S D Retail Ltd Management Discussions

Global Economy Overview

As per the International Monetary Funds (IMF) July 2026 World Economic Outlook Update, the global economy has remained resilient, absorbing the energy-market shock from the Middle East conflict better than initially feared. Global growth is projected at 3.0% in 2026, moderating from an estimated 3.5% average in 2024 and 2025, before recovering to 3.4% in 2027, broadly unchanged from the April 2026 forecast on a cumulative basis. The outlook is uneven: economies exposed to the conflict and energy-import dependence face headwinds, while those integrated into the global technology and AI-investment value chain are experiencing stronger momentum.

Global headline inflation has been revised up to 4.7% for 2026, signalling that the disinflation trend in place since early 2024 has stalled, before easing to an estimated 3.9% in 2027. Global trade growth is also expected to slow to 3.5% in 2026 from 5% in 2025. The IMF continues to emphasise the importance of confidence-building measures, predictable policy frameworks, and structural reforms to help economies sustain growth and build long-term resilience amid persistent geopolitical and trade-policy uncertainty.

Indian Economy Overview

As per the Economic Survey 2025-26 tabled in Parliament by the Union Minister for Finance and

Corporate Affairs, and reaffirmed by subsequent

Press Information Bureau (PIB) releases, Indias real GDP growth for FY26 is estimated at 7.4% as per the First Advance Estimates, making it the fastest-growing major economy for the fourth consecutive year. India has overtaken Japan to become the worlds fourth-largest economy by nominal GDP and is on course to become the third-largest, surpassing

Germany, within the next two-to-three years, with projected GDP of around USD 7.3 trillion by 2030.

Growth continues to be driven by robust domestic demand, with private final consumption expenditure rising to 61.5% of GDP - its highest share since 2012

- supported by low inflation, stable employment, and rising real incomes. Investment activity has also strengthened, with gross fixed capital formation growing at a healthy pace and sustaining a 30% share of GDP. Real GDP growth for FY27 is projected in the range of 6.8% to 7.2%, reaffirming Indias medium-term growth potential.

This transformation continues to be underpinned by the vision of Aatmanirbhar Bharat, which promotes innovation, self-reliance, and global competitiveness. Initiatives such as the Production Linked Incentive (PLI) schemes, MSME revitalisation, GST rationalisation, and a strengthened digital and financial ecosystem have driven broad-based growth across sectors. With stable inflation, resilient exports, and an expanding role in global trade, India continues to advance towards becoming the worlds third-largest economy, shaping its economic future as a resilient and inclusive powerhouse.

Sleepwear Market Size

The sleepwear market in India is experiencing strong growth and gaining importance within the broader apparel segment. Industry estimates value the domestic sleepwear market at approximately USD

650-660 million in 2025, with the category projected to grow at a CAGR of over 12% through the next decade, driven by changing consumer lifestyles, a growing preference for comfort-led clothing, and the influence of digital retail. Sleepwear is evolving from a purely functional category to one of style and self-expression.

Women form the largest consumer base for sleepwear in India, often opting for stylish, comfortable sets, nighties, and gowns. Men and kids contribute smaller shares but represent significant untapped potential - mens preferences lean toward basic and functional pieces, while kids sleepwear is driven by playful designs and character-led themes. The product mix continues to shift from traditional one-piece nightgowns toward coordinated sets, as consumers increasingly purchase individual pieces to suit personal comfort and aesthetic preferences.

Cotton remains the dominant fabric owing to its breathability and cultural relevance, though rayon, modal, and polyester are gaining ground in premium and performance-driven segments. Retail formats are evolving rapidly - physical stores continue to hold a strong presence, while online channels remain the fastest-growing, especially in smaller cities, with direct-to-consumer and digital-first brands reshaping discovery and purchase.

Overall, the category remains underpenetrated despite high usage, leaving considerable room for expansion in non-womens segments and across emerging digital platforms.

Category Leader: Pioneering a New Habit Company Overview

S D Retail, the parent company of the Sweet Dreams brand, has evolved into one of Indias leading players in the organised sleepwear segment. With over three decades of experience, the Company has transitioned from a wholesale-led model to a direct-to-consumer business with a growing network of Exclusive Brand Outlets (EBOs), supported by digital platforms and a nationwide presence across Multi-Brand Outlets (MBOs). This strategic pivot is enabling the Company to capture higher margins, build customer loyalty, and establish a stronger brand identity in a largely unorganised category.

Leveraging data-led design, and a sharply focused product architecture, S D Retail is not only expanding its footprint but also shaping consumer behaviour around nighttime apparel. With investments in premium EBO formats, customer experience, and omnichannel capabilities, the Company is well-positioned to drive profitable growth and category leadership in the years ahead.

