Luggage Industry
The Luggage Industry
- On the cusp of a breakout
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Luggage Industry
Contents
Sr. No.
1
Title
Introduction:
Page No.
03
Nature of Industry
Global luggage Industry
Factors affecting luggage Industry
Market Positioning Comparison
Risks and Concerns
Porters Five Force Analysis
2
VIP Industries ltd.
10
Introduction
Product Categories
Performance of Various Brands
Distribution Channels
Management and BOD
Moat Analysis
Financials
Risks & Concerns
Valuations
3
Safari Industries (India) ltd.
24
Introduction
Product Categories
Distribution Channels
Management
Financials
Risks & Concerns
Valuations
4
Samsonite International SA.
Introduction
Performance of Product Categories
Acquisitions
Brand Contribution
Region-wise Performance
Management
Moat Analysis
Samsonite South Asia Pvt. Ltd.
Financials
Risks & Concerns
Valuations
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Luggage Industry
Luggage Industry
Since time immemorial, human race has used a plethora of options to carry their possessions viz. bags,
cases, trunks etc. The genesis of luggage industry can be traced since the beginning of the Roman
Empire, From its humble beginnings of carrying tools for primitive humans, to guiding CEOs and
businessman on first class flights, luggage has come a long way, Today, the luggage industry has
undergone tremendous improvisation which has availed travellers with slew of high performance
luggage options that are lighter, more durable and contain modern amenities.
In India, luggage and handbags have, over the recent years, managed to shed their traditional utilitarian
tag and have now evolved as lifestyle products.
Luggage can be categorized into 2 types:1. Hard luggage: - Hard luggage is usually made up of aluminum or polycarbonates. Customers
basically choose this type of luggage due to good-strength-to-weight ratio and adaptability under any
conditions.
2. Soft luggage: - The Soft luggage is made up of vinyl, cotton, polyester etc. Soft luggage is preferred
due to its lightweight and moldable nature
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Luggage Industry
Oligopolistic Nature of Indian Luggage Industry:
The overall luggage market in the country stands between Rs 7000 Cr. to Rs 8,000 Cr., according to
market estimates and approximately 40 per cent of this is dominated by organized players. VIP,
Samsonite and Safari constitute approx. 95% of total organized sector of the luggage industry. Brands
like Delsey, Tommy Hilfiger to name a few constitute the rest.
VIP is the leader with more than 50% market share (in terms of revenue), followed closely by Samsonite
around 35% share and safari account for rest.
The luggage market has been further categorized into travel, business and casual bags.
1. Travel bags in India consist of trolley bags, suitcases and duffel bags and rolling totes. It is the
largest growing category according to industry reports.
2. Business bags are primarily for business use. Special characteristics of a business bag include
convenience for carrying a laptop and documents, and these bags often come in the form of
rolling mobile office, briefcase or computer bags.
3. Casual bags are primarily for daily use, and include different types of backpacks, female and
male shoulder bags and wheeled duffle bags.
Luggage is a not a large industry as the primary product is not bought frequently. People buy a luggage
in two or three years or, maybe, five years, depending on their needs. However, women will not hesitate
to buy three or four handbags every year. The branded women’s handbag market is “maybe 5 percent”
of the total women’s handbag market in India. So the challenge—or the opportunity is to convince
consumers to switch from unbranded to branded bags.
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Luggage Industry
Global Luggage Industry:
Asian luggage market, excluding Japan is forecast to experience highest growth, primarily driven by
China and India. Growth is being driven by increasing consumer appetite for travel & tourism arising
from a general increase in disposable income.
In North-America & Europe, luggage markets are at more mature stage of development and are
correspondingly growing at lower rate.
Latin America is expected to grow at higher rate but challenging economic market conditions in some
countries like Brazil and ban on export from Argentina might affect overall growth rate.
Per capita expenditure on luggage is significantly lower in the developing regions than it is in the
developed markets of Japan, North America and Europe.
Going forward, consistent rise in per capita expenditure in developing nations augurs well for Indian
Luggage Market.
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Luggage Industry
Factors Impacting Luggage Industry
1. Increase in Travel & Tourism:
Luggage industry has shown an average growth of 15% over the last 5 years according to industry
estimates. Over the years, the growth in the luggage industry has been attributed to the growth in travel
infrastructure such as airports, railway stations, national highways, etc.
Burgeoning middle class with higher disposable income has ensured double digit growth in both
domestic and international air travel. By 2020, Indian aviation sector is expected to witness meteoric rise
in air traffic with an estimated target of 50 million outbound tourists every year, thereby presenting
promising prospects for the luggage industry.
Travel and tourism’s total contribution to GDP
(USD billion)
450
423,7
400
350
300
250
208,5
200
150
100
88
82
89
103
105
222,5
147,7
116 122,1 126,8
50
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2027F
Source: IBEF
In India, the sector’s direct contribution to GDP is expected to grow by 7.9 percent per annum during
2016–26, according to IBEF. The luxury travel market in India registered a growth rate of 12.8 percent
in 2016, the highest in comparison with any other BRIC country.
Govt. of India is also taking initiatives to improve railway travel and funds amounting to USD 82.5
billion are expected to be spent on projects in next 10 years. There is strong correlation between
passenger traffic and luggage. Growth in passenger traffic has been strong since the new millennium,
especially with rising incomes and low-cost aviation; during FY06-16, passenger traffic grew at a
CAGR of 11.8 per cent in the country.
Aided by macro drivers like GDP growth, rising personal income levels, changing lifestyles, huge
middle class as well as the availability of low-cost air fares and diverse travel packages, India is rapidly
becoming one of the fastest growing outbound travel markets in the world, second only to China.
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Luggage Industry
GDP of India is expected to grow at 7.7% in FY19 according to IMF forecast. So, we can safely
expect the luggage market to grow at a CAGR of 16%, double of estimated GDP growth rate
2. Rising Income and Urbanization:
GDP growth will increase per capita income and more spending on travel. Millennial, who constitute a
considerable portion of Indian population, travel and like to do so hands free, which in turn has resulted
in the growth for the backpack-duffle bag category.
Also, luggage has also become an important part of the wedding trousseau, with even people in Tier II
and III cities buying branded suitcases and strollers during the wedding season.
While the rural segment was traditionally catered to by the unorganized sector, branded players in recent
times have started launching products at reasonable price points to grab market share in this category as
well.
3. Paradigm Shifts in Industry Trends
Modern retailing and new fashion trends are also expected to drive the sale of casual bags and travel
luggage bags category. As per a Nielsen’s West report, the proportion of consumers who claim to shop
at Modern Trade ‘occasionally’ has grown from 54 percent in 2015 to 66 percent in 2016.
Hypermarkets have become a favorite destination for the urban shoppers and as almost all the luggage
brands are visible there. Apart from hypermarkets, luggage retailers are also tapping online marketplaces
including Flipkart, Amazon and are revamping their own online portal to catch eye balls.
4. Life after GST
While GST prima facie looks like a dampener with a higher rate of 28 percent compared to the current
revenue neutral rate of 18 percent. It may be countered to some extent in the short term, thanks to the
strength of the domestic currency. Strengthening of rupee and softer polymer prices should have a
sobering impact on input prices (largely imported from China).
However, companies may have to take price increase to maintain margins. The gap between organized
and unorganized may not reduce in short term but in long run, it will be beneficial for industry when
unorganized players will understand implication of GST and will not be able to do tax evasion.
5. Products Sourcing:Luggage industry of world source soft luggage mainly from china because luggage industry is labor
intensive and labor is cheap in china. Hard luggage is generally manufactured by organized companies
in-house. However, companies are in search of alternative vendors to reduce dependency on China.
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Luggage Industry
Market Positioning Comparison:
Source: Frost& Sullivan, Maybank Kim Eng
Risk and Concerns:
1. Stiff competition from unorganized sector- Size of the unorganized market is 60%, whereas
the organized market is 40%. The unorganized segment continues to grow at a faster rate as most
of the players import luggage from China, Singapore and Thailand which is aggressively priced
as the quality is substandard.
2. Fluctuation in exchange rates: - Any appreciation in dollar could hit luggage industry. Though
companies import from china but transactions are done in USD. As mostly soft luggage demand
is increasing and constitute major portion of sales, exchange rate affect companies profitability in
a significant manner.
3. Dependence on China: - Labor cost of china is expected to increase as china will become
middle labor country. So cost of luggage is likely to increase as luggage is labor intensive
industry.
