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The Indian luggage sector is oligopolistic, especially in branded space. VIP had a 43.8% market share in 9M FY23, Safari ~24.1% and Samsonite ~32%, collectively contributing most of the branded Indian luggage. The sector, which in the past was dominated by non-branded luggage has shifted markedly to branded luggage (45% in FY20, 56% now). Hence, we initiate coverage on VIP and Safari Industries, with Buy ratings and 12-mth TPs of Rs850 and Rs2,750 (valuing both at 34x FY25e earnings, in-line with traded mean multiple of 34x over last 5 years).

Safari has returned 30% ytd due to its highest EBITDA margins in Q3 and 9M FY23 (higher than VIP) and continuous market-share gains, whereas VIP was down 13%. We believe VIP should catch up and can offer better returns (46%) than Safari (25%) since its renewed focus on the mass category, doubling of its international business, further growth from Caprese and self-sufficiency in its own manufacturing would boost its revenue growth and margins.

A 15% CAGR over the next 3-5 years. The now ~Rs100bn Indian luggage and backpack categories clocked a ~14.2% CAGR pre-pandemic (FY15-FY19) and is set for a ~15% CAGR ahead. The sector’s overall long-term outlook is
robust with travel returning hugely, opening of offices, and a strong upswing in marriage demand. Other structural factors driving the sector’s growth are an accelerated shift in consumer preference from non-branded to brands, ownership of many bags and shorter replacement cycles.

Macro pressures, consumer-preference shift fuelling branded-segment growth. The implementation of GST levelled the field for branded and non- branded manufacturers, the sector which in the past was dominated by the latter (through low-priced luggage and tax evasion). Though in Q1 FY23 the market declined due to the Covid-19 third wave, demand bounced back strong and sustained, especially for the branded segment. Supply disruptions across the globe and high ocean-freight rates rendered avenues of supply for non- branded manufacturers increasingly unviable. This supply gap benefited the branded segment, whose share rose from 45% in FY20 to 56% now.

Risks. Recessionary pressure, slowdown in travelling and any external pandemic like event could curb sales of luggage.

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