Indian footwear sector revenues are expected to grow at about 11 per cent on higher realisation with volume growth pegged at 4 per cent as per estimates by Crisil Ratings. Softer raw material prices are also expected to help the footwear company to improve operating margins.
“Operating margins is expected to expand by about 125 basis points to about 9 per cent on softer raw material prices, but will still be below the pre-pandemic levels of about 10 per cent,: the report added. Raw materials constitute 45 per cent of the total cost of footwear makers and prices of key inputs has moderated by about 30 per cent in the past fiscal.
Exports, which constitute a fifth of sector revenue, is has been slowing down as high inflation cuts has led to drop in demand from Europe and the US, which account for three-fourths of footwear exports from India. In comparison, domestic demand has been rising driven largely by higher selling prices, the report added.
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 ₹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, the ratings agency added.