4. Seasonality: - Luggage industry depends on two things- travel and marriages. So Q1 and Q3 are
quarters during which luggage is sold more. One bad quarter can impact the entire year growth &
inventory carrying cost is also high as it is working capital intensive business.
5. Increase in raw material prices:- Increase in prices of raw materials like polyester, cotton,
aluminum, crude oil, etc will impact the Gross margins of companies.
6. Economic factors: - Luggage is a discretionary spending which depends on GDP of country. So
any hindrance on economic growth will impact the luggage Industry.
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Luggage Industry
PORTER’S FIVE FORCES ANALYSIS:KEY POINTS
THREAT OF NEW
ENTRANTS
DETAILS
CONCLUSION
1. Supply chain management is very important in order LOW THREAT
to make product available at various touch points which
cannot made overnight.
2. Inventory management is a significant factor as
importance of product availability is paramount owing to
high opportunity cost of lost sales.
THREAT OF
SUBTITUTE
COMPETITIVE
RIVALRY
BETWEEN
EXISTING
PLAYERS
BARGAINING
POWER OF
BUYERS
BARGAINING
POWER OF
SUPPLIERS
3. Some Brand loyalty of customers in branded luggage.
1. There is no switching cost in luggage as one will buy LOW-MEDIUM
from vendors who cater to consumers’ needs and tastes THREAT
like soft luggage more or less replaced hard luggage.
2. The industry is less prone to disruption as there is no
other alternative to luggage. However the trends within
the industry can change quickly. So, the incumbents need
to stay abreast with the latest trends in the industry to
maintain their competitive edge in the market.
1. Luggage Industry is highly fragmented with large HIGH
number of players. However, branded player like COMPETITIVE
Samsonite, VIP, Safari etc. are fiercely competing for INTENSITY.
their share of market pie.
2. Stiffer competition, particularly in the non-luxury,
high-volume, low-price segment.
1 Organized player has moderate pricing power for their MEDIUM
products.
BARGAINING
POWER.
2. Unorganized market with myriad players experience
stiff competition, hence the players relinquish their
bargaining power to the buyers.
1. Soft luggage is mostly imported from China & HIGH
company stick to particular suppliers as they understand BARGAINING
the quality & design required by company.
POWER
2. Raw Material for hard luggage for branded companies
is bought from a single vendor in Indi so again not much
control over pricing.
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Luggage Industry
VIP INDUSTRIES LIMITED
VIP Industries, one of the India’s largest luggage makers, possesses a market share of more than 50 per
cent in the organized luggage space.VIP Industries manufactures hard luggage while soft luggage and
handbags are mainly imported from china. The company also exports its products, across, the UK, and
the US, Germany, Spain, Italy and select African and South-East Asian countries.
Product Sourcing
Company manufactures hard luggage in-house and has three manufacturing plants in India. The raw
materials mainly consist of Polycarbonate, Aluminum Sections, Polypropylene & other materials. The
company purchases raw materials for manufacturing of hard luggage segment. While for soft luggage,
the distribution, design and branding is taken care by VIP Industries, whereas the manufacturing part is
outsourced to China.
Reducing dependence on China
To reduce dependency on China, the company has taken a strategic decision to setup a soft luggage
manufacturing facility in Bangladesh. The company chose Bangladesh over India for two reasons:
i)
As raw material is imported from China, setting up a plant in India does not elevate the
problem of currency.
As luggage industry is primarily labor intensive. Surfeit of cheap labor in Bangladesh
compared to India & China may help bolster the company’s margins.
ii)
Cap-Ex plan in Bangladesh Plant
Bangladesh manufacturing unit is a wholly owned subsidiary of the company which started its
commercial production in January 2014 currently operating at 90% utilization capacity .They are
investing Rs. 25 Cr. in Bangladesh plant to double the current capacity in FY18 and will be able to do
successful expansion in next 12 months.
Soft Luggage vs. Hard Luggage
Revenue Contribution (FY
17)
25%
Soft Luggage
75%
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Soft luggage 90% is imported from china and
10% comes from Bangladesh plant of company.
While handbag, 75% imported from china and
rest 25%, is bought from Indian vendors and they
are planning to make it 50:50.
Today 75% of company’s revenue comes from
soft luggage which also includes handbags
category and 25% contribution is of hard luggage
Luggage Industry
Company’s export plans in Hard Luggage Segment
The hard luggage segment contributes 25% to the topline and its declining due to changed consumer
preferences. However, company did not want to shut plants and want to utilize their hard luggage
facilities for exports.
“There are only three hard luggage factory in world (including us) and we are thinking that we export
hard luggage to world” says Radhika Piramal (Vice-chairman).
Soft luggage is growing faster than hard luggage, the only category growing in hard luggage is
polycarbonate category because it matches the convenience and features of soft luggage i.e.; lightness
and four-wheeling. So they set up a new plant in Haridwar (Uttarakhand) in 2010 mainly for
manufacturing polycarbonate luggage.
Handbags Market
The market for handbags, office bags and backpacks is much larger than the luggage market as there is
repeat buying by customers and VIP is seen increasingly focused on introducing travel products for the
short haul, viz., business bags, ladies bags, backpacks etc.
Product Categories
Through its multiple brands, VIP Industries has presence across various price points, which is one of its
core strengths.
The positioning of the brands mentioned is given below:
BRANDS
VIP
ALFA
YEAR
1971
1971
CARLTON
ARISTOCRAT
SKYBAGS
CAPRESE
BRANDS POSITIONING
Mass-mid premium
Mass market targeted to convert consumers
purchasing unbranded luggage to VIPs products
Bought in 2004 But launched in Premium international brand, targeted towards young
India in 2011.
professionals
Value for money
2007
1980s, Re-launched in 2012
Youth oriented, stylish
Mass premium, targeted towards fashion conscious
2012
urban women’s
Market Position of VIP
Over the past few years, VIP has wrested share from Samsonite across segments, though it has lost share
to Safari, primarily in the value segment. VIP gained large market share in backpacks and has become
the market leader from a nil presence a few years ago.
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Luggage Industry
PERFORMANCE OF VARIOUS BRANDS
VIP: - The Company is having the most trouble growing VIP, the flagship brand. Youth doesn't identify
with VIP brand so company thought of promoting sky bags as a youth brand and re-launched it in 2011.
Now, the company is making significant efforts to rejuvenate VIP brand by spending more on
advertisements.
Skybags: - Company successfully re-launched Skybags in 2011, a mid-segment brand of backpacks and
duffle-bags that VIP Industries had introduced in the 1980s. With its quirky colours and graphic prints,
Skybags is the best performing brand in VIP’s kitty.
Carlton:-VIP Industries is facing immense competition from Samsonite in Rs 10,000 and above
segment. To counter this, company decided to launch Carlton, the British brand that VIP had acquired in
2004, in India. It has been growing well but premium segment is still dominated by Samsonite. As
Carlton is the highest margin brand for company, they are focusing on Carlton to gain some market
share from Samsonite.
Aristocrat and Alfa: - As competition heats up in the value segment with home grown player Safari
opting for aggressive discounts, Company is turning their focus towards Alfa and Aristocrat—VIP’s
entry-level luggage brands. Samsonite which was earlier not present in value segment also launched its
brand “Kamilian” to target masses. Since Alfa and Aristocrat will be brand seeing the conversion most
from unorganized to organized, company has shifted their focus to these brands now to capitalize the
opportunity.
Caprese: - VIP Industries launched women’s handbags under the brand name Caprese in 2012. The
rationale was simple: Typically a woman might have five or 10 handbags, whereas a whole household
will have only two or three pieces of luggage.
“It’s a huge market and no big national brands were catering toit” says Radhika Piramal (Vicechairman).
The bags are priced between Rs.2000 and Rs.4000 and cater to the mass premium segment. Gross
margins are higher in handbags compare to typical luggage product.
DISTRIBUTION CHANNELS
VIP Industries has presence across all channels and its strong distribution along with product mix is the
main reason they are been able to maintain their market share. VIP has 3000 direct dealers, 100
distributors having 7000 point of sales, 250 company owned stores and presence in all hypermarkets like
big bazaar, lifestyle, etc.
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Luggage Industry
Distribution Channel
Canteen store
Department:-
Current Situation
CSD is a retail store facility extended exclusively to all defense
personnel and their dependents, where the products are provided at
lower prices than the prevailing market prices.
20% of company’s revenue comes from Canteen Store Department
(CSD) channel.
