India's luggage industry is gearing up for a 15 percent year-on-year revenue surge in the current fiscal, improving from the 40 percent growth achieved in the previous fiscal period, rating agency CRISIL said on Wednesday. According to the agency's report, this growth is attributed to a surge in consumer preference for hard luggage made by the organised sector, and continuing growth in tourism and corporate travel.

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"The consumer preference for hard luggage has driven up operating efficiencies and improved capacity utilisation of the organised sector. That, in turn, should expand their operating margin 150-200 basis points (bps) on-year to around 16 percent this fiscal," the report said.

The preference for hard luggage is gaining momentum among consumers because of better looks and durability. They are also getting lighter in weight, which is a key consideration in travel. Consequently, organised luggage makers have been proactively turning their revenue mix towards hard luggage both in retail and online platforms.

Jaya Mirpuri, Director, CRISIL Ratings, said, "In the past five fiscals, the market share of hard luggage has shot up to approximately 55 percent from 33 percent. Operating margins are relatively better on them since these are manufactured locally. On the other hand, the fragmented unorganised sector largely imports soft luggage from China. They have been impacted by supply-chain disruptions and implementation of the Goods and Services Tax, leading to loss of market share."

CRISIL's report further said that organised luggage manufacturers, responsible for about 40 percent of the industry's annual sales, are set to double their capacity and expand their retail presence by 35-40 percent. This expansion involves an estimated capital expenditure of Rs 700 crore in the current fiscal year.

"While this will increase their debt levels, overall capital structure and coverage metrics will not be materially impacted because of improved cash accruals. Gearing and interest coverage of our sample set will remain comfortable at 0.6 time and 11.5 times, respectively.’" said Rushabh Borkar, Associate Director, CRISIL Ratings.

According to the report, the increased spending on marketing and promotional activities by organized players has slightly moderated margin improvement.

This is particularly noteworthy as the costs of key raw materials such as polypropylene, polycarbonate, and polyamide have experienced a significant decline of nearly 20 percent. These raw material costs, which constitute 40-45 percent of the total production cost for luggage makers, are closely influenced by crude oil prices.

First Published:Aug 9, 2023 5:44 PM IST