Travelling smart on the luggage track Ltd (VIP) is engaged in the manufacturing of hard and soft luggage both. VIP's brands include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and Caprese and its product range includes trolleys, rucksacks, backpacks, duffel bags, laptop bags, travel accessories, short haul essentials, soft uprights, vanity cases, hard suitcases, briefcases and uprights among others. VIP has 50% market share in Indian luggage industry. Shift in trend towards the organized sector to propel growth: The Indian luggage industry is valued at `6,000cr and is mainly dominated by the unorganized sector (accounting for 50-55% share). Industry reports indicate that the luggage sector is expected to grow at a CAGR of ~13% going ahead, within which, the organized segment is expected to grow at a faster pace compared to the unorganized segment. With the implementation of GST, the pricing gap between the organized and unorganized players is expected to reduce, which would make the pricing of organized players equally attractive. The share of organized players is expected to improve from current levels, which would be beneficial for branded players like VIP. Substantial brand visibility with wide distribution network: VIP has been continuously focusing on strong brand visibility of its products. The company s brands include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and Caprese. Historically, the company has been spending around 5-6% (percentage of sales) on ad spends to increase its brand visibility. Currently, VIP's 10,000+ point of sale networks enhance its brand visibility and product reach for its entire range of products across brands and across price points. Diversified product portfolio catering to all segments of customers: VIP has a well diversified product bouquet, which caters to consumers from all income groups. The company s brands like Aristocrat and Alfa cater to the mass segments while, brands like Carlton, Caprese and VIP cater to the high-end segments. The company is also targeting the youth through its trendy brand Skybags. The company s VIP brand contributes ~45% of net sales, followed by Skybags, which contributes ~27%, brands like Aristocrat and Alfa contribute ~20% and the balance is from brands like Carlton and Caprese. Outlook and Valuation: Going ahead, we expect VIP to report a top-line CAGR of ~12% over FY16-19E to ~`1,693cr on the back of diversified product portfolio (catering to customers from all segments), and strong distribution network with high brand recall. Further, GST implementation will also boost the volume of branded sales. We also believe that VIP s bottom-line is set to grow at a CAGR of ~18% over FY16-19E as its operating margins are likely to sustain at the current levels (improved 140bp during 9MFY17) due to high bargaining power over Chinese suppliers due to their overcapacity and the weak Chinese currency vs. stable rupee which will keep RM cost the current lower levels. VIP trades at a P/E of 19.6x its FY19E EPS. We Initiate Coverage on the stock with a Buy recommendation and Target Price of `180 (23x FY19E EPS), indicating an upside of ~17% from the current levels. Key financials Y/E March (` cr) FY2016 FY2017E FY2018E FY2019E Net sales 1,216 1,270 1,450 1,693 % chg 16.1 4.4 14.2 16.7 Net profit 66 80 92 110 % chg 52.7 20.0 16.0 19.3 EBITDA margin (%) 8.9 10.4 10.4 10.5 EPS (`) 4.7 5.6 6.5 7.8 P/E (x) 32.5 27.1 23.4 19.6 P/BV (x) 6.4 5.6 4.9 4.3 RoE (%) 19.6 20.7 21.1 22.1 RoCE (%) 26.6 29.9 30.7 32.4 EV/Sales (x) 1.8 1.7 1.5 1.3 EV/EBITDA (x) 20.0 16.2 14.1 12.0, Note: CMP as of March 7, 2017 BUY CMP Target Price Investment Period `153 `180 12 Months Stock Info Sector Consumption Market Cap (` cr) 