VIP Industries - Sharp Ad Spends Mar Profitability; Result Update Q3FY15 ::Edelweiss

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Technical: Power finance corp, VIP Industries, Marico, Greaves Cotton, GAIL, HCL::Business Line

VIP Industries - conference call transcript :: courtesy Edelweiss

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Please find enclosed the transcript of the conference call with VIP Industries, held on 9th February, 2012.

VIP Industries - conference call transcript-09-Feb-12

Stocks strategy: Consider going short on VIP Industries, Tata Global Beverages :: Business Line

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Tata Global Beverages (Rs 91): The long-term outlook remains negative for the stock Tata Global Beverages. Only a close above Rs 106.5 will negate the current outlook. The stock finds immediate resistance at Rs 96 and support at Rs 84. It finds major support at Rs 75, a conclusive close below that would trigger a fresh fall. If the stock manages to close above the key resistance, then it can create new all-time high for the stock, breaking the current peak of Rs 138.

F&O pointers: The Tata Global Beverages futures witnessed unwinding of long positions on Friday despite the stock gaining marginally. It shed over one lakh shares in open interest. This indicates that traders are not willing to carry over their position and preferred to book profits. Options are not active on Tata Global Beverages. 

Strategy: Traders could consider going short on Tata Global Beverages. While the stop-loss can be placed at Rs 96, profits can be booked at Rs 84. This strategy is for traders who have patience as the stock is low beta in nature. It may not swing wildly in relation to index fluctuations. Market lot is 4,000 shares a contract.

VIP Industries (Rs 160): The long-term outlook turned negative for VIP Industries as it closed below its major support of Rs 167. The stock now finds immediate resistance at Rs 172 and support at Rs 143. For VIP Industries, the major support is placed at Rs 132. A close below Rs 132 would trigger a fresh sell-off, which can push the stock sharply downwards to Rs 103. Likewise, a conclusive close above Rs 189 would change the outlook positive for the stock. In that event, VIP Industries could chart a new all-time high. F&O pointers:VIP Industries added fresh short positions on Friday; it accumulated over one lakh shares in open interests. Options are not active on VIP industries.

Strategy: Traders could consider going short on VIP Industries, keeping the stop-loss at Rs 172 for an initial target of Rs 143. Trail the stop-loss so as to protect profit potentials. In case VIP Industries opens on a negative note on Tuesday, investors can keep the stop-loss at day's opening or high for the recommended target. Market lot is 1,250 shares a contract.

Note: Both the strategies are for traders who have high penchant for risk, as the market lot is high.

Follow-up: We had recommended a short strangle on TCS. The position is in-the-money. As expected, the stock faced resistance and moved downwards. Investors could hold on the strategy till expiry for maximum profits. We had also recommended a long on Aurobindo Pharma. Though the stock opened on positive note, it could not sustain the initial gains. We recommend an exit, even though the stop-loss mentioned last week still holds.

VIP Industries (VIPI.BO, Buy, PT Rs1010, 23% upside) UBS: India Mid-Caps TOP PICKS - September 2011

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• Leading luggage manufacturer in Indian with 58% domestic
market share in terms of revenue.
• Strong brand presence, broadest product portfolio and
distribution network. Present in ~10000 POS in 550+ cities
and towns in India. Covers most cities with 500,000+
population.
• We forecast a 22% revenue and net income. CAGR over
FY11-16E for VIPI’s luggage segment – key beneficiary of
India’s secular growth story. High ROE supported by high
barriers to entry.
• Revenue upside from new brands- Carlton and Women’s
handbags and new advertising campaigns for Skybags.
Key assumptions: 1) Soft luggage revenue to continue to
grow at faster pace than hard luggage driving margin
expansion 2) Incremental new product launch costs for
women’s handbags to be restricted to advertizing costs.
• Shareholding: Promoter 52%
• Valuation: DCF using VCAM (assume WACC of 13% and
terminal sales growth rate of 5%). Implied FY13E PE of 20.2x



•We assume 30% revenue CAGR in soft luggage and
5% revenue CAGR in hard luggage.
•We assume EBITDA margins to expand 180 bps in
FY12E driven by price increase and increased mix of
higher margin soft luggage.
•We do not model revenues from new brand launch
(Carlton) and new product launch (women's handbag
launch in Q4FY12).