FY26 marked a turning point in S D Retails growth strategy, with EBO revenue nearly doubling year-on-year and contributing meaningfully to margin expansion. The Company continued to rationalise low-yield channels and reinvest in scalable, brandled formats, while its growing design-to-retail ecosystem enabled faster product cycles and localised assortment planning. As Indias sleepwear market matures, S D Retail is set to capitalise on its early-mover advantage and expand its influence across both urban and emerging consumption centres.

Operational Highlights

Retail Expansion: S D Retail scaled its EBO network to 75 stores across malls, high streets, and airports, covering 36,371 sq. ft. of retail space. The EBO channel reported 111% revenue growth year-on-year, supported by healthy same-store sales growth of 13.36% and annualised productivity of 16,549 per sq. ft.

Channel Performance: EBOs contributed 23.7% of total revenue, up from 12.7% in the previous year, reflecting a successful shift toward premium, brand-led formats. MBOs remained the largest channel with steady performance, while the Company consciously exited underperforming Large Format Store (LFS) counters to optimise margins.

Digital & D2C Initiatives: The Companys owned e-commerce platform recorded 70% growth in revenue year-on-year. Marketplace growth remained moderate, prompting a sharper focus on CRM deployment and omnichannel integrations to improve D2C efficiency.

Operational Efficiency: Gross margin improved by 233 basis points during the year, aided by a favourable channel mix and input cost management. Net cash flow from operating activities turned positive, reflecting improved working capital discipline.

Organisational Readiness: Investments were made in expanding talent, enhancing technology infrastructure, and building backend systems to support scalable retail operations and upcoming EBO growth in newer geographies.

Geographical Revenue Distribution and Market Presence

Core Markets - North & West India: These regions contribute ~80% of total revenue, driven by strong brand recall, dense EBO and MBO presence, and higher consumer spend. They remain the Companys most mature and profitable markets.

Emerging Focus - South India: South India is a strategic expansion zone. Recent EBO launches have shown encouraging traction, with region-specific collections and formats being well received. Retail Format Mix: S D Retail is present across 47 malls, 20 high streets, and 8 airports - enhancing visibility among urban aspirational consumers. Digital Reach: The Companys e-commerce platform, along with presence on Myntra, Flipkart, Amazon, Nykaa, and Zepto, ensures pan-India accessibility, complementing its offline network.

Localised Strategy: Using Indias largest sleepwear preference dataset, S D Retail tailors fit, fabric, and design to regional tastes - maximising relevance and conversion across markets.

Financial Highlights

( In Lakhs)

			% Change
Particulars	FY26	FY25	(YoY)
Net Sales	19,597.54	17,304.32	13.25%
Total Expenditure	17,944.44	15,874.27	13.04%
EBITDA	1,653.10	1,430.05	15.6%
Profit After Tax (PAT)	977.92	855.57	14.3%

SD Retail reported a resilient financial performance in FY26, marked by revenue growth, margin expansion, and improved operating cash flow. The

Company continued its shift toward higher-margin, brand-led retail channels, which positively impacted profitability and efficiency metrics.

Revenue Growth: Net sales increased by 13.25%

YoY to 19,597.54 Lakhs, driven primarily by a 111% increase in EBO revenue and steady performance in MBO and digital channels.

Margin Expansion: Gross margin improved by 233 basis points to 53.44%, supported by a richer product mix and reduced exposure to low-margin formats.

Profitability: PAT stood at 977.92 Lakhs, up 14.3% YoY, reflecting stronger operating leverage despite higher investments in talent and technology.

Ratio Analysis
Ratio	FY26	FY25
Current Ratio (In Times)	2.56	2.48
Debt Equity Ratio (In Times)	0.14	0.30
Trade Receivables Turnover	2.42	2.15
Ratio (In Times)
Trade Payable Turnover Ratio	6.34	5.24
(In Times)
Net Profit Ratio (In %)	4.99%	4.95%

Opportunities & Threats

Opportunities

Category Formalisation: The sleepwear segment in India remains largely unorganised despite high wear-time. As consumer preferences evolve, SD Retail is well-positioned to lead formalisation through branded, fashion-led offerings.

Omnichannel Expansion: With a scalable EBO model and improving D2C infrastructure, the Company can deepen its presence in premium urban locations while expanding access through digital platforms.

Regional Customisation: The use of region-specific consumer data allows for tailored product development, improving conversion rates and brand relevance across diverse Indian markets.

Underpenetrated Geographies: South India presents a significant growth runway, where early traction from recent EBO launches supports further retail expansion.

Lifestyle Shifts: Evolving lifestyle patterns and a growing wellness orientation continue to drive demand for comfort-first, at-home apparel, expanding the addressable market for sleepwear and loungewear.

Threats

Seasonality & Working Capital Cycles: The business remains exposed to season-driven billing patterns and Q4-heavy sales cycles, creating temporary pressures on inventory and receivables.

Channel Profitability Risk: Fluctuations in marketplace performance and dependency on external platforms can affect online margins and scalability.

Competitive Intensity: Entry of larger apparel players into the loungewear and sleepwear segment may intensify pricing and promotional pressure.

