Khadim India Limited — Q1 FY26 earnings call

Call held 19 Aug 2025

Management summary

Khadim India reported a challenging Q1 FY26 with revenue of ₹957 million and a gross margin of 47.7%, impacted by muted demand and increased promotional activities. Despite headwinds, the company focused on strategic initiatives, including a new partnership with Skechers and the launch of an athleisure segment, while also expanding its retail footprint to 884 stores. Management anticipates improved performance in the upcoming festive season, with a focus on optimizing margins and continued brand building.

Highlights

  • Strategic partnership with Skechers entered during the quarter to strengthen brand portfolio and consumer offerings.

  • New athleisure segment launched to cater to growing demand for comfort-driven wear.

  • Sub-brands British Walkers and Sharon showing encouraging growth trends and strong customer resonance.

  • Retail footprint expanded to 884 stores, comprising 207 Company-owned and 677 franchisee stores.

  • Degrowth in the lower segment price points of the Khadim brand has stopped, with some growth observed.

  • True Franchised Model (TFM) added ₹5 crores in turnover, with plans for more aggressive launches.

Concerns

  • Revenue from operations of ₹957 million was impacted by a decline in franchisee sales.

  • Gross margin compressed to 47.7% (from ~53% in Q1 FY25) due to price cuts (2.5% impact) and increased promotional discounts (discount sale contribution rose from 18% to 33%).

  • EBITDA margin was 12.9% and PAT margin was 0.9% for the quarter.

  • Muted demand during the quarter due to unpredictable weather and global developments, impacting consumer sentiment.

  • Franchisee sales weakness led to less primary sales from the company to avoid stock buildup at franchisee level.

  • Degrowth was more pronounced in Tier 2 and Tier 3 cities compared to metros.

Key financials

  1. Revenue from Operations 957 Mn
  2. Gross Profit 456.4 Mn
  3. Gross Margin 47.7%
  4. EBITDA 123.3 Mn
  5. EBITDA Margin 12.9%
  6. Profit After Tax 8.6 Mn
  7. PAT Margin 90%

What they filed

Q1 FY27: revenue down 18.7%, net profit down 38.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue161 110 94 96 102 −37%86 −22%84 −11%78 −19%
EBITDA19 16 16 12 14 −29%11 −31%12 −25%8 −37%
Net profit2 1 1 1 2 −28%-0 −116%1 −18%1 −39%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • M&A Skechers Partnership · Closed

    To strengthen brand portfolio, enhance consumer offerings, and add a globally recognized brand to retail mix.

    Skechers product margin will be comparatively less than Khadim's margin.

    In line with our strategy to strengthen our brand portfolio and enhance consumer offerings, we entered into a strategic partnership with Skechers during the quarter. This collaboration enables us to offer Skechers' footwear at selected Khadim stores, adding a globally recognized brand to our retail mix and reinforcing our commitment to delivering value and variety to our customers. It's a buy and sell, like we bought certain designs from them and we are selling it.

Guidance & targets

Profitability

  • Gross Margin Profitability · next quarter · Medium confidence 48% to 49%
    And the margin will remain more or less in the range of 48% to 49%.

    — Indrajit Chaudhuri

  • Gross Margin Profitability · Q2 · Medium confidence a little bit improved from the Q1
    So margin will be a little bit improved from the Q1.

    — Indrajit Chaudhuri

  • EBITDA Margin (retail business) Profitability · Low confidence around 16%
    then again we have the potential of doing around 16% EBITDA margin in retail business.

    — Indrajit Chaudhuri

Volume

  • Khadim Brand Volume Growth Volume · coming quarters · Low confidence decent growth
    We can expect a decent growth.

    — Rittick Roy Burman

Store Expansion

  • Company-owned outlets Store Expansion · this year · High confidence around 7 to 10
    So, this year we are opening some Company-owned outlets, around 7 to 10 Company-owned outlets.

    — Rittick Roy Burman

  • TFM franchises Store Expansion · this year · Medium confidence more aggressive store launches
    we are planning more aggressive store launches in that.

    — Rittick Roy Burman

What to watch in Q2 FY26

Gross Margin

Q2 FY26
Current 47.7%
Target 48% to 49%

Why it matters

Gross margin was significantly impacted this quarter; its recovery is crucial for profitability.

But in the next quarter, there will be improvement in the gross margin because the festive week there will be no discount. And the margin will remain more or less in the range of 48% to 49%.

Risks & concerns

  • Muted consumer demand

    medium

    Unpredictable weather and global developments impacted overall consumer sentiment, resulting in muted demand during Q1 FY26.

    Management acknowledged

  • Decline in franchisee sales

    medium

    Franchisee sales were impacted, leading to a deliberate reduction in primary sales from the company to avoid stock buildup at the franchisee level.

    Management acknowledged

  • Gross margin compression

    medium

    Gross margin declined to 47.7% due to tactical price cuts (2.5% impact) and increased contribution from promotional discounts (from 18% to 33% of sales) to support volumes.

    Management acknowledged

  • Lower footfall

    medium

    Q1 experienced low footfall, which management hopes will improve during the festive season.

    Management acknowledged

  • Regional demand disparity

    medium

    Degrowth was more pronounced in Tier 2 and Tier 3 cities compared to metro areas.

    Management acknowledged

Q&A highlights

7 direct
Gross margin decline and future outlook Direct
No, this gross margin down, I think it was around 53% in the last quarter, in FY '25 1st Quarter. So mainly it is impacted through, one is that we have taken a price cut in Khadim product which has nearly contributed around 2.5% margin down. That we have already told in the last year that we will be taking a price cut to have an improved volume growth. And secondly, because of the discount trend which has been done. In the last year 1st Quarter our contribution of discount sale was around 18%, while this year the 1st Quarter contribution of discount sale is around 33%.

