Despite a high-base effect of 40% growth last fiscal year, CRISIL Ratings reported that India’s luggage industry revenue is expected to increase by 15% on-year this fiscal due to increasing penetration of hard luggage made by the organised sector and ongoing growth in tourism and corporate travel.
The organised sector’s operating efficiencies and capacity utilisation have increased due to consumer demand for hard luggage. As a result, their operating margin could increase by 150-200 basis points (bps) year-over-year to 16% this fiscal.
Because the prices of three important raw materials—polypropylene, polycarbonate, and polyamide—declined by approximately 20%, margin improvement would have been even sharper if organised players had invested more in marketing and promotions.
The cost of the main raw materials, which makes up 40-45% of the cost for luggage makers, is mostly determined by the price of crude. Despite the projected capacity expansion, improved profitability and lean balance sheets will support credit risk profiles.
About 40% of the industry’s yearly sales of Rs. 15,000 crore (US$ 1.81 billion) are generated by organised luggage manufacturers. They benefit from substantially more reliable sourcing channels, competitive pricing, better quality, and extended warranties.
Consumers are switching to hard luggage due to its better looks and durability. Additionally, they are becoming lighter, which is an important factor for travelling. As a result, organised luggage manufacturers are actively shifting their revenue mix from soft luggage to hard luggage in both retail and online.
According to Ms. Jaya Mirpuri, Director, CRISIL Ratings, “In the past five fiscals, the market share of hard luggage has shot up to 55% from 33%. Operating margins are relatively better on them since these are manufactured locally.”
In addition, Mr. Rushabh Borkar, Associate Director, CRISIL Ratings stated, “Apart from doubling capacity, organised manufacturers are set to ramp up retail presence by 35-40%, which would involve a capital expenditure of Rs. 700 crore (US$ 84.5 million) this fiscal.”