Safari is giving stiff competition to VIP in this segment. They have
been successful in reducing CSD’s contribution to VIP’s revenues
from 25% to 20%.
VIP has lost share to Safari as they are pricing their product
aggressively.
To cater that, company launched their Skybags brand in CSD apart
from earlier presence of VIP Brand only.
Rise of Modern Trade:-
Among all the channels, the hypermarket channel continues to witness
the strongest growth which also suggests that Indian consumers prefer
affordable luggage and convenience of modern shopping formats.
Modern trade is most important channel for company because of high
growth prospects and also because unorganized market does not have
access to these stores.
Direct Dealers:-
Company has been struggling to grow in traditional channels like
direct dealers and retailers because of shift in shopping trend of people
towards modern trade.
They have been consistently working to train their dealers in order to
increase consumer satisfaction.
E-Commerce:-
Company’s sales through e-commerce channels are currently at its
nascent stage (less than 5% of revenue).
Initially, the company struggled to increase its sales through ecommerce as it would’ve created a direct conflict between retailers
and e-commerce channel.
Company has successfully launched new product mix for Ecommerce
channel and sells their products from their own online portal as well as
from other online market places like Amazon, Snapdeal, etc.
Caprese Distribution
VIP capitalize their distribution channel by selling Caprese directly
from their company run stores as well as from modern trades and
Ecommerce channels.
Although, Dealers are reluctant to accept Caprese being the new brand
of Company.
Caprese is now present in 350 direct point of sales.
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Luggage Industry
MANAGEMENT AND BOARD OF DIRECTORS
Piramal Empire
o The Piramal family acquired Aristo Plast in 1973 and turned it into VIP Industries.
o The three heirs of Piramal empire manage the following businesses:
o Ashok Piramal ( Textile and auto components)
o Dilip Piramal ( VIP Industries acquired in 1982)
o Ajay Piramal (Piramal Healthcare, Finance and Real Estate)
o There are no cross holdings or linkages between the different groups.
Dilip Piramal: Holding the Reins of VIP Industries
o Until 2010, Mr. Sudhir Jatia was the managing director of VIP Industries ltd. The company did
achieve growth under Sudhir’s leadership and industry preferences were shifted towards soft
luggage side.
o However, VIP as a brand was struggling and he wanted to keep VIP away from hypermarkets
and offer Skybags as a discount offering. But chairman Dilip Piramal does not wanted to
compromise on VIP, their flagship brand and wanted to cater the youth segment.
o Dilip ran the business with professional help until his daughter Radhika Piramal took over as
managing director in July 2010, after completing her MBA from Harvard Business School
(HBS) and a stint at consultancy firm “Bain & Company” in New York.
Radhika Piramal understood that and made three important changes during her tenure:
Launch Skybags as
youth brand as VIP as a
brand was considered
old by young
Generation. She is also
trying to change image
of VIP brand with
advertisements.
.
14
She also launched a
handbag under the
name “Caprese” to
cater hand bags market
which according to her
is 7-8 times larger
market then luggage
and is growing quite
well.
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To reduce dependency
on china for soft
luggage, company
started manufacturing
plant in Bangladesh
and its running
profitable and also
have good supply
chain.
Luggage Industry
According to Mr. Dilip Piramal, her daughter Radhika breathed fresh air into the company. “The best
thing was that she was able to attract good managers. People were again willing to work with VIP.
Change of Management’s Roles and Responsibilities
o In Mar’17, Radhika Piramal stepped down as the Managing Director of the company and has
donned the role of Vice Chairman and Executive Director of the company.
o In this capacity, she is going to take care of the international business and keep the company
abreast with the latest trends in international markets.
o Meanwhile, Mr. Dilip Piramal, an industry veteran with over 45 years of experience, will look
after the joint responsibility of Chairman and Managing Director.
Successfully Grappling Samsonite’s Onslaught
o VIP Industries is an owner operated business with not so major poor capital allocation record.
o However, one can point about the judgments that they were not were able to foresee future trends
and lost share to Samsonite, but they reacted & are able to protect their leadership position as of
now.
High Promoter’s holding
o Promoter holdings are 52.5%, suggesting their confidence in business. Dividend payments are in
line with profits and company has not issued any major warrants or stock options to employees.
Management’s aversion to Derivatives
o Luggage industry is impacted by exchange rates because of imports of soft luggage mainly, but
as soft luggage is bought frequently it is not possible to hedge the transaction with supplier.
However, company’s exports are 30-40% of import so they have natural hedge of 40% for
remaining they don't hedge for long run.
o One of the incident which shows the integrity of management is “ when analyst in conference
call asked Mr. Piramal to separately hedge their transaction in derivatives market, his reply wasderivatives are very risky we don’t want to take that risk and wipe out our capital” Management
is not speculating shareholders money in derivatives by the name of hedging.
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Luggage Industry
MOAT ANALYSIS
Key point
Details
Conclusion
Management
o Radhika Piramal will be executive director while Narrow moat
promoter Mr. Dilip Piramal will have joint
responsibility of chairman and managing director.
o While they are stating that Radhika will look for
international trends in London and we have good
management team at top level
o But there is definitely a sign of worry as there is no
proper succession planning by company.
Brand
o VIP has been successful in establishing a strong brand Wide moat
in the consumer’s mind.
o They are continuously spending on advertisement to
further strengthen their brands in the market.
Distribution
o Company is having strong distribution network which Wide moat
has helped them to retain leadership position despite
high competition in industry.
Pricing Power
o A company hike price of products twice every year, Wide Moat
generally 5-6% price hikes is expected by them
annually.
o Company has pricing power as they are able to pass
some of their cost to consumers.
o Because of GST’s higher tax slab for luggage, they
might take more price increase to maintain margin and
sales growth.
Technology
and R&D
o Luggage industry is also impacted by technology but Wide Moat
changes are rather usual than abrupt.
o Company has been successful keeping a pace with
changes in industry and several innovations patented
nationally and internationally.
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Luggage Industry
VIP Industries Ltd. - Common Size P&L Account
Year / Rs Crore
Expenditure
Cost of Material Consumed
Purchase of Traded Goods
Change in Inventories
Employee Cost
Ads, Sales Promotion & Other Expenses
Total Operating Expenditure
Gross Profit
Operating Profit / EBITDA
Other Income
Depreciation
Profit Before Interest & Tax (PBIT)
Interest/Finance Costs
Profit Before Tax
Current Tax
Other Taxes
Total Tax
Profit After Tax (PAT)
FY11
FY12
FY13
FY14
FY15
FY16
FY17
21.6%
28.6%
-3.7%
10.0%
27.8%
84.3%
53.5%
15.7%
0.4%
2.0%
14.2%
0.5%
13.7%
3.0%
-1.1%
1.9%
11.8%
19.5%
31.9%
-3.2%
9.5%
28.6%
86.2%
51.9%
13.8%
0.2%
2.0%
12.0%
0.8%
11.1%
2.3%
1.0%
3.3%
7.8%
17.8%
35.0%
0.3%
10.1%
28.6%
91.8%
46.8%
8.2%
0.2%
2.4%
6.0%
0.6%
5.4%
1.8%
-0.1%
1.7%
3.8%
15.7%
42.0%
-3.1%
9.6%
27.5%
91.7%
45.4%
8.3%
0.3%
1.8%
6.8%
0.2%
8.2%
2.3%
-0.1%
2.3%
6.0%
15.6%
43.7%
-4.5%
10.5%
27.5%
92.6%
45.3%
7.4%
0.2%
1.7%
6.0%
0.1%
6.3%
1.9%
-0.1%
1.8%
4.4%
15.2%
43.8%
-4.5%
10.3%
26.3%
91.1%
45.5%
8.9%
0.2%
1.2%
7.9%
0.1%
7.8%
2.4%
0.0%
2.4%
5.5%
12.2%
40.4%
0.4%
11.1%
25.6%
89.7%
47.0%
10.3%
0.5%
1.1%
9.7%
0.0%
9.7%
3.2%
-0.1%
3.1%
6.6%
Source: annual reports
o Gross profit has been going down consistently over the last few years. The primary reason for
this trend is
Rupee depreciation against the dollars
Rise in raw material price.
All soft luggage and raw material for hard and soft luggage are bought in US dollars from china.
