Please refer to important disclosures at the end of this report
1
VIP Industries Ltd (VIP) is engaged in the manufacturing of hard and soft luggage
both. VIP's brands include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and
Caprese and its product range includes trolleys, rucksacks, backpacks, duffel
bags, laptop bags, travel accessories, short haul essentials, soft uprights, vanity
cases, hard suitcases, briefcases and uprights among others. VIP has 50% market
share in Indian luggage industry.
Shift in trend towards the organized sector to propel growth: The Indian luggage
industry is valued at `6,000cr and is mainly dominated by the unorganized sector
(accounting for 50-55% share). Industry reports indicate that the luggage sector is
expected to grow at a CAGR of ~13% going ahead, within which, the organized
segment is expected to grow at a faster pace compared to the unorganized
segment. With the implementation of GST, the pricing gap between the organized
and unorganized players is expected to reduce, which would make the pricing of
organized players equally attractive. The share of organized players is expected to
improve from current levels, which would be beneficial for branded players like VIP.
Substantial brand visibility with wide distribution network: VIP has been
continuously focusing on strong brand visibility of its products. The company’s
brands include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and Caprese.
Historically, the company has been spending around 5-6% (percentage of sales)
on ad spends to increase its brand visibility. Currently, VIP's 10,000+ point of sale
networks enhance its brand visibility and product reach for its entire range of
products across brands and across price points.
Diversified product portfolio catering to all segments of customers: VIP has a well
diversified product bouquet, which caters to consumers from all income groups.
The company’s brands like Aristocrat and Alfa cater to the mass segments while,
brands like Carlton, Caprese and VIP cater to the high-end segments. The
company is also targeting the youth through its trendy brand – Skybags. The
company’s VIP brand contributes ~45% of net sales, followed by Skybags, which
contributes ~27%, brands like Aristocrat and Alfa contribute ~20% and the
balance is from brands like Carlton and Caprese.
Outlook and Valuation: Going ahead, we expect VIP to report a top-line CAGR of
~12% over FY16-19E to ~`1,693cr on the back of diversified product portfolio
(catering to customers from all segments), and strong distribution network with
high brand recall. Further, GST implementation will also boost the volume of
branded sales. We also believe that VIP’s bottom-line is set to grow at a CAGR of
~18% over FY16-19E as its operating margins are likely to sustain at the current
levels (improved 140bp during 9MFY17) due to high bargaining power over Chinese
suppliers due to their overcapacity and the weak Chinese currency vs. stable rupee
which will keep RM cost the current lower levels. VIP trades at a P/E of 19.6x its FY19E
EPS. We Initiate Coverage on the stock with a Buy recommendation and Target Price
of `180 (23x FY19E EPS), indicating an upside of ~17% from the current levels.
Key financials
Y/E March (` cr) FY2016 FY2017E FY2018E FY2019E
Net sales
1,216 1,270 1,450 1,693
% chg
16.1 4.4 14.2 16.7
Net profit
66 80 92 110
% chg
52.7
2
0.0 16.0 19.3
EBITDA margin (%)
8.9 10.4 10.4 10.5
EPS (`)
4.7 5.6 6.5 7.8
P/E (x)
32.5 27.1 23.4 19.6
P/BV (x)
6.4 5.6 4.9 4.3
RoE (%)
19.6 20.7 21.1 22.1
RoCE (%)
26.6 29.9 30.7 32.4
EV/Sales (x)
1.8 1.7 1.5 1.3
EV/EBITDA (x)
20.0 16.2 14.1 12.0
Source: Company, Angel Research, Note: CMP as of March 7, 2017
BUY
CMP `153
Target Price `180
Investment Period 12 Months
Stock Info
Sector
Net Debt (
`
cr) 6
Bloomberg Code
Shareholding Pattern (%)
Promoters 52.5
MF / Banks / Indian Fls 17.9
FII / NRIs / OCBs 4.3
Indian Public / Others 25.3
Abs. (%) 3m 1yr 3yr
Sensex 10.5 17.5 32.3
VIP 27.9 54.4 104.5
Reuters Code VIPI.BO
VIP@IN
BSE Sensex 29,000
Nifty 8,947
Avg. Daily Volume 30,993
Face Value (
`
)2
Beta 1.1
52 Week High / Low 157 / 95
Consumption
Market Cap (
`
cr) 2,146
3 year daily price chart
Source: Company, Angel Research
A
marjeet S Maurya
022-39357800 Ext: 6831
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V
IP Industries
Travelling smart on the luggage track
Q
uick take
V
IP Industries
March 8, 2017
2
Quick tak
Investment Arguments
Shift in trend towards the organized sector to propel growth
Industry reports indicate that the luggage sector is expected to grow at a CAGR of
~13% going ahead, within which, the organized segment is expected to grow at a
faster pace compared to the unorganized segment. With the implementation of
GST, the pricing gap between the organized and unorganized players is expected
to reduce, which would make the pricing of organized players equally attractive.
