The report also said that the declining demand has restricted the ability to pass on the increased cost
Mumbai: Leather apparel and accessories players are likely to witness up to 8 per cent decline in revenue in 2023-24, following slowdown in consumer demand in Europe and the US, a report said on Wednesday.
Revenue of the Indian leather apparel and accessories sector, including bags, belts and harnesses, is set to decline 7-8 per cent in fiscal 2024 because of a slowdown in global consumer demand, despite benefits from a depreciating rupee, as per the report by Crisil Ratings.
Around 85-90 per cent of the production by the USD 2.25 billion Indian leather apparel and accessories industry is exported, the report said. Europe and North America account for 75 per cent of the shipments.
In the current financial year, revenue is expected to be flattish after the robust performance last fiscal, riding on strong demand-rebound, which had taken it beyond the pre-pandemic level, the report stated.
“Demand for discretionary goods in key export markets – essentially the advanced western economies – has been shrinking because of pinching inflation and rising recession fears. Though domestic demand for the leather apparels and accessories segment remains resilient, the overall sectoral revenue is seen declining in the medium term,” Crisil Ratings Director Rahul Guha said.
The report further said declining demand has restricted the ability to pass on the increased cost.
Realisation for leather garments shrank 9 per cent year-on-year in the first half of this fiscal. However, raw material cost, especially hide and chemicals, has surged 400-500 basis points and remains sticky as hide availability has continued to be constrained over the years due to curbs on unlicensed and smaller suppliers.
The overall impact on profitability would have been bigger but was arrested due to the depreciating rupee, given that sales are export-oriented, while the majority of raw materials are procured domestically.
Therefore, operating margins are expected to fall 150 bps this fiscal and will remain range bound at 6 – 6.5 per cent over the medium term, the report noted.
