Indian Luggage Industry - Markets Mojo · Baggit 0.7% Expected to sustain mid double digit growth...

Indian Luggage IndustrySector Report

“Bagging the growth story”

27 JAN 2020

2

Investment Summary

27 JAN 2020 Sector Report

Indian Bags & Luggage Industry

Sector: Consumer Discretionary

Organized luggage industry with multiple growth drivers: While, global luggage industry is estimated to report 5.3% growth over FY13-22E; the

Indian luggage industry is estimated to grow at double the rate of the global luggage market over the same period. Within the Indian luggage market,

the organised sector with a size of Rs. 3,000crore is expected to lead growth over unorganized players given that competitive landscape has tilted in

favour of organized players (with a share of 40%) versus unorganized (60%) share owing to factors like 1) sustained air passenger traffic growth 15%

CAGR over FY18-24E; 2) 12% CAGR growth in outbound tourism over CY13-19E; 3) favourable demographics – rising millennials (working age)

population, higher number of wedding days over 2020-2022E; 4) rising disposable income which translates into higher discretionary spending in turn

leading to a preference for branded products by this burgeoning middle income group; and 5) GST implementation. Further, millennials aspiration for

travel (short haul and long haul) driven by social media influence, adventure seeking, and eye for experience too will entail huge opportunity for the

Indian Luggage players like VIP Industries and Safari Industries the leading brands in organized space over the medium to long term.

Bagging the growth story now! Luggage market has remained an oligopolistic market world over and India is no different. Given the multiple structural

macro drivers and favourable growth prospects for luggage players, we initiate coverage on the two listed players VIP Industries and Safari Industries

with a BUY rating from a 12-18 month perspective.

VIP Industries: A ‘VIP’ in the portfolio: ‘BUY’ with Target Price of Rs. 554 valuing at 28x FY22E

VIP IN is the leader in the organised and oligopolistic Indian luggage market and will continue to maintain its numero uno position owing to a strong

brand pull, widespread product offerings, deeply entrenched distribution network (~11,000 touch points), debt free balance sheet and strong cash

generation

We estimate the company to report Revenue/PAT CAGR of 12%/24% over FY19-22E aided by growth across its brands viz. Skybags, VIP, Caprese

and Carlton over the next couple years

Scaling up of Bangladesh operations, strong bargaining power with Chinese vendors for sourcing soft luggage and efficient inventory management

will lead to improved working capital efficiency and also EBITDA Margin expansion of o+300bps to 15.6% by FY22E over FY19

We thus believe its premium valuation is justified given its leadership position and balance sheet strength.

3

0

50

100

150

200

2013 2014 2015 2016 2017 2018 2023E

US$

bn

Bags & Luggage a Global perspective

Global bags & luggage industry over the long term isexpected to report steady mid single digit growth owing to

Global Air Pax traffic growing at 4.3% CAGR over 2018-23E

World is expected to see 1.6 billion arrivals with an average

US$ 1,028 spent per trip by 2022

Millennials to drive higher spends on leisure travel (55% plan to

increase their travel vis-a-vis last year)

Rising disposable income

Relaxation in dress codes driving need for stylish bags &

luggage that suit the wardrobe

Global Bags & Luggage Market growth to be ~4.5% CY18-23E …handbags dominating with 40% market share

Handbags40%

Others25%

Crossbody Bags10%

Backpacks10%

Luggage15%

2.7% CAGR

…some leading players in global bags & luggage market

Source: Industry Reports, Company, Axis Securities




4

Global Luggage & Backpack market growth dynamics

Global Luggage market expected to grow to $ 27.1bn@ 5.2% CAGR over 2018-23E led by Asia Pacific growing at 5.9% CAGR over 2018-23E Within Asia Pacific, India & China to drive growth led by

o Favourable demographics (China & India together have 76% oftotal millennial population)

o Growing middle class and rising per capita income

o Development of tourism both inbound and outbound

o Rising urbanization and nuclearisation of families

Global backpack segment to grow fastest at 5.5% CAGRto US$ 22.5bn over 2018-23E led by Convenience – easy to carry, lightweight Increasing trend of short duration trips Growing mobility of consumers

0

5

10

15

20

25

30

2017 2018 2019 2020E 2021E 2022E 2023E

US $

bn

2.0%

4.4%

5.5%5.9%

0%

1%

2%

3%

4%

5%

6%

7%

North America Europe Latin America Asia Pacific

0

5

10

15

20

25

2017 2018 2023E

US $

bn

Modest growth in global luggage market owing to volume pressure Global Luggage market growth to be dominated by India and China leading Asia Pacific to grow fastest against other regions

Global Backpack market estimated to report 5.5% CAGR to $22.5bn over 2017-23E

Source: Industry Reports, Samsonite Annual Reports, Axis Securities




5

Bags & Luggage Market an Indian perspective

Indian bags & luggage market likely to maintain healthygrowth momentum driven by robust growth in backpacks andhandbags market followed by luggage

Travel and Tourism spends in India are expected to report7.5% CAGR over 2018-23E in line with past 5 years growthmomentum fuelled by -

Growing middle class

Rise in per capita income

Growing number of outbound trips

Increased participation of women in the workforce

Encouraging ratio of student enrolment to colleges

Improving 2W penetration

0

50

100

150

200

250

300

Rs.

bn

Others10%

Business Bags9%

Backpacks9%

Handbags25% Luggage

47%

VIP10%

Samsonite7%

Titan3% LVMH India

2%Wildcraft

2%

Hermes India1%

Hidesign1%

Kering(Gucci) 1%

Da Milano0.8%

Baggit0.7%

Expected to sustain mid double digit growth momentum aided by volumes and premiumization

...luggage dominating with 47% market share, contrary to global market which is dominated by handbags

Indian handbags and backpack market which is at a nascent stage and is dominated by luggage players

Source: Industry Reports, Axis Securities




6

0

20

40

60

80

100

2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E

Rs.

bn

Indian Luggage market a perspective

32

25

15

4 3 1.4

0

5

10

15

20

25

30

35

Japan NorthAmerica

Europe LATAM China India

US $

Soft Luggage70%

Hard Luggage30%

0

5

10

15

20

25

30

35

40

2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E

Rs.

bn

Indian Luggage market (including unorganised) growth pegged @ 11.2% CAGR over 2018-24E

Lowest per capita spend on luggage in India offers immense scope for growth

Organized luggage market (~40%) has doubled over 2013-18 …with soft Luggage continuing to dominate the Indian Luggage market

Source: Industry Reports, Axis Securities




7

98

10

4

11

6

13

5

15

8

18

4

38

0

0

100

200

300

400

No. of Pa

ssen

ger

s in

mn

Macro economic factors driving underlying market potential

2.8

3.3

1.7

1.00.7 0.5 0.4 0.4

0.10

1

2

3

4

Dom

estic

Sea

ts p

er c

apita

1,6

10

1,6

40

1,7

62

2,0

14

2,0

38

2,1

72

2,3

38

2,5

29

2,7

37

2,9

66

3,2

10

0

500

1,000

1,500

2,000

2,500

3,000

3,500

In U

S $

Indian tourism market to grow at 7.5% CAGR going forward… ...leading to a ~2x rise in air passenger traffic over 2018-24E