The share of organized players is expected to improve from current levels, which
would be beneficial for branded players like VIP.
Exhibit 1: Organised v/s unorganised market share
Source: Company, Angel Research
Exhibit 2: Segment wise break-up
Source: Company, Angel Research
Hence, we believe that VIP is best placed to gain market share on the back of
better product quality, strong brands, and wide distribution network. Currently, the
company has 50% market share in the organized luggage industry.
Substantial brand visibility with wide distribution network
VIP has been continuously focusing on strong brand visibility of its products. The
company’s brands include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and
Caprese. Historically, the company has been spending around 5-6% (percentage
of sales) on ad spends to increase its brand visibility. Currently, VIP's 10,000+
point of sale networks enhance its brand visibility and product reach for its entire
range of products across brands and across price points.
45%
55%
Organised market Unrganised market
75%
25%
Soft Luggage Hard Luggage
V
IP Industries
March 8, 2017
3
Quick tak
Exhibit 3: Ad spends % of net sales
Source: Company, Angel Research
Diversified product portfolio catering to all segment of customers
VIP has a well diversified product bouquet, which caters to consumers from all
income groups. The company’s brands like Aristocrat and Alfa cater to the mass
segments while, brands like Carlton, Caprese and VIP cater to the high-end
segments. The company is also targeting the youth through its trendy brand
Skybags. The company’s VIP brand contributes ~45% of net sales, followed by
Skybags, which contributes ~27%, brands like Aristocrat and Alfa contribute ~20%
and the balance is from brands like Carlton and Caprese.
Exhibit 4: Positioning of VIP brands
Brand Year Brand Positioning
VIP 1971 Mass, mid-premium
Alfa 1971 Mass market, targeted to convert consumers purchasing unbranded luggage to VIP products
Carlton 2004 Premium international brand, targeted towards young professionals
Aristocrat 2007
V
alue for mone
y
Skybags 2012 Youth oriented, stylish
Caprese 2012 Mass-premium, targeted towards fashion conscious urban women
Source: Company, Angel Research
37
45
44
57
63
71
4.9
5.2
5.3
5.9
6.0
5.8
0
1
2
3
4
5
6
7
0
10
20
30
40
50
60
70
80
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016
(%)
(` cr)
Ad spend
% of sales
V
IP Industries
March 8, 2017
4
Quick tak
Margin profile to remain sustainable going forward
During 9MFY2017, the company has reported margin improvement by 140bp
mainly due to (a) better negotiation with suppliers and (b) relatively stable INR
exchange rate and depreciation of Chinese Yuan. VIP’s 70% revenue comes from
soft luggage, which is imported from China. If INR vs. USD would remain in the
range of `67-68, then the management expects operating margins at the current
level to be sustainable going ahead.
Exhibit 5: USD strengthening against CNY.....
Source: Company, Angel Research
Exhibit 6: and stable Indian currency
Source: Company, Angel Research
6.4
6.5
6.6
6.7
6.8
6.9
7.0
Mar-16
Apr-16
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Jun-16
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Jul-16
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Se
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-16
Oct-16
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Jan-17
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(USD/CNY))
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p
r-16
Apr-16
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Jan-17
Feb-17
Mar-17
(INRI/USD)
V
IP Industries
March 8, 2017
5
Quick tak
Outlook and Valuation
Going ahead, we expect VIP to report a top-line CAGR of ~12% over FY16-19E to
~`1,693cr on the back of diversified product portfolio (catering to customers from all
segments), and strong distribution network with high brand recall. Further, GST
implementation will also boost the volume of branded sales.