Gross Margin has been picking up since FY17 owing to a stable rupee dollar exchange rate.
o Employee cost has risen continuously as company is training employees to push products in
hypermarkets, CSD and in company run stores. Company makes sure that they have their
employee at requisite channel with good understanding about product to push sales.
o Operating profit decreased immensely in FY13 almost were half compare to FY12 because of
two reasons:1. Canteen store department (25%) which was VIPs biggest customer (accounts for 25% of
overall sales at that time) held new orders for some time due to some internal changes in
department. They again started to buy from FY 14 but company lost some market share
to safari in CSD because of their aggressive pricing.
2. CSD sales decline along with depreciating rupee, increase in raw material price and
increase in employee & advertisement cost lead to decline in operating profit.
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Luggage Industry
o Revenue has grown at a CAGR of 9.3% from last10 years and at 11% CAGR from last 5 years.
Net Sales
1400
1216,45
1200
972,82
INR Cr.
1000
758,43
800
600
573,53
563,38
FY08
FY09
1275,2
1047,69
860,26 837,66
643,78
400
200
0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Source: annual reports
o FY13 was affected because of decline in CSD sales, whereas in FY16 company received one
time institutional order for Hajj Pilgrims for around 50 Cr. for which there was no bidding in
FY17. Company was able to increase sales in FY17 compare to FY16 in spite of demonetization
and no institutional order.
o Company has been maintaining a healthy dividend payout and is more or less in line with the
reported profits.
Dividend Payout
50,00%
45,00%
40,00%
35,00%
30,00%
25,00%
20,00%
15,00%
10,00%
5,00%
0,00%
44,83%
29,20%
31,60%
41,45%
42,60%
33,62%
13,51%
FY10
FY11
FY12
FY13
FY14
Source: annual report
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FY15
FY16
FY17
Luggage Industry
Advertisement and Promotions:Luggage industry depends on two things: - i) Marriages ii) Travelling. Both these factors suggest that
luggage industry is seasonal. The company clocks majority of its revenues from Q1 (due to summer
vacation and marriages in North Eastern regions of India like UP, Bihar etc,) and Q3 (being the festive
season).
Company’s advertisement campaign is most active during the peak season in order to attract more
customers. Overall VIP spends 5%-7% of sales on Advertising and promotions.
Ads & Sales Promotion Spend
(% of sales)
80
5.81%
70
5.87%
INR Cr.
60
50
40
6.02%
6.01%
5.19% 5.26%
4.91%
30
20
10
0
Ad and sales promotion Spend
FY11
37,21
FY12
44,64
FY13
44,1
FY14
57,06
Source: annual reports
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FY15
62,97
FY16
70,7
FY17
76,78
Luggage Industry
Steps taken to rejuvenate the Brand
o The company is relentlessly working towards making luggage a lifestyle product. They have
signed Bollywood veteran Hrithik Roshan for their flagship brand VIP to depict the strength and
durability of the product.
o Similiarly, the company has meticulously chosen current style icons “Varun Dhawan” for
“Skybags” and “Alia Bhatt” for “Caprese” in order to target youth of the country.
o As company is turning their focus towards Alfa and Aristocrat—VIP’s entry-level luggage
brands, company recently appointed brand ambassadors “Rohit Sharma” for “North Indian
Market” and “R. Ashwin” to reach out customers in South. Aim is to penetrate tier III and tier II
towns primarily through general trade and hypermarkets.
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Luggage Industry
Balance Sheet Strength:o VIP Industries has equity of Rs 28.26 Cr divided in 14.1 Cr. shares of Rs 2 each. The net worth
stands at Rs 408 Cr. as on march’17.
o Company is debt free and holds Rs 11 Cr. in cash & cash equivalents.
o Industry generally keeps inventory of 3 months because opportunity cost of losing sales is way
more than the carrying cost.
o Hypermarkets and CSD channel take more time to pay receivables compare to other channels.
The cash conversion is quite long of 77 days.
o The ROE and ROCE are healthy for FY17. ROE is 20.68% and ROCE is 35.96% and average
ROCE for last 10 years is 25.78%.
o Asset light model helps company to earn high ROCE but because of Industry nature, they are
required to have high working capital needs.
o Company has also implemented “Theory of Constraints” (TOC) as it helps to maintain entire
supply chain by improving availability of products and managing inventory.
Risks & Concerns:o VIP Industries is impacted by CSD channel as 20% of revenue contribution comes from CSD
where the Safari is fiercely competing with VIP
o CSD channel is vulnerable to structural changes in govt policies which can severely impact
VIP’s revenues as it did in FY13.
o Even after GST, channel has made a policy decision of not buying luggage until they have sold
pre-GST stock which has impacted company sales.
o Traditional dealers, which constitutes lion’s share of company’s revenues, are struggling to
maintain a healthy growth rate. It would be a challenge for VIP, how they will deal with dealers
in coming years and encourage them to make changes to increase customer experience.
o International business has also de-grown from past few years because of subdued market
condition in UK and Europe & problem with their major dealer. However, in recent conference
call of March’17, management said that they have resolved the issues with the dealers and
expecting growth from FY18.
o There is disputed sales tax liability of Rs 106.89 Cr. upon company for which company has
made no provision. VIP believes that they will resolve the matter as they are been taxed twice for
same products so there is no need for provisions.
o Radhika Piramal will be executive director and she will be in London from now onwards.
Management has maintained that because of advancement in technology, she would be able to
manage from London easily but we have to watch out for the company’s performance in her
absence.
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Luggage Industry
VALUATIONS
o At Rs 178, VIP Industries ltd trades at a:
Price-earnings ratio
Price to book value
33
Price to Cash Flow
6.35
Ev/Ebitda
Source: screener.in
20.23
19.15
o Company is quoting at high multiples but before making any judgment, let just calculate what
growth rate the market is applying to the current stock price by using reverse discounted cash
flow (DCF).
o Assumptions:-Initial cash flow is 54 (average cash flow of last 3 years), discount rate
(opportunity cost of capital) is 12% and terminal growth rate after 10 years is 0.
o By doing reverse DCF with above assumptions, I found that implied growth rate by the market is
25%. i.e.; Market is expecting that VIP Industries will be able to grow their cash flow at 25% for
next 10 years.
o If we look at the growth rate of cash flow for past 10 years, VIP Industries is able to grow their
cash flow at 28.49%. Free cash flow => Cash from operating activities minus payment for
purchase of fixed assets.
Year / Rs Crore
FY08 FY09 FY10 FY11 FY12 FY13
Net cash from operating activities
25.1 33.2 83.9 12.81 84.07 73.71
Payment for purchase of fixed assets
12.8 16.3 10.9 19.11 20.57 16.42
Free Cash Flow
12.3 16.9
73 -6.3 63.5 57.29
FY14 FY15
50.26 13.59
20.48 10.84
29.78 2.75
FY16 FY17 10 YR CAGR
53.38 126.4
10.26 9.12
43.12 117.3
28.49%
Source: annual report
o Looking at the above growth rate, the implied growth rate of 25% by market may not be
impossible but it’s certainly on a higher side. It would not be feasible to assume that historic
performance will reflect in future.
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Luggage Industry
Expected Return model:Before we jump to conclusion, let’s try to calculate return by using Expected Return model:Expected Return Model - VIP Industries Ltd.
Particulars
Earnings per Share (Rs )
Net Profit Margin
Return on Equity
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 CAGR (10-Yr) CAGR (5-Yr)
2.1 (0.2)
4.1
6.3
4.8
2.2 3.0 3.0 4.7 5.9
12%
4%
5% -1% 9% 12%
8%
4% 4% 4% 5% 7%
23% -3% 45% 51% 30% 13% 16% 14% 21% 22%
Source: annual report
Assumptions:
1. Taking optimistic scenario that EPS will grow at a CAGR of 15% in next 10 years.
2. Using an exit multiple of 20x.
Calculations
Estimated CAGR in EPS over next 10 years
15%
Estimated EPS after 10 years
24
Current P/E (x)
33.0
Exit P/E in the 10th year from now (x, Estimated) 20.0
Estimated Stock Price (10th year from now)
479
CMP (Rs)
178
Estimated CAGR Return in 10 Years
10.4%
o After taking even the optimistic scenario, if we invest today at a price of Rs 178 for ten year
horizon, we will earn a CAGR of 10.4%.
o 10 year government bond yield is around 7.8%, so investing at current price does not adequately
compensate for the market risk.
o Being conservative, when we take a 10% EPS growth rate for 10 years, estimated CAGR Return
is 5.6%, below the 10 year Govt. bond.
