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Last Updated : Dec 19, 2019 11:49 AM IST | Source: Moneycontrol.com

'The flipping path of footwear sector; bullish on 2 stocks'

From a basic need-based industry to an indispensable part of overall fashion market, footwear industry is growing with the demand driven multipliers and less supply side organized drivers.

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Gaurav Garg

Historically, footwear has had an image of being a commodity product. However, it has transformed itself to a lifestyle product now. Shoes are contributing greatly to our day-to-day lives, whether you go to school, office, gymnasium or beaches. Footwear is a huge contributor to the image a person carries.

The Indian footwear market is likely to be driven more by the rising fashion consciousness among the young generation and growing consumers footwear preference in line with their lifestyles. The improvement in the footwear retail sector and growing e-commerce market in India are also expected to further boost the performance of India’s footwear industry in future.

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We can visualize the path for a marathon run for the footwear sector as it is expected to take more advantage of our demographic dividend and large number of middle-class households. The retail landscape is changing with brand consciousness by organized players. Market dynamism is driving towards a retail boom because of rapid urbanization, behavioral shifts, more disposable incomes, and greater media penetration.

Now, the share of organized retail is 25 percent of the market and is expected to grow at a CAGR of 18 percent and at the same time online retailing is bringing in digital brand conscious buyers. The traditional market, in light of this, should see a decline in its share from 64 percent to 58 percent. Currently 70 percent of the footwear industry is unorganized and the industry is shifting from unorganized to organized because of GST compliance and rise in aspirational consumption.

Brands are also launching dedicated product ranges for online channels so as to differentiate from offline channels and are extensively using data analytics to grow the business. Moreover, the growth in this market is further pushed by gradual rise of fashion and lifestyle market in India. From a basic need-based industry to an indispensable part of overall fashion market, footwear industry is growing with the demand driven multipliers and less supply side organized drivers.

These factors convert to a bullish sentiment for market majors like Bata and Relaxo in the long term.

Relaxing with Relaxo Footwears: Relaxo's revenue is currently about Rs 2,300 crore i.e., less than 6 percent of the market size of Rs 40,000 crore. With the right product mix and strong supply chain network, Relaxo is minting its path for mass rural consumption. If we have a look towards its financial facts, its return on capital employed (ROCE) is significantly higher than the cost of capital (COE) and it has been this way for several decades now. Its growing reinvestment strategy to cater the depth and breadth of market should bring down its costs from taxation point of view. Substantial revenues and the reinvestment strategies are more than enough for investors to stay invested in Relaxo with a long-term view.

Being Bullish on Bata India: Bata being one of the oldest players in India’s footwear segment has successfully navigated through various business & economic cycles over the years. The competition is getting tougher, but still the company has retained its pole position and currently commands 14-15 percent share of the overall organized footwear market. Focus categories like women and kids are catching higher proportions in their sales volume, which is a good sign of growth for Bata. The beta factor for Bata is that it is a zero-debt company, which is why it is an attractive portfolio stock for investors.

(The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.)

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Dec 19, 2019 11:49 am
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