10/30/24, 3:46 PM Rating Rationale

Rating Rationale
July 19, 2024 | Mumbai

Safari Industries India Limited

Ratings upgraded to 'CRISIL AA-/Stable/CRISIL A1+'

Rating Action
Total Bank Loan Facilities Rated Rs.150 Crore
Long Term Rating CRISIL AA-/Stable (Upgraded from 'CRISIL A+/Stable')
Short Term Rating CRISIL A1+ (Upgraded from 'CRISIL A1')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any
ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale
CRISIL Ratings has upgraded its ratings on the bank loan facilities of Safari Industries India Limited (SIIL; part of the Safari
group) to ‘CRISIL AA-/Stable/CRISIL A1+’ from ‘CRISIL A+/Stable/CRISIL A1’.

The ratings upgrade reflects the continuous improvement in business and financial risk profiles of the group along with an
expectation of further improvement over the medium term. The business risk profile improvement considers better operating
efficiency as reflected in higher profitability, better than expected revenue growth during fiscal 2024 and presence in
oligopolistic industry.

In fiscal 2024, on consolidated level topline increased 27.7% year-on-year to Rs 1550 crore, driven by increase in air traffic
and higher spending on travel and tourism. Increasing share from own manufactured hard luggage segment has supported
the operating margin. Consequently, earnings before interest, tax, depreciation, and amortization (EBITDA) increased 40%
year-on-year to Rs 278 crore in fiscal 2024 and EBITDA margin improved to 17.9% by 160 basis point. For fiscal 2025, the
group is expected to earn revenues of Rs. 1900 crore, 24% higher than 2024 with EBITDA margins improving to 18.5%.

The financial risk profile is supported by healthy net cash accrual of Rs 228 crore in fiscal 2024 (Rs 158 crore in fiscal
2023). This along with reduction in debt resulted in net cash accrual to adjusted debt ratio improving to 5.48 times as on
March 31, 2024 (from 2.55 time in fiscal 2023 and 3.82 time in fiscal 2022). Healthy cash accrual along with fund raise done
in fiscal 2024 resulted in adjusted networth increasing from Rs 425 crore as on March 31, 2023 to Rs 822 crore as on March
31, 2024. As a result, gearing decreased from 0.14 times to 0.05 times for the same period. The company’s debt/Ebitda ratio
declined to 0.15 time in fiscal 2024 compared to 0.30 time in fiscal 2023 (0.20 time in fiscal 2022) on account of improved
profitability. The total borrowings were reduced to Rs 42 crore as on March 31, 2024 compared to Rs 60 crore a year earlier.
The company has cash and cash equivalents of Rs 218 crore as on 31st March 2024 and as on June 2024 unutilized fund-
based working capital limit of Rs 149.5 crore adding to the financial flexibility. Gearing and debt/ EBITDA are expected to
remain comfortable over the medium term at around 0.05 and 0.14 times in fiscal 2025.

In March 2024, SIIL received as investment of Rs.229 Crores from Lighthouse Funds (Alternate Investment Fund -AIF).
Group has announced capex of Rs.215 Crores for setting up a greenfield manufacturing unit in Jaipur, Rajasthan. Capex
would lead to doubling its hard luggage capacity from ~6.5lac pieces per month to ~13lac pieces per month. The new
capacities expected to become operational in H2FY25 and will help group to further penetrate in to North Indian market.
With the capex expected to come online around December 2024, the revenues and margins are expected to see a further
improvement from fiscal 2026, while capital structure remains strong. Offtake from enhanced capacities will be instrumental
for future growth.

The ratings continue to reflect an established market position in the Indian luggage industry and a strong financial risk
profile. These strengths are partially offset by working capital-intensive operations and exposure to volatility in raw material
prices and foreign exchange (forex) rates.
Analytical Approach
For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Safari and its fully owned
subsidiaries, Safari Lifestyles Ltd (SLL) and Safari Manufacturing Limited (SML). This is because these companies, together
referred to as Safari, are in the same line of business with operational synergies and have a common management

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:
Significant Market Share and operating efficiency : The organized Indian luggage industry is oligopolistic in nature
where SIIL has grown its market share over the past three years and is among the largest players in terms of revenue
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10/30/24, 3:46 PM Rating Rationale
share. A pan India distribution network, comprising over 100 plus company owned company operated outlets and an
established product portfolio, further strengthen its market position.

