According to CRISIL Ratings, the footwear sector will see an 11% revenue growth and a 4% rise in volume

According to CRISIL Ratings, the Indian footwear industry's revenue is expected to grow by 11% this fiscal year due to increased realisations and an increase in volume of 4%. Because of lower raw material prices, the operating margin is anticipated to increase by around 125 basis points to 9%, but it will remain below the 10% pre-pandemic levels.

In the most recent fiscal year, the cost of essential inputs including rubber, resins, and ethylene vinyl acetate decreased by 30%. 45% of the cost of making shoes is made up of raw materials. Their credit profiles will remain steady because of the robust balance sheets and cash accrual that result.

This is confirmed by a CRISIL Ratings examination of 43 of them, which account for 15% of the Rs. 100,000 crore (US$ 12.05 billion) in industry revenue. Due to high inflation, which reduces demand from Europe and the US, which account for three-fourths of India's footwear exports, exports, which make up a fifth of the sector's revenue, are expected to decrease this fiscal year to 12% growth from 25% growth in the previous fiscal. As pent-up demand from the epidemic persisted over the past fiscal, exports increased. On the other hand, an expected 10% increase in domestic revenue is mostly attributable to higher selling prices.

Compared to price increases implemented in the past to offset more expensive raw materials, the increase in average selling price this fiscal will primarily be caused by a shift in the product mix towards higher-priced categories. Mr. Nitin Kansal, Director of CRISIL Ratings, states that following the epidemic, footwear makers have been focusing focus on the fast-growing fashion/women and athleisure categories, which mostly fall in the luxury category with average selling prices of Rs. 1,000 (US$ 12.05) per pair, or more. Compared to the industry, these categories are anticipated to expand faster, at a rate of over 15% yearly. Additionally, this segment's operating profitability is higher, at 18%.

Given that capacity utilisation is now at about 70%, footwear firms should only experience minimal capex. Additionally, it is anticipated that the working capital cycle will stay consistent, limiting the need for additional loans. Improved cash flows, sound balance sheets, and minimal capital expenditure will keep credit profiles stable, says Mr. Gaurav Arora, Associate Director at CRISIL Ratings. “Companies that we rate are anticipated to invest Rs. 300 crore (US$ 36.2 million), marginally increasing fixed assets by 5%. As a result, this fiscal year, we anticipate gearing and interest coverage to be at 0.4 times and 7 times, respectively,” he added.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.