We also believe that VIP’s bottom-line is set to grow at a CAGR of ~18% over FY16-19E
as its operating margins are likely to sustain at the current levels (improved 140bp during
9MFY17) due to high bargaining power over Chinese suppliers due to their overcapacity
and the weak Chinese currency vs. stable rupee which will keep RM cost the current lower
levels. VIP trades at a P/E of 19.6x its FY19E EPS. We Initiate Coverage on the stock with
a Buy recommendation and Target Price of `180 (23x FY19E EPS), indicating an upside
of ~17% from the current levels.
Exhibit 7: One year forward PE chart
Source: Company, Angel Research
Downside risks to our estimates
Increase in competition from unorganized players would impact overall growth
of the company
VIP’s 30% sales comes from hard luggage segment and any increase in input
cost (most of the key raw material is polypropylene and aluminum) could
negatively impact profitability
Volatility in foreign currency could impact the company’s profitability (70% of
VIP’s revenue comes soft luggage, which is imported from China).
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Share Price (`)
15.0 X 20.0 X 25.0 X 30.0 X 35.0 X
V
IP Industries
March 8, 2017
6
Quick tak
Company Background
VIP Industries Ltd (VIP) is engaged in the manufacturing of hard and soft luggage
both. The Company operates in Luggage, Bags & Accessories, and Furniture
segments. It has manufacturing facilities at various locations across India. The
Company has a range of products across luggage categories and its brands
include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and Caprese. The Company's
product range includes trolleys, rucksacks, backpacks, duffel bags, laptop bags,
travel accessories, short haul essentials, soft uprights, vanity cases, hard suitcases,
briefcases, and uprights among others. It has approximately 8,000 retail outlets
across India and a network of over 1,300 retailers in approximately 30 countries.
The Company's subsidiaries include VIP Industries Bangladesh Private Limited and
Blow Plast Retail Limited. VIP Industries Bangladesh Private Limited manufactures
and markets luggage and bags.
Exhibit 8: Revenue break-up for VIP (FY2016)
Source: Company, Angel Research
72.5%
27.5%
Soft Luggage Hard Luggage
V
IP Industries
March 8, 2017
7
Quick tak
Consolidated Profit & Loss Statement
Y/E March (` cr) FY2015 FY2016
FY2017E FY2018E FY2019E
Total operating income 1,048 1,216
1,270 1,450 1,693
% chg 7.7 16.1
4.4 14.2 16.7
Total Expenditure 970 1,108
1,138 1,299 1,515
Raw Material 573 663
886 1,018 1,195
Personnel 110 126
48 58 71
Others Expenses 288 320
203 223 249
EBITDA 77 108
132 151 178
% chg (3.5) 39.6
22.1 14.2 17.9
(% of Net Sales) 7.4 8.9
10.4 10.4 10.5
Depreciation& Amortisation 18 14
14 15 16
EBIT 60 94
118 136 162
% chg (5.3) 56.8
25.4 15.4 19.3
(% of Net Sales) 5.7 7.7
9.3 9.4 9.6
Interest & other Charges 1 1
1 1 1
Other Income 7 2
2 3 3
(% of PBT) 10.4 2.4
1.9 2.2 1.8
Share in profit of Associates - -
- - -
Recurring PBT 65 95
119 138 165
% chg (17.9) 45.2
25.1 16.0 19.3
Tax 19 29
39 46 54
(% of PBT) 28.9 30.1
33.0 33.0 33.0
PAT (reported) 47 66
80 92 110
Extraordinary Items 3 -
- - -
ADJ. PAT 44 66
80 92 110
% chg (6.0) 52.7
20.0 16.0 19.3
(% of Net Sales) 4.2 5.5
6.3 6.4 6.5
Basic EPS (`) 3.1 4.7
5.6 6.5 7.8
Fully Diluted EPS (`) 3.1 4.7
5.6 6.5 7.8
% chg (6.0) 52.7
20.0 16.0 19.3
V
IP Industries
March 8, 2017
8
Quick tak
Consolidated Balance Sheet