Also, the group has recently launched a new brand, Urban Jungle which caters to casual premium segment in order to
focus on younger consumers and the branding is being done primarily via advertisements and digital platforms.

The group continues to launch 3-4 stores per month, aiming to cater to premium as well as mass scale segments.
Significant market share in organized luggage industry has helped company to maintain healthy operating margin,
despite the competition. Furthermore, group has its own manufacturing units for hard luggage which are operating at full
capacity utilization. The brand strength and wide presence is also substantiated from Euromonitor International
Limited’s report which has adjudged Safari brand as the ‘No 1 luggage Brand in India ‘ in revenue terms.

The group is expected to maintain its established brand in the luggage industry over the medium term.

Strong financial risk profile: Capital structure continues to remain comfortable, marked by low total outside liabilities
to tangible net worth (TOL/TNW) ratio of 0.38 times, as on March 31, 2024. Company having net worth of Rs.822
Crores. Going forward, TOL/TNW to remain below 0.3 times supported by healthy net cash accruals and in the absence
of large debt funded capex. Debt protection metrics should also remain healthy with expected interest coverage and
NCA/TD of over 30 times and 10 times in medium term. CRISIL Ratings believes SIIL will continue to have strong Credit
metrics in the medium term.

Weaknesses:
Moderately working capital-intensive operations: Gross current assets (GCAs) excluding cash and cash
equivalents were moderate at 108 days, driven by debtors and inventory of 39 days and 77 days, respectively, as on
March 31, 2024. While debtors are moderated to 30-40 days, inventory is likely to remain around 80 days over the
medium term. The improvement in inventory is backed by lower import of luggage from China and higher revenue
contribution from hard luggage, which is manufactured in India and has lower inventory levels. Overall working capital
levels are expected to remain around 110 to 120 days over the medium term

Exposure to volatility in raw material prices and forex rates: Profitability is susceptible to prices of imported soft
luggage and raw materials, which account for 55-60% of operating cost. Any sharp fluctuation is likely to impact the
operating margin. Around 45-50% of the soft luggage is imported against nil exports. While forex exposure is mitigated
through forward contracts, profitability continues to be susceptible to volatility in forex rates.
Liquidity: Superior
Bank limit utilization is low at around 2 percent for the past twelve months ended June 2024. Company is expected to
generate healthy cash accruals of around Rs. 270 crore for fiscal 2025. Current ratio is healthy at 2.28 times on March 31,
2024. High cash and cash equivalents of around Rs 218 crore and liquid investments of Rs.149 Crores as on March 31,
2024 aid the liquidity. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion
available in case of any adverse conditions or downturn in the business.

ESG Profile
CRISIL Ratings believes Safari Industries Limited Environment, Social, and Governance (ESG) profile supports its already
strong credit risk profile.

Safari Industries Limited has continuously focused on mitigating its environmental and social risks.

Key ESG highlights

The greenhouse gas (GHG) emissions intensity has reduced from 0.67 tCO2/ revenue in 2022 to 0.57 tCO2/revenue in
2023.
The total waste generation has reduced from 1.06 tonnes/ revenue in 2022 to 0.62tonnes/revenue in 2023. The
Company has started manufacturing hard luggage by using polypropylene and polycarbonate material which is 100%
recyclable.
Companies governance profile is marked by 90% of its board comprising independent directors, and presence of robust
internal control systems and processes. It also has extensive disclosures.

