Khadim India Limited (KHADIM) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Khadim India Ltd.'s Q4 and FY26 earnings conference call hosted by MUFG in time. As a reminder, all PISPIN lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Umkar Bagwe from MUFG in time. Thank you and over to you, Mr. Bagwe.

Thank you. Good evening, everyone, and welcome to Q4 and FY26 earnings conference call of Khadim India Limited. To discuss the results, we have with us from the management, Mr. Rittik Roy Berman, the managing director, and Mr. Intajit Chaudhary, the group CFO. They will take you through the results and business performance, after which we can begin the question and answer session. Before we begin the conference call, I would like to mention that this conference Contains certain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on date of this call. The actual results may differ materially. These statements are not guarantee of future performance of the company and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Rittik. Thank you and over to you, sir.

Thank you. Thank you so much. Good evening, everyone. Thank you for joining us today. On behalf of Kazim India Limited, I welcome you all to the conference call to discuss our Q4 and FY26 results. We appreciate your continued interest and support for the company, and I trust you have had the opportunity to review the financial results and investor presentations shared with the stock exchanges. FY26 continued to be a challenging year for the footwear industry with muted consumer demand and continued pressure on discretionary spending, particularly in the mass and value segments. Demand conditions during the quarter remained soft across several markets, impacting overall throughput and store productivity. In this environment, we remain focused. on disciplined execution, inventory rationalization, prudent cost management, and strengthening our product portfolio to align with evolving consumer preferences. Despite the subdued operating environment, we continue to make progress across key strategic areas. Our focus on premiumization and category diversification continues to support brand positioning and customer engagement. The athleisure category witnessed good traction and supported by growing consumer preference for comfort-led and casual footwear. Our TFM portfolio delivered a strong growth of 46% year-on-year during FY26, reflecting improving acceptance across customer segment and continued traction in premium and semi-premium categories. British Walker also maintained healthy momentum and registered a growth of 6% year-on-year during FY26. Driven by consistent demand in the men's formal and semi-formal footwear categories. Partnership with Skechers also progressed positively with the brand recording sequential growth during the quarter, supported by improved store throughput and strengthening consumer response. Operational EV... Continue to maintain a cautious and calibrated approach towards inventory and working capital management in line with demand trends. We also remain focused on enhancing franchisee engagement, improving store-level efficiencies, and optimizing operating costs across the network. Our asset light expansion strategy continues to remain central to our long-term growth plans. During the year, we also completed the de-merger of the distribution business and manufacturing segment into KSR Footwear Ltd. We believe this strategic restructuring will enable sharper operational focus and improve efficiencies across the respective businesses over the medium term. Let me now take you through the financial performance of the quarter and the year ended, 31st March 2026. For Q4FI 26 revenue from operations stood at 83.6 crores as against 93.8 crores in the corresponding quarter last year reflecting a decline. Gross profit for the quarter stood at 43.1 crores with a gross margin of 51.5%. Ebitda for the quarters to that. 11.9 crores while EBITDA margin stood at 14.3%. PAT for Q4 FY26 stood at Rs. 0.77 crores with a PAT margin of 0.9%. For FY26, revenue from operations stood at Rs. 367.1 crores as compared to Rs. 418 crores in FY25, registering a decline of 12%. Gross profit for the year stood at Rs. 179.6 crores. With a gross margin of 48.9%, EBITDA for FY26 to that 49.1 crores with an EBITDA margin of 13.4%. Profit after tax for the years to that Rs. 3.1 crores with a path margin of 0.9%. As of 31st March 2026, our retail footprint stood at 851 stores comprising 189 company-owned outlets and 662 franchise-operated outlets across 23 states and 4 union territories. We continue to strengthen our omnichannel presence while focusing on profitable growth and improving store productivity. Looking ahead, while the demand environment continues to remain uncertain in the near term, we remain cautiously optimistic about gradual recovery, supported by improving consumption trends and product innovation. Our key priorities remain centered around strengthening our portfolio, driving minimization, expanding presence in high-potential markets, improving operational efficiencies, and maintaining financial discipline. We believe our strong brand recall, extensive retail network, diversified product portfolio, and focused execution strategy position us well to capture long-term growth opportunities in the Indian footwear market. With that, I conclude my remarks and would now be happy to take your questions. Thank you.

Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask questions may please press star and 1 on the touchstone phone. If you wish to withdraw yourself from the question key, you may press star and 2. Participants are requested to use only handsets while asking our questions. Ladies and gentlemen, we will wait for a moment while the question key assembles. You may please press star and 1 to ask questions. The first question is from the line of Raj Patel from SG Finance. Please go ahead.