2,146 Net Debt (` cr) 6 Beta 1.1 52 Week High / Low 157 / 95 Avg. Daily Volume 30,993 Face Value (`) 2 BSE Sensex 29,000 Nifty 8,947 Reuters Code Bloomberg Code Shareholding Pattern (%) VIPI.BO VIP@IN Promoters 52.5 MF / Banks / Indian Fls 17.9 FII / NRIs / OCBs 4.3 Indian Public / Others 25.3 Abs. (%) 3m 1yr 3yr Sensex 10.5 17.5 32.3 VIP 27.9 54.4 104.5 3 year daily price chart Amarjeet S Maurya 022-39357800 Ext: 6831 amarjeet.maurya@angelbroking.com Please refer to important disclosures at the end of this report 1 160 150 140 130 120 110 100 90 80 70 60 Quick take Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Investment Arguments Shift in trend towards the organized sector to propel growth Industry reports indicate that the luggage sector is expected to grow at a CAGR of ~13% going ahead, within which, the organized segment is expected to grow at a faster pace compared to the unorganized segment. With the implementation of GST, the pricing gap between the organized and unorganized players is expected to reduce, which would make the pricing of organized players equally attractive. The share of organized players is expected to improve from current levels, which would be beneficial for branded players like VIP. Exhibit 1: Organised v/s unorganised market share Exhibit 2: Segment wise break-up 25% 45% 55% 75% Organised market Unrganised market Soft Luggage Hard Luggage Hence, we believe that VIP is best placed to gain market share on the back of better product quality, strong brands, and wide distribution network. Currently, the company has 50% market share in the organized luggage industry. Substantial brand visibility with wide distribution network VIP has been continuously focusing on strong brand visibility of its products. The company s brands include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and Caprese. Historically, the company has been spending around 5-6% (percentage of sales) on ad spends to increase its brand visibility. Currently, VIP's 10,000+ point of sale networks enhance its brand visibility and product reach for its entire range of products across brands and across price points. March 8, 2017 2
Exhibit 3: Ad spends % of net sales (` cr) 80 70 60 50 40 30 20 10 4.9 37 5.2 5.3 45 44 5.9 6.0 57 63 5.8 71 7 6 5 4 3 2 1 (%) 0 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 0 Ad spend % of sales Diversified product portfolio catering to all segment of customers VIP has a well diversified product bouquet, which caters to consumers from all income groups. The company s brands like Aristocrat and Alfa cater to the mass segments while, brands like Carlton, Caprese and VIP cater to the high-end segments. The company is also targeting the youth through its trendy brand Skybags. The company s VIP brand contributes ~45% of net sales, followed by Skybags, which contributes ~27%, brands like Aristocrat and Alfa contribute ~20% and the balance is from brands like Carlton and Caprese. Exhibit 4: Positioning of VIP brands Brand Year Brand Positioning VIP 1971 Mass, mid-premium Alfa 1971 Mass market, targeted to convert consumers purchasing unbranded luggage to VIP products Carlton 2004 Premium international brand, targeted towards young professionals Aristocrat 2007 Value for money Skybags 2012 Youth oriented, stylish Caprese 2012 Mass-premium, targeted towards fashion conscious urban women March 8, 2017 3
