Indian footwear makers' topline to grow 25% in FY22 on low base: Report

After revenue contraction by over a fifth in the pandemic-impacted FY21, the Indian footwear sector can look forward to a 25 per cent jump in toplines in FY22 but profitability will continue to be under pressure, a report said on Tuesday.

Demand for footwear was severely affected in the first half of FY21 because of the lockdown and the shift to work from home, which will result in a 21 per cent dip in the overall revenues, ratings agency Crisil said.

After the estimated 23-25 per cent revenue growth in FY22, the sector will be back to the pre-pandemic size of Rs 70,000 crore, the agency said.

The agency said there will be cost pressures from higher raw material prices, and the operating profitability will contract by 1.50-1.75 per cent in FY22.

Credit profiles will remain stable owing to healthy capital structure despite the cost pressure from higher raw material prices, it said after a study of 86 rated footwear makers.

Domestic demand, which accounts for 75 per cent of the sector's revenue, rebounded from the third quarter of FY21 owing to relaxation in lockdown and festive spending.

The revenues clawed back to over 90 per cent of their pre-pandemic levels in the third quarter, it said.

The demand is expected to recover almost fully in the current quarter (January-March) and on a net basis, domestic demand will decline 19 per cent this fiscal, it said.

Exports remain weak because major markets such as the US and Europe have witnessed fresh lockdowns, it said, adding India's footwear exports contracted by a sharp 30 per cent in the first nine months and would end the fiscal with 25 per cent degrowth.

"Calibrated re-opening of offices and schools, and resumption of social gatherings will support footwear demand next fiscal," its director Nitin Kansal said, adding the vaccination drives will also push mobility.

Nearly half of the costs for the industry come from raw materials, which are in turn linked to the crude oil prices, the agency said, pointing out that the oil prices have doubled to over USD 50 a barrel and are expected to stay at the same level.

Footwear companies' profitability will contract because they have limited flexibility to pass on higher input prices because their recovery would be nascent, it said.

"However, the capital structure will sustain at a healthy 0.5-0.6 time because of controlled debt utilisation. Also, footwear companies have sufficient capacities available and thus investment in fixed asset addition is expected to be moderate in the next fiscal," its associate director Nilesh Aggarwal said.