Safari Industries (India) Ltd


(ishandutta2007) #1

Business in detail:
Safari Industries India Ltd. engages in the manufacture of plastic moulded luggage. The company offers injection moulded plastic articles and vacuum formed plastic articles. Incorporated in 1980, Safari Industries India Ltd. is based in Mumbai.

Key Products:

  • molded briefcases
  • vanity cases
  • uprights,
  • file cases,
  • duffels,
  • back packs
  • laptop bags

Market cap: 394 Cr

Facilities:

  • Mumbai
  • Halol in Gujarat

Pros:

  • Company has reduced debt.

Cons:

  • Stock is trading at 4.82 times its book value
  • Promoter's stake has decreased
  • Company has a low return on equity of 10.17% for last 3 years.
  • Company might be capitalizing the interest cost

Key People:

  • Sudhir Mohanlal
  • Shailesh J Mehta
  • Vijaya Sampath
  • Anujj Patodia
  • Hetal Gandhi

Share holdings pattern:

Last five years financials:

Key triggers:

Disc: Not invested


(Arun Kumar) #2

Looks interesting...any idea of their market share, their competitive position vis a vis VIP and Samsonite. There seems to be a big unorganised market in this segment which will get hit with the GST and likes of VIP and Safari will be big beneficiaries. The liquidity in the stock is quite low and is a concern.


(Ravindra Mutyala) #3

Significant revenue is coming from Indian Army. If any miss in order from Army may create huge revenue drop. Company model is asset lite as it imports products from China and sells under its own brand name. Promotions in the domestic market are nil. High competition from international players like American Tourister.


(Kitam Ranka) #4

@mmvravindra

As per the information on their website:
There are two broad categories of luggage i.e hard luggage and soft luggage. 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 luggages are made of fabrics of various kinds and are mainly imported by Safari.

Regarding the revenue from Army:
The Canteen Stores Department, CSD as it is commonly referred to, was created to provide 'easy access to quality products of daily use, at prices less than market rates' to the soldiers, ex-servicemen and their families. This has been one of the most coveted accounts for the luggage industry, including VIP and Samsonite. In one of the recent con-call you can hear VIP MD Radhika Piramal mention strong competition given in this space by Safari.

Regarding the promotions in the domestic market:
It has a distribution network across 15 states in India with about 600 dealers, besides selling through tie-ups with Modern Retail and E-retail. You can find its products in almost every major e-commerce website, its own website and all major luggage/ travel offline stores. I, myself was surprised to see 3 Safari suitcases in my house after I started researching about the company.

Would appreciate if you could quote your source. Would help in correcting my understanding. I too have a note prepared, will put it up on this page.

Regards,


(Ravindra Mutyala) #5

You can refer the latest credit rating report of India ratings,
https://www.dropbox.com/s/dt0x13s5u2vsk57/India%20Ratings%20-2015.pdf?dl=0

there it mentioned the following:

No idea about FY16 sales mix.

FY15 Annual report is full of junk, they don't provide any insights of Company or Industry in AR


(Kitam Ranka) #6

Facts:
Mr. Sudhir Jatia, Chairman and Managing Director, 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. He previously served as Managing Director of VIP Industries Ltd.

Safari Industries manufactures travel bags and is the third-largest luggage maker in India after Samsonite and VIP. After a seven-year stint at VIP, Jatia bought a majority stake in Safari in 2011 for about Rs.29 crore.

The organized consumer luggage industry size in India is Rs.1,900 crore and is expected to grow at an 18% compounded annual growth rate (as per an article published in July 2014. Link to the article mentioned below).

Personal views:
Safari can be seen as the challenger, trying to take on the top-2 in the industry by slowly laying out investments and doing the right things with conviction. Mr Sudhir Jatia having done it with VIP maybe has the best chance of having to do it again successfully.

Negatives:
No first hand information on the workings and plans of Safari and Mr. Jatia.
Maybe this forum can help scuttlebutt and reveal more information.

Company not big on making announcements of its plans and future guidance. (might be a good thing)

It is a microcap, so not a lot of past growth/ performance to go by, especially after Mr. Jatia's entry.

Illiquidity is an issue here and all the problems that come with it. But I am not sure if a long-term investor should be worried about it.