As per capita income rises above US $ 2,000 spending on discretionary items increases

...with low air travel penetration in India, air passenger traffic expected to continue growth momentum

Source: IMF, IBEF, FICCI, Axis Securities

16

4

17

3

18

6

20

1

22

0

23

2

24

7

37

1

0

50

100

150

200

250

300

350

400

US $

bn




8

Macro economic factors driving underlying market potential

9%

12%12%

13%

2%

9%

6%7%

10%9%

4% 7%

0%

2%

4%

6%

8%

10%

12%

14%

2013 2014 2015 2016 2017 2018

Domestic Tourist Visit Growth Domestic Expenditure on Tourism

15

17

18

20

22

24

27

27

42

0

10

20

30

40

50

2012 2013 2014 2015 2016 2017 2018 2019E 2023E

in m

n

78.5%

94.8%

21.5%

5.2%

0% 50% 100%

Global

Indian

Leisure Spending Business Spending

Low127M (43%)

Lower Mid97M (33%)

Upper Mid61M (21%)

High8M (3%)

Low57M (15%)

Lower Mid132M (34%)

Upper Mid168M (44%)

High29M (7%)

293 M 386 M

2018 2030 forecast

$40,000

$4,000 – 8,500

<$4,000

$8,500 – 40,000

...as middle income group moves up the income pyramid …domestic tourist visits to rise at 9% CAGR by 2023E

...this will also lead to surge in Indian National departures with increased spends on leisure travel

Leisure travel dominates tourism spends in India versus global

Source: Industry Reports, WEF Report, Easymytrip DRHP, Company, Axis Securities




9

Resurgence in travel market driven by macro factors

As per Travel Millennial Survey 2017

India, with 34% millennial population has the highestproportion of millennials compared to other economies

By 2020, Indian will have ~410 millennials with~US $ 330 billion annual spending capability

62% of millennial go on vacation between 2-5 times a year.Further, 10% travel about 6 -10 times a year

Most millennials also prefer to explore international locationsover domestic destinations

A burgeoning middle class (largely from Tier II / III cities)with majority of it characterised by millennials who arelikely to drive average spending by an Indian traveller asagainst current spends of :

US$ 857 per trip per person spend on short haul trips

US$ 1,687 per trip per person spend on long haul trips

Perceptual shift in Tier II & Tier III cities towards luggagebeing a ‘fashion statement’ than a utilitarian product

Railway passenger traffic’s 2018 growth momentum tocontinue going ahead led by improved rail travel services

8,3

97

8,2

24

8,1

07

8,1

16

8,2

86

8,3

13

8,4

50

8,5

50

7,800

8,000

8,200

8,400

8,600

No. of Pa

ssen

ger

s in

Mn

34% 33% 31%26%

14%

0%

10%

20%

30%

40%

India Brazil China USA UK

Millennials form 34% of India’s population who are primary wage earners

Railway passenger growth to sustain FY18 momentum

Source: Media Reports, CAPA, IRCTC RHP, Axis Securities




10

Rise in Travel & Tourism spends propels demand for luggage

As per WTTC, India is expected to rank 5th in terms oftotal tourism spending in CY2019 with tourism spending of8.3% of GDP expected in CY2019E from 8% in 2013

India’s tourism spends grew at 7.8% CAGR over CY2013-19E and expected to continue, driven by

Rising disposable income (31% people willing to spend overRs. 50,000 per trip as per industry surveys)

Peer pressure, Social media influence

Improved affordability and availability of air & rail travel

Govt. initiatives to promote tourism

90% spends are accounted by domestic tourism primarilytowards leisure travel while outbound spending forms thebalance 10% of tourism spends in India

Outbound tourism are expected to report a healthy 12%compounded growth over CY2013-19E. Currently ~44%trips are only leisure travel. By CY2025E, only leisuretravel departures likely to be 13.9mn (2016 totaldepartures were 21.9 million)

As per UNWTO by CY2020E, ~50 million outboundtourists from India are expected to travel (25mn in 2018)

Indian National Departures are expected to report agrowth of 9.6% over FY18-23E

8.0%

8.1%

8.2%

8.3%

8.1%8.1%

8.3%

7.8%

7.9%

8.0%

8.1%

8.2%

8.3%

8.4%

0

2

4

6

8

10

12

14

16

2013 2014 2015 2016 2017 2018 2019E

Rs.

Trn

%

Outbound Tourism spends Domestic Tourism spends

Total Tourism spending as % of GDP

-60

-30

0

30

60

90

120

0

50

100

150

200

250

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018

US $

bn

%

Business Spends Leisure Spends

Business Spending YoY Growth (%) Leisure Spending YoY Growth (%)

Robust 25% CAGR over 2013-18 witnessed in Leisure Travel spends

Outbound tourism spends grew at healthy 12% CAGR over 2013-19E

Source: World Travel & Tourism, Yatra Survey 2017, CAPA Report, IRCTC RHP, Industry Reports, Company, Axis Securities




11

54

56

54

0 10 20 30 40 50 60 70

2022E

2021E

2020E

Auspicious Indian Wedding Dates

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

Male (in mn) Female (in mn)

Changing trends in gifting habits and celebrations

Some interesting facts about weddings in India will onlysupport overall growth in luggage industry:

Over 10 million couples getting married every year

Wedding industry estimated to be ~Rs. 1 lakh crore growing

at a rapid pace of 20-25% per annum

Luggage is increasingly becoming a part of weddingtrousseau, so surge in marriage expenditures augurs wellfor Indian luggage industry

5.5

7.3 6.3

8.0 8.2 7.5 8.1

0

2

4

6

8

10

0

25

50

75

100

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019E

Rs.

trill

ion

%

PFCE (private final consumption expenditure incurred by households on goods & services)

YoY Growth

...further rising propensity to spend could lead to increase in discretionary expenditure...

Marriage and festivals are auspicious occasions to consider gifting backed by favorable demographics

<65% of India’s population falls in the working age category giving a huge fillip to discretionary spends

Source: Media Reports, IRCTC RHP, Axis Securities




12

Backpacks outpacing luggage industry growth...

