V.I.P. Industries Limited (507880) Earnings Call Transcript

We'll start the call now, and I'm about to begin, with my colleagues, Chetan, who is our discretionary analyst.

Good afternoon, everyone.

And my colleague in sales, [ Chintan ], most hardworking guy of our team. Yes, very nice to host this call today. So ladies and gentlemen, good afternoon, once again. Sir, are we allowed to record this call?

Yes, please.

Good afternoon, ladies and gentlemen. It gives me great pleasure to welcome my old friend of more than 15 years, Mr. Manish Desai on today's call. Earlier you used to give us a lot of things -- insights on Voltas. And today, we'll be asking a lot of questions on VIP Industries. So to welcome everyone, and to kickstart the call I would like to request Manishji to kindly give us a view on what's happening in the industry and current trends, and then we'll -- for 5 minutes, and then we'll open the floor for questions. My colleagues also have a lot of questions to ask. They've prepared an entire question here. So Manishji, over to you, sir.

Okay. So good afternoon to all the participants. It was always a pleasure to interact with all of you. If I want to give you the H2 or the H1 results are anyway on our website, and being announced almost 1.5 month back. So I'm sure each one of you would have gone through in detail. I would like to just touch upon the current quarter, how it is looking like in terms of the sales, in terms of the overall Industry scenario as such. So if I look into it, we all know it was a festival period for the entire month of October and November. And luckily, this quarter, we have a larger number of marriage days as well compared to what we have seen in the previous year. And if I take the current year of '25, '26, April, which is generally marriage days, we could not witness those kind of deals and now all got accumulated in this quarter. Considering that, we are expecting some amount of growth to take place. However, we all know and at what we have given in our H1 results as well, that we may see that volume growth will certainly be there, but value growth may still remain muted. because unlike in other industry, the premiumization concept has not kicked in for the luggage industry and people are still looking for value products or the entry price points to purchase largely with the understanding that the luggage, they would like to change it at a frequency of every after 7 to 8 travels, they would like to undergo a change rather the earlier belief, our thinking and with all old generation would like to continue the same luggage for whatever time it can permit to use it. So this is some kind of consumer behavior change also we are seeing nowadays and largely the luggage industry getting shifted to HL, which anyway has a lower life compared to the soft luggage. The reason being is because it is made out of by PP and it's supposed to be having a lower life considering the way in which the luggage being handled by the users as well as the various hands interchange, during your travel, journey and all. But any which way as part of the warranty is concerned, as a brand manufacturer, we took utmost care of it. And that's why every product of ours carries a 5-years warranty, with the assurance that within 5 years, anything manufacturing effect appears, we are committed to give the complete replacement of the unit. So in terms of the -- as I said, in terms of the volume, definitely, we are expecting to have continue with the double-digit kind of growth in the quarter 3. However, the value growth may slightly remain tepid or muted, given that the consumer ask on the price point of the luggage industry. In terms of the overall industry scenario, if I had to consider, we have seen the many brands are now expanding on a retail footprint, largely realizing that they reach to a saturation level with the online channel. We are going to see the challenges what they are going to face because what we are seeing today with our general trade and the modern trade, I'm sure that each of the brands were expanding their footprint will -- going to face more severe challenges when they were to expand the dose for the channel expansion. Having said that, one more point which we would like to have it in terms of the overall growth, which we are expecting for this industry. All the favor factors are in favor of the luggage industry via travel. In fact, the new concept, which we all know spiritual travel also started in a big way. And that's why it gives a good amount of support to a duffel bag and the backpack, which people use it for a travel time of 3 to 4 days. So these are the categories which are emerging now when we find more kind of support because of the shorter travel which people want probably prefer, largely on account of family travel or a weekend or maybe a spiritual trip in addition to what they plan in terms of the even a long journey, maybe within India or the overseas as well. The trend with the hotel occupancy also gives that kind of flavor that people want to love or people would like to travel and use the, I would say, after COVID, what we have seen, the perception about what you leave it, let's leave it kind of concept, which is prevailing aggressively, and we find good amount of support coming to our luggage industry as well. In terms of the market share, we have -- if I look from the June, we dropped around 40% market share. In the month of September, we came down to 38%, largely because our quarter 2 remained more muted. And Samsonite also shown a degrowth. Our Safari has able to back on the e-com support, they could see some kind of value growth higher than what we and Samsonite registered for that matter, increasing their market share. However, the good thing is that if I look into year-on-year, we are able to increase the market share by at least 300 basis points, over the corresponding period of last year and expecting to sustain our market share in the range of 38% to 40% for the rest of the period in this particular year. Going for our aspiration to continue around 40% or in excess of 40% market share. In terms of the balancing view between market share and the margin, we'd like to play an equitable kind of role which means that market share will not come at the cost of the margin. And we'll put our all efforts to ensure that we go back to the old trajectory of earning margin. However, as far as the industry view is concerned, in our own view, the industry will settle with a low or a mid--- it's point between mid and high single-digit margin and double-digit margin may not be possible because of the intense competition and everyone would like to see the market share or would like to tun after the market share. And this is phenomena we have seen across many industries, was in the intense competition. And I'm sure that you guys are aware about it. Rather I would speak or I would give an example for that matter. So with this limited discussion, I would like to now open for the question-and-answer session, and welcome to all of you to ask any questions for that matter.

