This rating methodology outlines ICRA’s approach to assessing the credit quality of entities within the footwear industry, and supersedes ICRA’s earlier methodology note on the arena, revealed in the month of December 2016. While this Word of God incorporates many modifications, ICRA’s overall approach towards rating entities within the sector remains materially similar. Industrial Land For Footwear Industry Gurgaon
This rating methodology aims to assist entities, investors and different interested market participants perceive ICRA’s approach to analyzing quantitative and qualitative risk characteristics that square measure seemingly to have an effect on ratings of entities within the footwear sector. This system doesn’t embody a thoroughgoing treatment of all the factors that square measure mirrored in ratings however permits the reader to grasp the rating concerns that square measure sometimes the most vital. Industrial Land For Footwear Industry Gurgaon
The Indian footwear trade is very fragmented with virtually 15,000 small and medium enterprises operating mostly within the unorganized phase and with the restricted presence of the unionized phase. The Indian footwear trade holds an important place within the Indian economy for its potential for employment, particularly for the economically weaker sections, and for exchange earnings. India is that the second-largest producer of footwear globally, accounting for 9/11 of the worldwide annual production. The country annually produces ~2.2 billion pairs, of that ~90% square measure consumed internally whereas the remaining square measure exported, primarily to the European nations. India’s annual footwear consumption of ~2.0 billion combines is that the third largest globally when China and therefore the USA and has recorded healthy growth over the last decade driven by the increase in financial gain levels, growing fashion consciousness and increasing discretionary disbursement. Despite simply ~10% share of exports in India’s total production volumes, the share of exports is nearly one third in worth terms thanks to higher average price (ASP) for exported footwear (mainly animal skin footwear) compared to the ASP for footwear consumed within the domestic market (mainly non-leather footwear). This rating methodology highlights the quantitative and qualitative risk factors that square measure seemingly to influence the rating outcomes for entities within the footwear trade, including, however not restricted.
Diversification – product and Geographic’s
The sales diversification will be measured in terms of:
a) Product (share of upper added product versus lower added products)
c) Geographies (share of sales in domestic versus exports markets; regional versus national presence for
Branded footwear players)
Footwear classes mostly embody rubber, plastic, textile and animal skin footwear in addition as end-user classification: men, girls and kids’ footwear. Animal skin footwear has higher worth addition than different product categories and thus, commands premium rating and better net income margins in addition. Low-cost rubber and plastic footwear have virtually 80% share in India’s consumption of ~2.1 billion pairs and thus, are manufactured in giant quantities. The businesses that manufacture footwear beneath varied product classes are able to sell additional product to existing customers and be gift across varied value points. This helps them to grow at a quicker pace than firms targeted on any single product class. Also, the impact of changes in consumption pattern especially segment(s) will be offset through the performance in a different segment(s), giving additional leverage to the corporate to sustain and improve its performance.
Export sales to a wide-ranging set of states will shield against adverse outcomes, which can arise by means of trade restrictions (such as increase in tariff obligatory by the destination country) or decline in demand in the importation country, or reduction/removal of export incentives for exports to any explicit country. Will have lower inventory necessities and commensurately lower assets intensity of operations.
The assets necessities of Indian footwear firms are mostly funded through short-run working capital borrowings from banks. For export firms, banks give pre-shipment credit within the type of packing credit limits and post-shipment credit within the style of bill discounting limits.
Foreign Currency-Related Risks
Foreign currency risks for footwear trade emanate mostly by virtue of export orders and therefore the corresponding foreign currency assets or thanks to importing of stuff and corresponding foreign currency liabilities. While assessing the exposure of AN institution to foreign currency risks, ICRA focuses on the impact of adverse movement in exchange rates on the value structures, profits and web money outflows, besides evaluating the hedging mechanisms in situ.
ICRA’s credit ratings square measure a symbolization of its opinion on the relative credit risk related to the instrument being rated. This opinion is fell upon when conducting an in-depth analysis of the issuer’s business and money risks, its competitive strengths, its seeming money flows over the lifetime of the instrument being rated and therefore the adequacy of such money flows its debt mating obligations and different funding requirements. The credit profile of footwear manufacturing/branded footwear players involves AN assessment of the business strength and weakness as mirrored by their scale of operations, operational efficiencies, diversifications in terms of product, geographies and client profile, level of integration and whole strength. ICRA’s money risk analysis for footwear firms focuses on, among different things, the trend in revenues and profit, the extent of leverage, ability to service debts, and money flexibility. Lastly, ICRA appropriately factors in varied company-specific qualitative aspects supported discussions with management, as well as the business strategy, growth plans in addition as risk craving, which can have AN impact on the issuer’s future performance. This rating methodology outlines ICRA’s approach to assessing the credit quality of entities within the footwear industry, and supersedes ICRA’s earlier methodology note on the arena, revealed in Gregorian calendar month 2016. While this Word of God incorporates many modifications, ICRA’s overall approach towards rating entities within the sector remains materially similar.
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