ICRA RESEARCH SERVICES

Corporate Ratings
ICRA RATING FEATURE
Indian Footwear Industry Anjan Deb Ghosh
+91 22 6169 3300
aghosh@icraindia.com
Opportunities galore for Indian footwear sector, though Government policy
Rohit Inamdar
initiatives and sustainability of export demand remains key sensitivity +91-124-4545847
rohit.inamdar@icraindia.com

Shubham Jain
+91-124-4545306
shubhamj@icraindia.com

Rachit Bhangar
+91-124-4545807
rachit.bhangar@icraindia.com

Raghav Nanda
+91-124-4545392
raghav.nanda@icraindia.com

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 INDIAN FOOTWEAR INDUSTRY
June 2015
Executive Summary
India is the second largest footwear
producer globally
Footwear consumption in India has
witnessed a healthy growth over
the last decade, though it remains
much below the global average
India largely consumes non leather
footwear while exports leather
footwear
China alone sells three out of every
four pairs of footwear traded
globally, its exports largely consist
of non leather footwear
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ICRA RESEARCH SERVICES
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Indian footwear industry holds a crucial place in the Indian economy for its potential for employment, especially for weaker
sections, and for supporting economy through its foreign exchange earnings. India is the second largest global producer of
footwear after China, accounting for 9% of the global annual production of 22 billion pair as compared to Chinas share of more
than 60%. India annually produces ~2.1 billion pair of which, ~90% are consumed internally while remaining are exported
primarily to European nations. Due to this, Indias share in the global export market of ~US $ 120 billion is a paltry 1.9% in value
terms making it much lower than Chinas share of ~40%.
Indias annual footwear consumption of ~2.1 billion pair is the third largest globally after China and USA and has recorded a
healthy growth over the past decade driven by rise in income levels, higher disposable income, growing fashion consciousness,
and increasing discretionary spending. The same has also led to a change in perception of the footwear industry from a basic
need based industry to a fashion and style industry. However, the average per capita footwear consumption in India continues
to be low at ~1.66 pair per annum in comparison to the global average consumption of ~3 pair per annum and developed
countries average of 6-7 pair per annum. This gap coupled with increasing disposable income, rising middle class and changing
consumer preferences provide a tremendous opportunity for the Indian footwear market to grow at a rapid pace going forward.
In value terms, Indian footwear sector is estimated at ~Rs. 50,000 crore which includes domestic market of ~Rs. 32,000 crore
and export market of ~Rs. 18,000 crore. Despite just 10% share of exports in Indias total production volumes, its share is almost
one third in value terms due to higher Average Selling Price (ASP) of ~Rs. 800 per pair for exported footwear as compared to ASP
of ~Rs. 160 per pair for footwear consumed in the domestic market. The sharp variation is on account of higher share of leather
footwear (~80%) in the total exports as compared to around 20% share in the domestic consumption.
China is the most dominant country in footwear exports having a share of more than 70% in volume terms, it alone sells almost
three out of every four pair of footwear exported worldwide. However, since Chinas exports are dominated by non leather
footwear (more than 90% share of non leather footwear in total exports in volume terms) which commands lower ASP as
compared to leather footwear, its share in world exports in value terms is lower at about 40%. The next most dominant country
in exports is Italy with a value share of ~9% followed by Vietnam, Hong Kong, Belgium and Germany each having a share in the
range of 2-5%.
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 Executive Summary
Both unorganized and organized
markets are estimated to have an
equal market size in value terms
European nations form Indias main
trading partner for exports, overall
exports from India have witnessed
healthy growth in the past
++Though, the footwear export has
weakened in the recent quarters
due to the on-going crisis in Euro
zone
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The Indian footwear industry is highly fragmented with almost 15000 small and medium enterprises operating largely in the
unorganized segment; and limited presence of organized segment. The competitive intensity is high between the two segments
and currently, both are estimated to have an equal share of the overall domestic market in value terms. Though, unorganized
segment dominates the market in sales volumes due to its presence majorly in the low cost rubber/ plastic footwear.
Unorganized sector gains its prominence in the Indian context due to its price-competitive products which are more suitable and
attractive to the price conscious Indian consumer. Their products are cheaper due to involvement of cheap household labour,
rd
lax implementation of tax & labour laws and limited investment in assets. Further, with almost 2/3 of Indias population
