The Leather industry is bestowed with an affluence of raw materials as India is endowed with 21% of world cattle & buffalo and 11% of world goat & sheep population. Leather Industry is categorized into segments such as finished leather, 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.

As per officially notified DGCI&S monthly export data, the leather and leather products exports for the first eight months ended FY12, i.e., April-November 2011 touched USD 3092.02 million as against the export of USD 2398.32 million in the corresponding period last year, registering a positive growth of around 29%. While, in rupee terms, the export touched Rs 143613.68 million during April-November 2011 against Rs 109655.4 million, registering a positive growth of around 31%.

In the ten months ended FY2012 Germany topped with 15% of the India's leather product exports, followed by UK 11.44% and Italy 11.40%. These three countries together accounts for nearly 38% of India's total leather products. Among the major countries, except Germany and China the other countries lost their market share in the Indian leather exports. U.K lost its market share by 152 bps, Italy by 19 bps, France by 84 bps, Hong Kong by 176 bps compared to the corresponding period of last year due to Euro zone debt crisis.

During the April-November 2011 period, leather footwear exports grew by 23% to Rs 49110.05 million in rupee terms and grew by 21% to Rs 1057.35 million in USD terms. Both Leather garments and leather goods & saddlery products form significant segments of the leather industry India. Leather Garments segment exports grew by sharp 59% to Rs 17483.5 million while in dollar terms it grew by 57% to USD 376.42 million.

Besides, leather goods exports improved by 37% to Rs 32091.25 million while in USD terms it improved by 35% to $512.06 million. On the other hand, Saddlery and harness segment exports grew 34% in rupee terms while 32% in USD terms. Footwear components exports increased by 38% to Rs 8857.66 crore in rupee terms while it has grown by 36% to $140.35 million in USD terms. Finished leather segment exports jumped up by 24% to Rs 30690.37 million in rupee terms and 22% to USD 660.77 million in dollar terms. Meanwhile, non-leather footwear exports grew by 32% in rupee terms while 30% in USD terms.

In the first nine months ended FY12, the production of tanned skins & leathers improved by 21%, leather garments by 18%, leather bags, purses and wallets by 25%, leather gloves by 3% and leather shoes by another 3% while shoe uppers production declined by 6% and footwear except leather remained flat when compared to the corresponding period of last year.

The price index of chrome-tanned leather grew by 4.27% on y-o-y basis but fell by flat 1% January 2012 on m-o-m basis .The leather price index has been declined by 2.37 % in Jan 2012 from the peak in July 2011 with improved availability of leather.

The price index of leather & leather products increased by 6.49% on y-o-y basis while remained almost flat on sequential front in Jan 2012. Besides this, leather footwear price index grew by 8% on y-o-y basis while fell by flat 1% on m-o-m basis in January 2012.The price index of other leather products sequentially improved by flat 1% in January 2012 and increased by 11% on y-o-y basis.

Pre-budget proposals submitted by Council for Leather Exports

• Implementation of the 2% interest subvention scheme for the entire leather sector during 2012-13.
• Increase entitlement under Duty Free Import Scheme from 3% to 5%.
• Exempt of service tax on tanning operations.
• Exemption from levy of service tax on Common Effluent Treatment Plant (CETPS).
• Financial assistance for creating Social Infrastructure like Women's Hostels/Dormitories etc.
• Issue of clarification that TDS will not apply for foreign agents who operate independently and perform the task of securing export orders only.
• Service tax exemption to Export Promotion Councils with retrospective effect from 2005 onwards.
• Besides, the council earlier submitted detailed proposals to the Ministry of Commence and Industry seeking certain additional benefits like Central Excise exemption for footwear and reduction of Central Excise duty on leather goods from 10% to 5%.
   

Analyst Expectations

Previously, in the leather sector, the small and medium enterprises were alone eligible to get the 2% interest subvention scheme on rupee export credit for the April 1, 2011 to March 31, 2012. Council for Leather exports seeks CLE of 2% interest subvention for the whole leather sector in the year 2012-13 to reduce the interest costs, which remain at peak in 2012. This scheme would encourage more investments and growth in the industry.

Most of the leather and leather products from the industry in India are exported, but still some can look for importing the raw materials used for the production of leather and leather goods. Leather shoes manufacturers or exporters in India for instance, will import soles, insoles, shoe lasts, counters, toe puffs, polishers and stifferners. Therfore, the sharp rupee depreciation had made imports of raw material expensive and not proportionate with the change in the price realization of leather products. Hence, the Duty free import scheme from 3% to 5% will pave the way for improving the performance of the leather industry with the improved imports for cheaper price.

Companies to watch:

Bata India, Liberty Shoes, Relaxo Footwear, Bharat International

Outlook

Though export of leather and leather products during April –November 2011 have shown a positive growth of more than 28%, the continuing sovereign debt crisis in UK, Spain and Italy (accounting about 30% to the total exports) have created apprehension about maintaining the growth momentum in exports. Further, the depreciation of Indian Rupee has not helped the exporters either since the buyers are demanding reduction in prices citing the crisis.

The leather industry exports are expected to show a moderation in the growth of exports in rupee terms from January 2012, due to appreciation of Indian rupee, coupled with the sluggishness in leather exports to UK, Italy and France. However, the leather sector performance is dependent on the measures taken by the Government in the budget 2012-13.

The leather availability is less during the summer season when compared to the rainy and winter seasons. As a result, the leather prices during the summer season generally picks up due to scarcity of leather in quality as well in quantity terms. Therefore, the leather prices are expected to remain stable till the early March 2012 and are likely to move north side from mid of March 2012 with the beginning of summer season. But we expect budget to be a non-event for the leather and leather products sector.