Leather and footwear stocks: Can they put your investment portfolio on the fast track?

Commerce and Industry Minister Piyush Goyal recently claimed that India has the capacity to increase its footwear production and export tenfold. In this article, we explore India’s leather sector, its future growth drivers, and the potential of listed leather stocks.

Leather and footwear stocks in India

Leather plays an important role in our life. Apart from shoes, other leather products, such as wallets, belts, jackets, etc., are also extremely popular. Have you ever wondered about the companies that make these leather products? What if you could invest in them and participate in their wealth creation journey?

In this article, we will explore the leather industry in India, its future growth potential, the top leather companies in India, and their future potential to create wealth.

The leather industry in India

The leather industry in India plays a vital role at various levels, such as:

  1. Employment generation: The leather industry employs more than 4 million people, most of them belonging to the weaker sections of society. Out of these, 30% are women.
  2. Forex earnings: Many products produced by the leather industry are exported to countries such as the US, Italy, China, Germany, UAE, etc. The leather industry is among the top ten precious foreign exchange earners for India. Industry exports topped $4 billion in 2020-21.
  3. Big share in global leather production: Our leather industry contributes about 13% of global leather production. India is home to 20% of the world’s cows and buffaloes and about 11% of the world’s sheep and goat population. These animal species contribute raw materials for leather products.
  4. Second-largest footwear producer: India is the world’s second-largest footwear producer and consumer. The government estimates the industry to produce around 3 billion units of footwear in 2024. The industry is expected to grow by 10% annually.

Government steps to boost the leather industry

As the leather industry provides employment to the masses and earns precious foreign exchange for the country, the government has taken various steps to boost the future of the industry. Let’s see what these are:

  • The government has notified the Indian Footwear and Leather Development Program (IFLDP). Under the scheme, Rs 1700 crore will be spent till 31 March 2026.
  • The government has allowed 100% Foreign Direct Investment (FDI) under the automatic route.
  • During Union Budget 2022, the government announced duty exemptions to boost domestic manufacturing in the leather sector.
  • The government has implemented Mega Leather Clusters (MLCs).
  • Various state governments, such as Tamil Nadu, Bihar, etc., have come up with specific state-level policies for the promotion of the leather industry.

Based on the above governmental steps, the leather industry can accelerate growth.

Which are the top leather companies?

Now that we have understood the importance of the leather industry and the government’s steps for its promotion, let us look at the companies operating in this industry.

List of top leather companies in BSE India

List of top leather companies in BSE India

(Source: https://www.indiainfoline.com/marketstatistics/sector-performance/nse-leather-sector)

Note: The data is as of 2 November 2022. The companies have been ranked based on market capitalisation.

As seen in the above table, Relaxo Footwears is the largest leather company in India in terms of market capitalisation. Most of these are small-cap companies.

Also Read: Top 5 Small Cap Stocks Of 2022

Performance of listed leather stocks in India

Now that we have reviewed the top leather companies in India, let us look at the stock performance of a couple of these companies.

Relaxo Footwears

Relaxo Footwears is the largest leather company in India in terms of market capitalisation. It sells its footwear under brands such as Schoolmate, Bahamas, Sparx, Flite, etc., which are household names. The company’s stock price has done well in the last five years.

Chart: Relaxo Footwears five-year share performance

Relaxo Footwears five-year share performance

(Source: https://ticker.finology.in/company/RELAXO)

The above chart shows the Relaxo Footwears share price has multiplied more than three times in the last five years from Rs 280 to Rs 976 as of 3 November 2022. Its share price has compounded at 27.8% in the last five years. These are very good returns.

Bata India

Bata India is yet another household name in the Indian leather industry. It sells footwear and other leather goods under various brands such as Power, Hush Puppies, Scholls, Bubblegummers, Marie Claire, etc. It is India’s oldest footwear company and has a wide distribution network of its own stores, wholesalers, and retail distributors.

Chart: Bata India's five-year share performance

Bata India's five year share performance

(Source: https://ticker.finology.in/company/BATAINDIA)

The above chart shows the Bata India share price has multiplied more than two times in the last five years, from around Rs 813 to Rs 1837 as of 3 November 2022. Its share price has compounded at 17.7% in the last five years. These are good returns, although not as high as Relaxo Footwears.

Should you invest in the top leather stocks?

While the top leather stocks have done well in the recent past, the big question is whether they will be able to maintain this outperformance. Let us look at some of the factors that are in favour of the leather industry’s growth and leather stocks.