Y/E March (` cr) FY2015 FY2016 FY2017E FY2018E FY2019E
SOURCES OF FUNDS
Equity Share Capital 28 28 28 28 28
Reserves& Surplus 277 311 356 409 472
Shareholders Funds 306 339 385 437 500
Minority Interest - - - - -
Total Loans 31 14 9 5 -
Deferred Tax Liability - - - - -
Total Liabilities 337 354 394 442 500
APPLICATION OF FUNDS
Gross Block 277 279 289 304 319
Less: Acc. Depreciation 205 212 226 241 257
Net Block 71 67 62 63 62
Capital Work-in-Progress 1 1 1 1 1
Investments 0 0 0 0 0
Current Assets 424 515 556 643 753
Inventories 227 287 303 350 408
Sundry Debtors 111 149 157 183 218
Cash 8 8 15 27 34
Loans & Advances 50 45 51 54 59
Other Assets 29 25 30 29 34
Current liabilities 163 233 229 268 320
Net Current Assets 261 282 326 375 433
Deferred Tax Asset 3 4 4 4 4
Total Assets 337 354 394 442 500
V
IP Industries
March 8, 2017
9
Quick tak
Consolidated Cashflow Statement
Y/E March (` cr) FY2015 FY2016 FY2017E FY2018E FY2019E
Profit before tax 65 95 119 138 165
Depreciation 18 14 14 15 16
Change in Working Capital (43) (30) (37) (36) (52)
Interest / Dividend (Net) 1 1 1 1 1
Direct taxes paid (21) (27) (39) (46) (54)
Others (6) 0 0 0 0
Cash Flow from Operations 14 53 58 72 74
(Inc.)/ Dec. in Fixed Assets (4) (9) (10) (15) (15)
(Inc.)/ Dec. in Investments 1 0 0 0 0
Cash Flow from Investing (3) (8) (10) (15) (15)
Issue of Equity 0 0 0 0 0
Inc./(Dec.) in loans 0 0 (5) (4) (5)
Dividend Paid (Incl. Tax) (28) (27) (34) (40) (47)
Interest / Dividend (Net) (1) (1) (1) (1) (1)
Cash Flow from Financing (14) (45) (38) (45) (53)
Inc./(Dec.) in Cash (3) 0 10 12 6
Opening Cash balances 8 5 5 15 27
Closing Cash balances 5 5 15 27 34
V
IP Industries
March 8, 2017
10
Quick tak
Key Ratios
Y/E March FY2015 FY2016 FY2017E FY2018E FY2019E
Valuation Ratio (x)
P/E (on FDEPS) 49.7 32.5 27.1 23.4 19.6
P/CEPS 33.7 26.8 23.0 20.2 17.2
P/BV 7.1 6.4 5.6 4.9 4.3
Dividend yield (%) 1.0 1.3 1.6 1.8 2.2
EV/Sales 2.1 1.8 1.7 1.5 1.3
EV/EBITDA 28.2 20.0 16.3 14.2 12.0
EV / Total Assets 6.5 6.1 5.5 4.8 4.3
Per Share Data (`)
EPS (Basic) 3.1 4.7 5.6 6.5 7.8
EPS (fully diluted) 3.1 4.7 5.6 6.5 7.8
Cash EPS 4.5 5.7 6.6 7.6 8.9
DPS 1.5 2.0 2.4 2.8 3.4
Book Value 21.6 24.0 27.2 31.0 35.4
Returns (%)
ROCE 17.8 26.6 29.9 30.7 32.4
Angel ROIC (Pre-tax) 18.2 27.2 31.1 32.8 34.8
ROE 14.2 19.6 20.7 21.1 22.1
Turnover ratios (x)
Asset Turnover (Gross Block) 3.8 4.4 4.4 4.8 5.3
Inventory / Sales (days) 79 86 87 88 88
Receivables (days) 39 45 45 46 47
Payables (days) 42 52 52 53 54
WC cycle (ex-cash) (days) 76 79 80 81 81
V
IP Industries
March 8, 2017
11
Quick tak
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL
and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a
registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public
offering of securities of the company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the
contrary view, if any.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
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Disclosure of Interest Statement VIP Industries
1. Financial interest of research analyst or Angel or his Associate or his relative No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives No
3. Served as an officer, director or employee of the company covered under Research No
4. Broking relationship with company covered under Research No
Ratings (Based on expected returns Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
over 12 months investment
p
eriod
)
: Reduce
(
-5% to -15%
)
Sell
(
< -15
)