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.

India continues to stand at eighth place in the world leather exports with 3% of part in the total export earnings. China and Italy enjoys the largest market share of about 28% and 14% in world exports respectively followed by Hong Kong, Germany, France, Brazil and Belgium.

Exports have been higher on y-o-y basis in (April-Oct) 2011

Indian leather products sector witnessed a growth of 4% in their exports accounting to Rs 90730.58 million for the period April-Oct 2011 while in USD value terms it has shown a 10% growth aggregating to USD 1877.15 million.

The data for the above graph is culled from Ministry of Finance upto October 2011. For December 2011, we have taken the daily RBI reference rate upto 21^st December 2011 and averaged it. For November 2011 we have taken daily RBI reference rate and averaged it for the whole month.

As Indian rupee appreciated in April-August 2011 on y-o-y basis, the increase in leather exports in rupee terms is lower at 4% despite healthy 10% increase in US$ terms. But since September 2011, the Indian rupee is depreciating sharply both on sequential and y-o-y basis, which should lead to substantial rise in leather exports in Rupee terms through the last five months of the current fiscal, so long as the leather export in US$ terms continue to improve.

The sound growth in exports of leather industry India was attributed by increased exports of leather garments and goods & saddlery items like leather gloves etc. Also, the strong dollar appreciation against Indian rupee during September and October 2011 has facilitated the sector to witness high growth export earnings in USD realization.

Leather footwear segment by and large occupied the highest market share in the total exports accounting to 38% followed by finished leather and leather goods & saddlery items with 22% each amid leather garments accounted to 11%, footwear components such as show uppers, soles, etc constituted about 7% and non leather footwear segment accounted negligible market share to the total exports.

Both leather garments and leather goods & saddlery products which form a significant segments of the leather industry India, have shown an increase in their exports by notable 8% in rupee terms and 14% in USD value terms.

Finished leather products exports though grew by flat 1% in rupee terms but rose 7% in USD value terms where as leather footwear, the engine of growth for the entire sector has shown a growth in its exports by 4% in rupee terms and 10% in USD value terms.

However, the footwear components and non –leather footwear products has shown a degrowth in the exports. The footwear components exports reduced by 6% in rupee terms and inch down by 1% in USD value terms. Non-leather footwear exports dwindled by 16% in rupee terms while shrinked by 11% in USD value terms.

The production value of leather garments attained a robust growth of 35% to Rs 32.8 crore in October 2011 after a flat growth of 1% in September 2011 on yearly basis. Likewise, on sequential front, the leather garments production bent up 8% after accounting a successive fall by 10% in August'11 and 16% in September '11.

The tanned or chrome skins and leathers production has rapidly grew by 61% in September '11 but moderated to 13% to Rs 76.8 crore in value terms on y-o-y basis amid declined 2% during October'11 on m-o-m basis.

The production of other leather sector products except leather gloves has crippled during October '11. Leather bags, wallets and purses production growth has moderated from 28% in August'11 to 11% in September'11 and further to 10% aggregating to 669405 in numbers. Sequentially, these items output continued to remain flat during Sept-Oct 2011.

Leather shoes production declined sharply by 10% in October'11 to 2620.6 thousand pairs on y-o-y basis falling in a row from last two months by 3% and 2% respectively while on sequential basis, the production crashed 11% in October'11 diminishing in straight by 12% and 1% in the last two months. Likewise, the production of leather shoe uppers in October'11contracted 18% on y-o-y basis to 1348 thousand pairs and dwindled 19% on m-o-m basis. Also, in the same period, footwear (except leather) production dipped 2% on yearly basis to reach 6850.8 thousand pairs and slither 11% on monthly basis.

In contrast, astonishingly leather gloves production upbeat 4% in October 2011 on y-o-y basis after denting down by 24% in September 2011 and similarly improved by 8% on monthly basis after 19% fall in previous month.

The demand for the leather and leather products is elastic and generally fluctuate with economic performance. With the increase in population and disposable income, the demand for the leather products is expected to increase further in future. With increased purchasing power of consumers and awareness towards quality products, demand for leather products are set to increase. Going forward innovations using newer technology will act as catalyst for demand growth.

Leather products prices edged up on y-o-y basis

Despite of reasonable demand for the leather products at both domestic and global levels, the domestic leather prices perceived an unenthusiastic trend in the ten months ended 2011 due to increase in supply compared to the previous year. But later the fall in prices has been restricted in November 2011 due to slash in supply of leather.

The leather prices fell in a row straight since Jan 2011.But, due to moderation in leather production on one side and emerging demand on other side the pace of decline in leather prices has been moderated from 12% in October '11 to 10% November'11 on y-o-y basis.

Like wise, on sequential front, the prices carried out a flat growth since last two months and ended with 1% growth in November 2011.

Leather products after experiencing a dip in prices for nearly nine months from September 2010, they have turned up in June 2011 by mere 1% .The prices sustained to remain at the same growth till October'11 and ended with 2% growth in November 2011 on yearly basis on slight deceleration of production. On sequential basis, the leather products prices sustained with flat growth during Feb-Nov 2011 period.

