Safari gains significant market against VIP, Samsonite with e-commerce, consumer demand; what's the road ahead?

The luggage market in India is oligopolistic, particularly in the branded space. In the first nine months of FY23, VIP had a market share of 43.8%, followed by Samsonite with a share of 32% and Safari with a share of 24.1%. Branded luggage now accounts for a significant majority of the market, which previously was dominated by non-branded luggage.

Safari was incorporated in 1980 by Mehta and family. In 2012, Sudhir Jatia assumed control of the business. It produces and markets luggage under the Safari brand. The manufacturing and trading of luggage and luggage accessories is the business of Safari Industries.

Luggage can be divided into two major categories: Hard luggage and soft luggage. Hard luggage is primarily made in-house by Safari at its plant in Halol, Gujarat, using PolyPropylene (PP) and Polycarbonate (PC). Soft luggage is typically imported and made of a variety of fabrics.

Focus strategy 

Safari Industries, which has experienced the strongest growth in the value segment (clearly showing a shift from unorganized to organized), is the fastest-growing player in the luggage market.

Manufacturing

Over the past few years, the company has established its own manufacturing facility and reduced its reliance on external manufacturers, which has aided in revenue growth and margin expansion.

Market share growth

Safari has increased its market share from 4% in FY12 to 23% in FY22 over the past ten years. Currently, Safari is India's leading brand.

Near-term triggers

The company does not anticipate a slowdown in demand as a result of extended marriage, the upcoming holiday season, or the full reopening of international travel until the end of July 2023.

•The industry is predicted to grow at a 15% CAGR over the forecast period (FY22–25E), but Safari is predicted to grow at a 19% CAGR.

• The company currently operates close to 80 stores, and by the end of the next year, this number should reach close to 140.

• RMAT prices are decreasing, which should be advantageous for the company.

Earnings outlook

• From FY22 to FY25E, it plans to increase revenue by 33% CAGR.

• On the strength of a favorable mix shift towards in-house manufacturing, it is anticipated that the company's OPM will increase by nearly 839bps over the same period to 16.2%. EBITDA is anticipated to increase at a CAGR of 70% during that time.

• The company’s adjusted net profit is expected to grow at a CAGR of 97% over the same period. ROE and ROCE are expected to expand from 7.4% and 11.8% to 23.5% and 32.5%, respectively.

Key points and the business case for investment

Safari plans to add 4 retail locations each month in order to increase profitability through efficient operations.

Margins have significantly increased in FY23, driven by price increases, strong tourism growth, and lower discounts. Additionally, the company's product mix has improved, and ongoing efforts to enhance its channel mix are starting to result in a gradual improvement in margins.

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Making a move into the premium market

Safari has expanded into the high-end market with the Urban Jungle brand. Comparable brands include Samsonite and VIP Industries for high-end luggage. Safari has big goals for expanding its premium segments. Over the next two to three years, this may give its margins a further boost. By soft launching a product on a direct-to-consumer channel, Safari recently entered the premium market.

The "Urban Jungle" brand product has a trendy appearance and appealing features like a USB charging port. Safari's entry into the premium market will increase competition for established brands like Samsonite and VIP. According to Safari, increasing manufacturing capacity by 1.25 lac pieces per month will cost ₹100 million in capital expenditures.

Hard luggage (HL) revised its monthly capacity at 525,000 units

The previously mentioned HL capacity expansion plan is complete, and Safari can now produce 525,000 pieces of hard luggage each month. Increased self-manufacturing due to capacity expansion is anticipated to structurally raise GM's profile because:

1) Manufacturing profit will accrue within the company in addition to trading profit and

2) Freight cost & currency volatility will decrease due to less reliance on China.

Due to its early adoption of e-commerce and the shift in consumer demand from non-branded to branded products, Safari gained market share. Safari, which focuses primarily on the mass market and is one of the brands with the fastest domestic growth, has benefited from a weakened non-brand segment as a result of GST and pandemic-related disruptions. Additionally, a shift in consumer preferences from soft luggage to branded hard labels assisted it in further gaining market share.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related investment-related decision.