There is growing importance of ESG among investors and lenders. The commitment of Safari to ESG principles will play a
key role in enhancing stakeholder confidence and access to capital markets
Outlook: Stable
CRISIL Ratings believes that the business risk profile of Safari group is expected to be benefited by a strong distribution
network and robust positioning in the mid- to lower-segment of the market
Rating Sensitivity factors
Upward Factors:
Sustained growth in revenue while maintaining market share supported by ramp up in enhanced capacities and
improvement in operating margin above 15% (post lease adjustment) resulting in higher accruals above Rs.250 Crores.
Sustained strong financial risk profile and steady increase in liquid surplus, supported by healthy cash accrual and
continued moderate capex

Downward factors:
Subdued revenue growth and operating margins falling below 10% (post lease adjustment), constraining overall
business risk profile.
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10/30/24, 3:46 PM Rating Rationale
Stretch in working capital cycle or large debt funded capex/acquisition weakens the financial risk profile
About the Group
SIIL was incorporated in 1980 by Mr. Mehta and family. The company was taken over by Mr. Sudhir Jatia in 2012. It
manufactures and sells luggage under the brand, Safari. The manufacturing unit is in Halol, Gujarat. Safari is listed on both
Bombay Stock Exchange and National Stock Exchange.

SML was incorporated in November 2021 as wholly owned subsidiary of SIIL. SML has a manufacturing unit at Halol,
Gujarat
Key Financial Indicators (Consolidated)
As on/for the period ended March 31 Unit 2024 2023
Operating income Rs.Crore 1,550.42 1211.98
Reported profit after tax Rs.Crore 175.81 125.09
PAT margins % 11.34 10.32
Adjusted Debt/Adjusted Networth Times 0.05 0.14
Interest coverage Times 29.21 24.81
Any other information: Not Applicable

Note on complexity levels of the rated instrument:

CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where
applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on
available information. The complexity level for instruments may be updated, where required, in the rating rationale
published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the
Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

Date of Coupon Maturity Issue size Complexity Rating assigned
ISIN Name of the instrument
Allotment Rate (%) Date (Rs.Crore) Level with outlook
NA Fund-Based Facilities NA NA NA 23.8 NA CRISIL AA-/Stable
NA Non-Fund Based Limit* NA NA NA 27.5 NA CRISIL A1+
NA Fund-Based Facilities* NA NA NA 98.7 NA CRISIL AA-/Stable
*Fully fungible between fund based and non-fund based facilities

Annexure - List of Entities Consolidated

Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Parent company, in the same line of
Safari Industries India Limited Full Consolidation business with operational synergies, and
have a common management.
Parent company, in the same line of
Safari Lifestyles Limited Full Consolidation business with operational synergies, and
have a common management.
Parent company, in the same line of
Safari Manufacturing Limited Full Consolidation business with operational synergies, and
have a common management.
Annexure - Rating History for last 3 Years
Start of
Current 2024 (History) 2023 2022 2021
2021
Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount
Fund Based CRISIL CRISIL CRISIL CRISIL CRISIL
Facilities LT 122.5 AA-/Stable -- 06-12-23 A+/Stable 07-09-22 A/Stable 03-06-21 A-/Stable A-/Stable
CRISIL CRISIL
-- -- -- 21-01-22 29-04-21 --
A-/Positive A-/Stable
Non-Fund Based CRISIL CRISIL CRISIL CRISIL
Facilities ST 27.5 A1+ -- 06-12-23 A1 07-09-22 CRISIL A1 03-06-21 A2+ A2+
CRISIL CRISIL
-- -- -- 21-01-22 29-04-21 --
A2+ A2+
All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities& 40.1 Citibank N. A. CRISIL AA-/Stable

Fund-Based Facilities& 33.6 HDFC Bank Limited CRISIL AA-/Stable

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Fund-Based Facilities& 25 IndusInd Bank Limited CRISIL AA-/Stable

Fund-Based Facilities 23.8 Axis Bank Limited CRISIL AA-/Stable
Non-Fund Based Limit& 27.5 Axis Bank Limited CRISIL A1+
&Fully fungible between fund based and non-fund based facilities

Criteria Details

Links to related criteria

Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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