AKI India Ltd Management Discussions.

Industry structure and Developments

The footwear sector is a very significant segment of the leather industry in India; rather it is the engine of growth for the entire Indian leather industry. India is the second largest global producer of footwear after China, accounting for 13% of global footwear production of 16 billion pairs.. India produces approximate 2,000 Million pairs annually in different categories of Footwear. India exports about 115 million pairs.

Thus, nearly 95% of its production goes to meet its own domestic demand. The major production centers in India are Chennai, Ranipet, Ambur in Tamil Nadu, Mumbai in Maharastra, Kanpur and Agra in U.P., Jalandhar in Punjab, Delhi, Karnal, Ludhiana, Sonepat, Faridabad, Pune, Kolkata, Calicut and Ernakulam. About 1.10 million workforce are engaged in the footwear manufacturing industry.

Footwear exported from India are Dress Shoes, Casuals, Moccasins, Sport Shoes, Horrachies, Sandals, Ballerinas, Boots, Sandals and Chappals made of rubber, plastic, P.V.C. and other materials.

The Footwear sector is now de-licensed and de-reserved, paving the way for expansion of capacities on modern lines with state-of-the-art machinery. To further assist this process, the Government has permitted 100% Foreign Direct Investment through the automatic route for the footwear sector.

Conducive Investment climate towards attracting overseas investments and increasing cost competitiveness. The Government of India is setting up dedicated Footwear Complex and Footwear Components Part where footwear clusters are located.

The challenge for Indian Footwear Industry is large but anticipating India to become amongst top 5 Superpowers in 2030, our consumption rates can reach as high as 7-8 Pairs. In such a scenario, India would need to produce anywhere between 8-10 billion pairs consider yearly population growth.

Consolidating mid-term status by 2020, the potential target for Indian Footwear Industry will equalize consumption pattern of 3-4 pairs. With six/seven years to go. Our Country need to scale our production from current level of 2 billion pairs to nearly 5 billion pairs at a CAGR rate of 30-40%.

(Source:-https://retaiI.economictimes.indiatimes.com/re-tales/indian-footwear-industry-a perspective/81]

Footwear - Global Scenario and Indias share

The global import of Footwear (both made of leather as well as non-leather] increased from US$ 124.43 billion in 2013 to US$ 134.943 billion in 2017, growing at a CAGR of 2.1%. During 2017, the Indias share in the global import is 2%. (Source:- http://indiatradefair.com/]

Footwear is the engine of growth of the leather industry in India. Indias export of Footwear touched US$ 1933.13 million in 2016-17, accounting for a share of 45 % in Indias total export from the leather sector of US$ 5739.93 Mn.

- Indias export of leather footwear had increased from US$ 2018.18 million in 2012-13 to US$ 1933.13 million in 2016-17.

- Indias export of footwear components had increased from US$ 320 million in 2012- 13 to US$ 335.24 million in 2016-17

- Indias export of non-leather footwear has increased from US$ 202.06 million in 2012- 13 to US$ 296.68 million in 2016-17

(Source:- India trade fair Report-2019]

However, As per officially notified DGCI&S monthly export data, the export of Leather and Leather products for the period April 2019-March 2020 touched US $ 5070.55 Mn as against the performance of US $ 5691.09 Mn in April 2018-March 2019, recording a decline of 10.90%. In rupee terms, the export touched INR 359503.25 Mn in April 2019-March 2020 as against INR 397937.38 Mn in April 2019-March 2019, registering a decline of 9.66%.

ANALYSIS - EXPORT PERFORMANCE OF LEATHER AND LEATHER PRODUCTS DURING APRIL 2019-MARCH 2020 VIS-A-VIS APRIL 2018-MARCH 2019

Value in Million Rs)

PAN INDIA STATISTICS

AKI INDIA STATISTICS

CATEGORY APR - MAR APR - MAR % VARIATION APR- MAR APR- MAR % VARIATION
2018-2019 2019-2020 2018- 2019 2019- 2020
FINISHED LEATHER 50467.42 37162.18 -26.36% 182.29 184.17 1.03
LEATHER FOOTWEAR 153518.24 147588.94 -3.86% 21 27.16 29.33
FOOTWEAR COMPONENTS 22312.11 18552.74 -16.85% 5.72 3.30 -42.31
LEATHER GARMENTS 32754.15 30424.03 -7.11%
LEATHER GOODS 100288.57 95046.31 -5.23%
SADDLERY AND HARNESS 11141.9 10737.1 -3.63% 25.2 25.31 0.44
NON-LEATHER FOOTWEAR 27455 19991.95 -27.18%
TOTAL 397937.39 359503.25 -9.66% 234.21 239.94 2.45
Source: DGCI &S

As per records of DGCI&S, Indias export of Leather and Leather Products for the period April - March 19 - 20 touched US $ 5070.55 Mn as against the performance of US $ 5691.09 Mn in the corresponding period of last year, recording a decline of 10.90%.