Conclusion: - VIP Industries looks good if we consider that business is easy to understand, ethical
management, owner operated with more than 50% of stake, good future prospects with low penetration
of branded luggage having large unorganized market but at current market price, I believe much of the
future growth is already factored in and does not provide adequate margin of safety.
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Luggage Industry
SAFARI INDUSTRIES (INDIA) LIMITED
Safari Industries is the third-largest luggage maker in India after Samsonite and VIP. The company was
incorporated in year 1974 under the aegis of Mr. Sumatichandra Mehta. Safari started off with
manufacturing of plastic moulded luggage company.
In a span of 6 years, the company transitioned from being a partnership firm to a private company and
finally got listed in the year 1980. Over the last 3 decades, safari has become synonymous with luggage
and has been able to grasp a decent market share in the industry.
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Luggage Industry
Takeover of Safari:
1. Mr. Sudhir Jatia is a luggage industry veteran with 22 years of experience in the industry.
Earlier he served as the Managing Director of VIP Industries. He acquired Safari Industries,
which was struggling at the time with immense competition from VIP and Samsonite, in the year
2011 for around 29 Cr. He was appointed as the Chairman and Managing Director in April 2012
2. In 2014, an alternative asset management firm “Tano Capital” which invests in rapidly growing
companies in India and China acquired 20% stake for $ 8.5 million.
3. The company utilized the proceeds from the stake sale in corroborating its advertising and
distribution channel along with improvement in their working capital cycle.
Acquisition by Safari:
Genius Leathercraft:o In year 2014, Sudhir Jatia led Safari diversified into school bags and backpacks by acquiring
Genius Leathercraft which manufactures and exports multi-utility bags with a special focus on
school bags and backpacks under their flagship brands ‘Genius’ and ‘Genie’ respectively.
o In luggage and executive bags, Genius Leathercraft used to operate under the brand Magnum. Its
other brands are Activa, Orthofit, DBH, Egonauts, and Gscape.
o 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.
o Sudhir Jatia, managing director of Safari Industries, has signed an agreement with Genius
Leathercraft to buy trademark and goodwill of these brands. With the acquisition, luggage maker
Safari Industries will mark its entry into the school-bags and backpacks segment.
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Luggage Industry
Product Sourcing:
Till 2012, most of the company’s revenue used to come from traditional hard luggage which was
manufactured at an in house facility in Halol, Gujarat. Since then the company has aggressively started
importing soft luggage from China to keep them abreast with changing customer preferences.
Revenue Contribution (FY 17)
20%
Soft Luggage
80%
Hard Luggage
Changing customer preferences has led
to a paradigm shift in product
composition of the company.
Today, 80% of company revenue
contribution is from soft luggage and
20% from hard luggage versus 80%
from hard luggage in FY06.
Product Portfolio of Safari Industries:
category
Soft luggage
Hard luggage(PC)
Duffel bags
Backpack
Hard luggage(PP)
School bags
No. of SKUs
>20
>10
>10
>30
>15
>20
Popular categories
SAFARI Primus, Safari Sahara
Safari Thorium Deluxe
Safari REVV RDFL
Safari Guitar Reloaded, Safari Boom box
Olympus Trolleys
Genius Champion, Genius Disney, Genie Disney.
Source: Ambit Research
In the past few years, Safari has been successful in taking away the market share of VIP industries and
other unorganized players by channelizing its focus in the value segment with its aggressive growth
strategy. The company is fiercely competing with “Alfa & Aristocrat” (VIP) and “Kamiliant”
(Samsonite).
The company has aggressively priced its products, compared to VIP and Samsonite, to consolidate their
position in the industry. Although, the strategy has resulted in increasing the market share of the
company but has led to dwindling profit margins.
The company has already planned some serious inroads in the premium segment. They have signed
fresh contracts with new vendors and hired a team of designer to make the products Indo-centric.
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Luggage Industry
Distribution Agreement with Antler:
Safari also signed distribution agreement for India with Antler, a leading UK brand. Antler is competing
against the Samsonite brand in the Indian market. This will enable company to penetrate into
the premium segment of market.
Antler offer travel goods such as roller cases, trolley, laptop cases, casual bags, totes and messenger
bags from its classic and couture collection.
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Luggage Industry
DISTRIBUTION CHANNEL
Multi-channel distribution network covering CSD, Hyper market, MBOs, e-commerce and institutional
with 3500 customer touch points:
Distribution
Channel
Canteen store
Department:-
Current Situation
CSD is the main contributor of revenue (management suggest 35% revenue
contribution). However, the company has been successful is reducing its
dependence on the CSD. The contribution of CSD has declined from 65% in
FY14 to 35% FY17, because of growth in other channels.
Rise of Modern
Trade:-
Company has significantly improved its product range in the last few years and
which has gained acceptance in hypermarket & in departmental stores.
Direct Dealers:-
Company has maintained cordial relations with the dealers. They meet them on
regular basis and incorporate their feedbacks for further improvement in their
products. The value segment is a push product hence the role of dealers becomes
paramount. The direct dealer channel is showing robust growth which augurs well
for the company in the future.
E-commerce:-
Company has its own web store Safari.in. The web-store has segregated all the
products based on their usability such as four wheel, two wheel, duffel, business
case, suitcase, bag packs etc. In 2015, Safari went online and since then has
amassed significant presence in the online market places like Amazon, Flipkart,
Snapdeal etc.
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Luggage Industry
MANAGEMENT:
Safari has enviable management pedigree. All top brass management personnel have years of experience
working with VIP Industries which holds numero uno position in the organized market. Following are
the details of senior management team:
Name
SudhirJatia
Designation
CEO and Chairman
Experience
2 decades of experience with luggage Industry, earlier
managing director of VIP Industries.
VineetPoddar
CFO
20+years of work experience, earlier CFO in Bombay
Realty at Bombay Dyeing
SatyabrataMitra
Sr. VP-CSD Sales
4 decades of experience; worked with VIP Industries
Parmod Agarwal
VP-Hyper Sales
3 decades of experience with VIP Industries
Indranil Roy
Sr. VP-Trade, Retail,
E-comm., Instl. Sales
>2 decade of experience with several companies
including Whirlpool, Panasonic India, VIP Industries
Sharad Chaugule
VP-Halol(Operations)
3 decades of experience with VIP Industries and
Hitesh Plast.
Anup Kondakundi
DGM Marketing
(Luggage)
>8 years experience with companies like Godrej
Philips, Diageo USL, etc.
Rajiv Kshatriya
GM Marketing (School
Bags)
11 years of experience with companies like Mortein
equity, Durex & Kohinoor, etc
Paritosh Sinha
General Manager15 years of experience with companies like Panacea
Genius Sales.
Biotech, Berger Paints, VIP Industries, etc.
Source: Ambit Research
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Luggage Industry
Safari Industries India Ltd. - Common Size P&L Account
Year / Rs Cr.
Expenditure
Cost of Material Consumed
Purchase of Traded Goods
Change in Inventories
Employee Cost
Other Expenses
Total Operating Expenditure
Gross Profit
Operating Profit / EBITDA
Other Income
Depreciation
Profit Before Interest & Tax (PBIT)
Interest/Finance Costs
Profit Before Tax
Current Tax
Other Taxes
Total Tax
Profit After Tax (PAT)
FY11
FY12
40.7% 34.0%
26.0% 40.0%
-4.9% -13.2%
11.3% 12.2%
18.4% 23.4%
91.5% 96.4%
38.2% 39.3%
8.5%
3.6%
1.6%
0.6%
0.5%
0.6%
9.6%
3.5%
3.8%
4.6%
5.8%
-1.0%
1.7%
0.0%
0.1%
0.1%
1.8%
0.1%
4.0%
-1.1%
Source: annual reports
FY13
FY14
FY15
FY16
20.7%
43.9%
-8.6%
12.9%
27.3%
96.2%
44.0%
3.8%
0.8%
0.5%
4.1%
3.3%
-1.2%
0.0%
-0.6%
-0.6%
-0.7%
15.4%
49.8%
-9.8%
10.7%
30.1%
96.1%
44.7%
3.9%
0.4%
0.8%
3.5%
3.0%
0.3%
0.0%
0.3%
0.3%
0.1%
10.9%
52.4%
-7.1%
13.5%
26.2%
94.4%
42.3%
5.6%
0.3%
1.3%
4.5%
1.3%
2.7%
0.9%
-0.2%
0.7%
2.0%
12.6%
48.6%
-5.5%
10.5%
27.4%
93.6%
44.3%
6.4%
0.3%
1.5%
5.3%
0.9%
4.3%
1.3%
0.2%
1.5%
2.8%
o Gross profit has increased YOY basis despite rupee depreciation and increase in raw material
cost. Soft luggage’s contribution to Safari’s revenues is increasing which might facilitate the
company to get discounts from Chinese vendors on bulk purchases.