Also Read: How To Invest In Stocks Like A Pro

1) Overall market growth

As per a Motilal Oswal September 2022 report, the Indian footwear market was worth Rs 920-950 billion in FY 2022. The market is projected to grow to Rs 1380-1450 billion. So, the FY 2022-25 growth is expected to be in the 15%-17% CAGR range. It will benefit all leather companies, including the listed players.

2) The shift from unorganised players to organised players

In the above section, we saw how the overall footwear market is expected to grow. Within this, the share of organised players is expected to grow at a faster pace than unorganised players. It will immensely benefit the listed leather companies.

Chart: Growth in the share of organised players vs unorganised players

Growth in the share of organised players vs unorganised players

(Source: https://www.motilaloswal.com/site/rreports/637991771461805521.pdf)

The above chart shows the share of organised players was 23% in FY 2015. It is projected to grow to 36%-40% by FY 2025.

3) Per capita consumption

The per capita annual footwear consumption in India was 1.9 pairs in 2019. The global average was 3.2 pairs. So, Indians have the scope to increase their annual consumption compared to the global average and peers.

Chart: Global per capita footwear consumption

Global per capita footwear consumption

(Source: https://www.motilaloswal.com/site/rreports/637991771461805521.pdf)

By 2025, India's per capita annual footwear consumption is projected to climb to 2-2.1 pairs. The trend will benefit all leather companies, including the listed companies.

4) Exports

We saw that India has access to abundant raw material (20% of the world’s cattle). With its low-cost manufacturing advantage, India has tremendous scope to expand its leather exports. In October 2022, while addressing a leather fair, Commerce and Industry Minister Piyush Goyal said that India can increase its footwear production and export tenfold. The export increase will tremendously benefit all leather companies, including the listed companies.

High valuation can be a concern

In the earlier section, we saw the factors favouring overall leather industry growth and listed leather stocks. However, the shares of most listed leather companies trade at a premium valuation. The PE for Relaxo Footwears is 120, while Bata India’s is 81 as of 3 November 2022. So, you should be mindful of the high valuations when investing in leather stocks. You may invest in a staggered manner and stay invested for the long term to benefit from the power of compounding.

Also Read: India's Five Most Expensive Stocks: You May Be Surprised

Conclusion

While leather stocks have created wealth for investors in the past, there are multiple triggers in place for the growth to continue. You should be cautious about the high valuations of listed leather stocks and invest in a staggered manner. As the famous saying goes: ‘Good shoes will take you to good places’. Similarly, good shoe stocks bought at the right price and held for the long term will take your investment portfolio to the next level!

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.

Leather plays an important role in our life. Apart from shoes, other leather products, such as wallets, belts, jackets, etc., are also extremely popular. Have you ever wondered about the companies that make these leather products? What if you could invest in them and participate in their wealth creation journey?

In this article, we will explore the leather industry in India, its future growth potential, the top leather companies in India, and their future potential to create wealth.

The leather industry in India

The leather industry in India plays a vital role at various levels, such as:

  1. Employment generation: The leather industry employs more than 4 million people, most of them belonging to the weaker sections of society. Out of these, 30% are women.
  2. Forex earnings: Many products produced by the leather industry are exported to countries such as the US, Italy, China, Germany, UAE, etc. The leather industry is among the top ten precious foreign exchange earners for India. Industry exports topped $4 billion in 2020-21.
  3. Big share in global leather production: Our leather industry contributes about 13% of global leather production. India is home to 20% of the world’s cows and buffaloes and about 11% of the world’s sheep and goat population. These animal species contribute raw materials for leather products.
  4. Second-largest footwear producer: India is the world’s second-largest footwear producer and consumer. The government estimates the industry to produce around 3 billion units of footwear in 2024. The industry is expected to grow by 10% annually.

Government steps to boost the leather industry

As the leather industry provides employment to the masses and earns precious foreign exchange for the country, the government has taken various steps to boost the future of the industry. Let’s see what these are:

  • The government has notified the Indian Footwear and Leather Development Program (IFLDP). Under the scheme, Rs 1700 crore will be spent till 31 March 2026.
  • The government has allowed 100% Foreign Direct Investment (FDI) under the automatic route.
  • During Union Budget 2022, the government announced duty exemptions to boost domestic manufacturing in the leather sector.
  • The government has implemented Mega Leather Clusters (MLCs).
  • Various state governments, such as Tamil Nadu, Bihar, etc., have come up with specific state-level policies for the promotion of the leather industry.

Based on the above governmental steps, the leather industry can accelerate growth.

Which are the top leather companies?

Now that we have understood the importance of the leather industry and the government’s steps for its promotion, let us look at the companies operating in this industry.

