Softening input cost will boost operating margin by about 125 basis points to 9 per cent, which will still be below the pre-pandemic levels of 10 per cent
Mumbai: Softening input cost and rising demand will help the footwear industry to record an 11 per cent growth in revenue this fiscal, says a report.
Footwear demand is seen clipping at 4 percent this fiscal, Crisil Ratings said in the report Tuesday.
Prices of key inputs such as ethylene vinyl acetate, rubber and resins have fallen 30 per cent in the past fiscal. Raw materials constitute around 45 per cent of the total cost of footwear makers.
The resultant healthy cash accrual and balance sheets will keep their credit profiles stable, as per the report that is based on an analysis of 43 footwear companies, which account for 15 per cent of the industry revenue of Rs 1 lakh crore.
Softening input cost will boost operating margin by about 125 basis points to 9 per cent, which will still be below the pre-pandemic levels of 10 per cent, the report said.
Exports, which constitute a fifth of the sectoral revenue, is seen slowing to 12 per cent this fiscal compared to a 25 per cent uptick last fiscal as high inflation cuts demand from Europe and the US, which account for three-fourth of the footwear exports.
Last fiscal, exports grew as pent-up demand after the pandemic continued.
Domestic revenue is seen rising 10 per cent, driven largely by higher selling prices. This fiscal, the increase in average selling price will largely be due to a shift in the product mix towards higher-priced segments compared to price hikes initiated in the past to offset costlier raw materials, the report said.
Nitin Kansal, a director at the rating agency, 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 to 11 per cent for the industry as a whole. Operating profitability is also higher at 18 per cent in the premium segment.
Footwear companies are expected to incur nominal capex as capacity utilisation is at around 70 per cent, the report said.
According to Gaurav Arora, an associate director at the rating agency, improved cash flows, healthy balance sheets and nominal capex will keep credit profiles stable.
These 43 companies are likely to spend around Rs 300 crore in capex this fiscal.