[Operator Instructions] So we are giving just 10 seconds more to any participant who wants to ask first. Otherwise, then Chetan is ready with his questions.

I saw Sagar has put on the video on. Sagar, any question from your side to start with?

No, he's fine. So let's move on to -- since right now, they are not ready with questions. So let's move on to Chetan, my colleague, yes, he's visible over here.

Yes, Chetan.

So we have been seeing some pressure in the offline channel since past few quarters? And what do you think, will this channel continue to see pressure in the second half as well? And what kind of growth do we anticipate for the offline channel?

So Chetan, if I look into it, generally, the -- now the entire year getting divided into 2 channels of online and offline. The first quarter generally for the offline channel Second quarter goes to be online. Quarter 3 and quarter 4 gives you the balance between the online and offline channel. The offline generally, the interest comes from the events like your travel days and the marriage days, we all saw that the marriage days was not so accelerated also in number of counts in the first quarter, resulting into some stress in the offline channel. Quarter 2 seasonality, traditionally, it is for the online, so you won't find any traction coming from the offline channel altogether. However, if I look into the quarter 3, we find some kind of interest coming back from the offline channel. And hopefully, as I said, we would like to love that all channel participates in the growth trajectory because you cannot depend upon one channel to drive the growth because it may reach to a saturation level. and we need to partner with all. So from a brand perspective, we are putting all our efforts to ensure that all channel gets equally important and get equally mixed into the growth journey of the company.

One more question on this channel mix only, like I would like to know on the e-commerce part of the business. So year-to-date, if we see the e-commerce contribution for us has been somewhere around 30% plus, which is in line with the industry. And is it right that majority of this is Aristocrat and the pricing guardrail, which we are looking out to put on the VIP brands. And post that also, the e-commerce contribution will stay in the range of 30%, 35% or do we see a decline?

So Chetan, let me clarify one thing is that industry participation on the e-com channel is higher than 40%. We are having currently at 30%, which we have seen a tremendous growth over the last year because we started having more focus or equal amount of focus on the online channel, which is growing at a larger growth rate compared to the offline channel. Having said that, we would not like to -- we would like to maintain the e-com participation to the extent of 30%, 35%, slightly a tad lower than what the industry is looking for. In terms of the pricing, yes, we all know online channel is known for the price-sensitive market. We have introduced a guardrail for VIP largely because it was heavily discounted in the online portal and which was getting some kind of disruption in the offline where we want to push some kind of premium product because we all know, on a pricing point, VIP is more pricey than the Aristocrat set of 3 or luggage for that matter. Having agreed with the portals on a guardrail, we are not seeing a major disruption because overall seal of VIP on any of the e-com portal was in a mid-single digit. So it will not impact much in terms of the guardrail being introduced, and that was an objective to kickstart this. Having said that, we are going to agree on the price point for the guardrail for our Skybags also as we move forward, but in a very tactfully and a very balanced view between online and offline. And those broad understanding also helped with the portal so that when we migrate or when we discuss about it, it's at the consensus level and not disrupting or not disturbing the contribution of any channel into the brand for that matter. So this is very, I would say, a balanced view. But yes, the guardrail being introduced in the VIP to protect the interest of the offline channel and Aristocrat being a larger contributor on the e-com portal being a price-sensitive unit for that matter.

Yes, that was helpful. I would request the participants if they have any questions, they can go forward with it.

Can I go?

Yes, Nishant.

Sir, thank you for this call. So you mentioned that the premiumization is yet to kick in, right? And the value growth will -- I mean, the volume will pick up at the value. But I have a bit of a more of a direct peer kind of a question like this is a company called Brand Concepts, right? They are able to sustain their margins at 11-odd percent, right, why your margins are fluctuating. So what is the strategy that they are able to play better and you being a bigger player are not able to tap that strategy? If you can comment on that?

