Safari Industries (India) Ltd

bheeshma · March 29, 2019, 6:53am

Its a well made ad for sure. Some things that Stand out in the ad

no luggage trolley shown - the backpack is the main character. A backpack is usually for single travelers wanting to just go.
humanizing the bag. Indicating that luggage is a partner in your travel and is just as much a part of the journey as you are. The business goal is ofc if you are going to spend let’s say 50k per head - then spending 3-5k on your partner is hardly anything. Intelligently dome, branding can really get people to pay up.

Safari has spent b/w 2-3% of the top line on a&p for the last 2 years. I think If it maintains that ratio it won’t affect the earnings in a meaningful way. If the ratio exceeds that then I am sure they would be looking to increase the sales price or volumes.

Its the first time that safari is on TV so let’s see. Either ways - its time they scaled up the branding.

Best
Bheeshma

uab59 · April 2, 2019, 7:04am

@Hocuspocus32 shared this VIP Industries : Luggage on VIP thread.
This could also be the reason why Safari came out with a TV ad for the first time.

VIP is undergoing brand identity overhaul and it is targetted to “families” with Saif and Kareena unlike the ad of Safari which is targetted to individuals (backpacking).

Also VIP will be visible more during IPL with their logos on Kings XI Punjab’s. Interesting time to come for luggage industry.

somu0915 · April 22, 2019, 10:30am

Aristocrat also was seen giving Ads on TV with Virat Kohli as ambassador.

duggu007 · April 22, 2019, 12:03pm

That’s American Tourister i suppose.

pratikchandak · April 24, 2019, 5:46am

Hello everyone,

Can anyone help me with investors relation number of Safari industries…

This is their website https://www.safaribags.com/corporate/investors-relations/investor-contacts

But mostly it shows error 404…

This is not only for particular section…

On most of the section it shows error 404 (I am checking since last month)…

Very bad first impression of them on me… at least they should have maintained their website,

anyways… can anyone help me with their investor relation number?

bheeshma · April 24, 2019, 6:01am

aravindms1us · May 13, 2019, 12:50pm

100 crores QIP

bheeshma · May 13, 2019, 1:23pm

Results on Expected lines. Expense ratio has improved for Safari from 38% to 35% at a consolidated level. Yearly margins are stable, however, quarterly results have been the same for all luggage cos in terms of profitability. Turns are 3x which is good.

There is also a QIP of 100 crores.

		Standalone		Standalone		Consolidated
		Quarter Ended		Year ended		Year ended
	Q42019	Q32018	Q42018	2019	2018	2019	2018
	Audited *	Unaudited	Audited *	Audited	Audited	Audited	Audited	Yoy	Yearly Growth - Standalone	Yrly Grwth - Consolidated
Income from operations	14,054.83	14,527.49	11,977.45	57,262.96	41,691.31	57,765.20	41,905.02	17%	37%	38%
Other income	83.64	12	36.73	130.53	94.16	130.6	94
Total Income (1+2)	14,138.47	14,539.20	12,014.18	57,393.49	42,057.80	57,895.80	42,271.59
Gross Margin	41%	40%	47%	42%	46%	42%	46%
Expense Ratio	36%	34%	36%	34%	37%	35%	38%
EBIT	586.60	872.89	1,273.37	4,376.73	3,529.37	4,413.97	3,576.88	-54%	24%	23%
EBIT Margin	4%	6%	11%	8%	8%	8%	9%
EBT	498.74	791.96	1,239.39	4,059.84	3,334.92	4,097.15	3,382.33	-60%	22%	21%
EBT Margin	4%	5%	10%	7%	8%	7%	8%
Profit for the period	368.50	496.06	765.51	2698.03	2,120.95	2,720.71	2,153.82	-52%	27%	26%
Net margin	3%	3%	6%	5%	5%	5%	5%

Best
Bheeshma

uab59 · May 13, 2019, 1:39pm

@bheeshma
What happens during QIP? I understand that it is a method of raising money from institutions. But how will it affect the EPS and the resulting price action?

sumi00 · May 13, 2019, 2:00pm

What is the purpose of meagre dividend when the fund raising was so imminent?

virajkhatavkar · May 13, 2019, 2:05pm

In QIP when you raise money from institutions, new shares are issued which in turn increases the total number of outstanding shares and reduces the EPS

parth_dalal · May 14, 2019, 4:24am

No interviews, concall. Not even presentation?

bheeshma · July 11, 2019, 6:59am

The VIP AR just released ,mentions slowdown in air traffic growth as an industry pattern. Globally air traffic growth as measured by RPK (Revenue Passenger Km) has halved with all markets including India weakening.

Both VIP and Safari are trading below their long period moving averages in recent times.

