OVERVIEW
I) INDUSTRY STRUCTURE AND DEVELOPMENTS
Indian footwear industry holds a crucial place in the Indian economy for its potential
for employment, especially for weaker sections of the society and for supporting economy
through its foreign exchange earnings. This sector has been showing good growth in the
past few years due to ready availability of raw materials and manpower. India is the
second largest global producer of footwear after China. Indias annual footwear
consumption is the third largest globally after China and USA and has recorded a healthy
growth over the past decade driven by rise in income levels, higher disposable income,
growing fashion consciousness and increasing discretionary spending. The same has also led
to a change in perception of the footwear industry from a basic need based industry to a
fashion style industry. However, the average per capita footwear consumption in India
continues to be low in comparison to the global average consumption and developed
countries average. This gap coupled with increasing disposable income, rising middle class
and changing consumer preferences provide a tremendous opportunity for the Indian footwear
market to grow at a rapid pace going forward.
The Indian footwear industry is highly fragmented with almost 15000 small and medium
enterprises operating largely in the unorganized segment; and limited presence of
organized segment. The competitive intensity is high between the two segments and
currently, both are estimated to have an equal share of the overall domestic market in
value terms. Though, unorganized segment dominates the market in sales volumes due to its
presence majorly in the low cost rubber / plastic footwear. Unorganized sector gains its
prominence in the Indian context due to its price - competitive products which are more
suitable and attractive to the price conscious Indian consumer. Their products are cheaper
due to involvement of cheap household
labour, lax implementation of tax & labour laws and limited investment in assets.
Further, with almost 2/3rd of Indias population covered under the food
security bill which aims to provide daily nutrition needs to an individual at subsidized
prices, such category of population presents a huge market for the unorganized sector to
cater to. Nevertheless, with increasing brand consciousness amongst Indian consumers,
influx of large number of global brands and increasing penetration in Tier - II and III
cities by the organized footwear companies, organized players market share has made
significant gains in the recent past and it continues to be on an uptrend. The Footwear
Industry further underwent a dramatic structural shift in the past year with the
implementation of the new GST tax structure. The GST regime has expedited the shift from
unorganized to the organized sector, and many unorganized players are being forced to
either close down, or accept the shift into organized trade. Your Company, being a part of
the organized sector, stands to benefit from this trend in the long term, even though
there is short term pain due to the changes in business environment.
The Company is manufacturing cemented sports shoes and sandals, in addition to
lifestyle products such as Flip Flops. The Indian Sports footwear business is dominated by
MNC companies such as Puma, Adidas, Nike and Reebok at the higher end of the market,
whereas the lower end of the market is dominated primarily by Local Brands. Till late
1980s, this industry was dominated by South Korea and Taiwan. Busan, a port town on the
southern tip of South Korea was the manufacturing hub. There were companies in Korea with
manufacturing capacity in excess of 60 million pairs, and sales turnover between USD 150
to 600 million. The exodus of this industry from South Korea started in early 90s, due to
increase in manufacturing costs, specifically, labor costs. The major beneficiary was
China initially. The virtual monopoly of China led to increases in costs and compelled the
leading international sports footwear companies to develop alternative sources. This led
to the development of Vietnam, Indonesia, Thailand and subsequently, Bangladesh and India.
The sports footwear manufacturing business in India started with the import of Completely
Knocked Down kits from China, Vietnam and Indonesia, which were being assembled locally.
However, in the past few years, with the increasing costs in all other countries, there is
a focus on moving towards integrated manufacturing facilities which can serve the domestic
requirements of these international brands. The past few years have seen an increasing
number of international brands entering the Indian market to sell their products, and
these brands are increasingly looking to source a larger part of their requirements from
Indian manufacturers. Hence the opportunities for business are increasing steadily, apart
from the natural shift into higher value products and newer technologies.
II) OPPORTUNITIES AND THREATS
As eyed in the 19th UTIC International Technical Footwear Congress, India is
on the threshold of a great leap forward with respect to its economic growth with major
path breaking initiatives taken by our dynamic Prime Minister like "Make in
India" as well as "Skill India" programmes, and more recently
"Atmanirbhar Bharat". The "Leather, Leather products and Footwear"
sectors have been identified as one of the sectors for intervention under Make in India
programme which would further provide huge momentum for growth of footwear sector in
India.
