India was witnessing sharp deceleration in the pace of growth in exports of leather and leather products from robust 16.0% growth in FY 2007-08 to mere 1.4% increase in FY 2008-09, which gave way for 5.5% fall in FY 2009-10. Fortunately, this deceleration has given way for 13.8% growth in April 2010-January 2011.

In Rupee terms our leather and leather product exports grew by 8.42% during April-January, 2010-11 with major contributions of 16% from the finished leather and 12.16% by leather footwear. Exports of finished leather, footwear and leather goods have shown positive growth. Footwear alone holds a major share of 21.21% in India's total leather and leather product export.

Export of leather and leather products-April-January 2010-11 and 2009-10

In FY 2009-10, Germany topped with 14.5% of Indian leather product exports, followed by UK 13.41% and Italy 11.72%. These three countries together accounts for nearly 39.63% of India's total leather products. Leather footwear alone contributes 36.88% of the total leather exports of India. The next major segments are leather goods and leather garments, 22.3% and 12.60% respectively. The share of footwear and footwear components in our exports in US$ terms has been increasing from 38.9% in FY 2005-06 to about 44.2% in April 2010-January 2011. Due to sharp appreciation of rupee during this period, the rupee value of Indian leather and leather product exports grew at a slower pace of 8.4% in April 2010-January 2011.

As per region wise, the southern region is the major exporter of leather and leather products in the FY 2009-10. Nearly 37% of the total exports of India are exported from the southern region. Next is the northern region, which exports 26.7% of the total exports followed by central region 17%, east 13% and western region 5.72%.

The aggregate financials of 10 players in the leather industry recorded a 10% increase in profits to Rs 22 crore on 19.7% rise in net sales to Rs. 523 crore in the quarter ended December 2010. The operating profit margins declined by 100 basis points to 10.7% in the quarter ended December 2010 from the 11.7% in the previous quarter ended December 2009.

Trends in India's leather and leather product Exports

Bata India reported 24% rise in operating income to Rs 359.80 crore in the fourth quarter ended December 2010. The operating margins were flat at 16.5%, but they still represent gradual improvement from 11.7% in FY 2008-09 and 13.4% in FY 2009-10. Flat margins and rise in sales together facilitated 35% rise in net profit to Rs 34.39 crore in the quarter ended December 2010. Buoyed by improved profits, the Board of Directors recommended interim dividend of Rs 4 per share.

Liberty shoes

The operating income of Liberty shoes recorded 23% rise to 82.37 crore in the quarter ended December 2010. The operating margins were almost similar at 8.5% in the quarter ended December 2010 and the corresponding previous quarter. Relatively flat margins, healthy 23% rise in sales together facilitated 31% rise in net profit to Rs 3.41 crore during the quarter ended December 2010.

In the nine months ended December 2010, on a stand alone basis, Liberty shoes reported 32% rise in net profit to Rs 9.27 crore on 14% rise in Operating income to Rs 216.17 crore. The company's retail subsidiary is making losses, dragging down its consolidated profits to Rs 6.67 crore on consolidated revenues of Rs 321.16 crore during this period.

Relaxo footwear

Relaxo footwear reported 13.3% rise in sales to Rs.152.95 crore in the quarter ended December 2010. But the company recorded steep 520 basis points fall in margins to 9.1% in the quarter ended December 2010 from 14.3% in the corresponding previous quarter. This coupled with 58% spike in interest costs to Rs 4.45 crore together lead to sharp 56% fall in profits to Rs 3.35 crore in the quarter ended December 2010.

Relaxo Footwear has been witnessing sharp deceleration in margins from 14.4% in FY 2009-10 to 13.5% in the quarter ended June 2010 to 11.0% in the quarter ended September 2010 which has further come down to single digits of 9.1% in the quarter ended December 2010.

Bhartiya international

The net profit of the company fell by 31% to 1.21 crore on 5% fall in sales to Rs 48.16 crore during the quarter ended December 2010. The company has been witnessing fall in margins from 9.2% in FY 2008-09 to 7.7% in FY 2009-10. But it appeared that the falling trend was being corrected with improvement in margins to 8.3% in the quarter ended June 2010 (same as in the quarter ended June 2009), which further increased to 9.1% in the quarter ended September 2010 (as against 8.1% in the quarter ended September 2009), but lost the momentum and reported mere 6.9% margins in the quarter ended December 2010 (7.2% in the quarter ended December 2009). Bhartiya international is planning to enter lifestyle products retail sector and planned to set up stores across India for retailing branded garments, accessories and other lifestyle products.

Besides leather garments, Bhartiya International has ventured into textile apparels, development of SEZ and real estate. The company is developing a 250 acre Special Economic Zone in Nellore (Andhra Pradesh) in Joint Venture with APIIC. This SEZ will manufacture leather, leather products and accessories. Besides this, it is also developing 125 acre Bhartiya City project in Bangalore together with IL&FS. Bhartiya City will develop about 20 million square feet of living space and is coming up about 14 kilmetres away from City Centre, and the high speed Peripheral Ring Road (PRR) conveniently traverses its site, facilitating better connectivity.

Generally leather exports prices are fixed twice in a year – for summer season and winter season. But in the domestic market, considering numerous players, the prices are not very static. Based on the whole sale price index of leather and leather products, we find that the price levels have eased sequentially in February 2011, from January 2011 levels. In general, the prices are lower on y-o-y basis. Bucking the general weak trend, we find that the high margin leather footwear segment has witnessed improvement in price levels, with 2.7% fall in October and November 2010 giving way for 2.3% fall in December 2010 and to moderate 4.0% rise in January 2011 and 3.5% rise in February 2011, on y-o-y basis. The deceleration in the growth in February 2011 is in line with sequential fall in the entire leather and leather product segment.

Outlook

India witnesses tough fight in the global leather and leather product sector especially from China, which uses cheaper pig leather. In the process, sizeable portion of the global demand for low cost leather and leather products are dominated by China. On the other hand, where quality, finish and designs matter, India is able to hold on to its niche markets, especially in quality conscious Germany, Italy, UK etc. But the country has been loosing its market share in USA, wherein our exports fell from US$ 359.22 million in FY 2008-09 to US$ 296.23 million in FY 2009-10.

India is trying to broad base its leather exports with strong growth in France, Netherlands, Belgium, Saudi Arabia, Sweden, Japan, Denmark, Germany, UAE, UK etc. The focus product and focus market schemes of the Ministry of Commerce & Industry are expected to facilitate deeper penetration in stronger holds and expansion of coverage to newer markets. Besides, the finance minister, in the Union Budget has proposed to set up seven mega leather clusters in the year 2011-2012 This will accelerate the development of leather products in India, both for the domestic and export markets. Also, the rising share of leather footwear exports and improving pricing power therein is commendable, considering relatively higher value addition in this segment. Overall, the leather and leather product sector's recovery is shaping up quite well in the short term.

Break up of Indian leather and leather product exports in US$ million
Product	(Value in US$ Million)		% Variation
	Apr-Jan 2009-10	Apr-Jan 2010-11
Finished Leather	490.13	596.64	21.73%
Leather Footwear	897.21	1056.06	17.70%
Footwear Components	196.43	191.90	-2.31%
Leather Garments	311.04	333.57	7.25%
Leather Goods	537.55	591.76	10.09%
Saddlery & Harness	34.64	36.89	6.48%
Non-Leather Footwear	13.52	15.48	14.45%
Total	2480.52	2822.30	13.78%