Brokerage firm B&K Securities has initiated coverage on the Indian footwear sector, anticipating a robust growth outlook going ahead.
The brokerage firm believes the Indian footwear industry is poised for a strong performance in the coming years and thereby initiates coverage of the industry with a preference for Bata India (Buy, target price: ₹2,340) over Metro Brands (Hold, target price: ₹810) and Relaxo Footwear (Hold, target price: ₹1,140).
Factors like a younger population, rise in income levels and standard of living, shift from unbranded to branded footwear, increasing women workforce participation, the tendency of owning multiple pairs of footwear, increasing penetration in smaller towns and rising salience of online channels are expected to be the key drivers of the footwear industry going forward, said B&K Securities.
The brokerage firm pointed out that Indian footwear consumption has grown at a CAGR of 4.5% from 2.05 bn pairs in FY15 to 2.56 bn pairs in FY20.
After a decline of nearly 35% in FY21 due to Covid-19, the consumption is expected to grow at a CAGR of 8-10% in volume terms from FY22-FY25E to a total of about 2.9 bn pairs (independent research reports). In value terms, the industry has grown at a CAGR of nearly 8% from FY15-FY20 to nearly ₹960 bn and is expected to grow at a CAGR of 15-17% from FY22-FY25E to a total size of nearly ₹1.5 trn, said B&K Securities.
India is globally the second largest footwear producer and consumer. As the brokerage firm highlighted, India produces nearly 11% of the global production (nearly 24 bn pairs) with China leading at over about 55%.
The Indian footwear market is currently under-penetrated with per capita consumption of only nearly 1.9 pairs against a global average of 3 pairs and developed countries' average of about 5-6 pairs. Factors like rapid urbanisation, favourable demographics and rising disposable incomes are expected to facilitate the per capita footwear consumption to nearly 2-2.1 pairs by FY25E, said B&K Securities.
The brokerage firm also sees growth opportunities in the women’s and kids’ segments. "Women’s and kids segment have emerged as fastest-growing categories with an increasing share in the overall footwear market. The growth rate in the women’s and kids segments is projected to be at about 26/28% vis-à-vis the men segment which is projected to grow at a CAGR of nearly 17% for FY21-25E," said the brokerage firm.
There is also a shift from unorganised to organised.
"The organised footwear retail currently forms nearly 35% of the total industry (FY21) and is expected to reach nearly 40% of the industry by FY25E on the back of factors like rising urbanisation and aspiration levels, increasing acceptance of brands and modern retail formats by consumers, continued market share gains post the implementation of GST, focus on enhancing customer experience via the increased frequency of designs and rising brand awareness through marketing and promotional initiatives," said B&K Securities.
The brokerage firm said urban markets account for two-thirds of the footwear market in India by value. The top 8 cities (metro and mini metro cities) contribute to 40% of the urban footwear market and are dominated by the presence of leading national and international brands.
B&K Securities believes, going forward, tier-II and below cities, which contribute nearly 35% of the overall footwear market, are expected to witness faster growth on the back of low penetration levels and increasing aspirational levels of the people.
"Most footwear companies have clearly indicated that the next leg of growth and store additions are expected to come in from smaller towns and they have planned to open a higher number of stores through franchisee model going forward with the focus being on tier 2/3/4 towns/cities," said B&K Securities.
The brokerage firm underscored that most retail companies are now focusing on asset-light business models, leaner inventory, better control on expenses and bringing in variability across line items. "These would aid stronger balance sheet and better return ratios in the future," said B&K Securities.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
