Compounding Voyage

Safari Industries – Packing Potential for Long-Term Growth?

Category:

Sector : Fast Moving Consumer Goods, Industry : Household and Personal Products

Business Overview:

Safari Industries started its journey since 1974, incorporated in 1980 by Mr. Mehta and family and later in 2012 it was acquired by Mr. Sudhir Jatia (Former MD of VIP Industries). Safari is in business of manufacturing and trading of luggage and luggage accessories.

Business Categories and Brands:

  • Hard Luggage Case (54% of revenue)
    • Hard luggages are mainly made of Poly Propylene (PP) and Poly Carbonate (PC) and manufactured in-house by Safari at its Plant located at Halol, Gujarat.
  • Soft Luggage and Backpacks (46% of revenue)
    • Soft luggages are made of fabrics of various kinds and are mainly imported by Safari
  • Brands:
    • School Bags and Laptop Backpacks – Genius, Genie and Safari
    • Soft Luggage, Duffles and Hard Luggage – Magnum and Safari
  • Manufacturing contributes 38% of revenue and Retail Trading contributes 62%

Business Presence and Capacity:

  • Domestic: Plant – 1, Offices and Warehouses – 30
  • International: Offices and Warehouses – 1
  • Have presence in All States and Union Territories and 10 Countries across world
  • Total Capacity of 6,50,000 per month of which 3,50,000 from Safari Manufacturing Limited and 3,00,000 from Halol Gujarat
  • As of 2023, Export contribution to revenue stands at 0.47%
  • Reaching different customers through General Trade, Modern Trade, E-commerce Resellers (Amazon, Flipkart etc.), Canteen Stores, B2B and D2C
  • Safari Overall Market share improved 2x in past 10 years

Business Acquisitions and Subsidiary:

  • Safari Lifestyle Limited is a wholly owned subsidiary incorporated in 2014. As of 2023, total income stands at 2.27 Cr.
  • Safari Manufacturing Limited is a wholly owned subsidiary incorporated in 2021. As of 2023, total income stands at 116.63 Cr.
  • In FY16, Acquisition of Genius, Magnum, Activa, Orthofit, DB&H, Egonauts, Gscape and Genie

Industry Overview:

  • India Luggage and Bags market size amounts to USD 15.04 bn in 2024. It is expected that the market will experience an annual growth rate of 5.21% (CAGR 2024-2028). India’s growing middle class and increasing travel aspirations are driving a surge in demand for premium luggage and bags. Source: statista
  • Luggage Sector categorized into three different segments, premium (Rs. 6000 and above), Mid-Premium (Rs. 3500 and above) and Mass Category (Rs. 2000 and above). Safari focusing more towards mass category where most of non-branded footprints are there whereas its competitor VIP focusing more towards the mid-premium and premium category
  • Market share among branded players, mostly three companies covering much of market share Safari (~24% market share), Samsonite (~32% market share) and VIP (~44% market share)
  • Unorganized players have still 40% market share

Key Players in Luggages and Bags:

Source: MarkNtel

Business Model:

Source: Company Presentation

Does Business Simple to understand?

Rating: 4 out of 5.

Financial Statements Overview:

Past 10 years Financial Analysis: From 2015 to 2024 (Amount INR Crores)

Image from Screener Excel

Financials Trend:

One Dollar Value: As of 2024

Company sales dropped only once in past 10Y which is mainly due to lock down and covid restriction > 50% drop but pre-covid and post-covid data looks impressive with revenue of 1550 Cr in 2024 vs 211 Cr in 2015 overall CAGR stands at 25%. Gross Profit Margin stands at 47% which was varying from 35% to 57% in past. Operating Profit margin improved very well from 6% to 18% in 10 years and operating profit stands at 278 Cr in 2024 vs 12 Cr in 2015. Other Income stands at 14 Cr, mostly income from operating business. Interest doesn’t increased much in past 10Y, this shows company handling its debt well. Company depreciating its assets at 18%, 3 years back it depreciated its asset at 28% to 30% range. Net Profit stands at 176 Cr in 2024 vs 4 Cr in 2015 at impressive CAGR of 51%. Net Profit Margin Improved well in recent years around 10% to 11% from 2% 10 years back. In FY24, company paid dividend of 20 Cr, dividend payout stands at 11%.