Margin profile to remain sustainable going forward During 9MFY2017, the company has reported margin improvement by 140bp mainly due to (a) better negotiation with suppliers and (b) relatively stable INR exchange rate and depreciation of Chinese Yuan. VIP s 70% revenue comes from soft luggage, which is imported from China. If INR vs. USD would remain in the range of `67-68, then the management expects operating margins at the current level to be sustainable going ahead. Exhibit 5: USD strengthening against CNY... Exhibit 6: and stable Indian currency 7.0 69 6.9 69 68 (USD/CNY)) 6.8 6.7 6.6 (INRI/USD) 68 67 67 66 6.5 6.4 Mar-16 Apr-16 May-16 Jun-16 Jun-16 Jul-16 Aug-16 Aug-16 Sep-16 Oct-16 Oct-16 Nov-16 Dec-16 Dec-16 Jan-17 Feb-17 Mar-17 66 65 65 Apr-16 Apr-16 May-16 Jun-16 Jun-16 Jul-16 Aug-16 Aug-16 Sep-16 Oct-16 Oct-16 Nov-16 Dec-16 Jan-17 Jan-17 Feb-17 Mar-17 March 8, 2017 4
Outlook and Valuation Going ahead, we expect VIP to report a top-line CAGR of ~12% over FY16-19E to ~`1,693cr on the back of diversified product portfolio (catering to customers from all segments), and strong distribution network with high brand recall. Further, GST implementation will also boost the volume of branded sales. We also believe that VIP s bottom-line is set to grow at a CAGR of ~18% over FY16-19E as its operating margins are likely to sustain at the current levels (improved 140bp during 9MFY17) due to high bargaining power over Chinese suppliers due to their overcapacity and the weak Chinese currency vs. stable rupee which will keep RM cost the current lower levels. VIP trades at a P/E of 19.6x its FY19E EPS. We Initiate Coverage on the stock with a Buy recommendation and Target Price of `180 (23x FY19E EPS), indicating an upside of ~17% from the current levels. Exhibit 7: One year forward PE chart 250 15.0 X 20.0 X 25.0 X 30.0 X 35.0 X 200 Share Price (`) 150 100 50 0 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Oct-16 Feb-17 Downside risks to our estimates Increase in competition from unorganized players would impact overall growth of the company VIP s 30% sales comes from hard luggage segment and any increase in input cost (most of the key raw material is polypropylene and aluminum) could negatively impact profitability Volatility in foreign currency could impact the company s profitability (70% of VIP s revenue comes soft luggage, which is imported from China). March 8, 2017 5
Company Background Ltd (VIP) is engaged in the manufacturing of hard and soft luggage both. The Company operates in Luggage, Bags & Accessories, and Furniture segments. It has manufacturing facilities at various locations across India. The Company has a range of products across luggage categories and its brands include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and Caprese. The Company's product range includes trolleys, rucksacks, backpacks, duffel bags, laptop bags, travel accessories, short haul essentials, soft uprights, vanity cases, hard suitcases, briefcases, and uprights among others. It has approximately 8,000 retail outlets across India and a network of over 1,300 retailers in approximately 30 countries. The Company's subsidiaries include Bangladesh Private Limited and Blow Plast Retail Limited. Bangladesh Private Limited manufactures and markets luggage and bags. Exhibit 8: Revenue break-up for VIP (FY2016) 27.5% 72.5% Soft Luggage Hard Luggage March 8, 2017 6
Consolidated Profit & Loss Statement Y/E March (` cr) FY2015 FY2016 FY2017E FY2018E FY2019E Total operating income 1,048 1,216 1,270 1,450 1,693 % chg 7.7 16.1 4.4 14.2 16.7 Total Expenditure 970 1,108 1,138 1,299 1,515 Raw Material 573 663 886 1,018 1,195 Personnel 110 126 48 58 71 Others Expenses 288 320 203 223 249 EBITDA 77 108 132 151 178 % chg (3.5) 39.6 22.1 14.2 17.9 (% of Net Sales) 7.4 8.9 10.4 10.4 10.5 Depreciation& Amortisation 18 14 14 15 16 EBIT 60 94 118 136 162 % chg (5.3) 56.8 25.4 15.4 19.3 (% of Net Sales) 5.7 7.7 9.3 9.4 9.6 Interest & other Charges 1 1 1 1 1 Other Income 7 2 2 3 3 (% of PBT) 10.4 2.4 1.9 2.2 1.8 Share in profit of Associates - - - - - Recurring PBT 65 95 119 138 165 % chg (17.9) 45.2 25.1 16.0 19.3 Tax 19 29 39 46 54 (% of PBT) 28.9 30.1 33.0 33.0 33.0 PAT (reported) 47 66 80 92 110 Extraordinary Items 3 - - - - ADJ. PAT 44 66 80 92 110 % chg (6.0) 52.7 20.0 16.0 19.3 (% of Net Sales) 4.2 5.5 6.3 6.4 6.5 Basic EPS (`) 3.1 4.7 5.6 6.5 7.8 Fully Diluted EPS (`) 3.1 4.7 5.6 6.5 7.8 % chg (6.0) 52.7 20.0 16.0 19.3 March 8, 2017 7
