Leather Industry Surviving By The Skin Of Its Teeth

For the leather industry, the fourth-largest foreign excha-nge earner, 1996-97 failed to bring much cheer. It accounted for nearly five per cent of India's total exports in 1996-97, but there was a fall of 6.4 per cent in leather exports from around Rs 5,861 crore in 1995-96 to Rs 5,487 crore in 1996-97.

The industry has experienced major problems regarding raw material, funds availability and dropping capacity utilisation. In 1996-97 and 1997-98, capacity utilisation has been around 60-65 per cent. Competition from MNCs has added to existing woes of the industry where the unorganised sector predominates. Leather companies in the organised sector, too, have suffered under the impact of these factors. In the first half to September 1997, the sales income of 24 leather companies was up 17 per cent to Rs 673 crore. This resulted in an increase in operating profit by 42.1 per cent to Rs 54.8 crore and gross profit by 291.7 per cent to Rs 24.9 crore. However, net profit nosedived 217 per cent to Rs 8.6 crore. The poor performance by companies such as Carona, Montari Leathers, Namaste Exports and Chemcrown has affected the industry performance. Bata India, the industry leader, posted the highest operating profit of Rs 22.6 crore, gross profit Rs 14.4 crore and net profit Rs 8.4 crore.

 

Net Profit Margin (NPM) of 24 companies was as low as 1.3 per cent. The squeeze on profitability was due to rising costs including those of raw materials, in addition to high depreciation charges. Operating Profit Margin (OPM) of these companies was 8.1 per cent, while gross profit margin (GPM) was 3.4 per cent. Liberty Shoes has done well, clocking higher margins. It recorded an OPM of 20 per cent, GPM 19.6 per cent and NPM 13.6 per cent.

Leather products can be classified into five areas, viz. finished leather, leather footwear, footwear components, leather garments and leather goods. The finished leather segment comprises tan hides and skins. The footwear segment consists of shoes, slippers and sandals, and footwear component involves shoe uppers and soles. The leather garment sector comprises leather jackets, trousers and skirts. The goods segment comprises leather accessories like belts and wallets.

The domestic market in the leather segment essentially means footwear sector, which is basically a price and quality driven segment. The leather industry is estimated at Rs 6,600 crore plus and growing at around 8 to 10 per cent a year. The entry of MNCs into the market has unleashed newer products to attract more customers. The huge middle class with disposable income that prefers branded and fashionable products has created more opportunity. The middle class factor is spurring the growth of the market for a variety of leather goods. The leather companies have been vying with one another to capture a part of the organised market.

Demand and supply forces set the prices of leather products. For instance, in men's footwear segment the prices vary from Rs 695 ( high) to Rs 40 (low) per pair for the Action/Lakhani/Relaxo brand to Rs 4,000-Rs 595 range for Reebok, Nike, Adidas pairs. For Bata the range is Rs 1,200 to Rs 45.

For Liberty brand of shoes the price range is Rs 1,495 and Rs 95. Women's footwear sector is a fancy segment with a fair sprinkling of local giants and MNCs.

The demand for quality products has seen these companies reviewing their strategy and concentrating on specific segments to withstand the competition.

Kids' footwear is fast becoming a profitable segment. This sector has seen a good growth in demand despite high price range.

However, the per capita consumption of footwear in India shows discouraging trend with less than one pair or an estimated expenditure of Rs 75. It is expected to increase to Rs 100 in the next few years and the number of pairs per capita to two. Therefore, industry turnover is expected to touch Rs 120 bn in next five years.

The global footwear industry is estimated at over Rs 756 billion, which may top the Rs 1,000-billion mark by the turn of the century.

Developed countries consume the bulk of leather products. Of the global demand for leather footwear more than 80 per cent is from 10 developed countries. Similarly, in leather garments segment around 85 per cent demand is from the same 10 countries.

Developing countries with lower cost of production have become major suppliers. India eyes to capture 10 per cent of global market from currently four per cent by 2000 AD.

Industry circles blame myopic government policies, apathy towards environment, paucity of funds, obsolescence in processing and socio-religious beliefs for the present condition of the industry. Possible shortage of raw material has posed a threat to the industry that hitherto could rely on a secure supply owing to the rich base. Poor quality carcass of the Indian cattle in terms of weight has often resulted in inadequate supply of hides.

This has seen the ratio of low bovine hide production per kg per annum, at 3 kg per annum as against the world average of 5 kg per annum.Even the hide produced is not properly cured affecting the quality of finished products. This has adversely affected the growth of the industry as cow- slaughter is banned.

Hence, the industry has to import skins of deer, kangaroos, ostriches and farm crocodile due to non-availability within the country. As such, there is a likelihood of shortage as against the estimated requirement of 2,808 million sq ft of leather by 2000 AD. Availability is estimated at only 1,832 million sq ft: 55 per cent of the requirement.

The government's recent medium term export policy must spur leather exports. The policy stresses upon improvement in the competitiveness by enhancing production base, quality and technology upgradation to boost exports.