Would like to quote an article by Ian Cassel of microcapclub.com here http://microcapclub.com/2014/03/dont-worry-about-illiquidity-worry-about-being-right/

Sources: http://in.reuters.com/article/idINIndia-59199320110907

http://www.livemint.com/Industry/DSBGAPJvOdUHn2PvY8qydN/Tano-buys-stake-in-luggage-maker-Safari.html

http://www.safari.in/about-us

http://www.vccircle.com/news/consumer/2015/09/29/safari-buy-genius-leathercrafts-luggage-brands

Disclosure: Invested and views might be biased.


(paresh.sarjani1) #7

@ishandutta2007
isn't PE of 40-50 too high for this?


(ishandutta2007) #9

Screener.in says P/E = 6.78


(Gaurav Agarwal) #10

I could not figure what is wrong but the PE is screener.in is wrong.

According to q4fy16 P & L EPS = 19.27. Today closing price = 950. Therefore PE = 49.2


(ishandutta2007) #12

Yes my mistake didn't check the price, even it's too high P/E for me to invest. 1 year ago PE was close to 80, prior to that it was not even earning anything. Market is buying it being hopeful on its growth potential as it's still a microcap, I need to understand how big this plastic bag seller can potentially become to fall for that.

Disc: Not invested, no intentions to invest at current valuation.


(Sujay Ghosh) #13

I am interested in Safari Industries despite the high valuations.

What I Liked

  1. I too found two Safari suitcases in my house, both of which survived many years. I am therefore confident about their product quality.
  2. They are popular in hypermarkets and online marketplaces. The average reviews of their products in Amazon / Flipkart / Snapdeal are above average (4/5 stars).
  3. They are upgrading their product portfolio quite aggressively. I saw that Amazon is flashing a new safari product as exclusive launch: Safari Thorium.
  4. I also liked that product videos in their website which are quite detailed and gives a fair impression about the products.

What I Disliked

  1. Product videos are not available for all of their products.
  2. In Amazon top 20 Bestsellers (Suitcases, Check In & Strolleys category) only one/two safari items are present (as on today). The best-seller category is dominated by American Tourister products.
    http://www.amazon.in/gp/bestsellers/luggage/2917450031/
  3. Although their products carry a warranty for a period of 5 years/3 years/18 months (as applicable), the service centers are located in south and south-west India only. No service centers in Delhi, Kolkata etc. (according to their website)
  4. The Safari exclusive stores are located in south and south-west India only.

Comparison with VIP Industries

An interesting Moneycontrol News on the profitability of VIP and Safari.
Lug VIP and Safari for a profitable journey

Disc: Interested in initiating a position in either this or VIP industries!


(Bheeshma Sanghani) #14

Safari industries has recently made a preferential allotment to Malabar investment funds at Rs 340 (post split). Malabar funds will put in 51cr for a 7.09% stake in the company

Sudhir Jatia - earlier MD of VIP took over the reins of Safari in 2011-2012 buying out the owners stake. The deal was facilitated by JM Financial . An interesting story about how Rajeev Chitrabhanu ( MD & CEO of JM) made that happen can be found here.

Further, in July 2014 - Sudhir Jatia & PE fund TANO capital infused money into the company (~70cr) through issue of warrants to the promoter ( all of which have been converted since then) & preferential allotment to Tano at Rs 600 per share (http://www.bseindia.com/corporates/anndet_new.aspx?newsid=9626cf55-56ce-47b0-b107-2e279dcfa664)

Post this infusion the company took some strategic steps in reviving the brand by incorporating a wholly owned subsidiary called Safari Lifestyles to carry on business of retail trade in travel products and related activities and in 2015 it acquired the trademark and goodwill of the brands ‘Genius’, "Magnum’, ‘Activa’, ‘Orthofit’, ‘DBH’, ‘Egonauts’, ‘Gscape’ and ‘Genie’ owned by Genius Leathercraft Pvt. Ltd.

Thie strategic thought process seems to that adopted by VIP Industries which has 6 core brands and some of them have been similarly acquired.

Of particular note is that when Blowplast ( the marketing & distribution arm ) was merged with VIP Industries ( the manufacturing arm ) , Mr Jatia was the MD of Blowplast indicating that marketing & distribution is his forte. When the impending entry of Harvard educated Radhika Piramal into VIP as the MD became clear, Mr Jatia resigned as the MD. You can read more about it here. and here.

