MUMBAI: Rupee’s continuous fall has taken its toll on VIP Industries, India’s biggest moulded luggage manufacturer. The company has seen its profits fall more than 50% in last three quarters, which has taken its share price to its yearly low. Considering its dependency on imported raw materials and limited ability to raise prices the company’s valuations are unlikely to improve unless the rupee regains health.
VIP Industries annually sells nearly 5 million pieces of soft and hard luggage under an array of brands including VIP, Aristocrat, Alfa and Carlton. The company operates through a large network of 10,741 retailers spread across 1839 towns. However, bulk of its sales comes from metro and tier-1 cities – around 2000 outlets contribute 80% of its revenues. Soft luggage holds the most prominent status in its product portfolio generating two-third of its total revenues and 85% of profits.
The company’s performance has been under severe pressure in last few quarters due to rupee depreciation. The company is heavily dependent on imported raw materials and hence its operating profit margins suffer when rupee depreciates. Since the company sells branded products, it doesn’t have the liberty of changing prices frequently.
Increased competition from Samsonite and American Tourister also made the company increase its ad spend significantly in last couple of quarters.
The company plans to enter the ladies’ handbags market in FY13, which will be a totally new market, but a logical extension to its current product line. However, this may entail additional ad spend.
The April – June quarter is always the best for the company bringing in one-third of its annual revenues. As a result it typically stocks up raw materials in the Jan – March quarter. This may be able to help the company maintain its margins in the June ’12 quarter in spite of the heavy rupee depreciation in last 2-3 months.
The company typically spends around Rs 12-15 crore annually on capital expenditure, which goes in three main areas – hard luggage development cost, soft luggage development cost and retail store set up cost. The company plans to add 80 exclusive stores for VIP, 10 for Carlton and 20 for Skybag brands. In addition it aims to add 150-200 retailers under distributors.
VIP Industries is currently trading at a price-to-earnings multiple (P/E) of 16.3 and price-to-book-value (P/BV) of 4.2. Its competitor Samsonite International is being valued at P/E of 27.2 and a P/BV of 2.5. VIP’s valuations may not improve till the time rupee starts appreciating once again.