Steady rise in Gross Margins is expected to continue due to stable rupee and growth in
soft luggage segment.
o Employee cost has remained stable and company is also training employee to push product in
hypermarkets and CSD channels.
o Operating profit has gone down considerably over the last 5 years as the company is offering
generous discounts on their products in a bid to capture market share. Company also operates in
value segment which is not a very high margin segment compare to mass and premium segment.
o Company has been successful in reducing their debt & Finance Cost as a percentage of sales is
decreasing.
o PAT figures are not very impressive but with debt under control & high margins from other
segments like backpacks & premium luggage in future, we can expect the margins to grow
moderately if not rapidly.
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Luggage Industry
o Mr. Sudhir Jatia played a key role in the turnaround of the company which is clearly evident in
the financial statements. He took over company in 2011, since then the company has increased
sales at a CAGR of 45.39%.
Revenue (Rs Cr.)
300
277
250
216
200
166
150
93
100
56
62
61
62
66
62
FY07
FY08
FY09
FY10
FY11
FY12
50
0
FY13
FY14
FY15
FY16
Source: annual reports
o Company does not spend much on advertisements and is more focused on product development.
They are focusing on distribution channel & opening more stores to increase their presence.
o Company also introduced many SKUs in soft luggage segment along with entry in back packs.
Company’s agenda for now is to increase presence with better & diverse product range which
will help to improve sales.
o Safari is not a dividend paying company and it has potential opportunities to use their reserves
for increasing margins & market share instead of dividend payout.
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Luggage Industry
Balance Sheet Strength:o Safari Industries has equity of Rs 4.15 Cr. divided in 0.42 Cr. shares of Rs 10 each. The net
worth stands at Rs 91 Cr. as on march’16.
o Company has debt of Rs.43.52 Cr. which makes debt to equity ratio to 0.44. Debt to equity ratio
is below one which implies that the company may withstand any economic downturn over the
coming few years.
o Interest coverage ratio of company is also 5.79, suggesting company has approx 6 times high
EBITDA compare to interest payments. So, the company is in a comfortable position to pay off
their interest and principal payments on time.
Efficiency Ratios
Receivable Days
Inventory Days
Payable Days
Cash Conversion Cycle
FY11
158
90
91
157
FY12
FY13
120
124
138
114
93
74
165
164
Source: annual report
FY14
69
102
66
105
FY15
68
101
23
145
FY16
71
100
23
148
o There has been a consistent decline in the company’s Receivables days as they have reduced
their dependence on CSD channel which has high receivable days compare to other sales
channels.
o Inventory days are in line with Industry norms of approx three months. It is essential for
company to have products available at time in order to reduce opportunity cost.
o Company has been struggling on payables part, Samsonite and VIP Industries are provided better
terms by Chinese vendors than Safari Industries. It is expected that Jatia is working on that front
& making bulk purchases from vendors to avail discounts and negotiate better payment schedule.
o ROE for company is 10.76% and ROCE is 12.45% and average ROCE for last 10 years is
11.95%. ROE & ROCE are certainly lower than other players in Industry but the company is on
an expansion spree & trying to diversify in other segments of luggage, the numbers might
improve once the expansion plan gets fructified.
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Luggage Industry
o Shareholders with more than one percent:Name
Sudhir Jatia
Safari Investments Private Limited
Tano India Private Equity Fund II
Central Park Securities Holding Private
Category
Promoter and Promoter Group
Promoter and Promoter Group
Public shareholder
Public shareholder
% Stake
51.02
10.96
20
2.01
Risks & Concerns:o CSD channel contributes 35% to total revenues of the company. Although they have been
successful in reducing their dependence on CSD channel, but still it contributes lion’s share of
the company.
The company remains quite vulnerable to any disruption caused by change in Govt
policies which may severely impact the company’s revenues.
o The competition is getting intense in value segment with Samsonite launching their brand
“Kamiliant” in value segment& VIP Industries shifting their focus on Alfa and Aristocrat.
o Safari is trying to focus on premium segment but company does not have that distribution
channel for premium segment. They mostly have dealers which might not prove helpful in
selling their premium products. Company need more company operated stores especially in
Metros which may help in accelerating growth in the premium segment
o Their competitors enjoy substantial brand loyalty especially in the premium segment. In order to
penetrate this segment the company would need to spend on Advertisements & Promotions to
improve their brand value.
o Company has negative operating cash flow because of increase in investments in working
capital. However, improvement in working capital needs in future will result in positive cash
flows.
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Luggage Industry
VALUATIONS:o
At Rs 1,378, Safari Industries ltd trades at a:
Price-earnings ratio
Price to book value
50.97
Price to Cash Flow
5.72
Ev/Ebitda
Source: screener.in
25.41
19.15
o Multiple are quite high but before making any judgment, let just calculate return by using
Expected Return model:-
Source: annual report
Assumptions:
1. Taking an optimistic scenario that EPS will grow at a CAGR of 25% in next 10 years.
2. Using an exit multiple of 20x.
Calculations
Estimated CAGR in EPS over next 10 years
Estimated EPS after 10 years
Current P/E (x)
Exit P/E in the 10th year from now (x, Estimated)
Estimated Stock Price (10th year from now)
CMP (Rs)
Estimated CAGR Return in 10 Years
25%
179
51.0
20.0
3,589
1,378
11.2%
o Even after taking the optimistic scenario, if we invest today at a price of Rs 1378 for ten year
horizon, we will earn a CAGR of 11.2%.
o The 10 year government bond yield is around 7.8%, investing at current price does not provide
adequate compensation for the assumed market risk.
o Being conservative, when we take a 15% EPS growth rate for 10 years, estimated CAGR Return
is 1.4%, much lower than T-bills.
Conclusion: - Safari Industries has delivered good results from past few years after Mr. Jatia took over
the company and may continue to do so under his able leadership. Although, I would refrain from
investing at current levels as the company provides low valuation comfort.
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Luggage Industry
Samsonite International SA
Samsonite International is an American luggage manufacturer and retailer. Its product portfolio ranges
from large suitcases to small toiletries bags and briefcases. The company was incorporated in year 1910
since then the company has created an unparalleled brand loyalty among its customers and has spread
across to more than 100 countries.
Product Sourcing:
The Company adopts an asset light model allowing into outsource a significant proportion of production
to OEMs and sells its products to distributors on a wholesale basis.
The Company’s distribution reach boasts wide geographical reach covering Asia, Europe, North
America and Latin America. Products are sold through wholesale distribution, self-operated retail stores
and e-commerce. Wholesale customers include department stores, specialty luggage stores,
hypermarkets and warehouse clubs.
About 80% of the company’s production is outsourced to OEMs (60% in China and 20% in South-East
Asia countries, such as Vietnam, Thailand and Bangladesh). The other 20% of the products are
manufactured in-house. In order to protect their intellectual property in hard luggage segment, the
patented curve material is produced in house.
Travel
The company generates bulk of its revenues from Travel products such as suitcases and carry-one. The
travel products are sub-categorized by the material from which they are constructed into three
categories:
Hard Luggage
Soft Luggage
Hybrid luggage ( combination of the Hard and Soft Luggage)
The demand for each of these products varies significantly across markets. The hybrid luggage is
gaining popularity as it provides increased lightness along with combination of sturdiness (Hard Side)
and flexibility (Soft Side). The hybrid model although a small part of company’s revenues is surely
picking and can contribute much higher over the next few years.
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Luggage Industry
The company’s product portfolio caters to demand from varied sections:
Business: Briefcases, laptop bags, rolling totes for the business traveler.
Casual: Backpacks, duffle bags and messenger bags as well as smaller handbags and satchels.
Accessories: Includes a large number of travel accessories, including locks, straps, pillows, plug
adaptors, umbrellas and small leather goods such as wallets and card holders.
