Khadim India distribution biz demerger by Sept, margin to improve by 100-200 bps

Kolkata: Leading footwear company Khadim India Ltd is expecting to complete demerger of its distribution business by September this year and hoping that its margins expand by 100-200 basis points by FY'26, an official said on Monday. This strategic move is poised to unlock substantial value for its core retail business comprising approximately 848 stores under Khadim's brand, which commands nearly 67 per cent of the total revenue, he said. "We are already in the process of demerger. Now, it is pending before the stock exchanges and then it will be placed before NCLT for its approval. We expect that the process will be completed by September. The demerger will be effected after the approvals are in place," Khadim's Chief Financial Officer Indrajit Chaudhuri told in an interview.

In a bid to boost market focus and operational efficiency, KIL had earlier announced the decision to segregate its distribution business and manufacturing activities into KSR Footwear Ltd (KFL). Chaudhuri projected that post-demerger, Khadim India's EBITDA margin would witness a substantial improvement, possibly by 100-200 basis points (bps) in its first full year of operation in FY'25-26. "Now the EBITDA margin in retail is 17 per cent and after demerger, we will be able to put greater focus, which will be reflected in the improvement of margins. We expect the retail business, which is currently at Rs 500 crore, to surpass Rs 600 crore by 2025-26," he said.

Chaudhuri emphasised that the priorities of both businesses are distinct and cannot be adequately addressed within a single entity. The distribution business is facing pressure, following the GST hike from 5 per cent to 12 per cent on footwear below MRP of Rs 1,000 since January 2022. "Owing to the GST structure change, the distribution business had become a drag on KIL, and its (retail) true value was not reflecting," the official said.

This business, encompassing a vast network of 732 distributors, predominantly serves lower and middle-income consumers across India's multi-brand outlets. Accounting for 33 per cent of the total turnover, it specialises in providing branded and affordable footwear across Tier I to Tier III cities and 96 per cent of its products are manufactured in-house. The retail business relies on Khadim's outsourcing division to meet the dynamic demands of the market. Chaudhuri acknowledged that demand remains subdued, particularly in rural areas, attributed to premiumisation trends. However, he remains optimistic about an improvement in the demand scenario in the next one to two quarters.