The domestic footwear market has been largely concentrated in the unorganized /
unbranded segment. However, the pace of reforms in India has accelerated the pace of
reforms, including implementation of GST. This is widely expected to benefit the organized
sector by creating a unified marketplace. There is also a change in customer expectations
with the Indian consumer becoming more and more quality and brand conscious. The per
capita consumption of footwear in India is expected to increase show good growth in the
coming years, and organized segment should benefit from this. This rise in demand and move
towards quality products is expected to benefit the company in the coming years.
The Company continues to invest in Research and Development to be in a position to
further substitute higher value imported footwear with its own manufacturing. The greatest
opportunity continues to be the growing Indian footwear market where the demand for
Branded footwear is rising rapidly. This demand is further increased by the potential for
greater import substitution of expensive imported product with indigenously manufactured
products. Furthermore, international sports brands are continuing to make an entry into
the Indian market to sell their products, and the Company is working towards establishing
relationships with new brands to increase its business prospects. There is a growing
opportunity for the overseas footwear manufacturers to tap the increasing potential in
India for sale of footwear. Thus, the Company is also witnessing interest from foreign
buyers and is exploring opportunities for exports which will give further boost to these
sales. Since the onset of COVID-19, an increasing number of consumers prefer to buy their
merchandise through online channels. With a view of capitalizing on this shift, the
company is planning to launch its own line of products exclusive sold through online
channels.
The threats are mainly from competition in the domestic industry and also that a
slowdown in the economy can lead to reduction in demand for its products. The nationwide
lockdown imposed by the Honourable Prime Minister has led to a reduction in demand for the
past few months, but we are optimistic that the demand position will improve only the
situation become normal. The strength of India in the leather footwear sector originates
from its large reserves of bovine population, strong network of tanneries, skilled and low
cost of manpower, and a well-established presence in export markets. However, India has
been unable to optimally utilize resources evident from the low recovery rate of the
livestock, use of outdated technology by most tanneries and footwear manufacturers, weak
footwear components industry and limited presence of large scale manufacturing units.
These factors along with steep cost of doing business in India and high inflationary
trends since the past few years have reduced Indias cost competitive advantage against
the other low cost footwear producing countries like China, Vietnam, Myanmar, Indonesia,
etc. Further, revival of production in Italy, Portugal and establishment of new production
centres in east Europe have further pose a challenge for Indian footwear industry.
Scarcity of skilled labour can be an area of concern for the footwear industry. Your
company is focusing on talent management and training of manpower to meet with its
requirements.
The liquidity shortage currently being faced by your company is a threat to the overall
performance. The Company stands to lose out on profitable orders or may be unable to
execute the orders in a timely manner due to shortage of funds. This can have a negative
effect on future prospects as well as current functioning of the organisation. The
management recognizes this threat and is working on remedial measures to combat this
situation. The management remains confident and positive towards finding a suitable
solution to this threat.
III) SEGMENT-WISE OR PRODUCT- WISE PERFORMANCE
Presently, the company has one product namely - Footwears. The performance of the
company is discussed separately in this report.
IV) OUTLOOK
The outlook for the company remains cautiously positive. The company performance was
severely affected in the first half of FY 20-21 due to the effects of lockdown, and the
position is improving slowly but steadily. The present order book position of the company
is satisfactory and management remains confident in its ability to improve progressively.
The Company is continuing its efforts to broaden the customer base and increase its
product range.
V) RISKS AND CONCERNS
Macro-economic factors such as a downturn in the economy, structural and procedural
problems associated with moving to new tax structure (GST), unforeseen political events,
natural calamities, below average monsoon can affect the business of Your company as also
industry in general. Further, the profitability of footwear players has also been affected
due to adverse foreign currency movements, under absorption of fixed expenses and increase
in raw material prices which could not be entirely passed on to the clients.
