLI schemes to all manufacturing sectors having huge potential for inviting global players to source their requirements from India

Risk, Concerns and Contingent Liabilities

Considering risks as an integral part of any business environment the Company has implemented suitable processes in place which are capable of identifying and mitigating the risks concerning the business of the company. Liberty believes that adequate risk management ensures controls and monitoring mechanism for the smooth and uninterrupted running of the Companys business. The board is responsible for reviewing the risk policy of the Company whereas the audit committee of the Board is responsible for evaluating the risk management systems in the company.

The envisaged risk and concerns before your Company are strategic and operational risks, import of cheap and inferior quality shoes, rising occupancy cost, foreign exchange risks , financial and the social risks. Liberty has integrated its risk management with its business planning processes and keep on regularly monitoring to take remedial measures wherever required.

During the normal course of business operations, your Company has been subjected to several legal cases in connection with or incidental thereto. These litigations include civil matters, Direct and indirect tax related cases, old labour 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 2,339.30 Lakh as on 31st March, 2021 as compared to the previous year 2,547.08 Lakh as on 31st March, 2020.

Internal Control System and its Adequacy

Libertys 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 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 meeting.

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

Financial Performance

The highlights of the financial performance of the Company during the year ended 31st March, 2021 have been stated in the Directors Report for the year ended 31st March, 2021, which appears separately in the Annual Report.

The brief details of the performance of the Company during the year under consideration are given as under:

Tangible and Intangible Assets: In the year 2020-21, Libertys Fixed Assets Gross Block (including tangible and intangible assets) has increased by 776.82 Lakhs (other than Leasehold Rights) mainly because of purchase of furniture & fixtures, new moulds and supporting machinery at plants as well as towards other normal capital expenditure in furtherance to the business operations of the Company and has decreased by 282.46 Lakhs due to sale/writing off of some of the old non-usable assets. 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 1103.45 Lakhs on account of addition and adjusted 1130.98 Lakhs on account of termination of earlier recognized contracts and the same have made part of the Intangible Assets.

Non-Current Investments: During the year, there has been no change and Non Current Investments remained at 121.93 Lakhs (Previous Year 121.93 Lakhs).

Long Term Loans & Advances: Long term loans & advances amounting to 957.10 Lakh (Previous year 1,029.41 Lakh) consists of security deposits of 777.21.Lakh (Previous year 796.41 Lakh) and receivable from its erstwhile WOS of 180.49 Lakh (Previous year 180.49 Lakh). During the year, the Company has kept the provision for the security deposits considered as doubtful at 29.78 Lakhs (Previous year 12.72 Lakh).

Inventories: Inventories, comprising finished goods, raw materials, work in process etc. as at 31st March, 2021 stood at 20,351.43 Lakhs as against previous years 19,906.27 Lakh. The Inventory turnover ratio for the year ended 31st March, 2021 was 162 days as against 112 days in the previous year. There is apparent increase in number of days of inventory as against sales for the year because of sudden outbreak of Covid-19 in the month of March 2020, resulted lockdowns and its persisting ill-effects during the whole of the years resulting in substantial decrease in sales.

Trade Receivables: Trade Receivables, with an average realization period of 87 days (114 days in the previous year) stood at 10,859.44 Lakh in 2020-21 as against the previous years 20,268.99 Lakh. Out of the trade receivables, 1439.65 Lakh as against the previous years 1,694.41 Lakh were due from overseas customers. The trade receivables having outstanding for more than 180 days as on 31st March, 2021 stood at 4,853.48 Lakhs (Previous year 5,354.75 Lakhs) and are due against Government Tender Supplies and some of Overseas and Domestic Customers dealing with the Company since long and are recoverable in nature except 290.93 Lakh (Previous year 107.09 Lakh) which seem doubtful and for which necessary provision for doubtful debts has been made.

During the year, the Company has written off its book debts of 1,225 Lakh as against previous years 466.04 Lakh. The abnormal increase in this figure is mainly attributed to ill-effect of pandemic on the business of our channel partners.

Short Term Loans & Advances: The Short Term Loans and Advances amounting to 3,275.62 Lakhs (Previous year 4,264.25 Lakhs) given by the Company includes unutilized amount of Input Tax Credit of the GST paid on inputs/services amounting to 2,017.64 Lakhs as against the previous years 2,386.84 Lakhs, export benefit receivables of 177.72 Lakh as against the previous years 128.06 Lakh and prepaid expenses of 226.09 Lakh as against the previous years 265.58 Lakh.

Capital Structure: During the year, there has been no change in the Capital Structure of the Company and Paid up Capital of the Company was 1,704 Lakh as on 31st March, 2021.

Reserves & Surplus: The Companys reserves and surplus has increased from 16,909.90 Lakh to 16,933.61 Lakh in 2020-21.