Disc - Holding 1/5th of original position. Sold 4/5th in the last month.

saumya2010 · July 11, 2019, 7:17am

Slow down in air traffic growth and travelles was also mentioned in indian hotels annual report for the last few months.

stocksearcher · July 17, 2019, 9:12am

Hi Bheeshma,
I’ve been taking your commentary on Safari for a while now. Any particular reason for reducing your holding recently? Curious to understand please. Thanks.

bheeshma · July 17, 2019, 10:55am

Hi @stocksearcher
Due to the run up in stock price, Safari came to dominate a major part of my portfolio which was the trigger to reduce the position. However, the recent two quarter results demonstrated that the business is more sensitive to input cost fluctuations than i thought and while they had a good run in recent times, they may not have it as good as they had in the past. Then the VIP AR came out. While it was generally positive about the industry, i got a sense that there may be an imminent slowdown in air traffic growth (albeit temporary) which needs to be validated in the future performance as i may be wrong on that one,

Safari in recent times has grown faster than VIP, but in the latest quarter it had a topline yoy growth of ~17.5% (not bad at all) and a fall of 50% in profitability whereas VIP results were relatively much better. All in all, i felt that the valuations were not justifying the cash flows and earnings.

Also there is a fund raising plan for a max amount of 100 cr by issuing equity shares which constitutes 50% of its existing shareholder fund. So currently on wait and watch mode to see how things pan out and at what price QIP is done.

Rest seems to be on track and i absolutely admire what the co and its employees have done to get to 500 cr of topline in a tight market

Best
Bheeshma

stocksearcher · July 17, 2019, 2:03pm

Got it, thanks for the prompt response.

Agreed that the recent quarters have been bad for the business and given the higher valuations, does cast doubts on the stock.

Though my guess would be that it is more of a short term blip and maybe a couple of quarters down things should pick up again.

Management seems to be on the right track and largely making all the right moves, with the right results as well.

Equity dilution would need to be watched out for. But my guess is as long as they are able to utilize the funds to boost growth as they’ve seem to have successfully done with previous find raises, things should work out fine. I’m hoping the pricing would also be done smartly though.

On the air traffic growth, I’m not sure about the global context, but in India I think it is more due to the absence of capacity from jet airways. All the other airlines are still growing rapidly I guess. So maybe just a short term impact, it at all.

T11 · July 31, 2019, 6:04am

Went through Safari Industry FY’19 Annual Report. Some good insights, ad verbatim:

The organised sector grew strongly during the year. This was driven by the continued shift of consumer preference from unbranded to branded products.
Strong growth in the Hypermarket channel was driven by both organic and inorganic expansion in the sector via new stores and geographies.
E-commerce channel continued to grow strongly with increasing digital penetration and increasing shopper maturity to make higher ticket purchases online.
Good growth was seen across general trade channel, but the growth in retail channel was muted due to pressure from other channels. Canteen Stores Department is the only channel that did not witness growth during the year.
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 has also delivered strong growth in the Backpack category with a multi-brand approach including Safari, Genius and Genie, that ensures that all major demographic segments have a relevant offer.
To meet the overall growth objectives, the Company is making significant investment to upgrade and increase its manufacturing capacity of polycarbonate luggage at its Halol Plant.
While there is a temporary drop in travel growth that is expected due to reduction in seat capacity in the airline industry, the overall outlook for the Travel & Tourism sector remains robust
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 range included several new to market concepts and was very well received across the channels and consumers.
The Company has started hedging its foreign exchange exposure to mitigate its risk arising out of foreign exchange fluctuations.
The Company 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.
Given rising competitive intensity, fast shifting consumer preferences and changing channel dynamics with the emergence of new age channels, to continue to outperform the market growth in the coming years is the biggest challenge.
In addition, the company has launched an e-commerce enabled website of the Company viz. www.safaribags.com
The Company is reaping benefits of implementing SAP system which has positive impact on operations and value chain.
To pass on these cost escalations, the company took a price increase for its certain products last year.
Considering the threats, opportunities and the strengths of the Company, the key task at hand will be to make the most of the category and channel growth across all price segments and
maintain margins to the best possible level without affecting volume growth.
The major risks as identified by the Company are overdependence on China for purchase of soft luggage, currency risk associated with imports, unfair competition etc.

Tarun

T11 · August 2, 2019, 8:12am

It surely helps to have ratios triangulated against industry peer/competitors to evaluate prospects standing in the packing order. Small effort to review some of the growth, profitability and liquidity ratios between VIP, Safari and Tainwala (holdCo for Samsonite).

Growth Rate: - During every time frames (10/5/3/1 years) Safari has demonstrated better Revenue and earning growth rate (except most recent y-o-y where Samsonite has some stupendous growth).

Margin Profile: - Safari margin has been lagging mostly by 300-400 bps to VIP all this while. Consolation is that there is gradual improvement.