0

4

8

12

16

20

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018

In m

n

0

10

20

30

40

2012 2013 2014 2015 2016 2017 2018 2019

Stu

den

ts in m

illio

n

…as replacement cycle of backpacks is shorter than luggage Indian backpack market growth ahead of luggage market

...steadily growing IT-BPM employees (direct & indirect)...rise in number of student enrolment in colleges

Backpacks life cycle Luggage life cycle

4 Year 2 Year 10 Year 5 Year

Earlier Now Earlier Now

Source: Industry Reports, AISHE Report – HRD Ministry, NASSCOM, Company, Axis Securities

0

4

8

12

16

0

4

8

12

16

2013 2014 2015 2016 2017 2018

Backpacks Value Growth (%) Luggage Value Growth (%)

Backpacks Vols Growth (%) Luggage Vols Growth (%)




13

Indian Luggage Industry Segmentation

VIP Industries46%

Samsonite35%

Safari Industries

17%

Delsey1%

Unorganized Share75%

Organized Share25%

MassAlfa, Aristocrat, Safari, Kamiliant, Magnum

ASP: <Rs 5,000

Economy and Mid-levelSkybags, VIP, American Tourister,

Safari, Aristocrat ASP: Rs 5,000 – Rs 7,000

PremiumSamsonite, Carlton

ASP:> Rs 7,000

Customer is willing to pay a significant percentage premium on brand, quality, shopping experience and aspiration

Customer is willing to pay a moderate percentage premium on brand, quality and shopping experience

Customer is willing to pay a moderate percentage premium on quality and brand proposition

…VIP Industries a leader in the organized space in Indian market context

Tremendous scope for organized players to grow share in Indian Luggage Industry

Source: Industry Reports, Management Interviews, Axis Securities




14

GST led demand shift to organized players

Price-Value

Approx. Price Point

Competitive Intensity

Peer Positioning

Premium >Rs. 8,000 ModerateSamsonite market

leader

Economy/ Value

Rs. 4,000 –6,000

ModerateVIP market

leader

Mass <Rs. 4,000

High; max shiftfrom unorganizedto organized seenin this segmentpost GST

Safari has strongest

positioning

VIP IN: Aristocrat brand (mass offering of VIP) has grown by

~79% in FY18. Aristocrat is an affordable brand and

therefore remains a preference to consumers at the time of

subdued spending

SAFARI IN: With GST, industry will be fuelled with better

growth opportunities and Safari will look to gain on in

backpacks and PC product categories as consumers will

upgrade from unbranded to branded players

SAMSONITE: Launched Kamiliant in 2016. Within 18

months of launch garnered Rs. 100crore revenue and was

targeted at the unbranded segment in smaller towns and

cities

Acceleration observed in market share gains of organized

players esp in mass segment with Safari Industries being

the biggest beneficiary

Reduced pricing gap with organized players

Organized players revenues have seen ~20-25% rise in

sales on annual basis since GST implementation

Tax Rate

Pre-GST 19%

Post GST 18% (revised in Nov 2018 from earlier 28%)

GST led gains significant for organized players which reported 20%+ revenue growth

Management commentary on opportunity post GST and implication for organized players in India

Positioning of players in Indian Luggage Industry

Tax Incidence Prior to & Post GST

Source: Company, Axis Securities




15

Buyers’ Bargaining Power: Low

Luggage a lifestyle product now against its utilitarian tag

Multiple SKUs /brands across the price-value chain significantly lowers buyers ability to drive prices

Entry Barriers: High

Inventory management a challenge

Ensure timely product availability

Multiplicity and bulky nature of SKUs

Multiple sales channels and fastchanging fashion trends

Sourcing from China a tough task forsmall/new playerSubstitution Threat : Low

Utility value of luggage/bag is cannot be substitute by any other good

Luggage/ bag a mandatory accompaniment during travel

Porter’s Five Force Model

Competitive Intensity: High

Largely from organized players

Huge market size where organized players share is ~25% in overall market

Post GST, unorganized players competitiveness is sharply lowered

Suppliers’ Bargaining Power:High

Massive scale of Chinese operations makes China sourcing a tough task for new/small scale player

China a soft luggage manufacturing hub globally. However, tariff wars has led to reducing the suppliers bargaining power




Company Section

17

Price performance

Target Price: 554

CMPPotential Upside

MARKET DATA

No. of Shares (Cr)

Market Cap (Rs Cr)

Free Float

Avg. daily (6mth)

52-w High / Low

Bloomberg

Promoter holding

FII / DII

: 19%

: 14.13

: 6,522

: 46.5%

: 1,12,870

: 525/342

: VIP IN

: 53%

: 6.7%/9.3%

Key DriversFinancial Summary

Source: Company, Axis Securities. CMP as of 24th Jan 2020

Y/EMarch

Net Sales(Rs Cr)

EBITDA(Rs Cr)

PAT (Rs Cr)

EPS (Rs)

Change (%)

P/E(x)

RoE(%)

RoCE(%)

EV/EBITDA (x)

FY19 1,785 225 145 10.3 14.6 43.0 25.0% 30.5% 28.1

FY20E 1,944 257 181 12.8 24.4 36.3 25.2% 30.4% 25.4

FY21E 2,176 316 224 15.9 24.2 29.2 25.5% 31.1% 20.5

FY22E 2,503 390 279 19.8 24.5 23.5 25.8% 32.0% 16.3

Y/EMarch

FY19 FY20E FY21E FY22E

Revenue Growth 26% 9% 12% 15%

Gross Margin 49.3% 50.5% 50.9% 51.7%

A&SP 5.6% 6.0% 6.1% 6.3%

Company Report

: 464

A “VIP” in the portfolio


VIP Industries Ltd

40

80

120

160

Jul-18 Jan-19 Jul-19 Jan-20

BSE Sensex VIP Ind.

Suvarna Joshi – Sr. Manager – Research | [email protected] | (+91 22 4267 1740)

27 JAN 2020

BUY

18

Investment Rationale

Company Report

VIP Industries Ltd


VIP Industries Ltd (VIP IN) pioneer in the molded lugage was established in 1971, is the leader in the Indian Luggage market with~46% market share in the organized segment and amongst one of the top 3 luggage manufacturers in Asia. VIP IN manufacturersboth hard luggage and soft luggage that includes a diverse range of Trolleys, Suitcases, Duffle Bags, Backpacks, Executive Cases,Overnight Travel solutions, School Bags and Handbags. The company has 2 manufacturing facilities at Haridwar and Nasik in Indiaand captive Bangladesh manufacturing facility was set up in 2004 to reduce dependence on China. VIP IN owns brands like Alfa,Aristocrat, skybags, VIP, Carlton and Caprese which allows it to offer products for every customer at every price point. Exports form~4-5% of total revenues as of FY19. Total touchpoints that VIP caters to is ~11,000 with presence across distribution channels likeMBOs, EBOs, CSD, MT/Hypermarket, E-commerce, Institution etc.

