S R Industries Ltd Management Discussions

Overview

This report contains statements that may be classified as "forward-looking statements" within the meaning of applicable laws and regulations. These statements represent the beliefs, intentions, expectations, or projections of S R Industries Limited (SRIL/ the Company) regarding its future operations, strategies, objectives, and performance. Such forward-looking statements are inherently subject to a number of risks, uncertainties, and assumptions. These include, but are not limited to changes in government policies or regulations, domestic and global political or economic developments, fluctuations in market conditions, technological advancements, competitive pressures, dependence on key suppliers, and other factors that may impact the Companys business operations and strategic initiatives.

As a result, actual outcomes and results may differ materially from those expressed or implied in these forward-looking statements. S R Industries Limited undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, unless required by applicable laws.

1 ) Industry structure and developments

Indias Footwear Industry is flourishing and currently stands as the worlds second largest producer of footwear, following China. The countrys leather, non-leather footwear and product exports rose by about 25% in the current fiscal year of 2024-25 to USD 5.7 billion and is projected to cross USD 6.5 billion mark by the end of the next financial year. (Source: The Council for Leather Exports).

The footwear market has experienced a noteworthy rise in demand which is primarily driven by lifestyle changes, economic growth and an increased emphasis on health; particularly after the COVID-19 pandemic. Consumers no longer consider footwear as a functional requirement rather than they treat it as a lifestyle accessory. There has been a surge in the overall demand of footwear particularly from the younger generation, whom we consider as our target customers. The footwear industry is forecasted to grow at a CAGR of 12 to 14% in the next 5 years. With both the Government and the RBI undertaking major fiscal and monetary expansionary measures, the footwear Industry is poised to witness a higher surge in the demand for footwear in the near future. There have been considerable developments in the footwear Industry driven by changing consumer preferences, technological advancements, and shifting global dynamics.

The industry is a significant employer, providing nationwide employment opportunities and contributing extensively towards the growth trajectory of the Indian economy. A report by

Invest India on the non-leather footwear industry has predicted remarkable growth for the sector, with an anticipated 8 (eight) fold expansion by the year 2030. There is a considerable shift from the unorganized to the organized Sector thereby boosting the growth of branded footwear and BIS certified products. To add to all this, the Governments initiatives, such as the Production-Linked Incentive (PLI) scheme aims to promote both domestic manufacturing as well as exports.

Though the uncertainty over global tariffs looms over all the economies at large and may pose as a major obstacle to growth but the management is still optimistic in its view that with the increasing demand of footwear globally, the Indian footwear industry is poised to become a significant player in the global market; offering unique and diverse products that appeal to customers worldwide

Growth of the Premium Segment in Indian Footwear

Indias socio-economic growth has fueled a rising middle class with higher disposable income and aspirational lifestyles, driving demand for branded and premium footwear. Changing consumer preferences, influenced by evolving lifestyles, social media, and fashion trends, have led to increased demand for stylish yet comfortable footwear. The growing focus on fitness and wellness has further propelled demand for functional, branded products. As a result, the Indian footwear market is witnessing rapid transformation, with both new and established players expanding their premium offerings to meet evolving consumer expectations.

Online platforms and Emerging Retail Innovations

The rise of e-commerce in India, supported by robust logistics and digital infrastructure, has created new opportunities for businesses to reach untapped markets. Companies are investing heavily in digital platforms, while innovations like Omni-channel retailing, Buy Now Pay Later (BNPL), and quick commerce are enhancing the shopping experience. These developments, combined with consumers growing comfort with digital tools, have driven greater convenience, choice, and price transparency making online retail a key growth driver for the footwear industry.

2) Opportunities and Challenges

Opportunities:

The Indian Footwear Industry is expected to experience significant growth due to various favorable macro-economic factors. There has been a spurt in countrys infrastructural development coupled with increasing urbanization and changing consumption patterns which is playing a major role in the growth of the organized retail sector in the footwear Industry.