Yeah. Hi. Am I audible?

Yes, sir. You are. Please proceed.

Yeah. Thank you for the opportunity. So, my questions were more regarding with the financial part. So as we saw that there was an operating deal average in FY26, so just wanted a clear picture that how we will be able to maintain the minimum revenue growth required to sustain 14% EBITDA margin.

Well, see, we have already, last two years, we have seen degrowth, but the degrowth has come mainly, there is a closure of stores, and also there is a less push of timely sales to the franchising. But once this store closure has been done, so I think there will be no further store closure, so there also the sales will remain the same. And also some correction in the EBO for not doing some primary sales will happen this year, but we have already, last year, if you see, we have reduced our cost, and we have done many cost-effective exercises. So with the revenue remaining at around 400 crores, again next year, we have a growth of, we will remain steady at the EBITDA level of 14%.

Got it. My next question was with regards to the brand. So, if we assume that the premium brands are being scaling and the margins are being improving, so why does the blended gross margin is being declined?

The blended cost margin has declined last year due to our, during, we have taken a price cut for the last one or two years. We have taken some price cut in our product less than 500. So there some margin degrowth has been seen. But if you see the fourth quarter margin has improved. And we'll continue with the new season product coming in in the spring-summer, where the ASP has been increased. So we'll see that the gross margin remains more or less in the upper side of around 48, 49 percent to 50 percent.

Got it, sir. And on quarter-on-quarter basis, as our revenue contribution from the premium sub-brands have increased, as the...

Yes, we have seen the growth in British Worker, and also in our Sharon thing, we have seen the growth, and we are now launching more products on British Worker and Sharon. So the premium product will contribute more, and the premium product contribution more will bring more gross margin to the company.

Got it, sir. And can you give us a more clear picture on the expected timeline for premium mix to be meaningfully offset the discounting pressure?

See, discounting, there are products which after two or three seasons need to be discounted, but the quantity of discounted product in the total stock has reduced. So, next year, the contribution of discount of total sale will reduce that. Thereby also, we will try to improve the margin in that trajectory also.

Got it, sir. Got it. And my last question was with regards to the inventory. So, we saw that the inventory has been reduced sharply by approximately 40% year on year. So, what are the risks of the lost sales due to the understocking in Q4 F526?

I see there are, when you take some call in the working capital thing, some, because we have taken a call to reduce the inventory risk. Yes, in the fourth quarter, we have lost some sales because of lower inventory. But you have to take a call, means, and we have done, taken that call and reduced our creditors and also stock and also sold the discounted thing. So now we have the, means. The luxury to purchase some good products so that the product mix of running product and discounted ratio improves. So, that's the reason we have taken call last year for reduction of inventory.

Got it, sir. That was really insightful. That was all from my side. Thank you. Thank you.

Thank you. You may please press star and want to ask questions. The next question is from the line of Santo Shetty from LGC Capital. Please go ahead.

Good afternoon, sir. Good afternoon, sir.

So, sir, just wanted to ask, when do you plan to transition from inventory correction to inventory-led growth?

Already, the inventory correction has been done. Now, this year, we will increase the inventory to the extent that is needed. We will not go overboard on inventory. We have achieved a lower level of inventory. Now, as I told earlier also, we will purchase the inventory which is required and which… For the new season and for the spring-summer, so that product will increase the good stock and reduce the level of discounted stock in the total inventory of our Hadim India Limited.

Okay, with the continued store rationalization into Q4, how much additional revenue drag should we expect in FY27?

See, we have closed around 60 stores in the last two years. So that thing we are focusing on opening some strategic store which will give us more sales, but we will not keep the store which is making losses. So we will track down that, and if all are needed to close the store, we will close the store. But we'll focus on profit-making stores and focus on e-commerce, business, and the franchisee. We have taken some steps to correct the franchisee. Like last year, we have corrected the inventory. This year, we'll make correction in the data zones.

Okay, from the last question, what is the steady-state store count you are targeting post-cleanup?

Around 200 cocoa stores.

Okay, sir. Okay, okay.

Thank you so much. That was really helpful.

Thank you. Please just star and want to ask questions. The next question is from the line of Yash Mehta from SKP Capital. Please go ahead. Please proceed. Mr. Mehta, I have unmuted your line.

Hello, hello, am I audible? Yeah, good afternoon. Thank you for the opportunity. So, I've got, like, two questions. So, the first is, are newly opened franchisee stores delivering higher throughput versus legacy Cocoa stores?