Analyst questioned the significant drop in gross margin, and management provided a detailed breakdown of the causes (price cuts, increased discounting) and future expectations for Q2.

Asked by Akhil Parekh

Franchisee sales weakness Direct
Because since the franchisee sale, in the secondary sale of franchises has already is dipping, so the primary sales from our side was little bit less compared to the last quarter. Because otherwise it tantamounts to holding stock at the franchisee level. So, for that reason, we have deliberately done less primary sales less to the franchisee.

Analyst inquired about the weakness in franchisee sales, and management explained it was a deliberate strategy to prevent inventory buildup at the franchisee level due to dipping secondary sales.

Asked by Akhil Parekh

Impact of potential GST rate cut Partial
Yes. But if the GST rate is dropped, then the price reduction will have to be there also. So once this is done, then we can have a clear sight of the situation.

Analyst asked about the potential boost from a GST rate cut (from 12% to 5%) given 70% of the portfolio is below ₹1,000, but management cautioned that price reductions would also be necessary, making the net impact unclear.

Asked by Akhil Parekh

Volume improvements from price cuts Direct
But since we have not done the primary sale, but in retail we have seen encouraging growth numbers in the lower price points like Rs. 0 to Rs. 499 and also in the Khadim's brand also the degrowth has actually it's become like no degrowth in the Khadim's brand.

Analyst questioned the effectiveness of price cuts, and management confirmed that degrowth in the lower price segment has stopped, indicating some positive volume response.

Asked by Deepan Narayanan

Skechers partnership details and impact Direct
It's a buy and sell, like we bought certain designs from them and we are selling it. They have given a discount from MRP and we are selling it at MRP or some articles are discounted also. So that way it's happening. But the margin for the Skechers product will be comparatively less than the Khadim margin.

Analyst sought clarification on the Skechers partnership model and its financial implications, revealing it's a 'buy and sell' model with lower margins compared to Khadim's own products.

Asked by Deepan Narayanan

Strategy for Tier 2 and 3 towns and brand building Direct
Yes, so for Tier 2 and 3 towns, like I mentioned, it's a little price sensitive, those markets, Tier 3, Tier 4. So, for that we are launching products, like I mentioned, below Rs. 499 and stuff like that. And yes, we are doing influencer marketing.

Analyst questioned the strategy for Tier 2/3 towns and brand building, with management highlighting a focus on lower price points and influencer marketing to reach price-conscious consumers.

Asked by Sucrit Patil

Capital allocation strategy for new stores vs. digital vs. brand campaigns Direct
See, in regard to the opening new outlet now, we are presently concentrating on the East, Eastern part of the country where the breakeven is reached very quickly, and also some parts of Southern part of the country where also the brand is fairly present. So, at present, we are not considering any expansion in the North and West where it takes times around two and a half to three years.

Analyst asked about the framework for capital allocation, and management detailed their focus on store expansion in East and South regions for quicker profitability, alongside ongoing digital investments and marketing.

Asked by Sucrit Patil

Store addition plans for FY26 Direct
So, this year we are opening some Company-owned outlets, around 7 to 10 Company-owned outlets. But more aggressive opening has been planned, we have started these TFM franchises, so we are planning more aggressive store launches in that.

Analyst sought specific numbers for store expansion, and management provided a target of 7-10 new COCO outlets and aggressive plans for True Franchised Model (TFM) stores for FY26.

Asked by Darshil Jain

2 min read 6 chapters

Detailed narrative

Q1 FY26 Performance Overview

Khadim India reported revenue from operations of ₹957 million for Q1 FY26, primarily impacted by a decline in franchisee sales. Gross profit stood at ₹456.4 million, translating to a gross margin of 47.7%, which was affected by promotional discounts. EBITDA for the quarter was ₹123.3 million, with an EBITDA margin of 12.9%, and profit after tax was ₹8.6 million, yielding a PAT margin of 0.9%.

Strategic Initiatives and Partnerships

During the quarter, Khadim India entered into a strategic partnership with Skechers to offer their footwear in selected stores, reinforcing its commitment to value and variety. The company also launched a new athleisure segment to cater to the growing demand for comfort-driven wear. Additionally, small tie-ups like umbrellas for the monsoon season were implemented on a SOR basis in high footfall stores.

Margin Dynamics and Discounting Strategy

The gross margin declined to 47.7% from approximately 53% in Q1 FY25. This was attributed to a 2.5% margin impact from price cuts on Khadim products and an increase in discount sale contribution from 18% to 33% of total sales. Management indicated that discounting would continue until August 31st, with expectations for gross margin to improve to 48-49% in Q2 due to the festive season.

Retail Footprint and Expansion Plans

As of Q1 FY26, Khadim's retail footprint comprised 884 stores, including 207 Company-owned outlets and 677 franchisee stores. For FY26, the company plans to open around 7 to 10 new Company-owned outlets and pursue more aggressive launches of True Franchised Model (TFM) stores, which have already contributed ₹5 crores in turnover this year.

Market Conditions and Demand Outlook

The quarter experienced muted demand due to unpredictable weather and global developments, leading to lower footfall. Management noted that degrowth in the lower price points has stopped, with some growth observed. They are optimistic about a pick-up in consumer demand during the upcoming festive season, which is arriving earlier this year, particularly Durga Puja in September.

Brand Building and Tier 2/3 Strategy

Khadim is focusing on strengthening its brand image through various initiatives, including festive catalog ads and promoting sub-brands like Sharon and British Walkers. For Tier 2 and 3 towns, which are more price-sensitive and experienced more degrowth, the strategy involves launching products below ₹499 and utilizing influencer marketing to reach consumers effectively.

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