This background is important as Mr Jatia since then took over Safari and has transformed its fortunes and now is a serious competitor to VIP taking away market share from it. However, its still early days for Safari but the business rivalry between both the companies is intense & fierce esp in context of the historical background & there are no prizes for guessing who is winning.

Some data points

Since 2014, Safari has posted topline CAGR of 29% while VIP is at 9%

Operating margins of Safari have increased by 2.16% while VIP has managed to increased it by 1%.

Debtors days while still high for Safari compared to the more established VIP, has reduced by about 9 days since 2014. The impact of this is clear as the company turned CFO positive for the first time since 2014 compared to VIP which has always been positive.

Details about the overall luggage market can be found in the Safari investor presentation here

Some relevant numbers are that the overall luggage market is 23% luggage & 77% bags. Both put together did 138 million units in 2016 with 32 million units of luggage. These 32 million units had a value of 91 billion or 9100 crores. Safaris market cap is about 800 crs & VIP is 3500 crores. So the opportunity size is large enough.

A large part of this sector is unorganized & the unorganized sector constitutes about 70%-80% which kind of matches with the sectoral numbers put out by Safari in its presentation. VIP has a market share of about 50% & did 1300 cr of topline, meaning the organized market is 2600 crores which puts the total market size at 11000 crores ( assuming 70% unorganized ). So its safe to assume between 9000 to 11000 crores of size with the bags market as an optionality.

In addition, the sector is growing at a fast clip.

The numbers put put by the tourism department indicate that domestic tourist visits are growing at a CAGR of 13% over a 15 yr period ( from 220 mil in 2000 to 1613 mil in 2016 ) . This means more luggage needed. You can find the report [here] & look at table 18 (http://tourism.gov.in/sites/default/files/Other/english%20India%20Torurism%20Statics%20020917.pdf). In general travel & tourism is posting good growth rates with several companies connected to this sector posting good numbers lately.

The overall sense is that there are a lot of tailwinds for Safari.

Risks

  • 80% of the sales are soft luggage which is imported from China so currency risks remain due to overdependence on China
  • raw material cost fluctuations
  • 28% GST in luggage. The VIP AR mentions that it will have the reverse effect of migration from organized to unorganized & will certainly lead to an increase in prices
  • up against VIP & Samsonite - formidable competitors with an established brand position occupying 90-95% of the organized market.
  • Amazon - this is a product that can easily be amazoned so that is a certainly a big risk
  • Valuation risk ( one needs to take a call on whether there is a margin of safety )

On the technical front - there is a cup n handle breakout today on the charts.

Best
Bheeshma
Views and criticisms welcome
Disc-Invested


(Bheeshma Sanghani) #15

Safari Industries 2017 Annual Report - http://www.safari.in/checkdelivery/index/downloadPDF?open=Annual-Report-2016-17


(Bheeshma Sanghani) #16

statistic_id252842_cagr-of-the-luggage-markets-retail-sales-worldwide-2010-2015-by-region.pdf (32.6 KB)

Some comparative numbers of the growth rates in luggage across regions. Though the data is dated it gives a general sense about how different regions are performing.

source : https://www.statista.com/search/?q=luggage

Another significant number is the regional share in Samsonites revenue. The data suggests that Samsonite is concentrating on North America as a region. Both North America & Asia contribute 37% to Samsonites net revenue in 2016. However back in 2012 , Asia contributed 39% & North America 28% indicating that the key focus has shifted. This means less competitive intensity for Safari - at least from the likes of Samsonite with its global power brands.

Source : https://www.statista.com/statistics/313706/net-sales-of-samsonite-by-region/

While the overall Asian luggage market as grown rapidly averaging 17-18% growth over 5 years , Samsonite has been able to deliver a growth of about 11% - again suggesting that its focus is in the higher margin geographies of North America.


(Yushma) #17

What is the key differentiator for success of Safari
1. Brand Recall / Premium value for the brand ? - Hardly any brand to name
2. Low cost advantage - Nothing visible. Seem to be like a mee too player / dependent on china / easily replicable
3. Distribution network - Seem to be at nascent stage / Quick scale up aided by branding may give some fillip

But the valuation do not offer comfort given all these aspects.


