Highlights of the call

The consolidated net sales for quarter ended December 2017 have grown by 9% to Rs 337.99 crore compared to Rs 310.98 crore in December 2016. Q-o-Q growth was marginally better at 9.3%.

Domestic business helped the growth in Q3, which was volume led. It was good quarter as GST impact has started coming down and the rates of GST were revised from 28% to 18%. International business growth was slightly negative.

Skybag, VIP, Carlton and Aristocrat (latest collection) did well. Caprese grew well in Q3. Amongst Dealers and Hypermarkets VIP doesn't have any presence as the price points are not suitable there. That is an area of improvement as per the management.

Indirect Taxes paved way for GST and the results are to be seen in light of that. International business growth was negative and VIP don't have much presence overseas. GST will be improving tax compliance in the future and this will mean that the organized sector can have more market share.

Skybags is growing extremely well as a brand. VIP has also started growing in terms of volumes. Carlton also doing very well. E-commerce channels helped the company in the quarter gone by. EBITA growth 59%. EBITA improved due to product mix. Volumes growth was also good. Fixed overheads under control.

VIP Bangladesh is a 100% subsidiary of VIP industries.

VIP Bangladesh EBITA growth was 33% in 9 months ending Dec 2017. PBT growth was 142% in 9 months ending December 2017.

Price difference has reduced between organized and unorganized sector and that is helping brands.

Infrastructure is a challenge in Bangladesh, therefore expansion is happening very carefully. VIP is quite cautious to scale operations in Bangladesh.

Advertising costs was 7% to sales in Q3 2017 which is expected to remain same in coming quarters. This was also similar to the last quarter. Company feels that Taxation rates of 35% is too high and therefore dividend distribution is still a question. A lower tax as per the management might lead to passing on dividends to shareholders.  

Key Drivers  

Gain in market share was possible as the gap between organized and unorganized got reduced after GST implementation. General trades VIP is growing. The company has captured share from unorganized markets. Hypermarkets are also growing although company doesn't have any presence there.

Some share from Samsonite and American Tourister has been taken that helped in the quarter ending Q3 2017. Pricing strategy and regular supplies garnered that market share.  

Overall industry is also going up. Domestic and International air traffic is up, at a approx. rate of 16%. This along with strong Rupee is benefitting the company. Dollar- Rupee at the current rates of 63 is helpful.  

Industry Level

Backpacks are the fastest growing segment for VIP. In Hard luggages, VIP is growing in Polycarbonate and declining in Polypropylene. Polypropylene luggages are on verge of decline due to change in material used. Polycarbonate plastics are used in higher volumes due to higher strength and lower weight. There is scope for segmentation. Hard and Soft luggages are growing at 15-18%. VIP is the market leader in polycarbonate hard luggages.

Capex Plans

VIP has invested in modern warehouse facility, around 15 crores in current quarter. In Bangladesh, the company is expected to put in INR 15-20 crores in current quarter. Exports are declining and this is also not the main driver for growth. Therefore there are no such capex plans abroad for the company.

Closing Comments:

The management is happy with the decision of government to consider changing GST to 18%. Rupee and Dollar rates remain crucial for the coming quarters. Management expects INR rates of 66 and above can pose challenge for them.