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Last Updated : Feb 14, 2019 05:46 PM IST | Source:

Safari Industries Q3 review: A quarterly blip but long-term story strong

Safari is the third largest player in the organised luggage market and has close to 10 percent market share.

Representative image
Representative image
  • bselive
  • nselive
Todays L/H

The quarter ended December 2018 was difficult for luggage companies due to a depreciating currency and imposition of import duties. However, Safari Industries (CMP: Rs 711, M Cap: Rs 1,588 crore) negotiated these challenges well and reported modest earnings performance, although the reported headline numbers were weak.


For Safari, the growth in the topline at 39 percent was robust. This is the third consecutive quarter of extremely strong revenue performance. This reiterates our thesis that there is a meaningful shift from unorganised to unorganised players post-GST. Safari being well-entrenched with the economy offerings is in a vantage position.


The depreciating Indian currency (impact due to soft luggage import from China) coupled with the increase in import duty took a toll on margin, with the gross margin declining 780 basis points YoY (year on year) and 320 basis points QoQ (quarter on quarter) to 40.1 percent.

Thanks to better management of costs, the decline in EBIDTA (earnings before interest depreciation, tax and amortisation) was 450 basis points YoY and 150 basis points QoQ to 7.5 percent.

While the short-term outlook may be subdued as the company may be having high cost inventory and it may be difficult to pass on the cost increase due to the hyper competitive environment, the long term thesis is only getting strengthened.


Safari is the third largest player in the organised luggage market and has close to 10 percent market share.

In terms of price hierarchy, Safari’s products fall at the bottom end of the pyramid as it is more of a value for money brand. Safari’s offerings compete with American Tourister (AT) of Samsonite and Skybags of VIP. On an average, Safari’s products are at an 8% discount to AT and 4% discount to Skybags. Thus, Safari is more into a mass category and thus is a preferred choice for customer who wants to upgrade after reduction in price gap between organized and unorganized players post implementation of GST.

Safari’s products are tailored for all customer categories suiting all possible occasions but is currently dominated by Soft luggage (close to 77%). Within the soft luggage category, transition towards 4 wheels and rolling duffels will drive growth. In the hard luggage category, there is clear shift from polypropylene to polycarbonate.

The soft luggage products are imported from China while the hard luggage products are manufactured domestically at its plant located in Halol, Gujarat. Safari has increased its hard luggage manufacturing capacity at Halol. To de-risk the business, the company is exploring the possibility to tap some local vendors to manufacture back packs in order to reduce dependency on China.

The company has aggressive growth ambitions and envisages to grow at 2x the industry rate and double its revenues over the next 2 years. Apart from changes instituted by the management, structural tailwind coming in from gain in market share post introduction of GST, emergence of new product categories and strong demand emanating for back packs is likely to drive growth.

Safari trades at 33.6x FY20e earnings and should be accumulated at the current levels.


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First Published on Feb 14, 2019 05:46 pm
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