The Indian Governments initiatives, such as the Production-Linked Incentive (PLI) scheme, can provide S R Industries Limited with opportunities for growth, subsidies, and incentives. The Indian Governments Production-Linked Incentive (PLI) scheme is expected to attract investments worth Rs. 2,000 crores in the footwear industry. (Source: Press Information Bureau, Government of India)

The Indian footwear industry benefits from a strong comparative advantage, driven by economies of scale, access to cost-efficient skilled labor, and abundant raw materials. With this solid foundation, the industry holds immense potential to emerge as a global manufacturing hub for exports while also creating significant employment opportunities. Recognizing this potential, S R Industries is actively pursuing strategic collaborations with companies, designers, and influencers to expand into untapped markets and enhance its market share.

The growth of Indias economy has led to noticeable changes in the consumption patterns of footwear. The positive socio-economic changes in tier II and III cities along with a conducive business environment, have opened up new opportunities for growth.

Challenges:

Global tariffs may significantly impact the Indian footwear industry. High tariffs in key markets like the US and EU may reduce competitiveness of Indian footwear by making Indian footwear products more expensive compared to those from countries with preferential trade agreements. This hampers export growth and affects margins for manufacturers.

Approximately 70 80% of the footwear sector still remains unorganized, with numerous small-scale manufacturers offering products at lower prices due to reduced overheads and taxes. This fragmentation leads to quality inconsistencies and makes it difficult for organized players to maintain competitive pricing and market presence.

Volatility in raw material prices, such as leather, rubber, and other components, can impact S R Industries Limiteds profit margins and pricing strategy. The global leather market is expected to experience fluctuations in prices due to changes in demand and supply. (Source: Leather and Hide Council)

With growing consumer awareness about environmental issues, there is an increasing demand for eco-friendly and sustainable footwear. Manufacturers face pressure to adopt green practices and materials, which may require significant investment and technological upgrades.

Global brands like Nike, Adidas, and Puma have established a strong presence in India, offering premium products and extensive marketing. The domestic manufacturers often lack the resources for such expensive branding efforts, making it challenging to compete in the premium segment.

3) Segment-wise or Product Wise Performance:

There was no major business activity in the Company during the last financial year as the Company emerged out of the CIRP process in the month of July 2024 and thereafter took all the necessary steps towards complying with all the statutory and regulatory requirements.

As S R Industries Limited recently underwent rehabilitation from the Corporate Insolvency Resolution Process (CIRP), the main focus was on rebuilding and revitalizing the company which involved steps towards:

- Restructuring and Refinancing: Reorganizing the companys debt and financial structure to ensure stability and growth.

- Operational Efficiency: Implementing cost-saving measures, improving supply chain management, and enhancing manufacturing processes.

- Strategic Partnerships: Collaborating with other companies or investors to access new markets, technologies, or resources.

The Company was under the Corporate Insolvency Resolution Process (CIRP) since December 2021, and pursuant to the order dated 1st July 2024 of the Honble National Company Law Tribunal (NCLT), Chandigarh Bench under the provisions of the Insolvency and Bankruptcy Code, 2016, it has been rehabilitated and during the period the manufacturing activities of the Company remained shut down.

Post-CIRP, it has not been an easy task to immediately resume the Companys manufacturing operations due to various operational, financial, and regulatory challenges. In view of this, the Company has strategically entered the footwear market as a trader to maintain its market presence and generate revenue until it is in a position to restart its own manufacturing activities.

The Company has diversified into the footwear segment with a primary focus on products such as EVA Flip Flops, Lifestyle Footwear, Sports Sandals, and Sports Shoes including Die-Cut Joggers and Running Shoes with IMEVA midsoles. In addition to this, the Company has also ventured into trading activities in the sports footwear category.

The Companys performance is comprehensively evaluated in this report, providing detailed insights into its financial position, operational activities, and market strategy. By focusing on a specific product category, the Company aims to optimize its resources, improve product quality, and strengthen its position in the footwear industry.

4) Outlook

The present outlook for S R Industries Limited remains challenging, as the company navigates its recovery from the Corporate Insolvency Resolution Process (CIRP). However, the management is optimistic that with the Indian footwear market projected to grow at a CAGR of 12 to 14% in the next 5 years i.e. from 2025 to 2030, S R Industries Limiteds will be able to capitalize on this trend, though to a limited extent. However, the long-term outlook remains positive and bullish. The companys emergence from CIRP is a positive step in this direction and the Company is optimistic to demonstrate significant improvements in its operational efficiency, financial management, and product competitiveness to regain market traction and drive growth.