One Dollar Value:

Company created Rs. 25.69 for each Rs. 1 retained from the net profit

Key Parameters:

  • Return on Equity – 21%, Return on Capital Employed – 25% and Return on Invested Capital – 23% which looks good compared to past mainly due to good improvement in Net Profit Margin
  • Debt to Equity Ratio at 0.18, company able to maintain well below 0.5 in past. Overall debt stands at 146 Cr.
  • Interest Coverage Ratio improved from 3 to 25 in 10 years
  • Net Fixed Assets Turnover Ratio stands at 6.5 which was dropped from 15 in past due to increase in Fixed Assets
  • Inventory Turnover ratio at 5.8 increased from 4.0 in 2015
  • Company Working Capital Cycle days improved compared to past stands at 102 days vs 155 days in 2015.

Credit Ratings: As of Mar 2024

Does Earning Prospects of Business Looks Good?

Rating: 4.5 out of 5.

Management Overview:

Board of Directors: As of Mar 2024

  1. Mr. Sudhir Mohanlal Jatia – Chairperson and Managing Director
  2. Mr. Punkajj Girdharilal Lath – Non-Executive – Independent Director
  3. Mr. Dalip Charanjit Sehgal – Non-Executive – Independent Director
  4. Mr. Rahul Lalit Kanodia – Non-Executive – Independent Director
  5. Mr. Piyush Goenka – Non-Executive – Non Independent Director
  6. Mr. Sumeet Nagar – Non-Executive – Non Independent Director
  7. Mr. Gaurav Sharma – Non-Executive – Non Independent Director
  8. Mrs. Vijaya Sampath – Non-Executive – Independent Director
  9. Mr. Sridhar Balakrishnan – Non-Executive – Independent Director
  10. Mr. Aseem Dhru – Non-Executive – Independent Director

Remuneration for Director:

Shareholding Pattern: As of Mar 2024

  • Promoters – 45.73%
  • FII – 13.14%
  • DII – 20.52%
  • Public – 20.61%

Promoter continuously decreasing the shares for many years

Management Information from Interview:

  • Industry should continue to grow in the range of 15% and Safari will outgrow industry growth in Future also.
  • Mass Market segments price varies from Rs. 1800 to Rs. 4000 range
  • Spending close to 4 to 5% of sales in marketing, spending mostly goes on point of sales and online media
  • The aim for next 5 to 10 years, company need to enter in premium segments and gain the market share in top position
  • Company will start new manufacturing plant in outside of Gujarat also, may be capex will start from 30 Cr with Asset Turnover Ratio of 5.

Does Management Is Strong and Confident about Business?1

Rating: 3.5 out of 5.

Business Valuation:

  • Considering the business will grow its Net Profit at CAGR of 18% to 20%2 for first five year and 15% for next five years, Price to Earnings of 303 as conservative value while selling the business and discount value at 8% to 12%4 based on Individual expectation.
  • I considered Net Profit for valuation. The business can offer good value, if it is in the range of 3500 Cr to 6800 Cr
  • Valuation will vary based on different assumption and expectations.

Does Business be Purchased Significant Discount to Its Value?

Rating: 3.5 out of 5.

Overall Ratings for Safari Industries:

Rating: 3.5 out of 5.

Footnotes:

  1. Reducing the star due to reduction in stake by Promoter for many years ↩︎
  2. I am considering the growth of 18% to 20% Net Profit because industry itself will grow in the range of 15% so company will outgrow industry ↩︎
  3. Company trading in the range of 50 to 60PE, so in long run 30PE can be easily maintained if the growth is good ↩︎
  4. I took 12% as return expected from investing in this company ↩︎

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