We expect Revenues and Earnings to grow at 12% and 24% CAGR respectively over FY19-22E driven by

We initiate coverage with BUY rating and a target price of Rs. 554 i.e. ~19% (implies ~28x FY 22E earnings)

Strong industrytailwinds makesfor a compellinggrowthopportunity in thelong term

Leader in anoligopolisticIndian LuggageIndustry and 2nd

largest luggageplayer globally

Wide-spreadproduct portfoliowith a Strongbrand equityacross price-value matrix

Entrencheddistributionnetwork a keymoat VIP hasbuilt for itselfover the past 40years

CaptiveBangladeshfactory to helpreduce Chinesedependence andadd to GMexpansion

27 JAN 2020

19

Company Background

VIP Industries Ltd., incorporated in 1971 pioneered manufacturing of luggage in India.Today it is the leader in backpacks and luggage categories in India and 2nd largest luggagemanufacturer globally

It has two manufacturing facilities in India located at Nasik and Haridwar. It set up a 3rd

manufacturing plant at Bangladesh in FY18 in a step to de-risk its sourcing of soft luggagefrom Chinese player

VIP IN has a strong brand equity with VIP its core brand in luggage followed by Skybags,Carlton, Caprese (handbags), Alfa and Aristocrat

Forayed into ladies handbags segment with launch of ‘Caprese’ in 2013 and clockedRs. 100 crore revenue in just 5 years from its launch. Strong growth momentum continues

Long term credit rating upgraded one notch to AA/Stable from AA-/Positive by Crisilrecently. While, short term bank faciltiies rating reaffirmed at A1+

VIP’s Manufacturing Presence

Q3FY20 Shareholding PatternFY19 Product wise Revenue Split FY19 Channel wise Revenue Split

Company Report



VIP Industries Ltd

General Trade35%

CSD25% MT/HyperMarket

30%

E-commerce10%

Soft Luggage

72%

Hard Luggage

28%

Nasik

Haridwar

Bangladesh

Promoters53%

FIIs7%

DIIs9%

Others31%

27 JAN 2020

20

VIP’s successful business Evolution

2018

1971

2014

1981

2013

1986

2012

1992

2011

1996

2010

2000

1st Manufacturing plant set up at Nasik

Entered into MouldedFurniture Business (no longer in this business)

Alfa brand launched; 2) Commissioned Nagpur

plant

BP Ergo features launched

Elanza variant launched

Bangladesh – Joint Venture

Delsey - Joint Venture

Merger of Aristocrat Luggage Ltd with VIPIL

Printed PC cases manufacturing started

VIP Superlite variant launched

Bangladesh plant set up

Launch of Water and Stain resistant bags with Teflon;

2) VIP ranked amongst Top 100 most trusted brands

by Brand Equity

Skybags brand launched; 2) Polycarbonate (PC) cases

manufacturing started

Caprese handbags launched; 2) Hybrid PC cases manufacturing

commences

Haridwar Plant set up; 2) Brand identity re-vamped ; 3) Enhanced Retail focus

Aura variant launched –India’s 1st range of luggage for women

2009

Acquired Carlton brand globally

Incorporated two subsidiaries in Bangladesh

Company Report


VIP Industries Ltd

27 JAN 2020

21

Strong industry tailwinds makes for a compelling growth story

Indian Luggage industry to grow at double the rate ofglobal luggage industry over 2018-23E

Attractive industry dynamics supports robust growthmomentum

Leisure travel spends grew at a CAGR of 25% over FY13-18;momentum to continue aided by government thrust on promotingtourism through policy actions

Growing spends on tourism and social media influence, to alsoaid healthy 15.6% growth in air passenger traffic over 2018-24E as per FICCI Report 2019

5x growth in annual trips to 1 billion expected by 2040 from0.2billion annual trips in 2019

UDAN Yojana of the GoI aims to have 190-200 operationalairports by 2040 opening up plethora of opportunities for surgein domestic tourist visits

Favourable wedding calendar and increased gifting habitsdriven by rise in disposable incomes augurs well for demand ofbags and luggage in India

GST led shift positive for luggage players in organizedspace including VIP IN

Increased cost of compliance for unorganized players (GST onluggage now at 18% across industry)

Post GST price differential has narrowed against unorganized /unbranded players

30% 29%

24% 22%

38%

8%

16%

3% 13%

26%

6%

-5%

8%18%

2%

-10%

0%

10%

20%

30%

40%

FY2015 FY2016 FY2017 FY2018 FY2019

Safari Industries VIP Industries Samsonite*


VIP Industries Ltd

Source: Company, Reuters, Axis Securities; Note: * Samsonite revenue is for CY18

Sustained growth momentum in air travel to aid growth in both hard and soft luggage for VIP

VIP revenues grew ahead of Samsonite since FY18

Company Report27 JAN 2020

73

%

72

%

76

%

76

%

72

%

70

%

68

%

65

%

26

%

27

%

24

%

24

%

28

%

30%

32%

35

%

0%

5%

10%

15%

20%

0%

20%

40%

60%

80%

100%

120%

FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Hard Luggage Soft Luggage Air Passenger Traffic Growth (YoY)

22

Leader in an Oligopolistic Indian Luggage Industry

Globally, luggage market is known to be oligopolistic withtop 2-3 players having 85-90% of organized market share

In India too, VIP, Samsonite, Safari together account for90%+ share in the organized luggage industry

Despite no manufacturing moat, Luggage market remainesan oligopolistic market across geographies

Despite competition, VIP has been able to retain marketleadership given strength of its brands and entrencheddistribution network with strong brand entailing strongesteconomic advantage

Luggage a tourist’s companion, thus aesthetic appealalongside functional usage are key purchase decisionmaking factors.

UN Report says by 2030, 40% of India population shalllive in urban areas indicating the steadily growingurbanization trend.

Growing disposable income, GST implementation, growinginternet penetration will aid demand for branded luggageaiding organized players like VIP and Safari keeping intactthe oligopolistic structure of the industry as demand fororganized players goods increases sharply

VIP Industries Ltd


High Entry Barriers

Need for relatively larger

retail space

Tricky inventory management

Bulky & voluminous

product

Elongated re-purchasing cycle

Relatively higher ticket prices

Higher margins for channel

partners

VIP Industries47%

Samsonite35%

Safari Industries17%

Delsey1%

Factors leading to oligopolistic nature of industry

Despite competition VIP retained its leadership position



23

Widespread product portfolio – Strong Brand Equity

CategoryLuggage (Soft/Hard)

Trolley/4WheelDuffel / Duffel Trolley Handbags / Backpacks Brand Ambassador Brand Positioning Target Audience

Premium

-High end

premium brand

Business traveller and

affluent families

-Lifestyle,

fashionable brand

Urban women

Popular / Mass Premium

Go to brandFamily

travellers

Stylish, colourful brand

Youth,adventurous

traveller

Mass Premium

Rohit SharmaLower mid

segment brand

Frequent, aspirational

traveller

Mass

- Vijender SinghValue based

brandValue conscious

user

Rs. 6,000 – 18,000 Rs. 4,000 – 9,000 Rs. 3,500 – 8,000

Rs. 3,800 – 7,500 Rs. 1,000 – 5000

Rs. 3,000 – 10,000 Rs. 1,250 – 4,400Rs. 1,500 – 4,300

Rs. 2,500 – 7,500 Rs. 650 – 4,035Rs. 1,300 – 4,500

Rs. 2,200 – 6,100 Rs. 475 – 1,530Rs. 1,250 – 2,430

Rs. 1,740 – 2,200 Rs. 800 – 2,150


VIP Industries Ltd



24

Strong brands across price-value matrix

VIP IN products straddle across the price-value matrix

and are present in the premium, mid-premium/economy

and mass segments with SKUs above1500+

Premiumization trend aided by growing aspirations

leading to improved product mix and steadily improving

gross margins

Market leadership and strong brand equity across price-

value matrix allows better pricing power to VIP with

vendors in the industry as well as customers when

compared to peers

Across product segments, backpacks as a category and

Aristocrat as a brand have been the fastest growing

amongst VIPs stable of brands

Having launched in FY13, Skybags (backpacks and

soft/hard luggage) today contributes to ~20% of total

revenues of VIP and continues to be the fastest growing

brand in the portfolio.