So Nishant, if I look from the -- I didn't see the P&L of the Brand Concepts, which I can see it separately. So I'm not going to comment about how they are managing their P&L vis-a-vis how we are doing it. I see more insight into it what -- where we are facing some kind of trouble. The trouble which is coming around to us in terms of some of the fixed overheads which we are carrying with us on which we started doing a lot of strategic initiatives. And as I -- as we said earlier, that although our margin is getting varied on a quarter-on-quarter basis, but we're hopeful to break even on EBITDA point in a quarter 3 and when we go on a quarter 4, we'll be able to have anything between mid- to high single-digit EBITDA margin. That's what our aspiration to move around. And this has -- and we are reasonably confident to get into this because the initiatives which we kickstarted will start showing the result by then. We have been hard pressed. We all know about the inventory accumulation which we had. And one thing which I said about it, the life of the luggage are going to get shorter now as we move forward. But we are seeing good amount of interest coming on the soft luggage side as well in some of the part of our country, which states that the even though hard luggage is going to rule but still 20%, 25% contribution may still come from the soft luggage. And our belief is getting more stronger as we move forward because we are seeing some of the brands are actually introducing the luggage in a soft luggage form. Having said that, the current margin volatility what you are seeing, Nishant, is largely on account of our liquidation of the soft luggage, which we have accumulated for almost like a 1-year forward sale. And now it is coming -- is getting liquidated as we move forward. So that is impacting our margin, our gross margin for that matter, and therefore, the EBITDA margin. And as I said, some of the fixed overheads on which you are working around to rationalize which should also help us out in terms of stabilizing it in our margin as we move through. I saw some message appearing on from Naveen side. Today, if I look into it, we are not -- we have already liquidated almost INR 180-odd crores of inventory. What we are carrying as overall inventory on 31st March vis-a-vis 30th September. We're hopeful that our soft luggage inventory should flush out from our system by early or by mid of the quarter 4. And in fact, we have to start producing the new soft luggage to take care of the new demand requirement coming from the customer side.

Can I ask a follow up?

Yes, sure.

Would it be fair to say like the brands like Mokobara, which are coming in, right, which are targeting that particular kind of category, which is very premium, and which is aspirational also to some extent. Do you feel that since yours is a traditional kind of a brand, it has kind of started to lose some bit of an appeal to the youth, which is -- which has to make the buying purchase. This is more like pushing that.

Okay. So Nishant, if I look into it, it's a perception that Mokobara is putting into a premium category. Actually, when you put a pricing pyramid, Aristocrat for us, I can define those price points and then I can define for the industry as well. Aristocrat comes under the below of pyramid of the price point. Skybags and VIP comes in the mid-price point and Carlton will be above that. Mokobara, Nasher Miles and all which we are talking about, they are playing in the mid-price point. So there's an intense competition which you see today in the mid-price point where the brands are -- there are many brands who are eyeing for a market share. So this is what to answer about how Mokobara is comparing with our brand as such on the price point perspective. On the appealing perspective, we have 2 brands in the mid-price point, which is VIP and Skybags. Skybags is also more attached to the youth. That's what when we carry out the brand track study, it clearly reflects that VIP goes with the generation of the age bucket of people, 40 to 50, 40 and above. Whereas when you look into the Skybags, Skybags falls between -- for the backpack, it goes as early as 11 year or 12 years kid. And when you go to the hard luggage -- sorry, the upright luggages, it finds attractiveness to the youth, and that's why the vibrancy of color can also be seen, and the more aesthetics, more innovative, more bright colors can be in Skybags, compared to the VIP. So Nishant, we have a product. What I intend to say is we have a product for each of the segments of our population. Keeping in mind the price point also what they're looking for. So when we introduce any product, we keep 3 things in mind. One thing is about what consumer wants it. And that's why we started doing the consumer study at the interval of every 3 to 6 months' time frame to find out what they need from us in terms of what they need more in the luggage compared to what we already introduced so far. Second, it helps us to carry out the price point at which they would like to pay for a particular luggage or particular features out of it. And third thing, in terms of premiumization, if I had to push what more I need to do on the ground to ensure that I'll be standing differently and I'll be able to push more of the Carlton brand, which will give a more premium kind of share compared to anything else. I hope I was able to answer properly, Nishant?

Any other person.

Yes. So I have this question. on the BCG project. So we were expecting to see partial benefits of this project from the month of October. So any benefits which you would like to highlight or quantify?

Chetan, I would not like to quantify anything right now, let my results talk about it when we come out with the quarter 3 and quarter 4 results. But we are working aggressively. In fact, the BCG is the enabler for us and the initiatives which we planned it's like accelerated efforts to implement, and that's why we are taking the -- and the BCG is working on our joint kind of project with all of us with the company management. I saw 1 question appearing on the direction plan. So we already reduced around INR 35-odd crores by September, and we are targeting to reduce equal amount or slightly more in the H2.