covered under the food security bill which aims to provide daily nutrition needs to an individual at subsidized prices, such
category of population presents a huge market for the unorganized sector to cater to. Nevertheless, with increasing brand
consciousness amongst Indian consumers, influx of large number of global brands and increasing penetration in Tier II and III
cities by the organized footwear companies, organised players market share has made significant gains in the recent past and it
continues to be on an uptrend.
India exports largely leather footwear to its main trading partners which include United Kingdom, Germany, USA, Italy and
France. The major dominance is of the European continent whose share is almost 75% in Indias total exports. This is in contrast
to other major exporters like China, Indonesia and Vietnam which export non leather footwear mainly to USA. The footwear
exports from India have grown at a CAGR of ~14% in dollar terms and by 20% in Indian Rupee (INR) during the five year period
ending March 2015 backed by growing demand from European nations and increasing focus of main importing countries to shift
sourcing from China to other low cost producing countries. Besides this, the ASP for exported footwear has also been on an
uptrend with rising raw material prices and favourable foreign currency movements during this period. In absolute terms,
footwear exports from India have risen from Rs. 71.5 billion in FY10 to Rs. 180.0 billion in FY15.
However, the on-going crisis in the Euro zone has led to moderation in footwear demand; the exports from India were further
impacted on account of the appreciation of rupee against Euro during FY15 as compared to FY14. The footwear exports from
India which witnessed a healthy YoY growth of 36.2% and 36.0% in the FY14 and 1HFY15 respectively; ended the FY15 with a
much lower growth of 17.6% in Indian rupee terms. Our interactions with the management of leading footwear export
companies suggest that there has been an evident increase in exports to USA, though the footwear demand from the European
continent has weakened in the recent quarters which is a cause of concern. Further, the profitability of footwear players has
also been affected in FY15 due to adverse foreign currency movements, under absorption of fixed expenses and increase in raw
material prices which could not be entirely passed on to clients.
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 Executive Summary
India has inherent advantages such
as large reserves of bovine
population, strong network of
tanneries, skilled and low cost
manpower, though they are not
being utilized optimally
Strong push is required by the
government to encourage fresh
investments in the footwear sector
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The strength of India in the leather footwear sector originates from its large reserves of bovine population, strong network of
tanneries, skilled and low cost manpower, and a well-established presence in export markets. However, India has been unable
to optimally utilize its resources evident from the low recovery rate of the livestock, use of outdated technology by most
tanneries and footwear manufacturers, weak footwear components industry and limited presence of large scale manufacturing
units. These factors along with steep transaction cost of doing business in India and high inflationary trends since the past few
years have reduced Indias cost competitive advantage against the other low cost footwear producing countries like China,
Vietnam, Myanmar, Indonesia etc.
Nevertheless, the footwear industry has witnessed healthy growth in export earnings in the recent past and remains amongst
the top ten foreign exchange earners for the country. In addition to this, the industry has been providing large employment
opportunities, especially for the weaker sections of the Indian society. Direct and indirect employment in Indian footwear
industry is estimated at around 1.1 million people. Acknowledging the importance of footwear industry, the Indian government
has taken various measures and initiatives in order to support its growth, which has led to structural changes in the footwear
industry. However, for the footwear sector to grow rapidly going forward and compete aggressively with the other low cost
producing nations, strong push is required in various aspects including favourable policies which would help in rationalising tax
structure, providing infrastructural support in capacity building, reducing transaction costs and increasing the availability of
skilled labour in the country.
Financial Performance of Footwear Manufacturing Companies
1
A sample of footwear companies rated by ICRA which includes 12 leading companies in domestic and export markets have
witnessed CAGR growth of 17% in operating income during five year period ending March 2014. Profits/ cash accruals of these
companies have remained healthy and expanded almost four times during this period with better economies of scale,
improvement in product mix and rationalization of cost structure. In terms of product mix, companies manufacturing leather
footwear tend to have higher profitability (between 10-18%) as compared to rubber and plastic footwear manufacturing
companies. Within rubber and plastic footwear category as well, companies into plastic footwear manufacturing have higher
