VIP Industries Vs Safari Industries- Q3FY20 Analysis

VIP Industries Vs Safari Industries- Q3FY20 Analysis

February 18, 20209:00 am

The luggage industry or Indian luggage industry is highly correlated to the economic condition prevailing in the country, given that luggage is a discretionary spend and not a necessity. Since we are in an economic downturn, it was expected the industry will face lot of headwinds. Even the closest proxy of luggage industry i.e. air traffic growth is struggling with a marginal growth of 3-4% compared to 18-20% last year. I will discuss more about it in the blog “VIP Industries Vs Safari Industries- Q3FY20 Analysis”

VIP Industries Vs Safari Industries- Q3FY20 Analysis

VIP Industries Ltd- Q3FY20 Analysis

VIP Industries continued to focus on profitability even amidst the slowdown, that led to company ceding market share to competitors. While competitors gained by doling out discounts. The year on year improvement in gross margin stood at 5.6% whereas on the quarterly basis it was stagnant.

The company launched travel bag specifically for Women traveler under Caprese brand. Now that is something unique. Such segment did not exist earlier, VIP industries is trying to create a new segment. You can view some of such bags here : Link

The company sources 50% of total volume from China and remaining 25%-25% equally split between India and Bangladesh. Quite visible from declining purchase of finished goods and increase in cost of services and raw materials.

Company sources about 25% of volume from Bangladesh and is running at 100% utilization. About 25% is sourced from their own unit in Nashik, Nagpur & Haridwar as well as source some amount of soft luggage from other Indian manufacturers. So the total dependence on China is about 50% of volume. 

VIP Industries Vs Safari Industries- Q3FY20 Analysis
VIP Industries Ltd- Q3FY20 Analysis​
VIP Industries Vs Safari Industries- Q3FY20 Analysis

Safari Industries- Q3FY20 Analysis

VIP Industries Vs Safari Industries- Q3FY20 Analysis
Safari Industries- Q3FY20 Analysis​

There was quite a good margin improvement for Safari Industries. The gross margin improved by a impressive 5.7% year on year and 1.2% quarter on quarter.  It seems like that with scale they have been able to have get better bargaining power as well as bringing in cost rationalization in their operations. Despite increase in revenue the employee cost and other expenses are more or less constant at 12% and 22% respectively. 

Even there was a healthy revenue growth year on year of 14.3% for the company.

SAMSONITE SOUTH ASIA PRIVATE LIMITED (Samsonite India)

I have the FY(Financial Year- Jan- Dec 2018) for the 3rd player which is Samsonite. For the FY, the revenue grew by 24% year on year with a healthy profit margin. The revenue increased from ₹1009 cr to ₹1261 cr while the profitability increased from 105cr(FY17) to ₹135.4 cr(FY18) implying a margin increase from 10.38% to 10.74%. SAMSONITE SOUTH ASIA PRIVATE LIMITED (Samsonite India) has much higher margins than its Indian counterparts. 

CoronaVirus Impact on these companies​

Safari bags imports almost all of its soft luggage from China which contribute 75% of its revenue (FY19) Annual report) whereas VIP industries derives 72% of its revenue from Soft luggage but they source the soft luggage from China, India as well as their own manufacturing units in Bangladesh, that limits the impact to some extent. 

Overall VIP Industries sources 50% of products from China compared to 72% of that of Safari Bags. So, VIP is in a favorable position to cater to the demand in case the China supply issue persists if factories in China continue to be closed for much longer.

VIP Industries Vs Safari Industries- Q3FY20 Analysis

Although VIP claims to focus on profitability and that was the reason for no volume growth. But if you look at Safari industries margins, there was similar improvement in margins along with volume growth. That may possibly because of lower base compared to already higher margins base for VIP.

During my recent scuttlebutt exercise, I observed American Tourister brand of Samsonite giving very tough fight to all the VIP brands. Samsonite brands include ‘Samsonite’, ‘American Tourister’, ‘High Sierra’ as well as ‘Kamiliant’. The distributors/retailers are willing to give higher discounts on Samsonite brands as compared to fixed discounts on VIP brands. Seems like Samsonite India is trying to gain market share while foregoing margins, which till last year was much higher than its competitors. Also, they are quite aggressive on E-commerce where it is more about discounts than anything else.

VIP Industries Ltd management on the concall assured investors that they will get back their market share but not on the cost of profitability. Let us wait and watch how this battle progresses.

Also, the progression into footwear, belts and similar products could be a good way to increase revenue and diversify the sales channel for these luggage companies.

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Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

4 Comments

  • Excellent analysis
    I do hold small qty Safari from IPO
    prefer stocks with low equity Good products and decent management.
    In case you have analyzed the following stocks let me have your opinion
    ROTO PUMPS.KANPUR
    ORIENT REFRACTORIES
    ORIENT ELECTRICALS
    MORGANITE CRUCIBLE
    GABRIEL INDIA
    GUFFIC LAB
    FDC LAB

  • K Sundaram says:

    Thanks for the honest review of company’s performance.
    I am looking your website everyday to check if any new analysis.

    • mm Shekhar says:

      Hi, It feels good to hear such kind words. I am just an individual, so it takes time for me to post one article.

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