Organised luggage makers' revenue growth may fall 8-10% in FY25: CRISIL

Revenue growth of the organised luggage industry is likely to decline 8-10 per cent year-on-year this fiscal, driven by a high base as industry size almost doubled between 2021-22 and 2023-24, a report said on Monday.

Demand is expected to remain stable, backed by continued penetration of hard luggage, steady tourism and corporate travel, it added.

The organised luggage industry's revenue growth is expected to fall to 8-10 per cent in FY25 from 18 per cent seen during the last fiscal, primarily due to a high base, as industry size almost doubled between FY22 and FY24, Crisil Ratings said in a statement.

 

The realisations have reduced due to two factors -- increasing competition among manufacturers, with the entry of new players and growth in inventory levels due to moderation in volume growth, which has led to aggressive pricing and impacted average selling prices, mainly in the economy segment.

With falling realisations, operating margin dipped 150 basis points (bps) in 2023-24 and will drop a further 30-50 bps between 13.5-14 per cent this fiscal, said the report.

However, to some extent, the impact was offset by increasing manufacturing of hard luggage against imports and stable raw material prices, it noted.

The Indian luggage industry is dominated by a few large organised players, which have increased domestic capacity and backwards integration over the last three fiscals, while the unorganised sector remains largely dependent on China for its requirements, the report said.

It also revealed that a strategic shift of luggage makers to their hard luggage manufacturing segment is reflected in imports growing slower in the past five years.

"Rising preference for hard luggage and better quality at competitive prices has benefited organised players, with their share in the Indian luggage industry increasing to 45 per cent this fiscal. However, risks are rising, too, as tapering of growth after three years of double-digit runup and rising competition from new entrants will lead to higher promotional expenses and, thereby, moderation in margins," Crisil Ratings Director Himank Sharma said.

The inventory level, which rose to 114 days in 2024, on account of moderation in demand, is on the mend and expected to moderate to 100-105 days for this fiscal, according to the report.

Given continued balance sheet strength, steady demand and almost full capacity utilisation, the organised players are expected to further increase the manufacturing capacity for hard luggage, the report stated.

"Capacity is expected to rise by a fourth, which would involve a capital expenditure of Rs 500-550 crore this fiscal. It will be largely funded by cash flows from operations and liquid surplus. Hence, overall debt is expected to reduce. Total outside liabilities to adjusted net worth and interest coverage ratios of luggage makers will remain comfortable," Crisil Ratings Associate Director Rushabh Borkar said.