Safari Industries Rs 2550
One of the most secular trends in an economy like India is consumerism. While there may be ebbs and flows in this cycle but the long-term trend is undeniably up. Data shows that after the per capita income of a country crosses $2500 pa (which India has crossed recently), there is a boom in discretionary consumption. No wonder consumer stocks have been amongst the biggest wealth generators in the stock market. It is in this context that Safari Industries, a luggage maker is discussed hereunder.
At the outset, it would be useful to go through the main features of the luggage industry: –
- Rising disposable incomes are mother’s milk for all consumer items including luggage – While at present, there is some slowdown in consumer spending, this is a cyclical phase, the structural long-term trend is firmly upwards.
- Marriage gifting is one of the main sources of revenues for the luggage industry – This revenue source remains largely intact even in times of slowdown since Indians rarely skimp on marriage expenses.
- Travel and Tourism also contribute strongly to sales – Leisure travel is now strongly gaining traction which augurs well for demand.
- Earlier luggage was once in a decade purchase (like pressure cookers) – Now the replacement timelines have become shorter which is giving a fillip to sales.
- Higher crude and dollar prices impact input costs/margins – Crude has remained in a range despite geopolitical disturbances which is positive for margins.
- High unorganized market share – At the end of CY 2023, 43% of the luggage market in India was in the hands of unorganized players which is positive for continued market share gains by the organized sector.
- Luggage occupies space – For a long time, physical stores were the only point of contact with the customer and due to limitation of space, established players had a monopoly. But now E-Commerce channels have democratized the opportunity. Newcomer D2C consumer brands like Nasher Miles and Mokobara have been growing strongly in the past few years. Many more brands could follow.
- There are three main players in the organized sector – VIP leads the pack with 42% share, down from 48% in FY15. Samsonite (unlisted) had 34% share, again down from 41% in FY15. Safari has been an outlier with 23% market share, up from 10% in FY15.
Safari is making rapid market share gains at the expense of the VIP (and Samsonite, data not available being unlisted) as can be seen below: –
At the end of FY24, Safari’s 10, 5, 3 and 1 year sales growth has been 25%, 22%, 68% and 28% respectively. Its profit before tax have similarly outpaced at 72%, 41%, Loss to Profit and 39% respectively. On the other hand, industry leader VIP has been losing market share with its 10, 5, 3, 1 year sales growth being 9%, 5%, 54%, 8%. Its profit before tax has been falling at -1%, -19%, Loss to Profit, -61% respectively.
What makes Safari very interesting is that VIP still has 42% market share and if Safari can keep nibbling at it, its revenues could continue growing at rates higher than the industry rates of 15%. InFY24, Safari saw strong growth with revenues up 28%, Ebitda up 41%, PAT up 41%, EPS up 41%. Q1FY25 was weak due to general elections and slowdown in demand with revenues up 7% only, Ebitda down 11%, PAT down 12%. Safari’s current capacity is 6.5 lac pcs per month. It is doubling it with 215 cr capex in Rajasthan which will increase topline and improve margins. The plant is expected to begin commercial operations in CY 2024.
At FY24 EPS of Rs 36, Safari is trading at very high PE of 71. This can only be justified if it is able to grow at industry beating rates of more than 15% for the next several years as it has done in the past. Doubling of capacity would aid its growth. Proactive action from VIP to protect its market share, competition from upstarts in D2C online space and increase in input costs are the key risks. Aggressive investors can consider Safari but with cognizance of the risks involved.