VIP Industries is India's largest manufacturer of hard luggage and a market leader in the luggage industry with over 60% market share. It is recommended as a buy with a 12 month target price of Rs. 130 per share. Key reasons include strong growth expected in the soft luggage segment where VIP is expanding its offerings. Additionally, recent acquisitions and brand building exercises are positioning VIP to increase market share and cater to all price segments. However, raw material price fluctuations and competition from the unorganized sector pose investment concerns.

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June 09, 2008 PICK OF THE WEEK Vol. I , No. 4
VIP Industries (VIP) BUY
CMP Rs. 83 Target Price: Rs. 130 Time: 12 months
Overview Snapshot
A century ago travel was a luxury that was reserved completely for the extremely
52 week H/L: M Cap (INR Mn):
wealthy, people of the world. The introduction of jet liners saw a major
206/50 2113.18
transformation of the travel industry, making it affordable to people of average
means. Luggage is one of the most essential item - one that we can’t live without Face Value: Rs. 10
in this age when the whole world is on the move. As the world of travel has BSE Code NSE Code
progressed, the luggage industry has also been forced to change to the ever 507880 VIPIND
–evolving needs of the modern traveler. The days are not far away when people
Annual Performance
will buy luggage as they do their designer clothes.
(INR mln) FY 2007 A FY 2008 FY 2009E
Share Holding of the CompanyToday it is the group has adapted well to the
VIP Industries Flagship
changing needs
Pattern
traveler.
of DG Piramal
largest manufacturer of hard Sales (Net) 4246.00 5520.00 6513.60
luggage and also markets soft luggage sourced from China. VIP being one of the EBITDA 414.0 556.0 664.4
leading brands of luggage in Asia has a strong foothold in the market it operates EBITDA 9.75% 10.07% 10.20%
in. The company has its manufacturing facilities located at Nasik, Sinnar and Other Income 89 45 35
Haridwar. Interest 96 132 144
Investment Rationale Depreciation 136 148 154
? the Indian luggage industry is in the range of Rs 18 billion to Rs 20 billion
The size of PBT 271 321 401
and 45-50% of this is catered to by the organized sector. Over the years there has PAT 213 270 321
been a continuous shift from hard luggage to soft luggage across all price points. Soft Equity 255.00 283.00 283.00
luggage a prominent driver for this industry is expected to maintain its growth of 25%
plus in future. VIP an established brand and market leader accounts for more than EPS (INR) 8.35 9.54 11.33
60% market share in the luggage industry and plans to increase it to 80% in near EBITDA/Share 16.24 19.65 23.48
future. The growth is expected to come from soft luggage which currently accounts
for 40% of its turnover. Quarterly Performance
? of Blow Past, the marketing arm ,with itself in FY 06 brought cost benefit
The merger (INR mln) Q4 FY08 Q4 FY07 Q3 FY08 Q2 FY 08
to VIP which is well depicted in improved margins. The recent merger of Aristrocat Sales (Net) 1241 1097 1416.9 967.3
has enabled VIP to concentrate on the specific need - to make available a variety of
EBITDA 104 99 150.4 37.8
products across all price ranges and thus further consolidate its position in lower end
of the market and bite into the unorganized sectors share. EBITDA 8.4% 9.0% 10.6% 3.9%
Interest 24 24 33.8 31.3
? The growing economy, changing consumer habits and upcoming middle class in
India with high disposable incomes leading to shift to better life styles has tilted the
Depreciation 33 36 39.5 33
trend in this industry in favour of own labels with which they can identify. VIP an PAT 51 62 92.8 -5.7
already established brand has taken up re-positioning of its brands like Alfa, Skybag, Equity 283 255 282.6 254.6
Aristrocrat and Footloose to cater to all segments. It is also working on promoting
Carlton, which has premium and super-premium brands like Ebony, Sonic and Ergo in Ratio Analysis
its portfolio. VIP is planning to foray into the fast growing high end designer luxury
segment also. Thus through these new product launches and brand building Ratio Analysis FY 2007 A FY 2008 FY 2009E
exercises the company is not only poised to enhance its sales but also garner a EV/EBITDA (x) 7.67 5.93 4.81
greater share of the market. EV/Sales (x) 0.75 0.60 0.49
?As the luggage market is moving towards value added features, good looking M Cap/Sales (x) 0.50 0.38 0.32
luggage with attractive colors, branding and premium segment growing rapidly , VIP M Cap/EBITDA (x) 5.10 3.80 3.18
is working on increasing its retail presence across India through exclusive marketing Debt/Equity (x) 1.08 0.94 0.82
formats planned, Like VIP Lounge—in malls and shopping destinations and ROCE 3.7% 4.9% 4.4%
Exclusive VIP stores in tier II cities. Going forward it also plans to launch premium Price/Book Value (x) 2.01 1.77 1.60
stores for Carlton - its international brand.
Price/CEPS (x) 8.29 6.73 5.79
?With the aim of rationalizing the cost structure one can expect VIP to continue with P/E (x) 9.94 8.70 7.33
the golden handshake and reduce the workforce. In FY07 and FY08 it spent Rs.72 mn
and Rs. 69 mn respectively on VRS scheme. These have not been taken into account Share Holding Pattern as of March 31, 2008
for calculating EPS in the table give alongside.
No. of Shares %
Investment Concerns
Raw material prices and competition from the unorganized sector.
?
Promoters 1216051 43.0%
Institutions/MF 271114 9.6%
Valuation
Public 1342835 47.5%
At Rs. 83 VIP‘s projected EPS (FY09) of Rs. 11.33 is discounted 7.33x. However this
does not take into effect the likely expense on VRS. A good portfolio choice. Total 2830000 100.0%
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not represent it as accurate or complete and it should not be relied upon as such. The opinion expressed or estimates made are as per the best judgment as applicable at that point of time and are subject to change without
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GEPL Investment Research I Vinod Ohri I vinodohri@guptaequities.com