Well, see, the franchisee that we are now open more is the FRM, TFM, where the stock is on our side. Yes, that is giving us more margin, and our investment is also not there. Only we have to invest in stock. So, in Coco opening, we have to invest both in capex and in stock, but in this type of FRM and TFM, we have to only invest in stock. So, that is giving us more profit as now compared to COCO, but in strategic location where the revenue will be high, we will definitely go with the COCO.

Okay, okay, got it. And can you share the Q4 LFL growth in terms of volume plus value versus Q3?

In the volume sale in Q4 is around 14 lakh pair, where in Q3 it was around 12 lakh pairs. So there is the volume has increased and the sales has remained more or less same because in Q4 there is some discount also. Q3 it was a season for more fresh article sale.

Okay, okay. And what is like the current e-commerce contributions in existing FY26 versus 3-4% earlier?

Around 5%, but we are focusing now more on e-commerce, especially on our khadim.com. This year, we are expecting the contribution will be higher than last year.

And is the demand recovery driven by ticket size or footfall improvement?

Both.

Okay.

Ticket size also has an impact and also the footfall, both of the factors are important.

Got it, got it. And I want to ask like what kind of investments are required to scale up to 10% and how it will impact margins in near term?

Investment in the sense that COCO opening is one of the investment, but in case of opening of franchisee, we have to invest only in stock. So, that will be there. We will be opening franchisee, both EBO and TFM, and in strategic location, COCO.

So, has the sketches scaled meaningfully in Q4, or is it in still subscale versus expectations?

Can you come back for the question again?

Okay. Yeah, yeah, yeah, sure. Hello.

Sketchers sale has improved. Sketchers sale has improved. Yes, we are trying to increase the volume of Sketchers. Definitely this year we'll increase the volume of Sketchers and we'll send it to more stores compared to last year.

Okay, yeah, yeah, got it, got it. And, like, I've got, like, one or two more questions. So, like, what is the clear roadmap in terms of timeline for Athleisure to become a meaningful percentage of revenue?

See, Athleisure we have seen, but there are some issues in Athleisure because our stores are very small. We don't, we cannot have changing rooms. So, we have to keep only the men's thing. So, that we have kept, but we will not increase it further because we don't have space for that in our store. And we cannot give it to the franchisee because also the franchisee stores are very small. So, we will keep the Athlaser to the extent it is required, but we will not go far-fetched in Athlaser.

Yeah, yeah. Given that you said like the space constraint in store, so is athleisure structurally limited versus fear?

It's limited. We are keeping because we don't have that much space to keep all the athleisure like tracksuit, pants and everything. We are only keeping men's thing because the ladies thing we cannot keep because we don't have change room and all this.

Yeah, yeah, yeah. Thank you so much.

Thank you. A reminder to all the participants that you may please press star and want to ask questions at this time. The next question is from the line of Amai Sakhoja from Ambit. Please go ahead.

Hi, thanks for taking my question. So, my first question is, you know, given the GST rate cut that was recently announced by the government, how much of a positive impact of that are we actually seeing on the ground?

See, the GST thing, when it was launched, we have reduced the price at that point of time. But I think the demand for the product has not increased with the GST lowering. The demand has remained the same. And the thing is that the ASP has reduced a bit compared to the last year when the GST rate was high.

Right. So, just to clarify, could you, what is the guidance for FY27? You're saying 14% EBITDA margin, 48% to 50% gross margin, and 400 crores of revenue, is that correct?

Yes, yes.

Okay. So, this year, I think we, in the full year, we achieved 48.9% gross margin. So, I mean, are we not expecting more of an improvement in the gross margin, considering that you were saying that you were focusing more on the higher-value products?

Yes, yes, we assume that the margin will be high on both the sense that the premium product will sell more, and also there is an increase in the ASP also.

Okay, so we can assume closer to 50% in gross margin. I think that would be fair.

50 basis point.

50 basis point improvement. Okay. Okay. Thank you for answering my questions.

Thank you. For participants who wishes to ask questions, may please press star and one now. The next question is from the line of Rajiv Jain from Arcane Investments. Please go ahead.

Hello. Thank you for taking my questions. So, I have a couple of questions. So, starting with, firstly, in Q3, you indicated that demand weakness was partly self-inflicted due to inventory rationalization. Now that inventory correction is largely behind, why has revenue not recovered sequentially in Q4?

The thing that in this way, stock correction does not mean pick up in one quarter. It takes time, means we have reduced the stock and the reduction because your order for product has been given in the fourth quarter. So that product comes in in the first quarter. So that has also impacted in the fourth quarter. Otherwise, you cannot see a drastic improvement in stock. So that has taken a hit in both the quarter, but still, I mean, we have done the correct thing of reducing the stock and flushing out some product. And now, as I told earlier, now we are filling up that stock. In Q1, the stock is coming in, and there are lots of stocks in pipeline. So, the thing is that by the end of the first half, we will go to a stock level, which is generally required to suffice the sale of around 400 crores.

