Home-grown footwear company, Khadim India, is hopeful of achieving pre-Covid numbers within the second half of this fiscal, if current demand trends continue. With margins improving on the back of a change in product mix and price hikes, the company is hopeful that an increase in average selling prices, up by 20 per cent driven by demand for formal and premium wear will further aid recoveries.
According to Namrata Ashok Chotrani, CEO, business is currently at 80 per cent of pre-Covid levels, but sharp recoveries are being witnessed across retail segments with changing demand trends. Compared to the year-ago-period when athleisure, casualisation and open footwear and sandals were in demand, courtesy work-from-home requirements; trends are more skewed towards casualisation, premium footwear and formal wear, she said.
For the company, whose shares are traded on both NSE and BSE, gross margins for August- September period improved to 37.2 per cent as against the 31.7 per cent in the year-ago-period. Margin improvements were driven by price hikes (to the extent of 30-40 per cent) and a change in product / demand mix (contributing the remaining 60-70 per cent). Revenues in second quarter stood at ₹162 crore (approximately), up 33 per cent year-on-year.
“Demand trends at the retail end are back to pre-Covid levels. So we are witnessing a demand for premium footwear, people are going out, the premumisation of our portfolio is also happening. So if the trends continue, then by third quarter (December-end) or maximum by second half of this fiscal, business should be back at pre-Covid levels,” she told BusinessLine.
According to Chotrani, 10 per cent price hikes were taken at the retail — the D2C segment operating from company-owned company operated stores or franchisees — so far this fiscal. A similar hike of 10 per cent was also initiated in the distribution business segment — which supplies to multi brands outlets — and operates in the low margin segments of hawais, stuck on footwear, PVC& PU offerings, among others.
There are no immediate price hikes in the offing, but raw material costs are moving up on a quarter-on-quarter basis. Items like EVA, PVC, PU, rubber, among others are up anywhere to the extent of 60-70 per cent, between April-May 2020 and now. “We are watching the price movements in raw materials. There is still no stability in the price and supply issues continue. So if the raw material increase continues, then we will have to figure out a strategy or so. Maybe hike prices to pass on the costs, or something on those lines,” she said.
While improved demand gives some scope of price hikes at the premium end in retail business (D2C segments), the distribution business — the low margin, high volume segment — can see some impact of repeated price hikes, say market sources.
In the second quarter of FY22, the gross margins of the distribution business shrunk by 2.6 percentage point (260 basis points) to 35,5 per cent (from 37.7 per cent), while the retail business saw margins improved to 52.4 per cent, up 7.7 percentage points (from 44.7 per cent).
Chotrani said that the company would look to add 80-odd new stores, mostly through the franchisee model in FY22. The idea primarily is to retain cash with focus on making profitable some recently set up company owned, company operated stores. Such stores take anywhere between one to two years to break-even.
Expansion focus will be specifically on the Hindi heartland – Uttar Pradesh and North India – apart from strengthening presence in key East and South markets.