• VIP leadership is driven by continued focus of branding, product
launches and widespread distribution network
• Present in EBO (~24% of revenue), MBO (~42% of
revenue), CSD (~25% of revenue), Hypermarket (~7% of
revenue) channels.
• Present in 550+ cities and towns in ~10,000 POS.
• Products in Rs500-15,000 price point.– provides
consumers wide choice across multiple brand portfolios.
• Potential revenue and margin upside to our estimates –
• Soft luggage – is growing at 30-35% CAGR. Soft luggage
has shorter life span and can lead to revenue growth
acceleration.
• Carlton and Women’s handbag launches can driver faster
revenue growth.
•Soft luggage has higher margins compared to hard
luggage. This can lead to margin expansion.
• Advertising is driving accelerated growth in more
profitable Skybag brand.
• Barriers to entry driven by difficulty in creating distribution

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UBS:: VIP Industries - Strong revenue growth and margin expansion

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UBS Investment Research
VIP Industries
Strong revenue growth and margin
e xpansion
�� Event: Strong Q1FY12 results in revenue and margin terms
VIP Industries reported 20% YY revenue growth and 140 bps margin expansion.
Margin expansion was driven by price increases despite RM cost increases. 20%
revenue growth can be attributed to 10-12% volume growth and 8-10% price
increases VIP has taken. Margin expansion demonstrates the company’s pricing
power.
�� Action: We have increased our margin estimates
We have increased our EBITDA margin estimates by 150 bps to 18.4% for FY12
(from 16.6% for FY11). We believe that further margin expansion will be driven
by benefits of lower RM costs as well as improved mix of soft luggage.
�� Impact: We have increased our price target to Rs1000 from Rs925
We recently revised our price target upward to Rs 1000 from earlier Rs 925.
Higher price target is result of higher margin estimate.
�� Valuation
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. At our price target, VIPI
would trade at FY12/FY13E PE of 26.8/21, which should be supported by strong
growth, high ROE and its continued market leadership.


�� VIP Industries
VIPI is the leading luggage company in India. It has factories manufacturing
hard luggage. It sources soft luggage from China. VIPI now operates three
factories in Nasik, Sinner and Haridwar. It is also entering the business of
contract manufacturing hard luggage for various global brands.
�� Statement of Risk
Downside risks include – macroeconomic slowdown, raw material price
inflation and RMB appreciation, and expenses involved in launch of new brand.

VIP Industries: Buy; PT Rs925 􀁑 :: UBS India Mid-Cap Premier League - Season 1

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VIP Industries: Buy; PT Rs925
􀁑 VIP Industries continues to see robust growth in soft luggage segment
compared to hard luggage. Soft luggage is more profitable compared to hard
luggage. Contribution margins of soft luggage are 10-12% higher than hard
luggage and hence mix shift will continue to drive margin expansion.
Business bags, backpacks, duffels are doing well and growing rapidly.

􀁑 Women's handbag launch -- the company will spend Rs100-120mn on
advertising annually. VIP will leverage its strengths in design, sourcing,
distribution to launch women's handbags. Once the product succeeds VIP
may engage separate retail channel for the product.
􀁑 Trade margins are close to 25% for VIP. These margins are comparable to
Samsonite's dealer margins.
􀁑 Tax rate to increase from 20% in FY11 to 28% in FY12 driven by expiration
of tax benefit in Haridwar plant.
􀁑 Debtor days in Q4FY11 were higher than normal as CSD (Canteen Store
Dept) paid late. This is a government owned distribution channel and hence
it is difficult to enforce collection policies.

Buy VIP INDUSTRIES Growth Visibility just got better: Edelweiss

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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