Leather industry occupies a prominent place in the Indian economy due to its massive potential for employment, growth and exports. The leather sector has been identified as a thrust sector for exports promotion in India. In the last four decades, from the status of exporter of raw hides and semi finished leather, the country has now turned into a major importer of these goods. Currently, India is major supplier of value added goods like footwear, bags and travel accessories like belts and wallets etc. The major chunk of India's leather products exports belongs to footwear.

Footwear market is broadly classified into men footwear, women footwear and children footwear. Men's footwear accounts for almost 60% of the total footwear market. The women's footwear constitutes 30% and kids footwear making up the balance. The market is substantially brand-driven as is evident from the fact that branded footwear constitutes more than 30% of the total market size. For the country as a whole the annual domestic consumption of footwear is approximately 1100 million pairs per annum. For the footwear business, April-June and October-December quarter will peak season, as most of school & college in first case and festival season in the second case. Hitherto, companies are targeting the men's footwear segment and currently they are looking for untapped women and children footwear segments.

Exports

According to Council for leather exports, total leather & leather products, exports for the months April - September 2009 declined to Rs 8060.63 crore from Rs 8456.85 crore in April – September 2008, a fall of 5% on yoy basis. Exports of finished leather declined 18% in the first half of current fiscal to Rs 1387.14 crore and contribution to total exports declined to 17% compared to 20% in the corresponding previous period. Leather footwear and components exports declined 12% to Rs 3074.14 crore the six months ended September 2009, and the contribution from leather footwear & its components declined to 38% compared to 41% in the six month ended September 2008. In April-September 2009, leather garments rose by 36% to Rs 1302.36 crore, and contributed 16% of total leather exports.

Production

Production of leather footwear of Indian type (IPP) for the month of September 2009 increased 26% to 6.19 lakh pairs compared to 4.90 lakh pairs in September 2008. On m-o-m basis, the production declined 13%. The production of leather footwear of Indian type for the period April- September 2009 rose 29% to 43.24 lakh pairs compared to 33.63 lakh pairs for the period April-September 2008.

The Production of leather footwear of western type for the month of September 2009 compared to September 2008 decreased to 15.97 lakh pairs from 16.66 lakh pairs, a decline of 4% over corresponding period. In the first half production declined 1% to 98.30 lakh pairs as against 99.18 lakh pairs in the corresponding previous period.

Leather footwear production of Indian type (SSI) for the month of September 2009 increased 4% to 174.30 lakh pairs as against 168.27 lakh pairs for September 2008. For the period April- September 2009, the production rose marginally 4% to 10.39 crore pairs.

Bata India posts 6% rise in profits

Bata India registered marginal growth of 6% in the net profit despite of moderate growth of 16% in income from operations to Rs 260.68 crore for the quarter ended September 2009. On positive side, the operating margins increased by 170 bps to 9.8% resulting operating profit to increase by 40% to Rs 25.62 crore. Sharp increase in depreciation by 36% to Rs 6.38 crore and jump in the effect tax rate by 1420 bps to 27.7% restricted growth in net profit.

During the quarter under review, the Company has opened 21 new Bata Shoe Stores and renovated 4 existing Bata Stores. The company now entered into the ‘shop in shop' retail format to increase accessibility to the customers and deliver wide range of footwear which will be available in prominent department stores. The first Hush Puppies shop in shop was recently opened first outlet at Chennai followed by three outlets at Delhi and Mumbai. There are now six Hush Puppies exclusive stores in India and one shop in shop. The company is willing to expand its Hush Puppies show rooms. The company has introduced its Festive collection of footwear in the market with over 800 new styles in the quarter under review.

Liberty posts impressive results

Liberty shoes posted robust growth of 145% in net profit to Rs 3.01 crore for the quarter ended September 2009 on the back of 21% increase in income from operations to 63.19 crore. However, operating profit margins contracted by 180 bps to 10.4% restricted growth in operating profit to 3% at Rs 6.57 crore. Thanks to decline in the interest cost by 39% to Rs 2.18 crore and depreciation by 1% to Rs 1.65 crore. This led PBT to spurt by 138% to Rs 2.74 crore. Tax credit of Rs 0.27 crore compare to Rs 0.08 crore further boosted the profits.

Relaxo proposes interim dividend

Relaxo Footwear manufactures slippers, joggers, casuals and school shoes. Company exports footwear to US and Europe. It has also been a partner to Nike in the production of Joggers. Relaxo registered robust performance for the quarter ended September 2009. Net profit increased to Rs 9.32 crore compared to Rs 2.01 crore in the corresponding period. Income from operations rose by 44% to Rs 132.50 crore. The spurt in profits is on the back of healthy growth in moderate growth in sales and healthy expansion in margins by 670 bps to 14.9%. The board has declared interim dividend of 10% or Rs 0.50 per equity share. RFL-VII unit at Bahadurgarh has started its production during the quarter under review and it manufactures rubber canvas footwear with the initial capacity of 5000 pairs per day. Company also commenced 3MW windmill power project on 29/9/2009 in Rajasthan.

Mirza International

Net profit of Mirza International for the quarter ended September 2009 increased by 16% to Rs 4.82 crore on marginal growth of 3% in income from operations to Rs 107.88 crore. Operating profit margins expanded by 40 bps to 13.1% lifted operating profit to increase by 6% to Rs 14.11 crore. Dip in the interest cost by 4% to Rs 4.20 crore and provision of taxation (effective tax rate) by 160 bps to 34.2%, boosted growth in net profit. In the last fiscal, company has expanded shoes pair installed capacity of 3 million pairs per annum to 4 million pairs per annum and plans to expand further to 10 million pairs per annum over the next three years. The construction work for this expansion was already started.

Outlook

Leather industry has benefited with Foreign Trade Policy 2009-14, (i) Leather sector will be allowed to re-export unsold imported raw hides, skins and semi-finished leather from public bonded warehouses, subject to payment of 50% of export duty. (ii) Enhancement of duty credit scrip under Focus product scheme (FPS) from 1.25% of FOB value of export to 2% of FOB value of export. On flip side, the appreciation of rupee will have hit on the sector as the leather industry is net exporter.

In the footwear segment, companies are concentrating un-captured Women and children segment. Women's footwear accounts for almost 30% of the total footwear market and organized segment contributes only 20% of this market. So companies planning to grab this market in the near terms. With growing market for kid's footwear, organized players are planning to enter this market.