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  • Writer's pictureShekhar Yadav

VIP Industries Vs Safari Industries : Q4 FY19 Analysis

Indian luggage industry had a phenomenal first half of FY19, saw things going southwards in the second half. A lot of negative factors started impacting the industry and is a typical scenario months before the general elections.

While both the listed players VIP Industries & Safari Industries showed good growth(good demand still exists), the margins suffered.

Let us look at the factors that led to the margin contraction:

During the second half of the year, the outflow of foreign capital from India accompanied with the surging crude oil prices led to free fall in rupee as well as the widening of the Current Account Deficit (CAD) 

Indian govt to rein in the free fall in rupee as well as the curb the CAD towards the second half of 2018(End September”, increased the import duty on several items. The idea was “The prices of all these goods are expected to rise, dampening demand, lowering imports and helping local manufacturers. ” 

The import duty on “Trunks, Suitcase, Executive cases, Brief Cases, travel bags and other bags etc. ” was increased from 10% to 15%.

Unfortunately, these knee jerk measures hit the Indian companies more than reflecting on the demand front as the cost increase is mostly borne by Indian companies, thus impacting the bottom line.  

 Other factors being a slow economy and reduced air travel.

VIP Industries Vs Safari Industries : Q4 FY19 Analysis

I would suggest you to read my 2 earlier blogs on the luggage industry to make more sense of the latest article:

VIP Industries Vs Safari Industries : Q4 FY19 Analysis

Indian Luggage Industry- Q4 FY19 takeaways

VIP Industries- Q4 FY19 updates

For VIP Industries, Q4 FY19 Revenue increased by 20% while volume grew by 25%, implying an increase in sales of lower value items. Entry level brands- Aristocrat & Skybags saw growth. Sales grew by 20% YoY and marginally by 1% QoQ. In the conference call, the company indicated that they are planning to increase prices further in Q1 and renegotiate with Chinese suppliers to reduce prices.

In terms of marketing, the company relaunched the ‘VIP’ brand with a new logo and TV ad, targeting holiday travels. VIP brand is most profitable after Carlton.

Coming to the expenses, Bangladesh govt increased labor cost by 51% last year(hike taken every five year), led to some impact on margin(PAT) from Bangladesh business which dropped from 16% from a year to 13.5% for FY19. The company also incurred capex of ₹36 cr in the last year in the country.  So for soft luggage which contributed to about 60-70% of sales, the company is shifting it’s dependence from China to Bangladesh. In terms of hard luggage, it is manufactured in company’s plant in Nashik & Haridwar.

In the conference call, the company mentioned that it took a price hike even in Q4 despite all the headwinds, now that seems to be a double-edged sword. On one side, you are protecting the margins but might dampen the sales. Looking at the growth numbers, it seems the price hike did not had any impact on the sales. The credit can be given to the strong brands of the company which include VIP, Caprese, Carlton, Skybags, Aristocrat.VIP Industries Vs Safari Industries : Q4 FY19 Analysis

Safari Industries- Q4 FY19 updates

Safari Industries sales grew by 17.3% YoY whereas it declined marginally QoQ. For the first time under Mr Sudhir Jatia, the company started pushing its key brand ‘Safari’ via TV commercials during IPL.

While VIP Industries has diversified its import of soft luggage, Safari Industries continue to be totally dependent on China for its soft luggage import. China, no longer is cost competitive given that it is now a middle-income country rather than a low-income country.

Safari Industries which had been outpacing VIP Industries in terms of growth saw VIP taking lead in this quarter (20% vs 17.3%). Although this is just a quarter, a couple of quarterly result down the lane might give a sense whether it is temporary or a long term trend. 

VIP Industries Vs Safari Industries : Q4 FY19 number analysis

VIP Industries Vs Safari Industries : Q4 FY19 number analysis

While Q4 & Q1(better) are the best quarter for Indian Luggage industry due to summer holidays & marriage season. But given the scale and impact of Indian general elections, even marriages get postponed.  That’s why Q1 Fy20 is expected to be subdued. VIP Industries Vs Safari Industries : Q4 FY19 Analysis

VIP Industries Vs Safari Industries: New Commercials

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