Understood, understood. All right, so meaningfully, we would require one or two more quarters for this to populate into our numbers, right? Understood. And, sir, secondly, how much of this FI26 revenue decline is still structural demand weakness versus the internal factors? Could you throw some light on that?

For stocking, maybe around 10 to 15 crores of sale we have lost for the last two quarters.

Understood. And, sir, also, you had targeted stabilisation in FI27. So, what concrete evidence, like traffic or conversions or SSFG, are you seeing exiting Q4 that supports this conviction?

Q4 has remained more or less the same, and Q1, as you know that in... In our case, the eastern part of the country gives more sales, but in April, we had an election going on in Bengal and Assam. So that impacted some sales, but still we are trying to carry on the sales and do better in the month of May and June.

Okay, from May and June onwards. Okay, understood. And, sir, despite discounting and pricing reset already playing out in Q3, why did Q4 see further sharp gross margin compression? Were there any particular reason that you can think of?

Well, sir, the new product that has come in in Q4 and now it will be coming up has helped to increase the margin. And this stock reduction has helped us. To flush out the discounted, so now the discounted sales is comparatively less compared to in the earlier quarters.

Understood, understood. And is the current 48-49% of gross margin the new normal structurally, or do you still expect recovery from premiumization?

I think we can expect another 50 basis point improvement in gross margin.

Understood, understood. And can you explain the sharp decline in equity and cash levels during FY26? Were there any pertinent reasons for those?

Sharp reduction in equity.

In cash levels.

Oh, demerger transfer was there.

Oh, I understand. Yes, yes, yes. I understood. I understood. And so also with the low cash on books, how comfortable are you with working capital funding going into FI27? Do you foresee any challenges and are there any ways to mitigate that?

We have working capital. We have not utilized the total limit. So we have our limit available. So hope with the new collection coming in from our EBOs, we will be able to manage the cash flow situation also.

Understood, understood. And perhaps, what is the target net debt to leverage level post restructuring that you are looking into? Is there any particular benchmark that you are looking at? Around 110, 110, 215 goals. Okay, you are comfortable around that level. Understood. And given FI26 exit margins are materially below FI27's target. So what gives us confidence in sharp recovery next year? Are there any factors that we can look up to?

No, we are targeting a turnover of around 400 crores and a EBITDA margin of 14%. At present.

Understood. Understood. Also, is Khadim transitioning from a mass value retailer to a premium fashion brand? And what is the execution risk if we go into that?

No, it's not transiting from mass value. We will have mass value and also some premium product also. So it will be a blend of both the things.

You do not foresee any one particular of these to becoming much more larger portion than of today?

No, Khadim is mainly a middle class brand. So we have to keep our strong foot in the middle class segment and try out some premiumization where we promote the middle class to buy some premium products like British Worker and Sharon and all this.

Understood, understood. And so, lastly, given persistent demand weakness and discounting, is the industry structurally changing? Do you see that?

Yes, there is a continuous demand slowness is there in the industry. So, and there is a continuous demand in the lower segment of product in the distribution market. So, retail has become really tough, but still we are carrying out. We have good shops. We have some of the shops located in the prime area. So, we will be able to deliver better in the years to come.

Understood, sir. Understood. That was really, really very helpful. Thank you for answering all my questions, and all the best for the future quarters.

Thank you. Participants who wishes to ask questions, may please press star and one now. The next question is from the line of Preeti Agarwal from SK Associates. Please go ahead.

Thank you so much for the opportunity. Actually, I joined a little late, so I'm not sure if my questions have been, you know, taken earlier. But I just wanted to know that is Khadim transitioning from a mass value retailer to premium fashion brand? Like, what is the execution risk?

No, as I have told it earlier also, it's a middle class brand, so it will keep its foot in the mass value product. And it will provide some premium product to the middle class, so that the middle class can be graduated to take some premium product, but not that it will leave away the mass brand and go totally in the premium segment.

Understood. And given the persistent demand weakness and discounting, is the industry structure structurally changing?

Yes, there is a continuous demand weaknesses has been found, and also this discounting thing is carrying for more than years now, but still now, last year we are able to push out the discount stock and reduce our stock level. So now we are trying to fulfill some most of the stock. We have to increase the stock, but it will be for the product which is selling at the... At the MRP, not taking lots of product and then selling it in discount.

Understood. And what do you think are the key risks of achieving your FY27 guidance?