However, the company has not been significantly impacted by the forex fluctuations
since the exports do not form a noteworthy part of the companys sales. Further, the
company has proper monitoring mechanism and proactive actions against anticipated
hindrances in place and the same are reviewed from time to time.
A worsening of the ongoing health pandemic could affect the operations as well as
demand for the Companys products adversely. The Company has put various measures in place
at its production facilities to ensure workers safety and control the spread of infection.
VI) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The company has established control system to ensure that-
• Assets are adequately protected
• Transactions are authorized, recorded and reported correctly
• Operations are conducted in an efficient and cost effective manner complying
with the applicable laws
A qualified independent audit committee of the board of directors also reviews the
internal audit and adequacy of internal controls.
VII) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
The gross turnover during 2020-21 decreased from 16.83 Cr. in 2019-20 to 7.44 Cr. The
company during the year sold 0.19 million pairs as against 0.43 million pairs of footwear
during last year. The production during the financial year was 0.19 million pairs of
footwear as against 0.43 million pairs during previous year.
The duty drawback not received during the year was 0.00 lacs consistent with the
previous year figures. Further, rigorous monitoring of operating overhead remained under
control.
Profit/(Loss) before depreciation, interest and taxation during the financial year
increased from (330.22) lacs to 240.18 lacs. The depreciation for the year was 188.03 lacs
as against 213.99 lacs during last year. The financial expenses during the year 2020-21
have increased from 208.71 lacs to 327.9 lacs.
The loss before tax during the year is 275.79 lacs as against a loss 658.70 lacs in the
previous year.
The Earning per share (EPS) during the year was (1.36) as compared to (3.38) for last
year. The diluted EPS of (1.36) was arrived at by conversion of the weighted average no.
of shares that may be issued on conversion or convertible warrants on account of
requirements of the accounting standards.
The company has posted a net loss of 267 lacs during the year as against net loss of
664 lacs during last year.
VIII) MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING
NUMBER OF PEOPLE EMPLOYED
The employees of S R Industries Ltd are the backbone and this resource is very
efficiently utilized. The company nurtures its employees through greater knowledge,
opportunity, responsibility, accountability, innovation and discipline. The company is
dexterous in motivating its employees to stretch out the hand of effort and hard work
towards attainment of its objectives. All the policies concerning the employees are made
keeping in view the fact that manpower is the most precious resource for the company.
As on 31st March, 2021, the company employed 71 employees.
The relationship between the employees and the management continued to remain cordial
during the year under review.
IX) SAFE HARBOUR
Statement in this Management Discussion and Analysis report describing Companys
objectives, estimates, projections and expectations may be treated as "forward
looking statements" within the meaning of applicable laws and regulations. Actual
results might differ from those materially expressed or implied therein.
X) SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS
| Particulars |
FY 2020-21 |
FY 2019-20 |
YoY Change |
| Debtors Turnover (times) |
1.31 |
2.99 |
|
| Inventory Turnover (times) |
2.39 |
4.89 |
|
| Interest Coverage Ratio (times) |
.732 |
-1.58 |
|
| Current Ratio |
.19 |
.18 |
|
| Debt Equity Ratio |
1.61 |
1.63 |
|
| Operating Profit Margin (%) |
7 % |
-.45 % |
|
| Net Profit Margin (%) |
-37 % |
-.39 % |
|
Explanation: The inventory turnover ratio has changed from 4.89 to 2.39 in the current
year. The decline is primarily on account of lower sales made in current year, operations
of the company was affected by covid lockdown and consequently demand for rest of year
remains also low. Interest coverage ratio has improved on account of better profitability.
Operating profit margin and net profit margins have improved due to cost cutting measures
taken by the company.
XI CHANGE IN RETURN ON NET WORTH
| Particulars |
FY 2020-21 |
FY 2019-20 |
YoY Change |
| Return on Net Worth % |
-8.84 |
0.82 |
|
Explanation: Return on Net Worth has eroded due to the losses being faced by the
company.
Disclosures of transactions of the listed entity with any person or entity belonging to
the promoter/promoter group which hold(s) 10% or more shareholding in the listed entity,
in the format prescribed in the relevant accounting standards for annual results. :NA
+91-9892691696
