Safari Industries (India) Ltd

Safari Industries India Ltd. (Safari), incorporated in 1980,is in the business of manufacturing and trading of luggage and luggage accessories. Mr. Sumatichandra H Mehta, the founder, initially manufactured injection moulded plastic articles and vacuum formed plastic articles at the company’s plants inMumbai (then Bombay) and Halol, Gujarat.

In 2012, the company was taken over by Mr Sudhir Jatia, who was previously MD of VIP industries. Since then,the company has undergone restructuring with a number of new product launches.This has resulted in the company recording revenue growth of 6x over the last 7 years. It has also introduced many new categories such as back packs, school bags (via acquisition of Genius and Genie brands) and has improved its distribution network. The company has also adopted product rationalization and strategy realignment where non-performing SKUs (stock keeping units) have been eliminated. Currently, its products are available in 25+ major cities via 3,500+ outlets.

Promoter:
Sudhir M. Jatia is a commerce graduate from University of Mumbai. He acquired Safari Industries (India) Limited in the year 2011 and was appointed as its Managing Director from 18th April 2012.Mr. Jatia has a 22-year-old association and experience with the Luggage Industry in India.

Timeline:

• FY1974-2011
  • Launched in 1974.
  • Started with limited SKUs primarily catering to adult customers, family travel needs.
• FY2012
  • Product rationalization and strategy realignment- elimination of non-performing SKUs.
• FY2013
  • Mr. Sudhir Jatia acquired majority stake (77%) in Safari Industries (India) Ltd. in May 2012.
  • Product rationalization and strategy realignment, elimination of non-performing SKUs.
• FY2015
  • Tano Capital invested Rs. 50 crores in July 2014
  • Began Ecommerce sales
  • Launched polycarbonate (PC) luggage and new product categories.
  • Opened an office in China
• FY2016
  • Increased focus on school bags and backpacks.
  • Acquired Genius, Magnum, Activa, Orthofit, DBH, Egonauts, Gscape and Genie brands.
• FY2017
  • Launched backpacks under Safari brand
  • Launched school backpacks under Genius and Genie brands.

Financials:
Revenue over the decade has grown by 21.13% CAGR (compound annual growth rate) to Rs 415.36 crores. During the same period, PAT (profit after tax) grew by 115.11% to Rs 21.21 crores. The company has also recorded robust ROE (return on equity) and ROCE (return on capital employed) over the last 5 years.

Increasing travel and premiumization will boost margins:
With most youngsters keen for travel and adventure, there is a robust demand for hands-free and hassle-free luggage.New product introductions supported by effective marketing spends to drive awareness among consumers and robust distribution has led to positive growth. The company continues to develop its multi-brand strategy during the year with Genius & Magnum brands to operate at wider price points and broader consumer demographics in each category. To accelerate growth of acquired brands ‘Genius & Genie’, the company is focusing on campus gear targeted towards the ‘Teenagers & Young Adults’ segment. The brands have been re-launched with the strategic intent of addressing all key segments of the fastest growing short haul segment (travel over short distances).

The company continues its thrust on polycarbonate and backpack product categories. It introduced exciting prints and design options in the polycarbonate range of products. With consumers becoming more discerning, personalization and design values through prints are becoming increasingly important. Further, it launched a new and extensive range of backpacks with a significant upgradation both in terms of design and price. The range has been well received in the markets across the channels and consumers.

The company has improved its presence in hypermarkets and has grown significantly in e-commerce channels. The company also operates from more than 50 exclusive retail stores.

The company is increasing its SKUs in the premium segment with products in the price range of Rs. 8,000-10,000. The market is currently dominated by Samsonite, which controls 90% of the organised premium segment. A rise in Safari’s premium product sales would result in the gross margin of the company converging towards VIP’s gross margin (an upward of 50% from the current 46%).

The company plans to open a number of stores to increase its presence and brand recognition, but this will not increase its rent cost as a percentage of sales. The company will also not spend on advertisement & sales promotion expenses which will not dilute EBITDA margin.

Replicating VIP turnaround on Safari:
Before taking over Safari, Sudhir Jatia, the industry veteran with more than 2 decades of industry experience, was MD of VIP from February 2007 to April 2010. During the span of 3 years in VIP,he improved the company’s product portfolio by launching new products. He invested in brand building and signed Bollywood stars Shahid Kapoor and BipashaBasu, which eventually led to increased market share and improvement in gross margins.

Before Mr. Jatia took over as MD of Safari, the company was struggling from limited number of SKUs and it primarily catered to the needs of adult customers and family travel due to which revenues werenearly stagnant (growing at only 6.2% CAGR during the period FY05-11).After Mr. Jatia took over the company, he discontinued all non-performing SKUs; as a result, gross margins increased from 3% to 42% and cash conversion cycle improved by 31 days to 121 days.

The company then entered PC luggage manufacturing and launched laptop bags and acquired Genius and Magnum brands to enter the school bags segment. The market size of backpacks is huge and is mainly catered to by unorganized players.

GST- A Game changer:
The Indian luggage industry is valued at Rs. 9,000+crore and is largely dominated by the unorganized sector. The top three branded players namely, VIP Industries, Samsonite and Safari form only ~28% of this market. VIP Industries is the market leader with over 50% market share whereas Samsonite has been losing market share (currently at ~35%, having fallen from 50%+). Backed by re-infused energy from the new management, Safari has been grabbing market share in the last few years and it currently stands at 14-15%.

With a growing economy and higher consumer confidence, increasing travel and product premiumization, the luggage industry has posted a 13%+ CAGR over the past decade and is expected to maintain this momentum for the next few years. With GST implementation in 2017, the new cost dynamics have further led to industry shifting towards organized players.

High Entry Barrier:
The industry is working capital intensive as companies need more inventory to maintain a higher number of SKUs; it is very important that different SKUs are made available as forecasting demand for over 100 SKUs is difficult.

Soft luggage issourced from China (manufacturing hub globally) which is very challenging because of scale required to make it cost effective along with high quality. Safari has been able to do this due to good business relationships enjoyed by Mr. Jatia with Chinese vendors. Payment cycle is another important factor which has increased from 30 days to 57 daysafterMr. Jatia has taken over.

New launches will help to gain market share:
Safari is expected to report strong growth with increase in penetration of luggage in India through market share gain from both organized and un-organized players. The company has been aggressively launching new products in backpacks, school bags categories and is also expected to launch premium range of soft luggage such as Frame, Primus, Xeno etc.

The company has continued its thrust on polycarbonate and backpack product categories. It has introduced exclusive polycarbonate ranges for specific e-commerce platforms to drive strong share growth in the channel. Further, it has launched a fresh new range of backpacks with a significant upgradation in terms of features, design and price.

Higher usage of Polycarbonate to boost margins:
Polycarbonate isa lightweight material,which is used to manufacture hard luggage; traditional hard luggage made of polypropylene continues to see a steep drop in sales. This shift is due to change in consumer preferences towards the convenience of light and wheeled travel products and away from heavier products without wheels. The company is expected to increase its polycarbonate capacity at Halol by 25% which is currently operating at 100% capacity. The company has also witnessed an increase of 3% from hard luggage contribution which presently contributes 23% of total sales. This also helps the company safeguard itself from a key risk of currency fluctuation and overdependence of soft luggage procurement from China.

Debt reduction:
Safari is currently working to improve its cash conversion cycle, which would be possible by an increase in volumes and better negotiation with Chinese vendors (will increase the credit period). This would enable the company to generate higher cash flows over the next few years, which will help the company to reduce debt and eventually become debt-free in the next few years.