There are risks like demand weakness is a risk, then some risk comes in the... Political turmoil, all these are there, but still, I think 400 crore target is an achievable target, and we will try to get it done.

Understood. And, like, what percentage of your total revenue currently comes from the product price above 1.5k and how? Has this mix evolved versus FI24 and FI25?

Which product range? Means the price range? Up to 500.

1,500.

1,500 is around 80 to 85%.

You're talking above or below 1500?

Above, above.

15%?

Okay, understood. And the premiumization, as you mentioned, has been one of our strategic priorities. So, can you provide some quantitative indicators showing progress in premiumization over the last two years?

I can tell you one British worker that has a means growth around 6% during FY26. There are Sharon also, which has also grown this year, and we are now focusing on some of this product and to spread out this product in more retail outlets and also in some of our top franchises.

Understood. And have these premium products delivered better gross margins and stronger sell-through compared to lower ticket categories?

Now, one thing is that this premium product has given the gross margin somewhat 2-3% more than the normal mass market product, and also the discounting of this product is comparatively less compared to the lower category product.

And, you know, there are news articles that India's leather and footwear industry is struggling with high input costs due to ongoing Middle East crisis. So, what is your situation in terms of raw materials sourcing?

Yes, the raw material price has increased around 20 to 25 percent compared to in the month of February to now. But still, we have also increased our MRP. And trying to remain competitive and again, don't reduce the margin, gross margin. We are trying to find a way to how to tackle both the situation so that our volume does not go down and our margin is also protected. But this is more impact in distribution thing than in retail. In retail, we can take a call of increasing product price from 25 to 50 rupees. But still, the price is very volatile, the raw material, petroleum product, which is one of the key components in our business.

That's it from my side. Thank you.

Thank you.

Thank you. You may please press star and want to ask questions. The next question is from the line of Pahel Sharma from DD Capital. Please go ahead.

Yes, good evening, sir.

Good evening.

Yeah, thanks for the opportunity. I want to ask some set of questions. So, first is that what are the specific initiatives being undertaken, like to improve the EBITDA margins back towards historical levels?

See, EBITDA margin depends on two things. One is the increase in sale and an increase in margin. and cost reduction. So what we have done, we are able to reduce the cost, but our sales has not grown. So EBITDA remains more or less at the same level. If we are able to do more sales, if there is a growth of sales of about 5 to 10 percent, definitely the EBITDA will increase by 100 to 200 basis points. But at present, we can foresee EBITDA of 14 percent. For FY27.

Okay, so, like, would management expect EBITDA margins to recover gradually over the next few quarters, or is the current margin profile more reflective of the new normal of the business?

See, whatever margin we have delivered, we, in gross margin, we can expect a 50 basis point jump, because, as I told earlier, also, the raw material price is very volatile. So, to comment on the gross margin, We cannot give a comment on the gross margin because it depends on the volatility of the raw material product, but if it remains the same, we will be able to deliver 50 basis point growth in gross margin, and with the cost structure that we are following, if there is a growth in sale of 5%, definitely a 100 basis point EBITDA we can achieve a growth.

Okay, okay. Understood, sir. And the next question is that PAT margins are now below 1%, which is significantly, we can say, lower than historical levels. So, may I know that what is management's medium-term profitability aspiration for the business?

See you means we'll all depends on the sale. If the sale grows, we will be able to have pat of around two to two and a half. That we used to do earlier. But if the sale doesn't happen, then the situation becomes because cost to an extent you can reduce, but you cannot reduce all the cost. So taking that FY27 let us consolidate, then we can think of increasing. If EBITDA margin improves, definitely the PAT or the PVT margin will also improve.

Okay, sir.

Understood.

And the last question is that the trade payables declined sharply from, I guess, 196 crores to 111 crores. So, was this reduction vendor-driven or part of a deliberate deleveraging strategy?

So, one part has reduced because of our de-mergers, because last year's figure is comparing both the companies, but still considering that also. We are able to reduce the creditors of Khadim India Limited because for the last two quarters in Q3 and Q4, we deliberately reduced the purchase and paid our creditors so that the creditors' balances also come down.

Okay, sir. Understood. Thank you so much. All the best.

Thank you. Ladies and gentlemen, as there are no further questions, I now hand the conference over to Mr. Unkar Bagwe for closing comments. Thank you and over to you, sir.

Thank you, everyone, for joining us on call today. I would also like to thank the management for sparing the time and answering all the queries. We are NULG InTime, Investor Relations Advisors to Khadim India Limited. In case of any queries, please feel free to reach out to us.

Thank you.

Thank you, sir. Thank you, members of the management. These and gentlemen, on behalf of Khadim India Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your line. Thank you.