Duffel bags remains the smallest segment in the overall

bags and luggage market. However, popularity of this

segment is growing owing to functional usage – visit to

gym, spa, fitness centre etc.

VIP too has presence in duffel bags segment under the

Skybags brand

Brand% of

RevenueLaunch Year

Brand Positioning

VIP ~40% 1971Mid-premium brand; reluanched brand in CY19backed by A&P despite touch market conditions

Alfa >15% 1971Mass market focused; aids easier shift to brandedproducts from unbranded luggage

Carlton >10% 2004Acquired UK based Premium International brandwith positioning as a business persons brand

Aristocrat >15% 2007Mass market brand to enable shift fromunbranded to branded bags

Skybags ~25% 2012Youth oriented, stylish and functional products. Isthe fastest growing brand in backpack category

Caprese ~6% 2012Mass Mid Premium brand. Targeted towardswomen. Operates in a highly fragmented andcompetitive market

VIP Industries Ltd


1,2

52

1,4

16

1,7

85

1,9

44

2,1

76

2,5

03

6.1%6.3%

5.6%

5.5%5.7%

5.9%

5.0%

5.5%

6.0%

6.5%

0

500

1,000

1,500

2,000

2,500

3,000

FY17 FY18 FY19 FY20E FY21E FY22E

Sales Revenue (Rs. Crore) A&SP (% of Sales)

Steadily growing A&P spends have created a brand pull helping create a strong brand equity



25

Backpacks – low penetration, entails huge growth opportunity

Backpacks market size is ~ Rs. 3,600-4,000cr categorygrowing in high double digits owing to :

Shorter replacement cycles ( varying between 6 months to 2years)

Rising sales of 2W, growing student enrolments, womenworkforce, need for using different bag for every occasion liketuition bag, sports bag, gym bag etc

Unique positioning of storage + fashionable accessory +functionality

Regularly accompanied on short haul trips which have grownover the years as millennials like to seek experiences, adventureat time of planning short trips between 2 – 10 days

Backpacks, a highly fragmented and unorganized category(unorganized share 65-70%), with low penetration levels.This opens up a huge growth opportunity for organizedplayers like VIP who have an entrenched distributionnetwork and strong brand equity aiding customer up-gradation

To capitalize on this fast paced growth VIP has 3 brandsviz., – VIP (mid premium), Skybags (mid & mass premium)and Aristocrat (value segment).

Backpacks is the fastest growing segment in overallportfolio of VIP Ind.s and has reported >20% CAGR.Revenues from backpacks stood at ~20% in FY18 andmomentum expected to sustain

0

5

10

15

2013 2014 2015 2016 2017 2018

%

Backpacks Vols Growth (%) Backpacks Value Growth (%)

Indian backpack industry strong volume & value growth

Source: Industry Reports, Company, Axis Securities

Customer is spoilt for choice given quality offerings from VIP

VIP Industries Ltd



26

Caprese – a product to capitalize on Handbags segment growth

Handbags market has a size of Rs 51 billion as of 2018 with a20% /17% volume/value CAGR over CY2013-18

Over CY2018-23E, Indian Handbags market is estimated toreport a +14.5%/9% volume/value CAGR thus making it thefastest growing market

VIP marked its entry into this fastest growing segment bylaunching Caprese in 2012 with Alia Bhat as its brandambassador

Handbags segment is highly fragmented with unorganizedsegment forming ~90% of total market. Caprese is amongst thetop 5 handbags brands in India and competes against playerslike Lavie, Baggit, Esbeda, Da Milano, Hidesign etc.

Handbags requires maintaining large number of SKUs and VIPhas been able to efficiently manage

Caprese clocked revenues of Rs. 100 crore in FY18 with a 47%CAGR since its launch in 2012. Caprese contributed ~6% oftotal revenues aided by significant brand equity (key economicadvantage), widespread availability across price points andchannels

Caprese is a play on rising premiumization trend and enablesVIP IN to improve margins as, Caprese along with Carlton hashighest GMs across VIPs product portfolio. Caprese hand bagspriced between Rs. 750 – 4,000 positioned in the mass mid-premium segment

Caprese is available in 1000+ touch points acrossMT/Hypermarket, E-commerce, EBOs. However, distribution inGeneral Trade (traditional channel) remains work indicatinglarge headroom for growth


VIP Industries Ltd

0

10,000

20,000

30,000

40,000

50,000

60,000

2014 2015 2016 2017 2018 2023E

Volu

mes

in '0

00

units

27.0%

27.1%

27.3%

27.4%

27.2%

27.0%

26.6%

26.8%

27.0%

27.2%

27.4%

27.6%

2013 2014 2015 2016 2017 2018

Handbags - fastest growing segment across bags & luggage industry in India

Women workforce participation to aid handbags segment growth

Source: Industry Reports, World Bank, Axis Securities


27

Entrenched distribution network a key moat

As of Dec 2018, VIP Industries has a distribution network of ~11,000 customer touch points across channels

Distribution network comprises of Dealers/Distributors (General Trade – GT), CSD, MT/Hypermarket, EBOs, MBOs, E-commerce

MBOs stand at 986 stores. Revenue contribution from MBOs has now reduced to less than 30% in 2019 versus 100% in 1990

~57% of retail trade touch points are Franchisee run. Going forward focus to be on increasing penetration through franchisee run storesentailing an asset light distribution model

VIP’s products are widely present across ~1300 Modern Trade stores with 83% availability across ~1100 Hypermarkets which is nowcontributing to ~10-12% of total revenues. Hypermarkets to report strong growth as organized brick & mortar retail sector is estimated togrow at 21-22% CAGR

~10% revenue contribution from E-commerce (available on 67 platforms). Expected to report robust growth and to maintain leadership

B2B (Institutional) channel (gifting, corporate, retail store based offers) is also gaining importance and contributing to healthygrowth of VIP IN

VIP Industries Ltd

Distribution Channel

Key touch points (Dec 2018)

RevenueContribution

General Trade (MBOs, Distributors)

