Khadim India Limited: Navigating a Mixed Terrain in Q2 & H1 FY26

Khadim India Limited, a prominent name in the Indian footwear industry, has released its unaudited standalone and consolidated financial results for the quarter and half-year ended September 30, 2025. The period reflects a mixed performance, with the company navigating cautious consumer sentiment and strategic realignments. While revenue and profitability saw a year-on-year decline, management highlighted several proactive measures and initiatives aimed at driving future growth and enhancing market position.

For Q2 FY26, Khadim reported consolidated revenue from operations of INR 101.60 crore, a 7.5% decrease compared to INR 109.89 crore in Q2 FY25. Gross Profit stood at INR 47.87 crore, with a gross margin of 47.1%. Profit After Tax (PAT) for the quarter was INR 1.67 crore, translating to a PAT margin of 1.6%. The half-year (H1 FY26) figures also showed a similar trend, with revenue at INR 197.30 crore, down 7.8% from INR 213.99 crore in H1 FY25. H1 PAT significantly decreased by 66.5% to INR 2.52 crore, with the PAT margin contracting to 1.3% from 3.5% in H1 FY25. This decline was primarily influenced by lower sales and strategic discounts offered to liquidate old stock.

Financial Snapshot: Q2 & H1 FY26 Performance (Consolidated)

Strategic Initiatives and Market Dynamics

Despite the challenging numbers, Khadim's management highlighted several strategic initiatives designed to bolster its market position and drive future growth. A significant development is the successful implementation of the GST rate reduction on footwear priced up to INR 2,500, which now attracts a 5% GST rate. The company has passed these benefits directly to consumers through reduced prices, expecting this to enhance price competitiveness and stimulate demand, particularly in the lower and mid-price segments. Management anticipates a gross margin improvement in Q3 FY26, targeting 50-51%, up from the current levels.

Khadim is actively expanding its retail footprint, having added 37 new stores during H1 FY26, bringing the total retail presence to 893 stores across 28 states and 4 union territories. The expansion strategy focuses on high-potential markets in South India, West India, and Uttar Pradesh, with a preference for franchisee-operated models over company-owned (COCO) stores. This asset-light approach, with 76% of retail presence through franchises and 100% outsourced product requirements, underscores a disciplined capital allocation strategy.

Product innovation and brand building remain key pillars. The company's premium brands, British Walkers and Sharon, continue to demonstrate strong performance, growing in double digits. Khadim has also successfully regained market share in the sub-INR 500 price range, showing double-digit growth. The recently launched Athleisure range has gained healthy traction, aligning with evolving consumer preferences for style and comfort. Furthermore, Khadim's partnership with Skechers is progressing well, expanding its reach into the premium lifestyle footwear segment.

Operational Efficiency and Future Outlook

Addressing operational challenges, management acknowledged a high working capital cycle, primarily due to elevated inventory levels and extended debtor days caused by slower secondary sales in franchise stores. To mitigate this, the company is implementing measures to reduce inventory further by March 2026 and is actively working to optimize debtor collections. The company has also taken decisive steps to prune underperforming assets by closing approximately 30 loss-making COCO stores, demonstrating a commitment to profitable growth.

In a move towards greater transparency and focused operations, the distribution business is being demerged into KSR Footwear Limited, which is expected to be listed soon. While the distribution business clocked a turnover of around INR 100 crore in H1 FY26, it is currently not profitable. Management aims for a breakeven this year and expects profitability from the next financial year. The company is also enhancing its e-commerce operations through a strategic partnership with a specialist agency, anticipating smoother and more effective online sales.

Khadim India Limited is strategically positioning itself for a rebound, leveraging policy tailwinds, expanding its retail network, and focusing on product innovation. While the short-term financial performance reflects market challenges, the management's proactive measures and clear strategic direction aim to restore growth and improve profitability in the coming quarters. The upcoming festive season and the marriage season are expected to drive increased footfall and sales, providing a positive outlook for the second half of FY26.