Retail Cost Inflation: Rising rental and manpower costs, particularly in malls and urban centres, could impact retail store-level profitability if not offset by productivity gains.

Risk Management

S D Retail follows a proactive risk management framework to identify, assess, and mitigate key business and operational risks. The Company regularly monitors internal and external factors that may impact performance and adapts its strategies accordingly.

Seasonal Revenue Concentration: A significant portion of revenue is concentrated in the fourth quarter due to MBO billing cycles and festive season demand. The Company mitigates this risk through early planning, staggered production, and tight inventory control.

Channel Dependence: While MBOs remain the largest revenue contributor, the Company is consciously diversifying through EBOs and D2C platforms to reduce overdependence on any single channel.

Retail Operating Cost Risk: Increased cost of retail operations - particularly rentals and manpower - poses a threat to store-level margins. S D Retail addresses this by adopting a mix of franchise-owned and company-owned models and optimising store formats.

Supply Chain Disruptions: As a design-to-retail business, any disruption in sourcing or logistics can affect product availability. The Company mitigates this through multi-vendor sourcing, inventory buffers, and integrated supply chain planning.

Digital Platform Reliance: Marketplace dynamics, algorithm changes, or policy shifts can affect visibility and margins in online sales. S D Retail is reducing this risk by building its own e-commerce and CRM capabilities.

Competitive Landscape: Entry of large players in the sleepwear segment may increase pressure on pricing and customer retention. The Company counters this through brand differentiation, customer insights, and curated product architecture.

Outlook

S D Retail enters FY27 with a focused strategy to scale its brand-led, omnichannel retail model. Building on the momentum of FY26, the Company plans to deepen its presence in urban consumption centres through continued expansion of EBOs and enhanced digital engagement.

EBOs will remain the Companys primary growth driver, with new store additions planned across metros and Tier-II cities. North India is identified as a priority market, where early signs of traction support a larger rollout backed by localised collections and region-specific marketing. Expansion will continue to follow an asset-light, franchise-led model to optimise capital efficiency.

Digitally, the Company will scale its direct-to-consumer (D2C) platform through investments in CRM, customer analytics, and integrated shopping experiences, aiming to increase brand loyalty, deepen customer relationships, and build a more profitable online business independent of third-party marketplaces.

The broader sleepwear and loungewear category is undergoing a shift from functional to lifestyle-led consumption. With its focused product positioning around the 8 PM - 8 AM wear-time and data-driven merchandising approach, S D Retail is well-positioned to capture this transition through climate-tuned, mood-based collections that meet regional and seasonal demand.

Profitability improvement remains a key focus, with further gains expected through mix enrichment, store productivity, and operating leverage, while selectively investing in capabilities that support scalable and sustainable growth.

Internal Control Systems & Their Adequacy

S D Retail has established robust internal control systems that ensure operational efficiency, safeguard assets, and support regulatory compliance across all facets of the business. These systems are designed to detect and mitigate risks, ensure accuracy in financial reporting, and promote disciplined governance practices.

Policy-Driven Protocols: All critical business processes - procurement, inventory, finance, and distribution - are governed by well-defined policies and standard operating procedures, reducing ambiguity and enhancing accountability.

Compliance Monitoring: Dedicated review mechanisms are in place to monitor adherence to internal norms and statutory requirements. Periodic audits and internal checks ensure that deviations, if any, are promptly addressed.

Continuous Evaluation: Management regularly evaluates the adequacy of controls and updates systems in response to changing regulatory and operational requirements.

Human Resources Development

S D Retail considers its people the cornerstone of its success. The Human Resource Development strategy is centred on fostering a performance-driven culture, ensuring talent alignment with business goals, and promoting holistic employee development.

Talent Acquisition & Retention: Strategic hiring based on future capability needs and retention efforts, including career progression planning, have strengthened organisational depth.

Structured Learning & Upskilling: Customised training programmes were conducted across departments, with a focus on functional excellence, leadership development, and compliance awareness.

Performance & Recognition: A transparent appraisal system continues to drive meritocracy, with outstanding performers recognised through reward mechanisms that reflect their contributions.

The Company continues to foster a work environment anchored in growth, inclusivity, and meaningful contribution. As on March 31, 2026, S D Retail employed 252 permanent team members across its operations - each individual playing a vital role in cultivating the dynamic and collaborative culture that drives the Companys sustained progress.

Cautionary Statement

The statements provided in this section outline the Companys objectives, projections, expectations, and estimations, which may be deemed "forward-looking statements" as per applicable securities laws and regulations. These forward-looking statements are based on certain assumptions and anticipations of future events. However, it is important to note that the Company cannot guarantee the accuracy or realisation of these assumptions and expectations. The Company assumes no responsibility to publicly amend, modify, or revise any forward-looking statements based on subsequent developments. Stakeholders are advised to exercise caution and consider the inherent uncertainties associated with forward-looking statements when making decisions based on such information.