Profitability: call it beauty of numbers, so very easy to identify man vs. boy. Again, VIP has almost 2x ROA, ROE and ROIC as compared to Safari. Safari improving gradually and have sufficient headroom, if pursued well.

Well, What is the differentiation for such stark divergence in ROA/ROE profile? Is it margin, gearing or asset turn? Actually, its amplified by a function of decent margin gap and slight inventory efficiency.

Efficiency: - Think this is the most important aspect to be evaluated well here. Safari has gruesome cash conversion cycle of almost 6 months . VIP “comparatively” better at 4 months .

What is really different is…

a. Inventory days almost identical at ~5 months. Not a surprise, rational was explained during Q3’18 concall for VIP industries. Basically, they pile up inventory whenever they are at better bargain position with Chinies vendors.

b. Safari on one hand is paying comparatively promptly to its vendors (possibly to extract best rates from vendors and thereby jack up sales/margins).

c. On the other hand, looks like Safari has ~2.5 months DSO as compared to ~1.5 months for VIP. Again, extending favorable terms to channels thereby ‘pushing’ sales. as a result,

I have been tracking both VIP and Safari for some time and have went through recent Annual reports, concall, presentation etc. My overall take at a very aggregate level:

Be design or by default, there is very neat segmentation of market pie between three players. High end market which is ~35% of organized market is ruled by Samsonite/American Tourister. Mid range market is pre-dominant by VIP with ~50% market. Good line up of product offering with established differentiation within segment - Carlton, VIP and Aristocrat (in the order). Entry level segment has been cornered by Safari with some overlap with Aristocrat from VIP.
Both VIP and Safari finds that entry level segment is growing really well. There is shift from unorganized to organized. Unorganized is approx 2x of organized industry thereby good head room.
VIP has created really remarkable franchise for itself right at the middle of pie. Lions share of market (>50%) and that too with decent profitability. Listening to concall gives an impression that they are fighting out really well with Safari on lower segment and Samsonite on upper.
coming to Safari, again very high growth for last couple of years. However, personally it appears that its little ‘pushed’ and not driven entirely by market ‘pull’. Margin profile, working capital needs , debtor days all of this is suggesting some heavy lifting going behind the growth.
Other way to look at this is, there is room for decent margin expansion should management focus changes.
May be little outlandish exercise, they will have ~250Cr. incremental sales in 2 years (@20% annual sales growth rate) entailing a need of ~75-100 Crs. of working capital (at ~30% working capital/sales ratio and no capex assumption). With current EBIT standing thin at 6%-7% they will have to go for equity dilution again (have done that every year for past couple of years) instead of debt. This time it could be sizable dilution if covering for 2+ years needs (may be upto 5-10% at a broad range with some broad assumptions).

@bheeshma - sorry to put you on spot. How do you see this extreme situation. Rapid growth → long cash conversion leading to further dilution → New equity further driving grwoth and the circle continues.

Images are not coming too well on post. Attaching the collated data sheet, surely will be worth your time. MS Collation sheet_Luggage_v2.1.xlsx (18.7 KB)

Thanks,
Tarun
Disc: Invested, less than 5% of current PF. This may change

bheeshma · August 2, 2019, 12:06pm

Hi @T11

Appreciate the work!

Recently, I had been to some tier-II cities in Maharashtra for some work and interacted with the local luggage retailers. There were many local brands on display along with VIP and in some cases Safari as well. The local brands were way cheaper and outsold VIP and Safari by a considerable margin and dealers were also more interested in pushing them as margins were higher than those offered by VIP/Safari. The product range was also limited in case of organized players while the local brands had all kinds of colors shapes sizes etc.

However, things are different during the marriage season and overseas travel where the brand comes into play. During the marriage season, the stocking pattern changes dramatically with Safari, VIP, Samsonite etc all in overdrive.

So the sense i got is that luggage selling for the known brands is a very focused and seasonal game where how you perform in that period determines your profitability metrics for the year. Since space is limited dealers have to be choosy and the co with does the max advertising gets preference and thats how VIP has managed to be as good as they are. During the marriage season even Dmart adds another shelf for luggage.

The unbranded luggage industry is always going to be significantly bigger than the branded plays as the price differential is 30-40% higher.

No branded play can compete with the mass of unbranded players so how they manage the working capital during the marriage and travel season is the main difference from the demand side.

With that context in mind, I have realized at the market size of the branded luggage players is not that big and significant investments in creating brand awareness and brand consciousness are required by Safari if it wants to grow the topline by another 500cr to reach 1000cr. For that it wil require major equity dilution. At a 1000 cr topline, all ratios will automatically behave in an appropriate manner.

Currently, am cautious and not in a hurry to make any decisions.

Best
Bheeshma