Long Term Borrowings: During the year under review, the Company availed Long Term Loans of 1,302.87 Lakhs as against previous years 258.24 Lakh. The outstanding amount of the Term Loan (Non Current and Current maturities) as on 31st March, 2021 was 1,506.61 Lakh as against previous years 336.24 Lakh.

Other Long Term Liabilities: During the year under review, the other long term liabilities, which consists of securities received from channel partners, decreased by 149.14 Lakh and stood at 1918.02 Lakh (Previous year 2,067.16 Lakh). Also during the year, in compliance to Ind-AS-116, the unamortized leasehold rights, net of additions/adjustments made during the year, stood at 7,360.98 Lakhs as against previous years 9,219.43 Lakhs.

Short Term Borrowings: During the year, there has been reduction in working Capital loans, secured through the Companys current assets, by 3,865.11 Lakhs and accordingly stood at 8,215.96 Lakh as compared to 12,081.07 Lakh in the previous year because of timely realization of one of the tender payments.

Trade Payables: The Trade Payables of 12,525.73 Lakh (Previous year 20,148.02 Lakh) included an amount of 276.18 Lakh (as against the previous years 9.26 Lakh), 200.59 Lakh (as against the previous years 4.95 Lakh) & 6.47 Lakhs (previous year Nil) due towards Liberty Footwear Co., Liberty Group Marketing Division & Liberty Enterprises, the partnership firm(s) respectively in which few of the Directors and their relatives are interested, under the terms of the agreement.

Other Current Liabilities & Provisions: Other current liabilities & provisions amounting to 1,600.33 Lakh (Previous year 1,745.18 Lakh) consists of long term debts from banks and others due within 12 months from the date of reporting, advances from customers, expenses payables, other liabilities, provision for taxation (net of taxes paid including advance income tax).

Revenue from Operations and Profits: Libertys total Income, comprising sales and other Income, Decreased from 65,205.41 Lakh to 45,806.43 Lakh in 2020-21. Profit before tax, after making a provision for depreciation, decreased from 1,726.84 Lakh to 236.19 Lakh in 2020-21. The Companys net profit, after considering a tax provision of 211.06 Lakh as against the previous years 472.01 Lakh, MAT Credit Set off of Nil Lakh (Previous years 188.21 Lakh) and earlier year adjustment on account of payment of Income tax of Nil Lakh (Previous years of 7.71 Lakh) stood at 23.71 Lakh in 2020-21 as against the Previous years 1,099.73 Lakh.

Finance Costs: Libertys finance costs stood at 1,303.35 Lakh in 2020-21 (Previous years 1,163.55 Lakh), comprising interest on term loans, working capital loans & other loans. The Bank charges paid for various arrangements like merchant discount rate (MDR), cash pick up charges/CMS Charges and other miscellaneous charges are 137.65 Lakh in 2020-21 (Previous years 268.03 Lakh).

Material developments in Human Resources/Industrial Relations front and Number of people employed

Liberty always believes in people and its Human Resources play a key role in developing, reinforcing and changing the culture of an organisation. Liberty HR structure has been designed to support the business in achieving its objectives with simultaneous growth of its employees. Liberty has a full fledge HR Policies for all employees/workers across all plants/Offices defining the functions, duties and responsibilities at all level for performing the job in most transparent and structured manner.

During the year under consideration, several initiatives through training & motivational programmes were taken to improve employees knowledge, skills and effectiveness to improve productivity and to establish better inter se relations amongst themselves. The relationship with the employees has been cordial and they have extended their support during the tough phase of COVID-19 which has helped the Company in its austerity drive.

As on 31st March, 2021, the total employees strength of the Company stood at 1,849 as compared to previous years 2070.

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 2020-21 2019-20
1 Debtors to Sales (in days)1 87 114
2 Inventory to Turnover Ratio (in days)2 162 112
3 Interest coverage Ratio3 1.22 2.15
4 Current Ratio 1.58 1.33
5 Debt Equity Ratio 1.95 1.51
6 Operating Profit Margin (%) 6.65% 6.35%
7 Net Profit Margin (%)4 0.05% 1.69%
8 Return on Net Worth (%)5 0.13% 5.91%


1The significant changes in Trade Receivables is because of improved collection of previous years debts and current years debts collection in timely manner resulted in to no further increase of debts.


2There is apparent increase in number of days of inventory as against sales for the year, however in real terms the related increase is because of sudden outbreak of Covid-19 in the month of March 2020, resulted lockdowns and its persisting ill-effects during the whole of the years resulting in substantial decrease in sales.


3The significant changes in interest coverage ratio is due to lesser profitability and operating margin available in terms of value due to impact of covid-19 explained above and resulted in to sharp decline in ratio.


4The significant changes in Net profit margin is due to lesser profits and higher taxation value because of adding back the necessary provisioned amount resulted in to lower profit after tax.


5The Return on net worth has sharply declined due to lower profits because of covid-19 as explained above.

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.