Export of different categories of Footwear holds a major share of about 51.77% in Indias total leather & leather product exports with an export value of US $ 2625.29 Mn. This is followed by Leather Goods & Accessories with a share of 26.44%, Finished Leather 10.34%, Leather Garments 8.46% and Saddlery & Harness 2.99%.

Opportunities

The Indian footwear and leather industry is export-oriented and the government is taking initiatives to increase the leather and footwear export The government has also announced INR 26,000 million (USD 364 million] incentive package for the leather and footwear industry. This will help players operating in the organized sector better deal with pricing pressure, along with employing 300,000 people. Under the National Skill Certification & Monetary Reward Scheme, around 60,358 youth have been trained for various jobs in the leather and footwear industry since July 2015. Beside this, due to Corona crisis industry is hopeful to reduce its labour cost. Now these days, Indian government take initiative to promote make in India programme, which become very helpful for Indian leather industry.

Threats

Nearly 85% of the Indian footwear industry comprises of unorganized players. These players sell their products at unimaginably low prices and have benefits such as lower sales tax, lower overhead cost, lower labor cost and absence of research and development (R&D) expenses. This will intensify competition as organized players will pass the price benefits to the consumers, while unorganized players try to enter the organized space. Beside this, Chinese goods and non-leather footwear products is a potential threat to our business and Company is working forward thwarting the said threat

Impact of COVI-19 on Company

The operations of the Company was shut down as per the lockdown directives of Government, which may affect the upcoming financial results for financial year 2020-21, and will have an impact on the Financials for the year 2020-21. There is lots of wastage of Materials which were work in progress. Due to which The Company has not mitigated the export targets and many orders still on reconfirmation from buyers. Foreign buyers is avoiding to reconfirming the previous orders, as the company still unable to fulfill their previous orders.

On the other hand, the Raw material was not available at local level, during pandemic supplier chain has affected and prices of Raw Materials expected to increase.

Segment-Wise Performance

The Companys business segments is contains chemical, footwear, saddler & Leather Division. During the year under review, revenue from the various division are as follows:

SEGMENT 2019-20 2018-19
CHEMICAL 457.66 423.75
FOOTWEAR 322.87 286.91
SADDLERY 299.57 304.65
LEATHER 3214.41 2960.3

Details of significant changes in key financial ratios along with explanation

In compliance with the requirement of the Listing Regulations, the key financial ratios of the Company along with explanation for significant changes (i.e., for change of 25% or more as compared to the immediately previous financial year will be termed as ‘significant changes). Accordingly, the Company has no Significant changes during the year.

Outlook

From the reports available in public domain, it is believed that the global economic recovery is in its way. It is only hoped that the growth momentum gathers, steam soon and fast Indian Footwear industry is generally competitive and considering the positive business conditions developing, outlook for Footwear appears to be good. The Company is actively engaged in taking appropriate steps to grab these opportunities in order to improve its market share.

Risks and Concerns

The Chinese Products, Non-Leather goods. Counterfeit products and technology obsolescence are the risk factors of footwear industry. Besides that, the Government policies and volatile economic environment have a bearing on the overall performance of the company. Continuous Quality Improvement as well as maintaining a balance between the quality and price of products is the need of hour as there are different demand pattern all over the world

Internal Control Systems and their Adequacy

The Companys internal control systems are commensurate with the nature and size of its business. These systems ensure that all assets of the Company are safeguarded and protected against any loss or damage and that all transactions are properly authorized, recorded and accounted for..

Material Developments in Human Resources/ Industrial Relations Front, Including Number of People Employed

It is the Companys firm belief that its people constitute the primary source of its sustainable competitive advantage. For success in the footwear market, skills and workmanship are important to create superior products with excellent finish and to accomplish the same. Company regularly strives to train and equip its employees as per the Industry demand.

Cautionary Statement

Statement in this Management Discussion and Analysis describing the Companys objective, projects, estimates and expectations may be forward-looking statement within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. Several factors could make a significant difference to the Companys operations. These include economic conditions, government regulations and tax laws, political situation, natural calamities, among others, over which the Company does not have any direct control.