About the Company
Safari Industries (India) Limited is engaged in the manufacturing and trading of luggage travel goods. The Company’s product range includes polycarbonate (PC) zippered luggage. It also offers products under various categories, such as laptop bags and backpacks.
Notes from Annual Report FY18-19
Industry Overview
India was the fastest-growing domestic air travel market globally in 2018, with 18.6% growth in the year compared to a 17.3% growth in the previous year (2017). While there is a temporary drop in travel growth that is expected due to a reduction in seat capacity in the airline industry, the overall outlook for the Travel & Tourism sector remains robust.
The organized sector for luggage grew strongly during the year. This was driven by the continued shift of consumer preference from unbranded to branded products. Other structural factors driving industry growth continued such as accelerated growth in air travel, wedding season based purchasing, shortening replacement cycle and overall GDP growth.
Strong growth in the Hypermarket channel was driven by both organic and inorganic expansion in the sector via new stores and geographies. E-commerce channels continued to grow strongly with increasing digital penetration and increasing shopper maturity to make higher ticket purchases online. Good growth was seen across the general trade channel, but the growth in the retail channel was muted due to pressure from other channels.
Company Brands Overview
Safari continued its focus on building the Safari brand via launches of innovative new products and a new advertising campaign to drive visibility. The Magnum brand was strengthened with a larger product portfolio and wider channel availability. The Genius & Genie brands that cater to teenagers & young adults segment, grew well in both the Backpack category and the newly introduced Fashion Bags category. This is in line with the company’s strategic intent of addressing the complete short-haul needs of the target consumers.
The company continued its focus on polycarbonate and backpack product categories. It increased its polycarbonate ranges especially for E-commerce and Hypermarkets to drive strong share growth in these high growth channels. Further, it launched a fresh new range of backpacks with a significant up-gradation in terms of features, design, and price. The range included several new to market concepts and was very well received across the channels and consumers.
The company significantly increased its presence in the E-commerce and Hypermarkets with focused marketing activities in the top E-Commerce horizontal platforms and Hypermarket chains. The Company also operates from more than 50 exclusive retail stores.
Opportunities & Threats
During FY19, Safari faced upward pressure from rising costs of imported products from China due to the increase in import duty and adverse exchange rate movements. The company has started hedging its foreign exchange exposure to mitigate its risk arising out of foreign exchange fluctuations. Safari continues to leverage its increasing scale to limit sourcing cost increases. The company is also increasing its domestic procurement of Soft luggage and Backpack categories, apart from scaling up the revenue mix from Polycarbonate Uprights produced at its plant in Halol, Gujarat.
According to Safari, the key opportunities lie in driving strong share growth in high growth channels, which shall enable the company to tap into the opportunities thrown open by the fast-changing channel dynamics. There is an accelerating consumer shift towards E-Commerce and Hypermarkets and the Company has increased its presence and investments on these platforms. In addition, the company has launched an e-commerce enabled website of the company (www.safaribags.com).
Financial performance in 2018-19
- FY19 Revenues grew almost 36% YoY respectively both in standalone and consolidated basis.
- The company has provided modest returns for the year with consolidated profits rising 26% YoY while standalone profits rose 27% YoY.
- Net profit margin fell to 4.7% from 5.09 a year ago.
- The main reason for the drop in profitability seems to be the sharp rise in raw material prices coupled with the company passing on the increased costs in a phased manner so as to preserve market share in lower margin products.
Operational Performance in 2018-19
Major growth was observed in Polycarbonate Uprights, due to shifting consumer preference from Soft Luggage to more durable and premium looking hard luggage. The company wants to take advantage and accelerate this consumer shift by introducing a wider range of Polycarbonate Uprights across all channels.
The company has also delivered strong growth in the Backpack category with a multi-brand approach including Safari, Genius, and Genie, which ensures that all major demographic segments have a relevant offer. Traditional hard luggage, made of polypropylene and two-wheeled luggage is now negligible. This shift is due to a change in consumer preferences towards the convenience of light and four-wheeled travel products and moving away from heavier products that are difficult to navigate.
Analyst’s View
Safari is the second biggest player in the organized luggage industry in India after VIP Industries. The company deals mainly in low priced low margin products and is mainly driven by volumes. Thus they are more vulnerable to raw material price increases than VIP since their margins are lower due to their product portfolio. However, the industry is seeing tremendous volume growth. The phenomenal growth has also brought in a lot of small competitors in the arena. Thus, it remains to be seen how Safari will maintain its market position and find a way to resolve this conundrum of heightened competition and increasing raw material cost.
Q3 2019 Updates
Financial Results & Highlights
|
Standalone Financials (In Lacs) |
||||||||
| Q3FY19 | Q3FY18 | YoY % | Q2FY19 | QoQ % | 9M FY19 | 9M FY18 | 9M% Change | |
|
Sales |
14428 | 10407 | 38.64% | 12755 | 13.12% | 42808 | 30054 | 42.44% |
| PBT | 792 | 990 | -20.00% | 870 | -8.97% | 3561 | 2096 |
69.90% |
| PAT | 496 | 678 | -26.84% | 617 | -19.61% | 2330 | 1355 |
71.96% |
Detailed Results
-
- Safari industries had a good quarter in terms of revenue growth which was nearly 40% YoY.
- However, their PBT and PAT fell 20% and 27% respectively YoY.
- The main reason for such a fall was the rise in raw material prices. This issue has been seen in their main competitor VIP Industries as well.
- The 9M figures for Safari have been exceptional with 42% growth in 9M revenues.
- 9M PBT and PAT were up 70% and 72% respectively YoY.
- In the 9m figures, change in inventory levels contributed to the majority of growth.
- Thus it seems like the company may have benefitted from inventory stockpiling when costs of raw materials were lower compared to current levels.
Analyst’s View
Safari is the second biggest player in the luggage industry in India. They have been going through similar struggles of deteriorating margins due to increase in raw material costs like their main competitor VIP Industries. The company deals mainly in low priced low margin products and are mainly driven by volumes. Thus they are more vulnerable to raw material price increases than VIP since their margins are lower due to their product portfolio. However, the industry is seeing tremendous volume growth. The phenomenal growth has also brought in a lot of small competitors in the arena. They might pose a threat in the longer run for companies like Safari and VIP. Thus it remains to be seen how Safari will maintain its market position and find a way to resolve this conundrum of heightened competition and increasing raw material cost.
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