1,104 35%

Retail Trade (EBOs) 575 25%

Modern Trade 1,327 30%

E-commerce Platforms 67 10%


Source: Company, Axis Securities, Note: RGT – General Trade, RT- – Retail Trade,FR – Franchisee Run, CR – Company Run, MT – Modern Trade, ORS – Organized Retail Store, CSD – Canteen Dept Stores, EBO – Exclusive Brand Outlet, MBO – Multi Brand Outlets

Widespread presence of VIP’s brands across channelsUnparalleled distribution network across ~11,000 touch points


28

VIPs widespread presence a key economic advantage

General Trade35%

CSD25%

MT/HyperMarket30%

E-commerce10%

36

37

39

42

47

49

60

4.1

3.8 3.7 3.5 3.8

3.5

3.3

0

1

2

3

4

5

0

10

20

30

40

50

60

70

FY13 FY14 FY15 FY16 FY17 FY18 FY19

Rs.

cro

re

%

Rent % of Total Revenues

North26%

West25%

East25%

South24%

Brand Focused Distribution Channel

Gen Trade

RT -FR

RT -CR

MT –ORS

MTE-

commCSD

Carlton - - - -

VIP

Skybags

Aristocrat - -

Alfa - - - - -

Tactical placement of brands across distribution channels ….with healthy presence across formats

EBOs driving penetration going ahead with focus on asset light distribution model

Revenues equally spread out across geographies

Source: Company, Axis Securities, Note: RGT – General Trade, RT- – Retail Trade, FR – Franchisee Run, CR – Company Run, MT – Modern Trade, ORS – Organized Retail Store, CSD – Canteen Dept Stores, EBO – Exclusive Brand Outlet

VIP Industries Ltd



29

Drivers of Gross Margins

Gross Margins (GMs) are a function of – Forex: USD-INR and USD-CNY as VIP imports 50% from China

Brent Crude Prices: Polycarbonate (PC) and Polypropylene arecrude derivatives used in manufacturing hard luggage. Demandfor polycarbonate hard luggage (PC HL) is growing faster thansoft luggage and polypropylene owing to its aesthetic appeal,colorful and trendy designs, lightweight and durablity

Besides, Aluminium, HDPE, Polyster Nylon, Fabric etc are someof the other materials that are used in manufacturing of hardand soft luggage

For VIP, COGS/ Purchase of Stock in Trade stood at50.7%/84.9% in FY19. Over FY19-22E, we estimate this toreduce as operating leverage kicks in, sourcing fromBangladesh increased with a favourable mix


VIP Industries Ltd

77% 80% 80% 76% 79% 85% 48%

29% 28% 28%23% 24%

34%

35%

42%

44%

46%

48%

50%

52%

54%

0%

20%

40%

60%

80%

100%

120%

140%

FY14 FY15 FY16 FY17 FY18 FY19 H1FY20

Raw Material Purchase of Stock-in-Trade Gross Margin

60.8 61.3

65.6 66.9

64.5

69.9

70.4

45% 45% 46% 46%

50%

49%

52%

42%

44%

46%

48%

50%

52%

54%

55

60

65

70

75


USD-INR VIP Gross Margins (%)

107.3

84.8

49.4

50.5 59.1

70.9 65.5

54.0%

51.9%

49.1%

45.3% 45.3% 45.5% 46.0%

40%

45%

50%

55%

0

20

40

60

80

100

120


USD

/Barr

el

Avg. Brent Crude Prices VIP Gross Margins (%)

VIP IN GMs have an inverse relation with USD-INR Crude Price and VIP IN GMs have an inverse relationship

Change in product mix supporting GM expansion



30

Bangladesh Operations to aid in GM expansion

Currently ~50% of luggage (soft & hard) requirement is importedfrom China

With scale up of Bangladesh operations, VIP would enjoysignificant advantages like:

Labour cost arbitrage: Bangladesh labour costs are 1/3rd ofChinese wage rates; a clear cost saving

Import Duty benefit: NIL import duty on luggage importedfrom Bangladesh as compared to 15% duty on Chineseimports of luggage; a direct cost benefit

Improved bargaining power with Chinese vendors

Over FY19-22E, Bangladesh based procurement to increase to20-25% from current 5% as indicated by management


VIP Industries Ltd

4957

129

94

8.3 9.517.5

9.7

0

25

50

75

100

125

150

FY17 FY18 FY19 H1FY20

Rs.

Cr

India - own manufacturing(30%)

India - outsourcing(15%)

Bangladesh - own manufacturing(5%) China -

outsourcing(50%)

46.0%

50.5%49.3%

50.5% 50.8%51.6%

40%

45%

50%

55%


Rising sourcing from Bangladesh to aid margin improvement VIP’s Gross Margins: better than Safari and inline with Samsonite

Bangladesh Ops. revenues & bottom-line continues the growth path



31

Key Managerial Personnel

Mr. Dilip PiramalChairman

• Pioneer of luggage industry

in India with over 45 years

of industry experience

• Responsible for overall

strategy and functioning of

the company

Ms. Radhika PiramalExecutive Vice Chairperson

• Actively involved in driving

strategy, innovation and

technology development

globally for the company

• Holds an MBA from Harvard

University, graduated from

Oxford University

• Served as MD of VIP

Industries from 2011-2017

Mr. Sudip Ghosh Managing Director

• In 2018 was elevated to

becoming CEO of VIP

Industries

• Been with VIP Industries

since 2013. Prior to VIP

worked with Samsonite India

for 5 years as South Asia

Marketing ED

• Total experience of nearly

20 years with experience

spanning across consumer

durable companies like

Whirlpool, Bausch & Lomb

etc.

Mr. Anand DagaHead Legal & Company Secretary

• Associated with VIP since

2016

• Has rich experience of 20+

years across companies like

Bharat Forge, Huhtamaki

PPL, Atlas Copco etc.

Source: Company, Axis Securities.


VIP Industries Ltd


32

No. 1 luggage and backpacks brand in India and 2nd largest

luggage player globally.

