Khadim Q4 FY26: Inventory reset, margin pressure, and a guided stabilisation in FY27

Khadim India Limited ended Q4 FY26 with a subdued top line but maintained operating profitability. Revenue from operations in Q4 FY26 stood at INR83.6 crores, down 10.9% year on year. EBITDA before exceptional items was INR11.9 crores, translating into a 14.3% margin. Profit after tax was INR0.77 crores.

For the full year, the slowdown was more visible. FY26 revenue from operations was INR367.1 crores versus INR418.0 crores in FY25, a decline of 12.2%. FY26 EBITDA came in at INR49.1 crores with a 13.4% margin, and PAT stood at INR3.1 crores with a 0.9% margin. Management positioned FY26 as a year of correction, especially on inventory and store productivity, rather than a year of aggressive expansion.

What changed in FY26: revenue pressure, but a deliberate clean-up

A key theme across both the investor presentation and the earnings call was that part of the weakness was internal and intentional. Management linked degrowth in the last two years to store closures and a lower push of primary sales to franchisees. The CFO added that once the store closure exercise is done, broad-based closures should reduce, although loss-making stores may still be shut if required.

Inventory actions were even more central. The company reduced inventory sharply year on year, and management acknowledged that this decision led to some lost sales in Q4. On the call, the CFO estimated that about INR10 to 15 crores of sales were lost over the last two quarters due to inventory correction. The stated objective was to flush discounted stock, reduce working capital stress, and rebuild inventory with better new-season merchandise.

Margin movement reflected both mix and pricing choices. Gross margin for FY26 declined to 48.9% from 54.4% in FY25. In the call, management attributed blended gross margin decline to price cuts taken over the last one to two years in products priced below INR500. At the same time, management indicated that Q4 margins improved sequentially and expects gross margin to hold on the upper side around 49% to 50%, with scope for around 50 basis points improvement, assuming input cost volatility is manageable.

Network, channels, and the limits of category diversification

Khadim’s scale remains a core asset. As of March 31, 2026, the company had 851 stores across 23 states and 4 union territories, comprising 189 company-owned outlets and 662 franchise-operated outlets. The store mix continues to reflect an asset-light philosophy, with the presentation stating that 78% of retail presence is through the franchise route and 100% of product requirement is outsourced.

The company also highlighted its regional intensity. Store presence is concentrated in the East, which accounts for 67% of stores, followed by West at 18%, North at 7%, and South at 8%. Management also noted that the East contributes a larger share of sales, and mentioned that elections in Bengal and Assam impacted April performance, with the company attempting to do better through May and June.

E-commerce remains relatively small but is a focus area. Management stated that e-commerce contribution is around 5% in FY26 and that the company is focusing more on online sales, especially via khadim.com, with expectation of a higher contribution in FY27.

On category diversification, management’s commentary was unusually candid. The MD mentioned good traction in athleisure driven by comfort-led demand, but the CFO noted structural limitations. Khadim stores are typically small and often lack changing rooms, restricting the expansion of apparel-led athleisure. Management stated that athleisure will be maintained only to the extent required and not expanded aggressively.

Premiumisation without abandoning mass value

Premiumisation is being positioned as an uplift within the core middle-class brand rather than a full repositioning. In Q&A, management clarified that Khadim is not transitioning away from mass value into a premium fashion brand. Instead, it aims to keep its base in the middle-class segment while encouraging customers to trade up selectively.

The premium sub-brands discussed most often were British Walkers and Sharon. Management stated that British Walkers grew about 6% year on year in FY26 and Sharon also grew. The CFO added that premium products generate around 2% to 3% higher gross margin and require less discounting than lower-price categories.

However, premiumisation is not yet enough to offset the broader margin pressure from price cuts in sub-INR500 products and the industry’s persistent discounting. When asked about the timeline for premium mix to offset discounting, management did not provide a fixed date but indicated that reducing the share of discounted stock in total inventory should help discounting contribution reduce in the next year.

Restructuring and balance sheet signals investors should track

During FY26, the company completed the demerger of its distribution business and manufacturing segment into KSR Footwear Limited. Management believes this will enable sharper focus and improve efficiencies over the medium term. In the call, the CFO cited the demerger as a reason affecting comparability in items like creditors and also referenced it when asked about declines in cash and equity.

From the standalone balance sheet in the presentation, cash and cash equivalents were Rs 17.4 million at March 2026 versus Rs 80.5 million at March 2025. Inventory declined to Rs 1,288.9 million from Rs 2,168.8 million, consistent with management’s stated inventory correction. Management also said it has working capital limits available and expects collections from exclusive branded outlets to support cash flows.

Management indicated comfort with net debt in the range of INR110 to 115 crores post restructuring.

FY27: explicit guidance, but execution depends on demand and inventory rebuild

The company offered clear FY27 guidance on the call. Management confirmed a target of around INR400 crores of revenue and an EBITDA margin of about 14%. It also indicated gross margin is expected to remain around 49% to 50%, with around 50 basis points improvement, subject to raw material price volatility.

Inventory is expected to normalise over time rather than immediately. Management said stock reduction does not show up in one quarter and that inventory rebuild orders placed in Q4 largely arrive in Q1. The CFO stated that by the end of the first half, the company expects to reach a stock level generally required to support sales of around INR400 crores.

The risks management cited were primarily macro and demand driven: ongoing industry demand weakness, discounting trends, and disruption from political events. Input cost volatility is another variable. The CFO noted raw material prices increased around 20% to 25% from February to the time of the call, and said the company has increased MRP while attempting to protect gross margin and remain competitive.

Khadim’s FY26 narrative is therefore best read as a reset. The company is trying to move from inventory-led discounting toward fresher seasonal assortments and selective premiumisation, while keeping its positioning in the middle-class segment. FY27 is framed as a stabilisation year, with the most measurable markers being revenue recovery toward INR400 crores, EBITDA margin returning to around 14%, and evidence that inventory rebuild translates into higher sell-through with lower discounting.