With the rise in leather footwear demand coupled with the ease in production levels, after declining consecutively for straight three months in the late 2010, the prices of leather foot wear curved up in Jan 2011 by 2% on y-o-y basis There onwards, gradually, the prices augmented to reach a growth of 7% in November 2011.

Similarly, other leather products prices have started showing a positive trend from March 2011 and finally clocked a steady growth of 4% on y-o-y basis in November 2011 from August 2011.

Industry attained flat profits on spike in interest & manufacturing costs

The leather industry has shown a 14% growth in net profit to Rs 133 crore for the half-year ended September 2011 on rise in net revenues by equal14% to Rs 2434 crore .The scintillating performance by the sector during the first quarter of FY 2012 was offset by dreary profits gained in second half of FY2012 due to increase in interest costs on strong rupee depreciation coupled with the rising raw material and finished goods costs. Though the OPM of the sector inclined by impressive 130 bps in first half, the modest jump in margins by 18 bps in second half of FY2012, pared the margins to grew 76 bps for an overall H1FY2012.

Bata India, the largest footwear retailer and the leader in the footwear industry in India accounted net profit at Rs 30.42 crore, higher by 47% on rise in net sales by 27% to Rs 369.99 crore. The operating profit increased by 43% as OPM inclined by 166 bps for the Q2FY12.

While, Bhartiya International posted net profit at Rs 3.38 crore, down by 4% despite of increase in net sales by 6% to Rs 60.03 crore due to spike in interest costs by 87% to Rs 1.79 crore.

Bhartiya Urban a realty company, whose 26% share is held by Infrastructure Leasing and Financial Services (IL & FS), 44% stake by Bhartiya Group promoters and the remaining 30% stake held by Bhartiya International has planned to invest about Rs 10,000 crore in the next ten years to develop a township in Bangalore.They are developing an integrated township in North Bangalore spread over 125 acres. This would be developed in eight phases and involves a total built up area of 17 million sq. ft, which includes 7 million sq ft of housing and 3 million sq. ft of an IT SEZ. The first phase would be developed with 3 million sq. ft at a cost of Rs 1600 crore and for this a loan of Rs 550 crore has been tied from banks. It is an inclusive project, as apartments would be offered to customers in a price range of Rs 10-60 lakh.

Liberty shoes reported net profit down by 50% to Rs 1.71 crore on rise in interest costs by 62% and advance in raw material costs though the net sales improved by 14% to Rs 79.59 crore. Hence, the operating profit declined by 6% as OPM shaved off by 174 bps to 7.9%. Likewise, Relaxo footwear witnessed fall in net profit by 52% to Rs 4.3 crore on crash in OPM by 260bps to 8.4% and rise in interest costs by 30% to Rs 4.87 crore despite of increase in net sales by 10% to Rs 199.26 crore.

Bata India 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.

The industry accounted to USD 3.84 billion in the export earnings during FY11 aided by southern region contribution of 39% to the total exports followed by western region with 25%, eastern 12%, northern 11%, central 3% and other remaining region with 10% market share. During FY11, USA accounted to 9% to the total Indian exports next to Germany with 14%, UK with 13% and Italy 12% followed by Hong Kong, France and Spain.

The amount allotted during the 11^th five-year plan was Rs 253 crore under ILDS scheme, of which Rs 220 crore was already been spent. Besides this, CLE has taken a decision not to receive any new applications under ILDS with effect from August 16,2011 on account of paucity of funds and also requested for additional Rs 100 crore to clear all applications filed under ILDS scheme.

Leather industry requested for Rs 3000 crore of investment in Twelfth five-year plan

The Government is implementing Indian leather development programme planed with an outlay of Rs 1251.29 crore during the 12 th five year plan in order to promote the growth of the sector in critical areas like capacity modernization & technological up gradation, environment management, human resources development etc. But, the leather industry has been seeking for larger outlay of Rs 3000 crore, under ILDP for the 12th five year plan in view of achieving the exports target of over USD 8 billion in next five years, higher by about 110% from the FY11 export earnings. The outlay demanded is two and half times more than the amount allotted

The council has also suggested a number of proposals for the leather sector for consideration in 12th Plan for ensuring sustainable growth and development. Major proposals include financial support for implementing, operating and maintaining zero liquid discharge facility, development of mega leather clusters in seven states, support for schemes and events aimed at sourcing raw materials, special support package for exports to USA, among others.

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 on going sovereign debt crisis in UK, Spain and Italy (accounting about 30% to the total exports) might be threat to the Indian leather exports in the coming future. But, thanks to the recovery in US economy, which might show some positive impact in the industry. Moreover, the strong dollar appreciation would help the industry to realize better earnings for their products. Apart from this, the sales to over seas market are expected to recover ahead on eve of Christmas and New Year 2012.

Stiff competition from China, which uses low cost pig leather remain a concern. With cost of production going up, and sluggish demand on the other, Indian leather and leather product sector remains handicapped. On the positive side, the sharp depreciation of Indian rupee has added sheen to the global competitiveness of the domestic players. Also, the players are moving up the value chain, and tapping the strong growth in domestic market as well. In this background, the players who are enriching their product and geographical mix are better placed.