~11,000 multi channel touch points across EBOs, MBOs, GT, CSD,

Hypermarket/MT, E-commerce, B2B

Strong market position with 46% share as of FY19

Debt free balance sheet owing to strong cash generation

in a highly capital intensive business

Strengths

Opportunities

Weaknesses

Threats

~50% dependence on China for procurement of soft

luggage

Sensitivity to currency movement and RM volatility

No meaningful offerings in business travel segment

Rising competitive intensity amongst organized players

and

Aggressive peer presence in E-commerce channel

especially in backpacks

Threat of new entrants in price sensitive value segment

SWOT

SWOT Analysis


Huge market size of $3bn (luggage and backpacks),

~40% organized

Increase manufacturing from India and Bangladesh

Inorganic acquisition of small scale player in the

industry

Expanding via an asset light franchisee run EBO model


VIP Industries Ltd


33

Strong Financial Performance to continue…

Bottom-line has grown consistentlyNet Revenue to grow at a CAGR of 19% over FY19-22E

Consistently delivered healthy return ratios, momentum to sustainMargins to improve as Bangladesh sourcing increases

Company Report



VIP Industries Ltd

1,2

52

1,4

16

1,7

85

1,9

44

2,1

76

2,5

03

2.9% 13.2%

26.0%

8.9%12.0%

15.0%

0%

5%

10%

15%

20%

25%

30%

0

500

1,000

1,500

2,000

2,500

3,000


Net Sales ( Rs Cr) % YoY Growth

10.6%

13.7%12.6%

13.2% 14.5%15.6%

6.6%

8.8% 8.1%

9.2% 10.3% 11.1%

0%

5%

10%

15%

20%


EBITDA Margin PAT Margin8

3

12

5

14

5

18

1

22

4

27

9

25%

51%

16%

24% 24%25%

0%

10%

20%

30%

40%

50%

60%

0

50

100

150

200

250

300


PAT (Rs Cr) YoY Growth (%)

20.4%

25.6% 25.0% 25.2% 25.5% 25.8%

28.5%

36.1%

30.5% 30.4% 31.1% 32.0%

0%

10%

20%

30%

40%


ROE (%) RoCE (%)

27 JAN 2020

34

Financial Commentary

Cash Conversion Cycle set to improve over FY19-22E Inventory management is a key challenge in the luggage

industry given the Numerous SKUs (>100) Bulky nature of the product Difficulty in forecasting demand

VIP IN has installed latest ERP software - SAP Hanna and alsowarehouse management system thereby ensuring efficientinventory movement across warehouses and factories

Over FY19-22, expect inventory days to improve from 170days to 137 days by FY22E owing to above measures

Source : Company; Axis Securities Research

VIP Industries Ltd

Inventory days to improve with shift to Bangladesh manufacturing;

0.10x

0.04x

0.00x 0.00x

0.15

0.05x0.04x

0.02x

-0.05

-

0.05

0.10

0.15

0.20

0

25

50

75

100

FT15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Rs.

cro

re

Total Debt D:E (x)

(300)

(200)

(100)

-

100

200

300


Rs.

cro

re

15

4

15

6

17

0

18

0

14

4

13

7

107 101112 119

92 90

0

20

40

60

80

100

120

140

0

50

100

150

200


No. o

f Days

No. of D

ays

Inventory Days Debtor Days

Creditor Days Net Working Capital Cycle

With working capital improvement over FY19-22, Cash from Ops to improve

Short term debt to reduce over FY19-22E despite working capital intensive business

27 JAN 2020 Company Report


35

Outlook & Valuations

We estimate VIP IN to post top-line/bottomline CAGR of12%/24% over FY19-FY22E

Expect VIP IN to report EBITDA Margin of ~15.6% by FY22Eversus 12.6% in FY19 (+300bps) in an intensely competitiveindustry aided by improved mix and rising Bangladeshcontribution

Working capital cycle to improve from 112 days in FY19 to about90-92 days by FY22E

We value VIP IN at 27x FY22E EPS given the healthy growthprospects and arrive at a price target of Rs. 554 (19% Upside)

Attrition at senior management level

Aggressive competition from both unorganized and organized

players (Safari Ind) to grab market share esp in the economy

segment

Currency risk is imminent for VIP IN as currently ~50% of soft

luggage is imported from China

Sharp RM Price volatility and delay in taking price hikes to hurt

margins (Gross Margin & EBITDA Margin)

Risk Factors

Valuation

12mth fwd P/E (x)

P/E band

VIP Industries Ltd

27 JAN 2020


Company Report

0

10

20

30

40

50

60

May-

14

Sep

-14

Jan-

15

May-

15

Sep

-15

Jan-

16

May-

16

Sep

-16

Jan-

17

May-

17

Sep

-17

Jan-

18

May-

18

Sep

-18

Jan-

19

May-

19

Sep

-19

Jan-

20

PE Mean Mean+1Stdev Mean-1Stdev

0

200

400

600

800

1000

May-

14

Sep

-14

Jan-

15

May-

15

Sep

-15

Jan-

16

May-

16

Sep

-16

Jan-

17

May-

17

Sep

-17

Jan-

18

May-

18

Sep

-18

Jan-

19

May-

19

Sep

-19

Jan-

20

Price 20x 30x 40x 50x

36

Peer Comparison

Source : Company; Axis Securities Research; Thomson Reuters; * CMP in Hong Kong Dollars; # CMP in EURO; CMP as of 24th Jan 2020

Safari Industries VIP Industries Samsonite SA Hermes International LVMH Moet Hennessry Christian Dior SE

FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E

Mcap (USD Bn) 0.2 0.9 3.0 82.5 230.9 89.8

CMP 618 464 18.9 * 708.6 # 431.4 # 473.4 #

Sales Growth (%) 20 18 9 12 -3.4 0.2 14.7 24.8 14.1 23.7 13.6 22.9

PAT Growth (%) 42 33 24 25 -18.9 -8.2 9.5 22.1 5.2 18.0 -56.7 -52.4

ROE (%) 16.1 17.6 25.5 25.8 10.6 11.5 25.1 23.8 21.0 21.1 20.2 20.1

P/E (x) 36.6 27.6 35.8 28.7 17.2 14.9 48.4 43.6 29.5 26.3 28.3 25.8

EV/EBITDA (x) 21.8 16.8 25.1 20.1 9.7 8.9 26.8 24.5 16.7 15.2 9.7 8.9

VIP Industries Ltd

27 JAN 2020


Company Report

37

Financials (Consolidated)

Profit & Loss (Rs Cr) Balance Sheet (Rs Cr)


FY18 FY19 FY20E FY21E FY22E

Total Net Sales 1,416 1,785 1,944 2,176 2,503

% Change 13.20% 26.00% 8.90% 12.00% 15.00%

Total Raw material Consumption

702 904 962 1,071 1,211

Staff costs 159 201 224 244 278

Other Expenditure 362 455 501 546 623

Total Expenditure 1,223 1,560 1,687 1,861 2,112

EBITDA 193 225 257 316 390

% Change 46.1% 16.2% 14.2% 23.0% 23.7%

EBITDA Margin % 13.7% 12.6% 13.2% 14.5% 15.6%

Depreciation 12.9 16.6 20.2 23.6 26.2

EBIT 181 208 236 292 364

% Change 52.1% 15.3% 13.5% 23.6% 24.7%

EBIT Margin % 12.7% 11.7% 12.2% 13.4% 14.6%

Interest 0 1 1 1 1

Other Income 9 8 8 9 10

( as % of PBT) 5% 4% 3% 3% 3%

PBT 190 215 243 300 374

Tax 63 70 63 76 94

Tax Rate % 33.1% 32.4% 25.7% 25.2% 25.2%

APAT 127 145 181 224 279

% Change 48.8% 14.6% 24.4% 24.2% 24.5%


Share Capital 28 28 28 28 28

Reserves & Surplus 461 553 689 853 1,054

Net Worth 489 581 717 881 1,082

Total Loan funds 0 86 36 31 26

Deferred Tax Liability 2 2 2 2 2

Long Term Provisions 9 12 13 14 16

Other Long Term Liability 0 0 10 11 12

Capital Employed 501 682 778 939 1,139

Gross Block 104 156 191 223 248

Less: Depreciation 29 44 64 88 114

Net Block 75 112 126 135 134

Investments 19 24 139 188 216

Sundry Debtors 177 299 224 251 295

Cash & Bank Bal 23 14 67 120 217

Loans & Advances 4 4 4 4 4

Inventory 317 527 422 455 514

Other Current Assets 68 69 75 84 96

Total Current Assets 661 913 792 914 1,127

Curr Liab & Prov 272 389 299 318 359

Net Current Assets 389 524 493 596 768

Total Assets 501 682 778 939 1,139

VIP Industries Ltd

27 JAN 2020


Company Report

38

Financials (Consolidated)