The Company was under the Corporate Insolvency Resolution Process (CIRP) from December 2021 to July 2024. As part of its strategic revival plan, the Company has ventured into the footwear market with the launch of its new brand, "Pacalop."

Positioned as a bold and playful flip-flop brand, Pacalop is specifically designed to resonate with modern youth, particularly millennials and Gen Z consumers who value individuality, practicality, and style. The brand aims to disrupt the traditional footwear segment by offering products that combine vibrant, youthful aesthetics with comfort and durability.

Pacalops identity is centered around a forward-thinking, approachable, and authentic persona, emphasizing self-expression and creativity. With a digital-first strategy, the brand plans to deploy quirky and engaging marketing campaigns, supported by community-driven initiatives, to build strong customer loyalty and long-term brand affinity.

The launch of Pacalop aligns with the broader consumer shift towards personalized, experience-oriented, and purpose-driven brands, strategically positioning the Company for sustainable growth within the youth lifestyle and fashion-forward footwear segments. The management is confident that Pacalop holds substantial potential to capture market share by catering to the evolving tastes and preferences of todays youth, while simultaneously enhancing the Companys footprint in the competitive footwear industry.

The launch of Pacalop marks a significant and promising step in the Companys post-CIRP revival strategy. By targeting the rapidly growing millennial and Gen Z demographic, the Company is strategically aligning itself with emerging consumer trends that favor personalization, self-expression, and digital engagement.

The brands strong emphasis on digital-first marketing, combined with its focus on community-building and authentic storytelling, positions Pacalop well to build a distinctive brand identity in a highly competitive market. Given the rising demand for affordable, fashionable, and comfortable footwear, Pacalop has the potential to create a niche and drive meaningful revenue growth.

Looking ahead, the Companys success will largely depend on the effective execution of its digital strategies, timely product innovation, supply chain management, and the ability to scale operations efficiently. With its fresh brand outlook and youth-centric positioning, the Company is well-placed to capitalize on market opportunities and strengthen its presence in the lifestyle and fashion footwear industry in the near to medium term.

5) Risk and Concerns

As S R Industries Limited emerges from the Corporate Insolvency Resolution Process (CIRP), the company faces several risks and challenges that could impact its financial performance, operations, and future prospects. The following are some of the key risks and concerns:

a) Post-CIRP Rehabilitation Risks:

- Challenges in regaining stakeholder confidence, including customers, suppliers, and employees.

- Potential difficulties in accessing new credit facilities or refinancing existing debt.

b) Business and Market Risks:

- Intense competition in the footwear industry, which could lead to downward pressure on prices and margins.

- Fluctuations in demand and market trends, which could impact sales and revenue.

- Dependence on a limited number of suppliers, which could disrupt the supply chain and impact production.

c) Financial Risks:

- High debt levels, which could impact the companys ability to meet its financial obligations and invest in growth initiatives.

- Limited financial flexibility, which could restrict the companys ability to respond to changing market conditions.

- Exposure to foreign exchange fluctuations, which could impact the companys import costs and export revenue.

d) Operational Risks:

- Dependence on a limited number of manufacturing facilities, which could disrupt production and impact sales.

- Exposure to labor unrest and industrial disputes, which could impact production and operations.

- Dependence on third-party logistics and transportation providers, which could disrupt the supply chain and impact delivery times.

e). Regulatory and Compliance Risks:

- Exposure to changes in government policies and regulations, which could impact the companys operations and financial performance.

- Compliance risks related to labor laws, environmental regulations, and tax laws, which could result in fines and penalties. f) Corporate Governance and Management Risks:

- Risks related to the companys corporate governance structure and practices, which could impact the companys reputation and financial performance.

- Dependence on key management personnel, which could impact the companys operations and financial performance if they were to leave the company.

