Revenue growth for organized luggage manufacturers likely to decline to 8-10% in FY25: CRISIL | the news

Realization decreased for two reasons – increased competition among manufacturers, entry of new players and increase in inventory levels due to limited volume growth, which led to aggressive pricing policy and affected the average selling price mainly in the economy segment. .

With declining revenues, operating margin declined by 150 basis points (bps) in 2023-24 and will decline by another 30-50 bps to 13.5-14% this fiscal, the report said.

However, it was noted that this impact was offset to some extent by increased hard luggage production compared to imports and stable raw material prices.

The report shows that the Indian luggage industry is dominated by a few large organized players who have increased domestic capacity and backward integration over the last three fiscal years, while the requirements of the unorganized sector remain largely dependent on China, according to the report. from the report.

It also revealed that luggage manufacturers' strategic shift into the hard luggage segment is reflected in slower imports over the past five years.

“The growing interest in hard luggage at competitive prices and good quality has benefited organized players with their share in the Indian luggage industry increasing to 45 per cent this fiscal. However, risks are also rising and growth is slowing after three years of double-digit performance from new entrants and increasing competition from higher ups will lead to a squeeze on expenses and hence a squeeze on margins,” said Himank Sharma, Director, Ratings, CRISIL.

The inventory level, which increased to 114 days in 2024, is expected to reduce to 100-105 days this financial year due to moderate demand.

The report said that given the continued strong balance sheet position, steady demand and almost full capacity utilisation, organized players are expected to continue to expand hard luggage capacity.

“Productivity is expected to pick up in the fourth quarter, which will involve capital expenditure of Rs 500-550 crore this fiscal. This will be financed mainly from operating cash flow and liquid surpluses. Therefore, overall debt is expected to decline. Total External baggage manufacturers will be happy with the adjusted net worth and liability-to-interest coverage ratio, said Rushov Borkar, Deputy Director, CRISIL Ratings.