operating profitability (between 5-12%) as compared to rubber footwear manufacturing companies (between 3-8%). The net
profitability in the footwear sector is moderate due to high interest and depreciation cost on account of continuous investments
required in capital assets and high working capital intensity which is largely funded through bank debt.
1
Bata India Limited, Relaxo Footwears Limited, Liberty Shoes Limited , Banik Rubber Industries (India) Pvt. Ltd., Bairathi Shoe Company Private
Limited , Khadim India Limited and Paragon Group (Paragon Polymers Private Limited, Preston India Private Limited and Elastrex Polymers
Private Limited ) KH Exports India Private Limited, Mirza International Limited, Superhouse Limited, Super Tannery Ltd, Rahman Industries Ltd
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Executive Summary
Domestic footwear companies into
high product value segment have
faced pressure on sales volumes
since the past few years
Profitability for most of the
companies in our sample has been
adversely affected in FY15
While gearing levels are high for
our sample of companies, Debt
coverage indicators are
comfortable owing to healthy
profitability levels
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Owing to weak economic conditions in India since the past few years, domestic footwear companies into high value product
segment have witnessed moderate sales growth mainly due to pressure on their volumes. However, companies into branded
low value footwear continue to report healthy sales growth of more than 20% with increasing shift in demand for branded
footwear and increasing retail presence in Tier II and III cities. The overall growth for our sample of listed domestic footwear
companies has been about 12% in FY15 as compared to FY14. In comparison, our sample of listed export companies has
reported a YoY growth of ~18% in FY14 and FY15 with rising exports to USA and healthy demand from the European nations for
the most of 1H FY15, though the demand then weakened in the 2HFY15. The profitability for most of the companies in our
sample has been under pressure in the recent quarters due to subdued sales growth, increasing raw material prices and adverse
foreign currency movements. The impact on profitability has been higher for companies manufacturing high value products for
the domestic market and export oriented companies while the profitability of companies manufacturing low cost footwear for
the domestic market continues to remain robust.
Footwear sector is highly working capital intensive due to substantial investments required in maintaining high raw material as
well as finished goods inventory and extending significant credit to clients/ selling partners, especially in the case of footwear
exports. For a sample of twelve companies rated by ICRA, working capital intensity has averaged ~24% in the past which has
been largely funded through short term/ working capital borrowings from banks, generally to the extent of 75% of the total
requirements. The utilization of working capital limits by exporters has been historically high at ~90% for our sample companies
as compared to ~55% for our sample of domestic companies.
Our sample of footwear companies have been consistently investing in P&M, increasing capacity, expanding retail presence and
setting up new manufacturing facilities over the years. The funding of such investments has happened majorly through long
term bank debt besides promoters contribution and internal accruals. Owing to high reliance on external debt for funding of
capital expenditure and working capital requirements, our sample of companies have reported elevated average gearing levels
of ~1.2 times in FY14. Nevertheless, because of their healthy profitability levels, debt coverage indicators including Debt/
OPBITDA, interest coverage ratio and NCA/ Total Debt have been comfortable at ~2.23 times, ~4.26 times and 28% respectively
in FY14.
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 Whats Inside

Table of Contents

1. Transition of footwear sector in India 7

2. Indias domestic footwear market 8
3. Comparison between organized and unorganized footwear market in India 10
4. Footwear sales in India - product category wise 11
5. Comparison between Indian and Chinese footwear industry 13
6. Growth of Chinese footwear industry 15
7. Chinas loss can become Indias gain 16
8. Indian footwear exports growth trends 18
9. Factors affecting growth of Indian leather footwear industry 20
10. Financial trends for the sample of companies rated by ICRA 22
11. Government Initiatives for the Indian footwear industry 26
12. Outlook 28
13. Company Profiles of some publically-listed footwear companies 30
Superhouse Limited 31
Mirza International Limited 33
Bata Limited 35
Relaxo Footwears Limited 37
Liberty shoes Limited 39

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Mr. P Kalaivanan
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BANGALORE
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Level 2, 12-14, 1 & 2, Murphy Road,
Bangalore - 560 008
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Fax: +91-80-43326409
E-mail: jayantac@icraindia.com
P a g e |7
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