In the pink of Health

VIP Inds has given a guidance of 30% PAT CAGR led by :

  1. Market share gain post GST
  2. benefits of low cost manufacturing in Bangladesh
  3. scale benefits in multiple brand strategy and
  4. rising demand due to pick up in economy, tourism and Aviation and Road networks.

VIP Inds will gain from high entry barriers like:

1) high retail margins (35%)

2) high retailing cost (sales/ft, relative to other products) and

3) discretionary nature of product.

VIP is expanding in-house capacity ion both India and Bangladesh which will make it lowest cost producer and enable it to cater to global markets. Brand health is sound with launch of 200 ranges/year, youth affinity with Skybags brand and launch of Alia Bhatt line for Caprese’ handbags. VIP trades at consensus 43.6x FY20 EPS with zero debt balance sheet and 30% ROE.

VIP has multi-brand Portfolio catering to consumer requirements: VIP Inds has an array of brands like VIP, Carlton, SkyBags, Aristocrat and Caprese which cater to consumer requirements across price points in luggage industry. VIP and Carlton are at top end, SkyBags is at mid end while Aristocrat is focusing more on low end. Post success of Carlton Edge (life time warranty), the brand has cornered 25% in the premium segment. 75% of sales are from soft luggage while 25% comes from hard luggage. Caprese is youngest brand in its portfolio catering to ladies’ handbags at the premium end. Caprese is profitable from past two years, although quantum is small given size of brand.

 Luggage mainly a 3 player market, offers huge growth potential: Luggage Industry offers huge growth potential given rising focus on tourism and travel and only 25% penetration. VIP, Samsonite and Safari are major players in the domestic luggage industry. In addition, there exists unorganized sector and imported brands. GST rates on luggage have seen reduction in taxes, post that Samsonite has suffered while VIP and Safari have gained.

 Trade channels are undergoing transformation: Trade channels are getting transformed in tune with times. CSD contribution to sales has declined from 25% to 15% while online and Hypermart are gaining share in total luggage market. Luggage market offers 35% trade margins given more space requirements and high inventory. VIP has presence in 2862 outlets which includes General Trade, Retail Trade, Modern Trade and E-commerce.

 Manufacturing in Bangladesh will boost margins: VIP outsources entire sift luggage requirements while hard luggage is manufactured in house. Most of the smaller items are in Soft luggage are made in India and Bangladesh, while bigger one’s are sourced from China. China was the luggage capital and was the lowest cost producer. However, rising labor cost has increased the cost of production. VIP has set up a plant in Bangladesh which offers 1/3rd higher gross margins. VIP has 2 plants for Hard Luggage with a capacity of 1.8mn; plan is to increase it to 2.8mn by March’19. It has 3 plants for soft luggage with a capacity of 2.1mn and plans to increase it to 3.5mn by March’19. VIP plans to use its low cost base in Bangladesh to emerge as a major player in the international markets.

For detailed Consumption Series report visit at: Prabhudas Lilladher India- Online

Written by

Prabhudas Lilladher is one of India’s leading research based financial services organisation. Visit us at: www.plindia.com

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