Footwear Sector Revenues To Grow By 11% This Fiscal: CRISIL

New Delhi, Aug 23 (KNN) The Indian footwear industry is expected to post a revenue growth of 11 per cent this fiscal, said an analysis by CRISIL Ratings.

As per the report, anticipated improvements in operating margin are predicted to reach around 9 per cent, expanding by approximately 125 basis points due to decreased raw material expenses.

However, this level is projected to remain below the pre-pandemic rate of approximately 10 per cent.

Notably, the past fiscal year witnessed a decline of around 30 per cent in prices for essential inputs like ethylene vinyl acetate, rubber, and resins. These inputs collectively account for about 45 per cent of the overall cost for manufacturers in the footwear industry, it said.

CRISIL Ratings analysed 43 footwear companies, which accounts for 15 per cent of industry revenue of Rs 100,000 crore.

Meanwhile, exports is seen slowing to 12 per cent this fiscal in comparison to a growth of 25 per cent during the last fiscal. Exports constitute a fifth of the sector revenue and the slowdown was on high inflation that cut demand from Europe and the US. However, domestic revenue is seen rising 10 per cent, driven largely by higher selling prices.

Nitin Kansal, Director, CRISIL Ratings said, “Footwear makers have been sharpening focus on the fast growing fashion/women and athleisure segments after the pandemic, which largely falls in the premium category with average selling prices of Rs 1,000 per pair, or higher. These segments are expected to grow faster at over 15 per cent annually, compared with 11 per cent for the industry as a whole. Operating profitability is also higher at 18 per cent in this segment.”

Footwear companies are expected to incur nominal capex as capacity utilization is at around 70 per cent. The working capital cycle is also expected to remain stable thus keeping the debt addition minimal.

“Improved cash flows, healthy balance sheets and nominal capital expenditure will keep credit profiles stable. Companies rated by us will likely spend Rs 300 crore, adding a marginal 5 per cent to fixed assets. Hence, we expect gearing and interest coverage at 0.4 times and 7 times, respectively, this fiscal,” said Gaurav Arora, Associate Director, CRISIL Ratings.

Going forward, prices of crude-linked raw materials and macroeconomic developments will bear watching.  (KNN Bureau)