We have a question from Mr. Sanjay Chawla.

I have a question Manishji. You mentioned that there will be divergence between volume growth and value growth for some time. So my question is by when do you expect these 2 things to converge, these 2 growth rates to converge and at what sort of level would they converge?

Sanjayji, it is extremely difficult to find out at what level is converged, but what brands like us started doing is, we started, there is a strategy called a different market and different products, right? So what we are now looking into is which are the markets who are generally willing to be a tad higher than the other one. And we find 2 markets. I don't like to quote the same being the confidential in nature, are willing to pay a price or a slightly higher price than the other 2 markets, whereas the a price point's driver. So we are moving our strategy and that has come out from the consumer study as I said a few minutes back. So we are moving one strategy on that front. Second thing is, I would like to go moderate in terms of pushing Aristocrat with our general trade. We already successfully removed the Aristocrat brand in our CRM store. When you see any of our company owned store, you won't find any of the Aristocrat product, and you find only Skybags and Carlton, which is giving a good amount of response. It comes with the pain. It has come with a pain in the past, but now it's getting stabilized, and we are seeing that more kind of traction coming from this brand. Like this, we find out some of the stores as well, like if I talk about the modern trade, there are modern trade stores or the location stores who are willing to pay or willing to keep a more product of Skybags compared to Aristocrat on the shelves. So we are working on the strategy. So every stage to come out, it takes some more time. In our own reading with this kind of gradual step what we started doing it, probably in the next 6 to 8 months' time frame, we should be able to at least reduce the gap that we have today between the volume and the value. I saw 1 pop message came on the inventory liquidations. I could not make it up. Can you just -- whoever asked that question, can you flash it again or I can speak about it?

Yes. So we have a question from Rakshit Madan. So he is asking, what value of inventory will be liquidated for soft luggage or the overall inventory will be liquidated till Q4.

So submission over there is we are currently -- we are having INR 980-odd crores of overall inventory by -- in March '24. We came down to almost INR 740 crores kind of old level. And we are hopeful that when we go to the March, we'll come back to a normalcy of INR 500 crores to INR 550-odd crores of inventory, INR 30 crores, INR 40 crores here and there, I'm not putting too much weightage on it by the March, and we need this inventory because April and May will be the season period for the offline channel. So the overall inventory will come to a normalized level by March '25. And second, within the overall inventory, the SL will further be reducing sizably because I said a few minutes back, that by month of January, end of February beginning we have to start producing for the new requirement of the soft luggage, which we are seeing the interest from the consumer side.

Yes. Thank you, sir. So any more questions from the participants?

Yes, so I just had a small question on the debt side. So sir, can you please confirm the figure we have reduced in H1 for this year?

INR 35 crores we reduced in the H1 and H2 asset equal amount was slightly higher when we reached to March '25.

Okay. So as you have guided previously that you will reduce our debt by around INR 100 crores. So we are falling short by around INR 25 crores to INR 30 crores, right, sir?

So as I said, equal amount or higher our objective to go above 100, what we have given, but my nature is more of a conservative, and that much will definitely reduce it. So by INR 80 crores, overall debt should come down, 35% we already reduced and balance should be able to reduce in the H2. Yes, [ Prachi ], you are right. When the inventory liquidation is taking place, our warehouse cost also goes down and for benefit of everyone from the April 2024, we have reduced around 4.5 lakh square feet until September -- until October 2024.

Yes. We have 1 more question on chat. From [ Risha Mehta ], she asked of the INR 740 crores, how much is the soft luggage inventory?

So if I take together of raw material and soft luggage upright, it will be somewhere around INR 140-odd crores of inventory will be carrying with us. But the raw material will be a larger one. We have raw material -- sorry, not INR 140 crores, INR 160 crores. Out of that, we have around INR 80 crores of -- sorry, INR 80 crore to INR 100 crores of raw material and balance is the finished goods. And raw material can be used as per the new design, which we are trying to introduce over there. So the risk is minimal. I can give the exact number later on, on a WhatsApp chat or something. This is what my memory says maybe INR 10 crores, INR 20 crores here and there, it will not be too much difference on that. But we are committed, as I said, that we'll be moving out of this SL upright inventory liquidation issue by mid of quarter 4 and probably be hopeful to start the new production with the availability of raw material for us to catch it up with the consumer requirement.

Thank you, sir. So participants, anyone would like to ask questions?

Akash here. Can I ask?