Consolidated Balance Sheet Y/E March (` cr) FY2015 FY2016 FY2017E FY2018E FY2019E SOURCES OF FUNDS Equity Share Capital 28 28 28 28 28 Reserves& Surplus 277 311 356 409 472 Shareholders Funds 306 339 385 437 500 Minority Interest - - - - - Total Loans 31 14 9 5 - Deferred Tax Liability - - - - - Total Liabilities 337 354 394 442 500 APPLICATION OF FUNDS Gross Block 277 279 289 304 319 Less: Acc. Depreciation 205 212 226 241 257 Net Block 71 67 62 63 62 Capital Work-in-Progress 1 1 1 1 1 Investments 0 0 0 0 0 Current Assets 424 515 556 643 753 Inventories 227 287 303 350 408 Sundry Debtors 111 149 157 183 218 Cash 8 8 15 27 34 Loans & Advances 50 45 51 54 59 Other Assets 29 25 30 29 34 Current liabilities 163 233 229 268 320 Net Current Assets 261 282 326 375 433 Deferred Tax Asset 3 4 4 4 4 Total Assets 337 354 394 442 500 March 8, 2017 8
Consolidated Cashflow Statement Y/E March (` cr) FY2015 FY2016 FY2017E FY2018E FY2019E Profit before tax 65 95 119 138 165 Depreciation 18 14 14 15 16 Change in Working Capital (43) (30) (37) (36) (52) Interest / Dividend (Net) 1 1 1 1 1 Direct taxes paid (21) (27) (39) (46) (54) Others (6) 0 0 0 0 Cash Flow from Operations 14 53 58 72 74 (Inc.)/ Dec. in Fixed Assets (4) (9) (10) (15) (15) (Inc.)/ Dec. in Investments 1 0 0 0 0 Cash Flow from Investing (3) (8) (10) (15) (15) Issue of Equity 0 0 0 0 0 Inc./(Dec.) in loans 0 0 (5) (4) (5) Dividend Paid (Incl. Tax) (28) (27) (34) (40) (47) Interest / Dividend (Net) (1) (1) (1) (1) (1) Cash Flow from Financing (14) (45) (38) (45) (53) Inc./(Dec.) in Cash (3) 0 10 12 6 Opening Cash balances 8 5 5 15 27 Closing Cash balances 5 5 15 27 34 March 8, 2017 9
Key Ratios Y/E March FY2015 FY2016 FY2017E FY2018E FY2019E Valuation Ratio (x) P/E (on FDEPS) 49.7 32.5 27.1 23.4 19.6 P/CEPS 33.7 26.8 23.0 20.2 17.2 P/BV 7.1 6.4 5.6 4.9 4.3 Dividend yield (%) 1.0 1.3 1.6 1.8 2.2 EV/Sales 2.1 1.8 1.7 1.5 1.3 EV/EBITDA 28.2 20.0 16.3 14.2 12.0 EV / Total Assets 6.5 6.1 5.5 4.8 4.3 Per Share Data (`) EPS (Basic) 3.1 4.7 5.6 6.5 7.8 EPS (fully diluted) 3.1 4.7 5.6 6.5 7.8 Cash EPS 4.5 5.7 6.6 7.6 8.9 DPS 1.5 2.0 2.4 2.8 3.4 Book Value 21.6 24.0 27.2 31.0 35.4 Returns (%) ROCE 17.8 26.6 29.9 30.7 32.4 Angel ROIC (Pre-tax) 18.2 27.2 31.1 32.8 34.8 ROE 14.2 19.6 20.7 21.1 22.1 Turnover ratios (x) Asset Turnover (Gross Block) 3.8 4.4 4.4 4.8 5.3 Inventory / Sales (days) 79 86 87 88 88 Receivables (days) 39 45 45 46 47 Payables (days) 42 52 52 53 54 WC cycle (ex-cash) (days) 76 79 80 81 81 March 8, 2017 10
Research Team Tel: 022-39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com DISCLAIMER Angel Broking Private Limited (hereinafter referred to as Angel ) is a registered Member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the contrary view, if any. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Disclosure of Interest Statement 1. Financial interest of research analyst or Angel or his Associate or his relative No 2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives No 3. Served as an officer, director or employee of the company covered under Research No 4. Broking relationship with company covered under Research No Ratings (Based on expected returns Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) over 12 months investment period): Reduce (-5% to -15%) Sell (< -15) March 8, 2017 11