Performance of Product Categories
Product wise contribution to sales CY16
2%
10%
Travel
11%
Business
Casual
14%
Accessories
65%
Others
o Samsonite was largely a luggage company from there they have reinvented themselves. The nonluggage is now contributing to around 35% of the sales.
o Company had expressed their desire that they would like to see the non-travel component of their
business to become 50% by 2020-21.
o Shifting focus to non-travel segment is expected to pay rich dividends to the company as the
buying cycle is much shorter which makes the business far more resilient to any kind of external
shocks.
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Luggage Industry
Acquisitions by Samsonite International SA
YEAR
July 2012
BRAND
High Sierra
Aug 2012 Hartmann
April 2014 Lipault
May 2014
Speck
June 2014
Feb 2015
Aug 2016
Gregory
Rolling
Luggage
Chic
Accent
Tumi
May 2017
eBags
Sept 2015
AMOUNT
$110m Cash
SEGMENT
Casual Outdoor and sports segment
$35m Cash
EUR 20m Cash
Premium Segment
Youthful, Vibrant and Chic French brand known for
functional and fashionable design
US$ 85m Cash Accessories like protection cases for Smartphone,
laptop, tablets and other personal electronic devices.
US$84.1m Cash Outdoor Backpack brand.
US$ 23 million Multi-brand platform providing footprint in leading
Airports of Europe and Asia Pacific Region
US$ 7.1m Cash Premium Segment for expanding retail store channel in
Italy.
US$1.8 billion
Premium Segment
Cash
US$ 105m Cash Leading online retailer of bags and related accessories
for travel.
TUMI-SAMSONITE ACQUISITION:
Tumi: founded in 1975, Tumi is a leading global brand of premium business, travel and lifestyle
products and accessories. The Key product range of the company includes carry-on luggage, briefcases,
backpacks, and other travel accessories. The company boasts a wide geographical reach with 2000 POS
across 75 countries, majority of which are in US.
Rational for Acquisition:
o
o
o
Acquisition of Tumi has presented Samsonite with some synergistic opportunities as both the
companies have strong footprints in different markets (Samsonite in Asian and European markets
& Tumi in North America). Thus, providing them with ample opportunities to cross sell their
products.
Cost synergies and synergies in supply chain could result in margin and EBITDA expansion.
Two-pronged growth strategy would enable the company to continue gaining market share and
establish itself as the de facto brand for travel luggage, bags and accessories.
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Luggage Industry
Brands Contribution to Sales
Brands Contribution to Sales (CY16)
70,00%
66,10%
60,00%
50,00%
40,00%
30,00%
20,00%
18,90%
9,80%
10,00%
4,80%
2,90%
1,60%
1%
Speck
High
Sierra
Gregory
Lipault
0,00%
Samsonite American
Tourister
Tumi
0,90%
0,80%
Hartmann Kamiliant
4,20%
Others
% of Sales
Other includes certain other brands owned by the Group, such as Saxoline, Xtrem and Secret, as well as third party brands sold
through the Rolling Luggage and Chic Accent retail stores.
Source: annual report
o The bulk of the company’s revenue (more than 60%) is contributed by Samsonite brand. They
have made conscious efforts to reduce their dependence on a single product. The company has
been on an acquisition spree to reduce their dependence on a single product. Over the next 5
years, company’s vision is to reduce Samsonite’s contribution to sales to 1/3 and other brands to
contribute 2/3 of its sales.
o Management believes that the acquired brands have lot more potential compared to their recent
performances and company is working towards achieving desired results from acquisitions
.
o In order to increase contribution of Tumi’s brands to sales, the company is planning to invest
more in advertisements and promotions which is currently at an abysmal 0.6% of sales.
o Management is positive that Tumi will not cannibalize Samsonite’s sales as customers adhere to
their trusted brands. Before Tumi’s acquisition, the company made an unsuccessful attempt to
snatch away Tumi’s market share because of existing brand loyalty of its customers.
o
Kamiliant, which is a new entry price point brand, has been just recently introduced in quarter
four in Asia in 2016, more particularly in India, Middle East, Korea and China, is off to a good
start. Management thinks that it could become one of their major brands in next handful of years,
especially in emerging markets.
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Luggage Industry
Region wise Performance.
Region wise Sales Contribution(CY16)
Latin America;
4,60%
Europe; 21,90%
Asia; 36,60%
North America,
36.6%
Source: annual report
o Samsonite is extremely bullish of its growth prospects in Latin America. Latin America market
is expected to grow at a healthy rate of 25% over the next 5 years. They are implementing 3
pillars of growth strategy in Latin America similar to that they had implemented in Asia: 1. Two category in travel Samsonite and American Tourister,
2. Business category and
3. More focus on retail.
o In Europe, all countries deliver positive growth in year CY2016 except France because of
terrorist attacks which was partly offset by Tumi brand. Europe is very important region for the
company and they are focusing more on the premium segment in this region by making their
presence felt in leading Airports and designer Retail stores.
o Company achieved significant growth in North America primarily because of addition of Tumi.
Tumi has strong shipments toe-commerce retailers and other key customers which has helped the
company to develop a robust distribution channel in North America.
o Asia faced some challenges in 2016 due to adverse retail conditions in Hong Kong, (including
Macau) and South Korea including the impact of lower Chinese tourist arrivals. In India also,
demonetization affected company’s sales.
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Luggage Industry
Channel-wise Performance:
Channel -wise
Sales Contribution(CY16)
26%
Wholesales
Direct-toconsumers
74%
The company wants to enhance Group’s direct
to consumer channel through e-commerce and
targeted expansion of brick and mortar retail
outlets.
The company has acquired eBags which
provides them a strong platform to significantly
expand their online presence, not just in North
America but around the world.
Contribution
of wholesale is
falling
consistently since the acquisition of Tumi
because of its large number of direct to
consumer touch points.
Direct-to-consumer includes bricks-and-mortar retail and direct-to-consumer e-commerce. This channel was previously referred
to as retail , however, the Group believes direct-to-consumer more accurately reflects its evolving business.
Source: annual report
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Luggage Industry
Senior Executive Management Team:
Experience
He has served as the Company’s Chief Executive Officer since
October 1, 2014. Before his appointment as Chief Operating
Officer, he served as the Company’s President, Asia-Pacific
and Middle East. Mr. Tainwala has been the Chief Operating
Officer of the Group’s Indian operation since June 2000.
Name
Designation
Ramesh
Tainwala
Chief Executive Officer
and Executive Director
Kyle Francis
Gendreau
Chief Financial Officer
and Executive Director
He has served as Chief Financial Officer since January 2009.
Mr. Gendreau joined the Company in June 2007 as Vice
President of Corporate Finance and as Assistant Treasurer.
Lynne Berard
President of North
America
She began her career in 1993 with American Tourister, Inc.,
which was acquired by the Group in 1993. Ms. Berard holds a
BS in Business Management from Providence College,
Providence, Rhode Island, USA
Suk Suh Boo
President of South
Korea
Mr. Suh has served in this role since January 2016.
His previous positions with the Company include President,
Asia Pacific and Middle East, Executive Vice President, Asia
and General Manager, Korea.
Arne Borrey
President of Europe
Mr. Borrey previously worked for the Group for more than 20
years, and then worked at a division of Ascena Retail Inc,
Ethan Allen Global, Inc as Vice-President.
Subrata Dutta
President of Asia Pacific
and Middle East
Prior to joining the Group, Mr. Dutta worked as Business
Head of Himalaya Herbal Healthcare, Vice President Sales
and Marketing of Wimco Limited - Swedish Match Group.
Frank Ma
President of Greater
China
Mr. Ma’s previous positions with the Company include
General Manager of Samsonite China and Operations
Manager of Samsonite China. Prior to joining the Company,
Mr. Ma worked with CP Group, Cargill Corp. & Shandong
Chemical Design Institute.
President of Latin
Juan
GuzmánMartínez America
Mr. Guzmán joined the Company in July 2007 when the
Group formed Samsonite Chile S.A. as a joint venture with
Mr. Guzmán, following the acquisition by the Group of the
Saxoline group of companies from Mr. Guzmán’s family. He
was promoted to his current role in May 2014.
Source: annual report
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Luggage Industry
Moat Analysis
Key point
Details
Conclusion
Management
Samsonite has an experienced management team with a Wide Moat
proven track record. Ramesh Tainwala, CEO and executive
director is an industry veteran with almost two decades of
experience in luggage market. Company has done exceedingly
well under his able leadership.
Brand
Samsonite enjoys high brand awareness in all major markets Wide Moat
for travel products. Samsonite International is one of the
world’s largest luggage company, with over 100 year of
heritage.
