The Rs 10,000-crore Indian luggage and backpack sector is expected to clock a CAGR of 15 percent over the next 3-5 years, buoyed by a strong upswing in post-Covid travel, opening of offices and a marked shift towards the branded segment, as per analysts.
According to a report by domestic brokerage Anand Rathi, the luggage and backpack sector has grown from 45 percent in FY20 to 56 percent currently.
In the past years, the sector was dominated by non-branded players but now has moved to branded ones. This is attributable to the supply disruptions across the globe during the pandemic and high ocean-freight rates, which rendered avenues of supply for non-branded manufacturers increasingly unviable. This supply gap benefited the organized segment.
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The luggage and backpack industry registered a 14.2% CAGR over FY15-FY19 (pre-pandemic) and is set to clock a 15% CAGR ahead, Anand Rathi said.
The luggage sector is segregated into premium, mid-premium and mass categories, followed by backpacks and handbags.
A key tailwind for the sector is the robust revival of travel demand after two years of the Covid-led slump.
Domestic air-passenger traffic, a proxy for travel and luggage demand, has picked up post-Covid, surpassing FY22 and FY21 levels and almost touching pre-pandemic FY20 level. From Apr’22 to Feb’23, domestic air-passenger traffic hit ~122.7 million – 44 percent growth from FY22.
Also Read: Domestic air traffic grows 21.4% in March, IndiGo widens market share
“The overall long-term outlook for the segment is very robust with travel returning in a huge way, schools and offices opening and a strong upswing in marriage demand,” it noted.
The Indian luggage segment is oligopolistic in nature, especially in branded labels. Oligopoly markets are markets dominated by a small number of suppliers.
VIP had a 43.8 percent market share in 9M FY23, Safari ~24.1 percent and Samsonite ~32 percent.
Key Picks
Anand Rathi has initiated coverage on VIP and Safari Industries with ‘buy’ ratings.
VIP is focusing on e-commerce for a foothold in the mass segment after having established itself in the mid to premium categories, it said.
The company’s wide distribution network, comprising 11,000+ points of sale across retail formats in around 900 towns, is another point in its favour.
Anad Rathi has a target price of Rs 850 for the stock. Based on the current market price of Rs 595.80, this represents a potential upside of 42 percent.
In a recent report, Axis Securities also highlighted VIP’s increasing distribution network, focus on digital presence and marketing.
“The company continues to focus on offering a diverse range of products with niche branding across target segments," Axis Securities said.
VIP Industries has brands like VIP and Skybags (mid-premium category), Carlton (premium category), Aristocrat (mass market) and Caprese (handbags for women in the mid-premium segment).
Focused primarily on the economy category, Safari Industries is one of the fastest-growing brands domestically, benefiting from the weakened non-brand segment due to GST imposition and pandemic-related disruptions.
“The 9M FY23 EBITDA margin expanded to 15.2%, from 7.8% in FY22; we believe the margin will hold at this level and continue to increase due to large-scale shift of sourcing from China to sourcing from India and Bangladesh, the greater proportion of revenue from hard luggage and the shift to more revenue from polypropylene products,” Anand Rathi added.
It has a target price of Rs 2,750 for the stock – a potential upside of 24 percent from the current price of Rs 2,213.
In a recent note, brokerage Prabhudas Lilladher also maintained its buy rating on the counter, citing factors like mass/value positioning, which is expected to result in above-average industry growth and likely improvement in margins due to increasing domestic manufacturing.
On a YTD basis, VIP stock is down 12.45 percent, while Safari has logged a return of 31 percent.
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