Leather products are categorized into segments such as Tanning, Footwear, Leather Garments, and Goods & Accessories Sector including Saddlery & Harness. India is second largest producer in both leather footwear and leather garments sectors while in exports the Country stands third in leather garments and fifth in leather goods & accessories sectors.

Exports have been higher on y-o-y basis.

During the period April-September 2011, Indian leather exports increased by 5% to USD 1772.27 million on ramp up in exports of leather goods and saddlery items by 11% to USD 413.26 million accompanied by rise in leather garments exports by 8% to USD 199.07 million amid increase in Leather footwear exports by 5% to USD 682.65 million. The other segments such as footwear components and non-leather footwear exports crashed by 6% to USD 110 million and 16% to USD 5.77 million respectively.

India after easing by 5.5% to USD 3400.97 million in their leather & leather products exports for the FY2009-10, it increased by 13% to USD 3844.86 million in FY 2010-11, in which, Germany topped with 14% of the India's leather product exports, followed by UK 13% and Italy 12%. These three countries together accounts for nearly 39% of India's total leather products.

In the whole exports, 38% of the share was contributed from Leather Footwear alone, the next major segments Finished leather and leather goods contributed about 21% of share each to the total exports while the foot wear and leather components contributed about 16% to the total exports and the remaining 4% of the exports was contributed from saddlery& harness and non-leather footwear segments.

As per region wise, the southern region is the major exporter of leather and leather products in the FY2010-11.Nearly 39% of the total exports of India are exported from the southern region. Next is the western region, which exports 25.1% of the total exports followed by Eastern region with 12%, North 11%, Central 3% and others with 10%.

Leather prices declined but leather products prices improved

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.

For the quarter ended September 2011 Leather prices are lower by flat 1% amid, the leather products prices elevated by 1%, leather foot wear prices are up by 2% and other leather products are also high by 3% against June quarter 2011. On y-o-y basis the leather prices have been lower from January 2011 and in September 2011 the prices knocked out by sharp 11% amid the leather footwear prices improved from January '11 and clocked a growth of 5% in September 2011.Besides, the leather products prices behind exhibiting negative growth since September 2010 showed a flat growth of 1% in September 2011 from June 2011 on y-o-y basis. While Sequentially, all the major leather segment group prices weakened in September 2011.

Leather products production has been lower except leather shoes uppers on y-o-y basis

The pace of growth in production of leather products (bags, wallets, purses) from the high 52% in June '11 & 53% in July'11 decelerated to 28% in August '11 and touched a growth of 11% in September 2011 on y-o-y basis. Similarly, the leather gloves production after recording 23% of growth in August '11 fell by sharp 19% in September 2011.Similarly, the leather shoes production after recording 10% growth in June ‘11, moderated to 7% in July'11 and then fell down by 3% and 2% in August and September 2011 respectively. However, the leather shoe uppers output after exhibiting 24% of degrowth, improved by 4% in July'11 and then accelerated to 10% in September 2011.

On q-o-q basis, the production of leather bags, wallets, purses and gloves improved by 14%, leather shoes uppers production expanded by sharp 19% while leather shoes output reduced by flat 1% in the quarter ended September 2011 against June quarter 2011

Flat Performance by the Industry for the Quarter ended September 2011

The aggregate of 17 leather companies clocked the revenue growth of 11% to RS 1167 crore for the quarter ended September 2011.The operating profit margins grew by 18 bps to 12% dragging up the operating profit by 13% to Rs 140 crore. Further on accounting other income flat at Rs 6 crore the PBIDT grew by 6% to Rs 146 crore. Besides, spike in interest costs by 43% to Rs 33 crore and increase in depreciation costs by 12% to Rs 28 crore facilitated the PBT to rise by 4% to Rs 85 crore. Finally, with the increase in provision for taxation by 13% to Rs 26 crore the net profit remained flat at Rs 59 crore.

Bata India

Bata India the largest footwear retailer and the leader in the footwear industry in India reported 47% growth in net profit to Rs 30.42 crore for the quarter ended September 2011, on the back of 27% healthy growth in net sales to Rs 369.99 crore. Operating profit margins expanded by 170bps to 14.4% and led the operating profit to grew by robust 43% to Rs 53.53 crore on the back of reduction in staff costs and other expenses despite the rise in the consumption cost during the quarter.

The Company continued its strategic expansions in its retail stores and so far opened 106 new stores this year. These new stores are based on the new large formats and are above 3000 sq ft and are spread across metros, tier 1 and tier 2 cities. It also continued expansion of its Hush Puppies brand with the opening of 9 exclusive new stores and 5 shop-in-shops with leading department stores in the same period. Further, it expects to add over 70 new Bata Stores every year, and renovate the existing stores providing incomparable shopping experience and customer service.

Liberty shoes:

Liberty shoes is engaged in the business of manufacturing and selling leather & non-leather shoes, leather shoe uppers and leather garments. The company posted 14% growth in net revenues to Rs 79.71 crore for the quarter ended September 2011.Operating profit declined by 6% to Rs 6.33 crore as operating profit margins crashed by 173 bps to 7.9% on the back of increase in consumption costs and other expenditure despite of lower purchases costs. Fall in margins, 62% spike in interest costs to Rs 2.89 crore together lead to 50% fall in net profit to Rs 1.71 crore in the quarter ended September 2011.

Relaxo Footwear

Relaxo foot wear reported 10% increase in net revenues to Rs 200.47 crore for the quarter ended September 2011.The operating profit margins crashed by 260 bps to 8.4% pulling down the operating profit by 16% to Rs 16.87 crore due to increase in consumption costs & staff costs and other expenditure which all together aided the net profit to decline by robust 52% to Rs 4.30 crore.

Bhartiya International:

Bhartiya International net revenues grew by meager 6% to Rs 60.03 crore for the quarter ended September 2011and led the operating profit grew by 6% to Rs 6.14 crore despite the operating profit margins remained flat at 10.2% assisted by decline in consumption costs and flat other expenditure. The net profit declined by 4% to Rs 3.38 crore due to spike in interest costs by 87% to Rs 1.79 crore on the low base and increase in depreciation costs by 24% during the quarter.

Outlook

The demand for the Indian leather & leather products is increasing rapidly for its quality, finish and designs. With technology and quality of the leather products improving year after year, Indian leather industry is stamping its class and expertise in the global leather sector trade and increasing its market share in Germany, UK, and Italy etc.

The growth in the sector is aided by the capacity expansion and modernization efforts of the private industry and the Government of India's encouraging policy measures. Ministry of finance on September 23, 2011 has done marginal reductions in the Duty Drawback Rates (DBK) on some leather items while it has increased the cap values for most of the items on November 1, 2011, which will be beneficial to the leather industry in the future.

Sharp depreciation of Indian rupee will also ring in gains for leather and leather product exporters. But the Euro debt crisis and sluggish US economic growth together can dampen demand growth, which is a cause for concern.