The company is taking steps to mitigate these risks and concerns, including: - Implementing a robust risk management framework - Strengthening its corporate governance structure and practices. - Improving its operational efficiency and supply chain management. - Enhancing its financial management and reporting systems. - Focusing on regaining stakeholder confidence and trust.

However, these risks and concerns could still impact the companys financial performance and future prospects.

6) Internal control system and their adequacy

The Company has put in place adequate Internal Financial Controls (‘IFC) with reference to the financial statements commensurate with the size, scale and complexity of operations.

IFC ensure orderly and efficient conduct of the business, including adherence to companys policies, safeguarding of assets, prevention and detection of frauds, errors, accuracy, completeness of accounting records and timely preparation of reliable financial information.

IFC framework is independently evaluated by the external agency apart from periodic evaluation by In-House Internal Audit function for necessary improvement, wherever required. Based on the results of such assessments, no reportable material weakness or significant deficiencies in the design or operation of Internal Financial Controls was observed.

Further, the Statutory Auditors of the Company also reviewed ICOFR (‘Internal Financial Controls over Financial Reporting) of the Company as on March 31, 2025 and issued their report, which forms part of the Independent Auditors report.

The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening them. The Company has a Management Information System in place which is an integral part of the control mechanism. The Company continues to strengthen its risk management and internal control capabilities by improving its policies and procedures.

The Managing Director and CFO Certificate included in the Corporate Governance Report confirms the existence of effective internal control systems and procedures in the Company. The Audit Committee reviews the effectiveness of the IFC framework of the Company.

Concerns Regarding Adequacy and Effectiveness:

a). Lack of Robustness: The companys is working towards making its internal control systems more robust and dynamic, given the disruptions caused by the CIRP process.

b). Documentation: The companys is making concerted efforts in improving the documentation of its internal control systems.

c). Limited Resources: The resource constraint also poses a serious challenge for further strengthening the Companys internal control system. However, the Company is making concerted efforts towards further strengthening the Internal controls.

Remedial Measures:

a). Review and Strengthening of Internal Controls: The company plans to review and strengthen its internal control systems to ensure their adequacy and effectiveness.

b). Documentation and Training: The company plans to document its internal control systems and provide further training to its employees to ensure their effectiveness.

c). Resource Allocation: The company plans to allocate sufficient resources to support the implementation and maintenance of its internal control systems.

S R Industries Limited is in the process of implementing these measures rigorously with the aim to strengthen its internal control systems and ensure that they are adequate and effective in supporting the companys financial reporting and operational processes.

7) Discussion on financial performance with respect to operational performance

S R Industries Limiteds financial performance has been significantly impacted by the Companys recent history, including its admission into the Corporate Insolvency Resolution Process (CIRP) in 2021. As a result, there was no major business activity post the completion of the CIRP process.

The Adjudicating Authority (AA/Honble NCLT, Chandigarh Bench) approved the Resolution Plan submitted by Bazel International Limited, the Successful Resolution Applicant (S RA), on July 1, 2024. This marked a significant milestone in the Companys journey, as it emerged out from the CIRP process.

Financial Performance:

The Companys financial performance during the CIRP period was severely impacted, with no revenue generated due to the suspension of business activities. The Companys financials reflect the significant challenges faced during this period.

Operational Performance:

During the financial year 2024 25, S R Industries Limited (S RIL) underwent a significant transformation following its emergence from the Corporate Insolvency Resolution Process (CIRP). This process culminated in the approval of a resolution plan by the Honble National Company Law Tribunal (NCLT), Chandigarh Bench, on July 1, 2024.

Key developments undertaken during the current financial year included:

? Board Restructuring: The company appointed a new set of directors and established a duly constituted board, along with all requisite committees, to steer its future operations.

? Operational Resumption: While the company has resumed trading activities in footwear, it is in the process of revamping its production capabilities, which is expected to take some additional time.

? Capital Restructuring: As part of the post-CIRP restructuring, Bazel International Limited has become the holding company of S R Industries Ltd.

