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Top-line marginally ahead of estimate; adj. PAT above estimates
VIP Industries (VIP) reported Q3FY11 topline of INR 1,948 mn, 2.2% higher
than our estimates of INR 1907 mn, primarily driven by increased contribution
from the soft luggage segment (contributed 60% to sales for the quarter).
Adjusted PAT came at INR 232 mn, 9.7% higher than our estimates of INR 212
mn, primarily due to higher EBIDTA margins. However, consolidated PAT came
at INR 300 mn against INR 148 mn due to INR 89 mn tax write back on account
of one-time write off of Carlton losses in standalone P&L.
EBIDTA ahead of estimates due to lower employee and other expenses
EBIDTA for Q3FY11 came at INR 336 mn, 7.5% higher than our estimates of INR
313 mn. Margins came at 17.3%, 90bps higher than our expectation of 16.4%
due to lower employee cost and other expenses. However, adjusted EBIDTA
margins (before write-off of 9 mn due to reversal of export benefits on nonrecoverable
export proceeds) stood at 17.8% vis-à-vis 17.4% in Q3FY10.
Carlton restructuring to reduce costs going forward
Owing to European recession and volatile currency fluctuation, Carlton incurred
losses worth INR 232 mn in FY09. Hence, it restructured its business by taking a
one-time write-off of INR 285 mn (including 17 mn diminution in value of
investments) in standalone P&L. This has, however, not impacted the
consolidated results as there is a corresponding write back in the UK subsidiary
books. VIP will now do direct billing to Carlton customers from the holding
company, which will reduce overhead costs and minimise cross-currency
exposure losses.
Ladies handbags segment: The next big growth driver
VIP plans to get into ladies handbags segment in FY12. We believe this can be
the next big growth driver for the company given ladies handbags market size
today is 6x size of luggage industry and is largely unorganised. The contribution
on topline from this segment is expected to largely come in FY13. We believe
this will help VIP grow at a faster pace on a higher base. However, we have not
factored in any sales from the segment in our FY13 numbers as of now.
Outlook and valuations: Attractive; maintain ‘BUY’
With raw material price increasing and also with appreciation of yuan we are
trimming down our EBIDTA margins assumption from 19.5% to 19% for FY12E.
We value the company at 17x FY12E earnings and derive at fair price of INR 734
per share. We maintain ‘BUY’ on the stock.
Company Description
VIP, flagship company of the DG Piramal Group, was established in 1968. It began
manufacturing suitcases in 1971. The company operates in luggage and moulded
furniture segments. The company manufactures a range of hard-sided and soft-sided
luggage including trolleys, suitcases, duffels and overnight travel solutions, executive
cases, backpacks and school bags. Some of its brands include VIP, Alfa, Footloose, and
Buddy. The moulded furniture division manufactures chairs, tables, stools and shells of
plastic, marketed under the brand VIP Moderna. The company’s manufacturing facilities
are located at Nashik, Nagpur, Sinnar, and Jalgoan in Maharashtra, and in Haridwar
(Uttarakhand)
Business segments
VIP operates under four major business segments:
1. Carlton and VIP cater to the high end segment.
2. Aristocrat caters to the mid segment.
3. Alfa for lower end price segment.
4. SkyBags is a separate line catering to mid & sub mid via hyper stores.
Key Risks
Stiff competition from unorganised sector
Size of the unorganised market is ~INR 20 bn, whereas the organised market is ~INR 10
bn. The unorganised segment continues to grow at a faster rate as most of the players
import luggage from China and Singapore which is aggressively priced as the quality is
sub-standard. We believe, increase in competition from the unorganised sector can affect
VIP’s earnings growth.
Increase in raw material prices
The company currently derives 45% of its revenues from hard luggage that is
manufactured in-house. Major raw materials consumed in manufacture of hard luggage
are polypropylene and aluminum. Any substantial rise in their prices will adversely
impact the company’s margins and, hence, profitability.
Recession in global economy
The current uncertainty in Europe and slowdown in China can affect demand for luggage.
With VIP’s exposure to European markets via Carlton, any slowdown in these countries is
likely to affect demand and, hence, VIP’s earnings.
Fluctuation in exchange rates, particularly appreciation of Yuan
Any appreciation in Yuan could hit VIP’s realisations as the company imports its entire
soft luggage from China. Also, since the company revises prices of its bags thrice a year,
it cannot immediately pass this on to consumers. In this context, appreciation of the
Yuan is particularly harmful for earnings.
