Safari Industries is in the business of manufacturing and trading of luggage and luggage accessories. Safari Industries manufactures injection moulded plastic articles and vacuum formed plastic articles, at its plants at Bombay and Halol, Gujarat. In 2012, the company was taken over by Mr Sudhir Jatia who was previously working as MD with VIP industries. Since then there has been business restructuring where lot of new products were introduced. The company largely procures quality products from China and sell it under its brand Safari.
There are two broad categories of luggage i.e hard luggage and soft luggage. Hard luggages constitute 20% of revenue are mainly made of Poly Propylene (PP) and Poly Carbonate (PC) and manufactured in-house by Safari at its plant located at Halol, Gujarat. Soft luggages are made of fabrics of various kinds and are mainly imported from China where the company has opened 2 offices for design and procurement.
The Indian luggage industry is valued at Rs.9000cr+ and is largely dominated by the unorganized sector. The top three branded players namely- VIP Industries, Samsonite and Safari forms only ~28% of the organized sector. VIP Industries is the market leader in the organized sector with over 50% market share whereas Samsonite has been losing market share which current stands at ~35% from the past level of 50%+. Backed by re infused energy from new management, Safari Industries has been grabbing market share in the last few years and currently it stands at 14-15%.
Most industry players are coming up with more youth-orientated products like lightweight and more efficient backpacks and duffel bags. Robust demand for luggage is led by the fact that most youngsters now are keen on travel and adventure, increasing demand for hands-free and hassle-free luggage. The Indian luggage industry is likely to benefit as the people have become more demanding in term of style and comfort for travel luggage.
Owing to improving economy and consumer confidence, increasing travel and product premiumization, the luggage industry has posted a 13%+ CAGR in the past decade and is expected to
maintain this momentum for next few years. With GST implementation in 2017, the new cost dynamics has further led to industry shifting towards organized players.
The company has doubled its margins from 4.1% in FY2014 to 9.1% in FY2018, driven by launch of new product categories and product premiumization. This was also led by better negotiation with Chinese suppliers due to increasing scale of Safari’s operations and relatively stable INR exchange rate and depreciation of Chinese Yuan.
Going forward the management expect Safari Industries to grow its top-line at a CAGR of ~23% over FY2019- 21E on the back of growth in its recently introduced new products and improving distribution network. Further, GST implementation will also boost the volume of branded sales.
The stock currently trades at Rs.617.95 trades at 64.98x its 62.29x its FY18 EPS. While business prospects & management credentials are looking good the valuations of the company looks stretched and prices in most of the medium term growth. We advise Accumulate rating on the stock.