The Company stepped into the spotlight last year with the launch of D2C (Direct to Consumer) footwear brand-Pacalop, targeting the Indian youth. The Company plans to follow Spring Summer and Autumn Winter fashion cycle for this brand. A school shoe range is also in the pipeline and is currently in the Research and Development phase. The Company is planning to enter the footwear market with 10 carefully engineered SKUs focusing on ergonomic silhouettes, aesthetic colour palettes and differential comfort experience.

The Company is currently in active discussions with the multiple distribution partners and platforms so as to increase its market penetration and improve accessibility for the targeted customer. The Company is working on the "AAA" strategy i.e. improving the availability, affordability and accessibility of their footwear for the targeted customers.

8) Material development in human resources / industrial relations front, including number of people employed

Industrial Relations:

The companys industrial relations were impacted due to the CIRP process. However, with the approval of the Resolution Plan, the company is committed to rebuilding its relationships with its stakeholders, including employees.

Employee Strength:

As of March 31, 2025, the company has 6 employees on its payroll.

9) Significant changes in key financial ratios

During the financial year 2024 25, S R Industries Limited (S RIL) emerged out of the Corporate Insolvency Resolution Process (CIRP) in the month of July 2024. Consequently, the company did not undertake significant business operations during this period. As a result, there were no substantial changes in key financial ratios.

The companys financial statements for the year reflect the impact of the CIRP process, including:

? Minimal Revenue: Revenue from operations was recorded at Rs. 0.84 Lakh for the year ended March 31^st, 2025.

? Reduced Expenses: Operating expenses were significantly lower due to limited activities.

? Asset and Liability Adjustments: Changes in the companys asset and liability structure occurred as part of the CIRP process.

Given the limited operations during this period, the companys financial performance and key financial ratios are not indicative of its future performance as the company has not yet resumed full-fledged operations.

10) Details of significant changes

Required details are here:

	Year ended March 31, 2025	Year ended March 31, 2024
i. Current Ratio
Current assets	1,63,197	7,38,382
Current Liabilities	5,709	45,27,635
Current ratio	28.59	0.16
% Change from Previous Year	17428%
ii. Debt Equity Ratio
Total Debt	1,52,383	43,78,640
Total Equity	12,07,235	(32,52,625)
Ratio	0.13	(1.35)
% Change from Previous Year	109%
iii. Return on Equity Ratio
Net Profit after Tax	(86,634)	(10,003)
Average total shareholders equity capital	12,07,235	(32,52,625)
Ratio	(0.072)	0.00
% Change from Previous Year	NA
iv. Debt Service Coverage Ratio
Net Operating Income	0.00	0.00
Total Interest and Principal
Payment	2137.75	0.00
Ratio	0.00	0.00

(v) Inventory turnover ratio = Cost of goods sold/ Average Inventory

As the company has not commenced its commercial operations, therefore there is no revenue from operation during the current year therefore this ratio is not applicable to the company.

(vi) Trade receivables turnover ratio = Credit sales/ Average trade receivables

As the company has not commenced its commercial operations, therefore there is no revenue from operation during the current year therefore this ratio is not applicable to the company.

(vii) Trade payables turnover ratio = Net credit purchase/ Average trade payables

As the company has not commenced its commercial operations, therefore there is no revenue from operation during the current year therefore this ratio is not applicable to the company.

(viii) Net capital turnover ratio= Sales/ net Working Capital

As the company has not commenced its commercial operations, therefore there is no revenue from operation during the current year therefore this ratio is not applicable to the company.

(ix) Net profit ratio= Net profit after tax/ Sales

As the company has not commenced its commercial operations, therefore there is no revenue from operation during the current year therefore this ratio is not applicable to the company.

Note: It is noted that during the financial year 2024-2025, the Company was successfully rehabilitated from the Corporate Insolvency Resolution Process (CIRP) as per the order dated 01st July 2024, passed by the Honble National Company Law Tribunal, Chandigarh Bench. Following the CIRP, the Successful Resolution Applicant, Bazel International Limited along with its associates, settled and paid off all specified past liabilities. As a result, there have been significant changes in the Companys financial ratios. Additionally, during the year, the Company did not generate any income from business or commercial activities, which has led to certain ratios reflecting negative figures or being reported as Nil.