New Delhi: The footwear industry is likely to register a moderate growth of 7-8 per cent in the current fiscal against 28 per cent in FY23, a report by Icra said on Thursday. The industry witnessed a muted revenue growth in the first half of FY24, mainly on account of factors like sluggish volume growth and no significant increase in average selling price, it added.
The mass segment faces headwinds, and demand is unlikely to improve significantly in the near term, though 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,” said Icra.
On the input side, softening raw material (RM) prices are estimated to support the operating margin (OPM) in H1 FY2024.
However, increasing RM prices since August 2023 are likely to impact the margins in H2 FY2024.
“Consequently, the OPM is likely to remain flat at 18.5 per cent in FY2024,” it added.
Over the government’s quality control order (QCO) pertaining to around 24 footwear and related products, which became applicable from July 1, 2023, for the large and medium scale entities, Icra said it would have an 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 said it believes the standards are expected to “result in a supply disruption in the near term” as the players adjust to the new regulatory regime.
There was a significant increase of 35 per cent in the import of footwear products during April-June 2023 in anticipation of the supply disruption, resulting in 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 said.