Delay in payments from CSD
Any delays in payments from CSD might affect the working capital of the company and
hence the profitability.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Top-line marginally ahead of estimate; adj. PAT above estimates
VIP Industries (VIP) reported Q3FY11 topline of INR 1,948 mn, 2.2% higher
than our estimates of INR 1907 mn, primarily driven by increased contribution
from the soft luggage segment (contributed 60% to sales for the quarter).
Adjusted PAT came at INR 232 mn, 9.7% higher than our estimates of INR 212
mn, primarily due to higher EBIDTA margins. However, consolidated PAT came
at INR 300 mn against INR 148 mn due to INR 89 mn tax write back on account
of one-time write off of Carlton losses in standalone P&L.
EBIDTA ahead of estimates due to lower employee and other expenses
EBIDTA for Q3FY11 came at INR 336 mn, 7.5% higher than our estimates of INR
313 mn. Margins came at 17.3%, 90bps higher than our expectation of 16.4%
due to lower employee cost and other expenses. However, adjusted EBIDTA
margins (before write-off of 9 mn due to reversal of export benefits on nonrecoverable
export proceeds) stood at 17.8% vis-à-vis 17.4% in Q3FY10.
Carlton restructuring to reduce costs going forward
Owing to European recession and volatile currency fluctuation, Carlton incurred
losses worth INR 232 mn in FY09. Hence, it restructured its business by taking a
one-time write-off of INR 285 mn (including 17 mn diminution in value of
investments) in standalone P&L. This has, however, not impacted the
consolidated results as there is a corresponding write back in the UK subsidiary
books. VIP will now do direct billing to Carlton customers from the holding
company, which will reduce overhead costs and minimise cross-currency
exposure losses.
Ladies handbags segment: The next big growth driver
VIP plans to get into ladies handbags segment in FY12. We believe this can be
the next big growth driver for the company given ladies handbags market size
today is 6x size of luggage industry and is largely unorganised. The contribution
on topline from this segment is expected to largely come in FY13. We believe
this will help VIP grow at a faster pace on a higher base. However, we have not
factored in any sales from the segment in our FY13 numbers as of now.
Outlook and valuations: Attractive; maintain ‘BUY’
With raw material price increasing and also with appreciation of yuan we are
trimming down our EBIDTA margins assumption from 19.5% to 19% for FY12E.
We value the company at 17x FY12E earnings and derive at fair price of INR 734
per share. We maintain ‘BUY’ on the stock.
Company Description
VIP, flagship company of the DG Piramal Group, was established in 1968. It began
manufacturing suitcases in 1971. The company operates in luggage and moulded
furniture segments. The company manufactures a range of hard-sided and soft-sided
luggage including trolleys, suitcases, duffels and overnight travel solutions, executive
cases, backpacks and school bags. Some of its brands include VIP, Alfa, Footloose, and
Buddy. The moulded furniture division manufactures chairs, tables, stools and shells of
plastic, marketed under the brand VIP Moderna. The company’s manufacturing facilities
are located at Nashik, Nagpur, Sinnar, and Jalgoan in Maharashtra, and in Haridwar
(Uttarakhand)
Business segments
VIP operates under four major business segments:
1. Carlton and VIP cater to the high end segment.
2. Aristocrat caters to the mid segment.
3. Alfa for lower end price segment.
4. SkyBags is a separate line catering to mid & sub mid via hyper stores.
Key Risks
Stiff competition from unorganised sector
Size of the unorganised market is ~INR 20 bn, whereas the organised market is ~INR 10
bn. The unorganised segment continues to grow at a faster rate as most of the players
import luggage from China and Singapore which is aggressively priced as the quality is
sub-standard. We believe, increase in competition from the unorganised sector can affect
VIP’s earnings growth.
Increase in raw material prices
The company currently derives 45% of its revenues from hard luggage that is
manufactured in-house. Major raw materials consumed in manufacture of hard luggage
are polypropylene and aluminum. Any substantial rise in their prices will adversely
impact the company’s margins and, hence, profitability.
Recession in global economy
The current uncertainty in Europe and slowdown in China can affect demand for luggage.
With VIP’s exposure to European markets via Carlton, any slowdown in these countries is
likely to affect demand and, hence, VIP’s earnings.
Fluctuation in exchange rates, particularly appreciation of Yuan
Any appreciation in Yuan could hit VIP’s realisations as the company imports its entire
soft luggage from China. Also, since the company revises prices of its bags thrice a year,
it cannot immediately pass this on to consumers. In this context, appreciation of the
Yuan is particularly harmful for earnings.
Delay in payments from CSD
Any delays in payments from CSD might affect the working capital of the company and
hence the profitability.
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