Emerging Opportunities in the Indian Luggage Industry

Published by Sharekhan Education | January 8, 2024

By Amit Pathak | Sharekhan Education

Introduction

Luggage refers to the suitcases, bags, and containers used for carrying personal belongings while traveling. The perception of luggage is evolving from a ‘utilitarian product’ to a ‘fashion statement’. The presence of multiple SKUs across luggage categories extends pricing power to the product. Changing lifestyles like multiple trips in a year, and weekend getaways have induced shorter replacement cycles in the industry.

About the Luggage Industry:

The luggage industry in India is experiencing a shift from an unorganized to an organized sector owing to factors like reducing the price gap between the organized and unorganized players post-implementation of GST, increasing disposable income, the rapid proliferation of e-commerce/online portals, and customer shift towards branded & premium products. The overall industry is growing at an average rate of 8-10%, whereas the organized segment is outpacing this growth with an impressive rate of around 15%. Organized players pride themselves on their after-sales services, whereas unorganized players cannot match up to schemes like lifetime warranty, etc. The organized segment is an oligopolistic market, dominated by only a few players.

Key Growth Drivers:

The industry’s key growth drivers include several factors. Firstly, there is an increase in sales due to a surge in travel and weddings. Additionally, rising per capita income contributes significantly. Moreover, growing urbanization plays a vital role in this growth. Furthermore, there is rising demand from Tier II and III cities. Moreover, continuous innovation and the introduction of new products in the market are driving forces behind this industry’s growth.

Rise in leisure tourism and business travel are expected to increase the demand for travel and business bags. The fortune of the luggage industry hinges on the growth in air traffic. By 2025, projections indicate that India’s major airports will handle 420 million passengers, up from the current 192 million, and Indian carriers are expected to increase their fleet from 700 to 2,000 aircraft within five years.

Company Specific:

Let us discuss Safari Industries in this space. The company is one of the fastest-growing luggage co. in India with a strong focus on the mass/economy segment. It has diversified product offerings catering to all possible customer segments (school, teenager/college students, and adults) and for all occasions (daily use, leisure, work, business/family travel). It has a multi-channel distribution network covering CSD, Modern Trade, MBO, EBO and E‐Commerce.

As per the latest brokerage report, the company is expected to deliver revenue growth of 33% CAGR over FY22-25E. The operating margins are expected to expand to 16.2% because of a favorable mix changing towards in-house manufacturing. EBITDA is expected to grow at a CAGR of 70% over the same period. Net profit is expected to grow at a CAGR of 97%. ROE is expected to expand from 7.4% to 23.5%. The company has emerged as a key beneficiary of the demand transition from unorganized to organized players.

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