VIP Industries Ltd. and Safari Industries India Ltd. got a 'buy' rating from Investec, as the brokerage initiated coverage on the two firms. India's luggage industry is on a significant growth trajectory, driven by favorable demographics, evolving lifestyles, and increased aspirational travel, focusing on style and functionality, it said.
Investec has a target price of Rs 2,800 per share on Safari, and Rs 560 apiece on VIP.
The industry, currently valued at Rs 10,000 crore, is estimated to grow by over 50% to Rs 15,000 crore, it said.
Investec's analysis breaks down the growth factors into several key areas:
Air and rail passenger traffic.
Increase in working female population.
Shift from unorganised to organised sector (backpacks).
Reduction in replacement cycle.
Changing Distribution Channels
The landscape of distribution channels has changed significantly, impacting the luggage industry. Over the past decade, Indian consumers have shifted towards e-commerce, leading to the rise of several direct-to-consumer companies, Investec said in a note. E-commerce remains a key growth driver, with changes in marketing strategies being particularly encouraging.
However, traditional retail stores still account for the bulk of sales, and general trade is under-penetrated. Major brands like VIP and Safari are present in only 45% and 35% of retail counters, respectively.
Safari's Market Share Gains
Safari has seen strong market share gains over the past decade due to its well-spread distribution, focus on sales velocity through the right price, product placement, shelf space management, and store economics, the brokerage said.
It emphasised on importance of brand visibility in boosting revenues. Safari's marketing strategy, which focuses on the product as the brand without a brand ambassador, and emphasis on social media, marketplaces, and online TV, has proven effective, yielding Rs 6.6 of sales for every Rs 1 spent on advertising, it said.
Emergence Of D2C Players
The emergence of e-commerce has fostered new D2C players such as Nasher Miles and Mokobara, which reported a 45% revenue CAGR over FY20-23, compared to the top three players clocking an 11% CAGR.
Investec expects D2C players to gradually make inroads into traditional retailing, to enhance visibility and create brand pull, through loyalty and after-sales services. The emergence of new brands offers promise, with increasing competition and evolving strategies seen as positive developments, it said.
Shares of Safari Industries touched an intraday high of 10.36% compared to a 0.21% rise in the Nifty 50. While, VIP stock rose 5.6% intraday.
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