Luggage makers are set to wheel in on-year revenue growth of 45-50 per cent this fiscal on the back of pent-up tourism demand, resumption of corporate travel, reopening of schools/colleges/offices, and limited restrictions on festivities and social events, CRISIL Ratings said in a report on Thursday.
CRISIL Ratings said the operating profitability of luggage companies is likely to rise 150-200 basis points this fiscal. The credit outlook is "stable".
Operating margin should recover by 150-200 basis points to 11.5-12.0 per cent, supported by higher capacity utilisation and better absorption of fixed cost, price hikes and change in product mix in favour of the higher-margin hard-luggage segment, the rating agency said.
Increased promotion and marketing expenses and higher input prices will keep margin well below the pre-pandemic level of 15 per cent. Prices of crude-linked raw materials such as polypropylene, polycarbonate and polyamide, which comprise over half the cost of making luggage, have risen steeply over the past two fiscals. Polypropylene, for instance, is 60 per cent dearer.
Net-net, better operating profits and continuing strong balance sheets will keep the credit risk profiles stable, an analysis of three CRISIL-rated luggage makers that account for 90 per cent of the organised sector's revenue, shows.
The organised segment accounts for about half of the sector's revenue of Rs 5,600 crore.
"The revival in business and leisure travel, normalisation of flight schedules, and students moving abroad for studies are encouraging signs," said Naveen Vaidyanathan, Director, CRISIL Ratings.
"Air traffic, a key indicator of luggage demand, was already at 86 per cent of the pre-pandemic level this April. Besides, demand will also benefit from increased purchases during the wedding season and the low-base effect of last fiscal, which was impacted by the second and third waves of the pandemic," Vaidyanathan said.
( With inputs from ANI )
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