Cash Flow (Rs Cr) Ratio Analysis (%)

Company Report



VIP Industries Ltd

27 JAN 2020


PBT 190 215 243 300 374

Depreciation & Amortization 13 17 20 24 26

Provision for Taxes 0 1 1 1 1

Chg in Deferred tax -76 0 0 0 0

Chg in Working cap 53 -216 -20 -97 -100

Diret tax paid -140 -70 -63 -76 -94

Cash flow from operations 40 -53 181 152 207

Chg in Gross Block -121 -59 -32 -33 -26

Chg in Investments -143 0 0 0 0

Chg in WIP 161 0 0 0 0

Cash flow from investing -102 -59 -32 -33 -26

Proceeds / (Repayment) of Short Term Borrowings (Net)

-49 0 0 0 0

Repayment of Long Term Borrowings

0 0 0 0 0

Loans 0 86 -50 -5 -5

Finance Cost paid -16 -1 -1 -1 -1

Dividends paid -92 -45 -45 -61 -78

Dividend Distribution Tax paid -19 0 0 0 0

Cash flow from financing -175 39 -96 -66 -84

Chg in cash -238 -73 53 53 97


Growth (%)

Net Sales 13.2% 26.0% 8.9% 12.0% 15.0%

EBITDA 46.1% 16.2% 14.2% 23.0% 23.7%

APAT 50.7% 16.0% 24.5% 24.2% 24.5%

Per Share Data (Rs.)

Adj. EPS 9.0 10.3 12.8 15.9 19.8

BVPS 34.6 41.1 50.7 62.3 76.6

DPS 3.0 3.2 3.2 4.3 5.5

Profitability (%)

Gross Margin 50.5% 49.3% 50.5% 50.8% 51.6%

EBITDA Margin 13.7% 12.6% 13.2% 14.5% 15.6%

Adj. PAT Margin 8.8% 8.1% 9.3% 10.3% 11.2%

ROCE 36.1% 30.5% 30.4% 31.1% 32.0%

ROE 25.6% 25.0% 25.2% 25.5% 25.8%

ROIC 39.3% 32.2% 41.2% 46.1% 51.4%

Valuations (X)

PER 49.3 43.0 36.3 29.2 23.5

P/BV 12.8 10.7 9.1 7.4 6.1

EV / EBITDA 32.2 28.1 25.4 20.5 16.3

EV / Net Sales 4.4 3.5 3.4 3.0 2.5

Turnover Days

Asset Turnover 16.2 13.8 11.2 11.4 11.2

Inventory days 156 170 180 144 137

Debtors days 38 49 49 38 37

Creditors days 93 107 110 90 84

Working Capital Days 101 112 119 92 90

Gearing Ratio

Total Debt to Equity 0.0 0.1 0.05 0.04 0.02

39

Disclaimer

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the business ofproviding Stock broking services, Depository participant services & distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed publiccompany and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital,Stock Broking, the details in respect of which are available on www.axisbank.com.

2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association of Mutual Funds of India (AMFI) fordistribution of financial products and also registered with IRDA as a corporate agent for insurance business activity.

3. ASL has no material adverse disciplinary history as on the date of publication of this report.

4. I/We, Suvarna Joshi – Senior Manager, Research, PGDM - Finance, author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this research reportaccurately reflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of my/our compensation was, is, or will be directly or indirectly related tothe specific recommendation(s) or view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the subject company. Also I/we or my/our relative or ASL or itsAssociates may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Since associates ofASL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned inthis report. I/we or my/our relative or ASL or its associate does not have any material conflict of interest. I/we have not served as director / officer, etc. in the subject company in the last 12-monthperiod.

Any holding in stock – NO

5. ASL has not received any compensation from the subject company in the past twelve months. ASL has not been engaged in market making activity for the subject company.

6. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, ASL or any of its associates may have:

i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this research report and / or;ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or;iii. Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject company of this research report;

ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report.

Terms & Conditions:

This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered inany way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ASL. The report is based on thefacts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly availablemedia or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy,completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer documentor solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive thisreport at the same time. ASL will not treat recipients as customers by virtue of their receiving this report.

27 JAN 2020


VIP Industries Ltd

Company Report

40

Disclaimer

Disclaimer:

Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the recipient’s specific circumstances. The securities and strategies

discussed and opinions expressed, if any, in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific

recipient.

This report may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this report should make such investigations as it deems necessary to arrive at an independent evaluation of

an investment in the securities of companies referred to in this report (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. Certain transactions,

including those involving futures, options and other derivatives as well as non-investment grade securities involve substantial risk and are not suitable for all investors. ASL, its directors, analysts or employees do not take any

responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds,

changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. Past performance is not necessarily a guide to future performance. Investors are advice necessarily a guide to future performance.

Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements

are not predictions and may be subject to change without notice.

ASL and its affiliated companies, their directors and employees may; (a) from time to time, have long or short position(s) in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other

transaction involving such securities or earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or investment banker,

lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. Each of these entities functions as a separate, distinct

and independent of each other. The recipient should take this into account before interpreting this document.

ASL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that ASL may have a potential conflict of

interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ASL may have issued other reports

that are inconsistent with and reach different conclusion from the information presented in this report.

Neither this report nor any copy of it may be taken or transmitted into the United State (to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in

Japan or to any resident thereof. If this report is inadvertently sent or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This report is not directed or

intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to

law, regulation or which would subject ASL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of

investors.

The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The Company reserves the right

to make modifications and alternations to this document as may be required from time to time without any prior notice. The views expressed are those of the analyst(s) and the Company may or may not subscribe to all the views

expressed therein.

Copyright in this document vests with Axis Securities Limited.

Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. – 022- 40508080 / 022 - 61480808, Regd. off.- Axis House, 8th Floor,

Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai – 400 025. Compliance Officer: Anand Shaha, Email: [email protected], Tel No: 022-42671582.

DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

27 JAN 2020


VIP Industries Ltd

Company Report

Date post:	10-Jun-2020
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