Distribution
Company is having strong distribution network. Their Wide Moat
products are sold in more than 37000 points of sale in more
than 100 countries.
Significant
exposure to
high growth
economies.
Company is well positioned in rapidly growing market like Wide Moat
Asia specially China and India. They are market leader in
Europe and North America which are developed market and
are expecting growth from Latin America in coming years.
Technology
and R&D
The company’s R&D team has secured a patent on “Curv Wide Moat
Material” which is used to form a unique shell for its wellreceived Cosmolite Collection.
Risks and concerns:
Forex Risk: Samsonite operates in more than 100 countries. Samsonite’s revenues are extremely
sensitive to foreign exchange rate risks. It manufactures most of its products in China and South East
Asia. Any fluctuation in respective local currencies can have a severe impact on the company’s
profitability.
Supply Chain Disruptions: Samsonite is heavily dependent on its suppliers as more than 80% of
Samsonite’s production is outsourced to third-party vendors. So, any delays in deliveries may cause
disruptions to its sales.
Regulatory Risk: Samsonite’s sales are subject to various governments’ import policies. For example,
their sale in India is impacted if the Indian Government imposed restrictions on imports. Any trade
protection or trade disputes are likely to affect its sales performance.
Unexpected Decline in Global Travel: Any downturn in the economy can significantly hamper the
company’s progress as majority of the company’s revenues accrue from travel luggage. Travelling is a
consumer discretionary business; falling disposable income may translate to lower purchase of luggage
thus severely lowering their revenues.
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Luggage Industry
Samsonite South Asia Pvt Ltd.
Samsonite International wanted to make a strong foothold in the rapidly growly Indian market. In order
to put their endeavor into practice, the company tried to woo VIP to enter into a joint venture. VIP
declined the offer. Determined to make their mark in India, Samsonite kept on looking for more options.
The breakthrough came in year 1997, when they entered into a partnership with Mr. Tainwala to
manufacture luggage for Samsonite in India.
Ramesh Tainwala, a postgraduate from BITS Pilani, began his career in 1981 with a plastic trading
company. Five years later, he quit his job to start his own manufacturing unit that supplied plastic sheets
to VIP Industries, which moulded them into suitcases.
Samsonite South Asia Pvt ltd. has a market share of 35% in organized segment in India. Samsonite has
been successful in taking the market share from veteran player VIP Industries which used to hold 80%
market share in 1980s. Samsonite’s relentless pursuit of high quality products forced other players in the
industry to focus more on quality and innovation.
Product Categories:
Brand
Samsonite
American Tourister
Kamiliant
High Sierra
Year
1997
2007
2016
2014
Segment
Premium segment
Mass segment
Value segment
Backpacks
In India, Samsonite wanted to extend its price points and decided to reposition American Tourister as an
affordable brand and launch it here in 2007.That was the turning point of the company. American
Tourister contribution to sales is highest to Indian revenues because of its high brand recall. Samsonite
is also a market leader in Premium segment and gives tough fight to VIP in mass segment.
While Samsonite has been able to retain its hold in the premium and mid-range luggage segments, it has
been unable to crack the value segment. Samsonite introduced its first offering in value segment- brand
Kamiliant in India in March 2016. Through Kamiliant, Samsonite offers soft and hard luggage in
different sizes and colors which primarily cater to the sub Rs.5000 segment. In India, the company has
just launched High Sierra, a back-to-school backpack which they acquired in 2012.
Distribution: Retail outlets in major tier 2 airports (focus on premium brands) and 2000 touch points
which includes 175 retail stores. Most of the company owned stores are franchise owned, which
demonstrates brand pull of company.
Company also has wide presence in hypermarkets and different e-commerce platforms. Considering
Samsonite as a brand, they prefer EBOs more so that they can control on selling environment.
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Luggage Industry
Samsonite International SA - Common Size P&L Account
Particulars
Cost Of Goods Sold
Gross Profit
Selling General & Admin Expenses, Total
Other Operating Expenses
Operating Income
Net Interest Expense
EBT
Income Tax Expense
Net Income
CY11
45.25%
54.75%
41.36%
0.02%
13.41%
-4.51%
8.90%
-2.28%
6.62%
CY12
46.32%
53.68%
39.78%
0.25%
13.64%
-0.96%
12.68%
-3.28%
9.40%
CY13
46.59%
53.41%
39.40%
0.15%
13.86%
-0.10%
13.32%
3.58%
8.64%
CY14
47.09%
52.91%
39.23%
0.37%
13.31%
-0.14%
12.59%
3.28%
7.93%
CY15
47.42%
52.58%
39.15%
0.37%
13.06%
-0.09%
12.33%
3.04%
8.12%
CY16
45.88%
54.12%
40.57%
0.12%
13.43%
-1.51%
11.35%
-0.08%
9.10%
Source: Bloomberg
o Gross profit margins have been stable and company has consistently maintained above 50
percent margins which indicates their ability to pass on the rising costs without losing market
share.
o Distribution expense and marketing expense has increased over the years in order to achieve
expected performance figures from the acquired brands.
o Tumi acquisition has helped company in increasing operating income and net profit and still
there is further scope for expansion in margins once integration plans of company are completed.
o Company has been able to grow Revenue at a CAGR of 12.42% from last 6 years.
Net Revenue
2811
3000
2500
2351
2433
CY14
CY15
2038
2000
1565
1772
1500
1000
500
0
CY11
CY12
CY13
Source: Bloomberg
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CY16
Luggage Industry
Balance Sheet:
o Samsonite International has equity of 14.11 US million dollars divided in 1.411B. The net worth
stands at1.467B dollars as on CY16.
o Company has a total debt of 1.85B and debt/equity is 1.278. .Leveraged balance sheet of
company is because of Tumi acquisition. Tumi acquisition was funded by newly committed
senior credit facility consisting of term loans totaling US$1,925 million and a new revolving
credit facility of US$500 million.
Receivable Days
Inventory Days
Payable Days
Net Working Capital Days
CY10 CY11 CY12 CY13 CY14 CY15 CY16
44
40
44
44
44
43
42
155
122
118
115
106
111
109
157
110
114
108
100
109
100
42
52
48
51
50
45
51
Source: Company Presentation
o Receivables days are stable and expected to decrease over the coming years as the company has
been focusing more on direct to consumer segment which has slightly lower receivables days
because of retail sales.
o Inventory days are decreasing but because Tumi has longer inventory turns which impacted
inventory slightly.
o Samsonite has been provided with best terms from Chinese vendors compare to VIP and Safari
Industries because of its scale. Payable days are high compared to its peers; which helps
company in reducing net working capital days.
o The ROE and ROCE are healthy for CY16 ROE is 18.59% and ROCE is 10.19%.
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Luggage Industry
VALUATIONS:o
At USD 4.04 , Samsonite International SA trades at a:
Price-earnings ratio
Price to book value
22.3
Price to sales
28.63
EV/EBITDA
Source: Bloomberg
14.77
17.51
Expected Return model:-
Source: annual report
Assumptions:
1. Taking optimistic scenario that EPS will grow at a CAGR of 15% in next 10 years.
2. Using an exit multiple of 20x.
Calculations
Estimated CAGR in EPS over next 10 years
Estimated EPS after 10 years
Current P/E (x)
Exit P/E in the 10th year from now (x, Estimated)
Estimated Stock Price (10th year from now)
CMP (Rs)
Estimated CAGR Return in 10 Years
15%
1
22.3
20.0
15
4
13.7%
o After taking even the optimistic scenario, if we invest today at a price of USD 4.04 for ten year
horizon, we will earn a CAGR of 13.7%.
o It is a decent return for a long term horizon but it is certainly not a grossly undervalued valued
stock.
o Being conservative, when we take a 10% EPS growth rate for 10 years, estimated CAGR Return
is 8.7% almost equal to 10 year Govt. Bond yield.
Conclusion: - Samsonite International SA is world’s largest luggage company and considering the
growth expected in luggage segment in coming years around the world, it is certainly going to the one
reaping maximum benefit.
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Luggage Industry
Disclaimer: I don’t have any position in either VIP Industries, Safari and Samsonite International. This
is not a recommendation to Buy, Sell or Hold. I am not a SEBI registered analyst. I wrote this document
to organize my thoughts and deepen my understanding about the companies and industry,
Author: Divya Chawla
Twitter: @divyachawla0093
Date: 15th August’17
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