The Indian footwear market has been valued at Rs 960 billion as of FY20, of which, over one-third is composed of high-ASP products predominantly catered by organized/branded players growing at 1.5x the rate of overall market growth (15% CAGR over FY15-20) ).

The market is witnessing a unique transformation over the last few years. India’s young populace with high aspiration and an improved fashion quotient is driving demand, especially for casual, athleisure, sneakers, and women’s footwear, et al., as many brands have made deeper inroads in this space through the EBO channel given the huge growth potential .

Nearly one-third of the market is composed of premium high-ASP products, where investment in their retail network is the key.

The resulting heavy investment makes it critical to run a very efficient retail model, thereby creating an execution challenge and a strong entry barrier.

This is evident from a handful of (exclusive brand outlet or EBO) footwear retailers, with a revenue of over Rs 10 billion, which have a sticky customer base (METRO) and superlative store economics.

These features translate into a healthy margin, return ratios, and a long runway of growth for the companies.

The low-ASP product categories that constitute two-thirds of the market primarily operate via the distributor model.

Plagued by the unorganized players offering commoditized products, the key is to create a strong product capability, sharp pricing and deep distribution reach to incentivize customers to use better-quality branded products.

Going forward, the organized segment is expected to grow at 20-22% CAGR over FY22-25 on the back of:

a) The shift in the perception of footwear to a fashion statement from a utility product.

b) Increasing exposure to global fashion brands, higher aspiration levels, and digital penetration driving increased demand for branded footwear.

c) The emergence of value brands and improved penetration of EBOs in Tier II and smaller towns.

d) Increased share of e-retail as various modern retailers adopt an increasingly multi-channel approach to reach customers across varied age and income profiles.

Metro Brands: Buy | LTP Rs 959 | Target Rs 1,000

Metro Brands’ ability to run an efficient retail network, as witnessed by the superlative productivity of Rs 25,000/sq. ft. and store-level EBITDA margin of 25%, translated into a healthy net cash balance sheet and superlative RoIC.

The recent brand tie-ups with third-party products could provide further growth opportunities. We expect revenue/PAT CAGR of 31%/37% over FY22-25E, fueled by healthy store additions and strong recovery in SSSG.

Campus Activewear: Buy | LTP Rs 588 | Target Rs 640

Campus, with its vertically integrated manufacturing ecosystem and superior product quality, has created an edge over the Indian sportswear market, which is dominated by foreign brands.

Its effective cost management, quick time to market, and premiumization push are benefiting from the tectonic shift towards the sportswear category within the footwear market.

The company’s tenable earnings growth, strong returns profile, and self-sustainable growth model warrant rich valuation. We factor in supernormal revenue/PAT CAGR of 29%/42% over FY22-25E, respectively.

(The author is Head – Retail Research, Limited)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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