With revenge travelling taking the front seat, these stocks can rally up to 46%

We all have seen the viral images of tourists crowding Himachal Pradesh and Uttarakhand in order to escape the monotonous life that the second wave of the coronavirus lockdown brought forth. Revenge travelling is not just restricted to India. In fact, it is a global phenomenon. While one still needs to be cautious when outdoors, but revenge travelling has come as a blessing for the luggage industry that has undoubtedly been amongst the worst impacted sector in pandemic times.

“With accelerating vaccination across the world, revenge consumption and travel are likely to gain traction. VIP Industries and Safari Industries (India) are well-positioned to benefit from the expected recovery with a leaner cost structure and stronger balance sheet,” said B&K Securities in a note.

The brokerage firm has initiated coverage on the sector with buy on VIP Industries and Safari Industries (India) as both the companies saw a working capital reduction to manage their cash flows requirement in pandemic times. VIP and Safari Industries (India) reduced their net working capital from Rs 430 crore and Rs 250 crore in FY20 to Rs 300 crore and Rs 130 crore in FY21, respectively. It believes that the agility to manage working capital in uncertain times and a stronger balance sheet will provide support to the companies in the near-term uncertainty and emerge much stronger over the longer term.

VIP Industries | Rating: Buy | Price target: Rs 580 | Upside: 46%

VIP Industries is the world’s second-largest and Asia’s largest manufacturer of hard and soft luggage. It is the market leader in the oligopolistic Indian luggage market with ~46% share in the organised luggage market. The company is in a sweet spot to leverage the re-opening of economy theme due to its presence across product categories, price segments, a strong portfolio of brands and a wide distribution network.

B&K Securities expects sales to grow at 3.1%, EBITDA (earnings before interest tax depreciation & amortisation) to increase by 6.2%, profit after tax to rise by 16.3%, respectively, along with EBITDA margin improvement of 210 basis points (19.1% versus 17% in FY20) over FY20-24E. This primarily been driven by the increasing share of backpacks and hard luggage, a focus on the e-commerce channel, rising share of Bangladesh’s operations and strong free cash flow generation and improving return ratios. Increasing focus on international business is one of the key catalyst for higher growth, not fully baked in its estimates.

Safari Industries | Rating: Buy | Price target: Rs 935 | Upside: 36%

Safari Industries (India) is amongst the leading luggage players with around 18% market share in the organised luggage market. The company is in a sweet spot to gain from GST transition and increasing demand in the mass/economy segment.

The brokerage house is of the opinion that the company will be in a position to leverage the opportunity through better supply chain management than unorganised players and gain further market share. It expects Safari to surpass FY20 sales in FY23E and report earnings growth of 12.6% CAGR (compounded annual growth rate) over FY20-24E given its market leadership in mass segment and ability to influence competition, sales growth outpacing industry growth, increasing distribution network and efforts on improving aspiration quotient of SAFARI brand and improving return ratios.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)