(Vamshi) #18

@HT Divya Chawla...she posted her research about luggage industry in India on her blog https://equityunravelled.wordpress.com. Well researched & documented. Here's the link,


(Bheeshma Sanghani) #19

Hi @Yushma

You are likely are correct on all three aspects. From my ground checks though, safari may not have top of the mind recall, but it certainly has aided recall. People remember the brand. The recall is the strongest in the 35 and above category though. Anyways all that doesnt really matter at this point , whatever little brand awareness it has its nowhere close to the brands of VIP & Samsonite.

But that's not the thesis. The broad theme is the shift from unorganized to organized aided by GST. GST has put the brakes on the growth rate of the tax avoiding unorganized sector and that is the new normal now.

Sectors like Luggage that have a huge unorganized component are prime beneficiaries of this change. When the overall sector is growing at 15%, has a huge unorganized component & that unorganized component is growing at the lesser rate than the overall market it should create a bankable opportunity for the organized sector due to volume & value migration.

In addition, when the top 2 players in that organized space are growing at a rate that is lower than the organized market growth rate ( for reasons that i am still trying to understand) , the 3rd player gets to be the main beneficiary of that volume migration. And that volume/value migration is substantial as there is a multiplier effect.

Here are some calculations

I have made some assumptions based on the data that i have been able to gather.

Overall luggage market growth rate = 15%
Unorganized component = 70% ( average from various sources )
Growth rate of the Unorganized sector = 10%
Growth rate of VIP = 15% ( from the financial statements the 5y growth rate is 10% but lets assume 15%)
Growth Rate of Samsonite = 15% ( Same logic as above )
Market share if VIP in organized=50%
Market share of samsonite =45%

Given that the assumptions hold - the base growth for the organized market comes to 27% & if VIP+ Samsonite post a growth of 15% each ( which itself is optimistic ), the growth rate for Safari is a substantial 248%.

Even if VIP & Samsonite grow at 25% the expected growth rate for Safari is a derived 58%.

Of course it is unlikely that it will pan out exactly as envisioned in the calculations - however it does provide a rational basis to think about what may happen in the future

The calculation is - Safari calculations.xlsx (10.4 KB)

Best
Bheeshma


(Bheeshma Sanghani) #20

Another piece of info given Safaris focus on CSD

Some more insights into the working of CSD


(Bheeshma Sanghani) #21

Employees

Some addn facts to chew upon from the VIP & Safari employee numbers in the AR

No of employees has grown by 55% in the last 3 years for Safari while for VIP it has grown by 8%. Infact, no of employees has reduced by 24% for VIP compared to 2016 and grown by 33% in the same period for Safari. In sales focused organisations like VIP and Safari , most of the employees will be in the sales department and one can get a sense of how both the organizations have fared by looking at employee addns.

I looked at some of the linked in profiles of Safari employees ( there are 188 of them on linkedin) and what caught my attention are the brands that the staff has worked for previously. In almost majority of the cases, all good companies. This indicates the quality of the recruitment going on at Safari as its not as well known a brand as the ones the employees have worked for previously. Something to ponder over.

I couldnt go through all 188 of them as linkedin as some browsing limit unless you upgrade to premium.


(Kumar Saurabh) #22

@bheeshma I was reading an article 1 year back on CEOs who have taken a different path n Safari CEO (previously VIP) was also there . Few things excited me -
1. Foray from army to b2c market
2. Ability to bring talent from his previous organizations which means having credibility among knowns
3. Betting own money and getting PE funding (at 610-650rs)
4. Setting up online model self as well as pushing on market place

However, still avoided due to following reasons-
1. Margins of Safari we're almost similar to VIP which is bigger in size and it is my assumption based on that chances of operating leverage play was not higher . I may be wrong here. So, gains can happen due to -
a. Rerating - at 45+ PE and 15 percent growth, I found chances of rerating minimal
b. Growth vs valuation : did not sense chances of growth beyond 15 percent was possible which is good but then valuations again.
End to end considering market sizing opportunity, growth rate, valuation , due to valuation I still track the story but not invested .
There was one more CEO covered there shantanu khosla . Ended up picking Crompton consumer where he is MD after reading that article n analyzing these 2 companies