List of top leather companies in BSE India

List of top leather companies in BSE India

(Source: https://www.indiainfoline.com/marketstatistics/sector-performance/nse-leather-sector)

Note: The data is as of 2 November 2022. The companies have been ranked based on market capitalisation.

As seen in the above table, Relaxo Footwears is the largest leather company in India in terms of market capitalisation. Most of these are small-cap companies.

Also Read: Top 5 Small Cap Stocks Of 2022

Performance of listed leather stocks in India

Now that we have reviewed the top leather companies in India, let us look at the stock performance of a couple of these companies.

Relaxo Footwears

Relaxo Footwears is the largest leather company in India in terms of market capitalisation. It sells its footwear under brands such as Schoolmate, Bahamas, Sparx, Flite, etc., which are household names. The company’s stock price has done well in the last five years.

Chart: Relaxo Footwears five-year share performance

Relaxo Footwears five-year share performance

(Source: https://ticker.finology.in/company/RELAXO)

The above chart shows the Relaxo Footwears share price has multiplied more than three times in the last five years from Rs 280 to Rs 976 as of 3 November 2022. Its share price has compounded at 27.8% in the last five years. These are very good returns.

Bata India

Bata India is yet another household name in the Indian leather industry. It sells footwear and other leather goods under various brands such as Power, Hush Puppies, Scholls, Bubblegummers, Marie Claire, etc. It is India’s oldest footwear company and has a wide distribution network of its own stores, wholesalers, and retail distributors.

Chart: Bata India's five-year share performance

Bata India's five year share performance

(Source: https://ticker.finology.in/company/BATAINDIA)

The above chart shows the Bata India share price has multiplied more than two times in the last five years, from around Rs 813 to Rs 1837 as of 3 November 2022. Its share price has compounded at 17.7% in the last five years. These are good returns, although not as high as Relaxo Footwears.

Should you invest in the top leather stocks?

While the top leather stocks have done well in the recent past, the big question is whether they will be able to maintain this outperformance. Let us look at some of the factors that are in favour of the leather industry’s growth and leather stocks.

Also Read: How To Invest In Stocks Like A Pro

1) Overall market growth

As per a Motilal Oswal September 2022 report, the Indian footwear market was worth Rs 920-950 billion in FY 2022. The market is projected to grow to Rs 1380-1450 billion. So, the FY 2022-25 growth is expected to be in the 15%-17% CAGR range. It will benefit all leather companies, including the listed players.

2) The shift from unorganised players to organised players

In the above section, we saw how the overall footwear market is expected to grow. Within this, the share of organised players is expected to grow at a faster pace than unorganised players. It will immensely benefit the listed leather companies.

Chart: Growth in the share of organised players vs unorganised players

Growth in the share of organised players vs unorganised players

(Source: https://www.motilaloswal.com/site/rreports/637991771461805521.pdf)

The above chart shows the share of organised players was 23% in FY 2015. It is projected to grow to 36%-40% by FY 2025.

3) Per capita consumption

The per capita annual footwear consumption in India was 1.9 pairs in 2019. The global average was 3.2 pairs. So, Indians have the scope to increase their annual consumption compared to the global average and peers.

Chart: Global per capita footwear consumption

Global per capita footwear consumption

(Source: https://www.motilaloswal.com/site/rreports/637991771461805521.pdf)

By 2025, India's per capita annual footwear consumption is projected to climb to 2-2.1 pairs. The trend will benefit all leather companies, including the listed companies.

4) Exports

We saw that India has access to abundant raw material (20% of the world’s cattle). With its low-cost manufacturing advantage, India has tremendous scope to expand its leather exports. In October 2022, while addressing a leather fair, Commerce and Industry Minister Piyush Goyal said that India can increase its footwear production and export tenfold. The export increase will tremendously benefit all leather companies, including the listed companies.

High valuation can be a concern

In the earlier section, we saw the factors favouring overall leather industry growth and listed leather stocks. However, the shares of most listed leather companies trade at a premium valuation. The PE for Relaxo Footwears is 120, while Bata India’s is 81 as of 3 November 2022. So, you should be mindful of the high valuations when investing in leather stocks. You may invest in a staggered manner and stay invested for the long term to benefit from the power of compounding.

Also Read: India's Five Most Expensive Stocks: You May Be Surprised

Conclusion

While leather stocks have created wealth for investors in the past, there are multiple triggers in place for the growth to continue. You should be cautious about the high valuations of listed leather stocks and invest in a staggered manner. As the famous saying goes: ‘Good shoes will take you to good places’. Similarly, good shoe stocks bought at the right price and held for the long term will take your investment portfolio to the next level!

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.

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