The footwear industry is projected to experience a moderate growth of 7-8 per cent in the current fiscal, contrasting with the robust 28 per cent growth in FY23, as indicated in a report by Icra on Thursday. The industry encountered subdued revenue growth in the first half of FY24, primarily attributed to factors such as sluggish volume expansion and no significant rise in the average selling price.
The mass segment of the industry is grappling with challenges, and a substantial improvement in demand is not anticipated in the short term. However, the report suggests that the sales recovery during the festive and wedding season in H2 FY2024 could “partially offset muted revenue growth in H1.”
“While some recovery is expected in H2 FY2024, overall revenue growth is likely to moderate sharply to around 7-8 per cent in FY24, with companies focusing on the premium segment expected to perform well,” stated Icra.
On the input side, the report notes that softening raw material (RM) prices are anticipated to bolster the operating margin (OPM) in H1 FY2024. Nevertheless, the rise in RM prices since August 2023 is expected to impact margins in H2 FY2024. “Consequently, the OPM is likely to remain flat at 18.5 per cent in FY2024,” it added.
Regarding the government’s quality control order (QCO) affecting approximately 24 footwear and related products, applicable to large and medium-scale entities from July 1, 2023, Icra commented on its potential impact on the industry.
“However, for some products, where the standards have been recently amended, the applicability was revised to December 31, 2023. Since a significant portion of the revenues of the organised footwear entities are concentrated around those products, the major impact of the QCO implementation would be visible from January 2024,” it said.
The agency believes that the standards are expected to “result in a supply disruption in the near term” as industry players adjust to the new regulatory regime.
There was a notable 35 per cent increase in the import of footwear products during April-June 2023 in anticipation of the supply disruption, leading to a front-loading of inventory on entities’ books. “While the imports moderated in July 2023 following the deferred implementation of QCO guidelines for major products, the working capital requirements are likely to remain high in the near term. In the long run, however, the regulation is expected to increase the formalisation of the footwear industry,” the report concluded.
