VIP Industries came out with their result for Q1’FY19 on 3rd August 2018. At first glance, the numbers look impressive. Let me make sense of the numbers for you.
I have analyzed the luggage industry in an earlier blog post. To read Click here
To get started, one needs to be aware of the fact that for the Luggage industry Q1 i.e First Quarter (Sales in the month of April, May & June) are always the best. Q2 is the weakest & Q3 & Q4 are evenly distributed. Therefore, it makes obvious sense to compare the results on a year on year(Y-o-Y) basis i.e. Q1FY19 & Q1FY18.
Why is the Sales highest in the Q1 for the luggage industry?
There are 2 main reasons for that:
- Marriage Season (Particularly in UP & Bihar region)
- Tourist Season (Summer Vacation)
VIP Industries: Q1’FY19 Quarterly Result Analysis
The first number that excited me was the “Cost of the product” versus the “Selling price”. As you can that, there is a drop of 4.6%, which is significant. You might be thinking what does it imply? If yes, then it’s a very good question.
The drop in Cost of product Vs the Selling price in the simplest language implies the higher pricing power of VIP brands i.e. the company has been able to grow the price of the same products and that too amid growing competition. (The drop in cost vs selling price might also be created by drop in raw material price but in VIP’s case, the cost of manufacturing in China is increasing, so it’s the other way round)
This increase in premium pricing has led to better profit realizations as well.
The Profit before tax (PBT) grew by 3.5% whereas Net profit percentage grew from 9.2% in Q1’FY18 to 11.5% in Q1Fy19 despite a larger tax outgo.
What might have caused this premium pricing ability?
Now, since VIP industries imported a large percentage of completed products constituting the bulk of the sales, so the differentiation needs to be done in the below:
- Branding: Advertisements
- Exclusive brand outlets:250+
- Designs: Exclusive assortments for each channel of distribution
- Distribution:10,000+ Point of Sales, Presence across all hypermarkets, e-commerce platforms, etc. If you visit any bag store near you, you will find VIP brands taking up the major & larger prime store space.
The company has been aggressively advertising all of its major brands starting in April 2018. These ad campaigns are planned to be continued for the entire year. As well as VIP is trying to create sharp differentiation on all its brands as to which belongs to which category.
If you think that the growth is going to continue at the same pace for the next quarter, you will be mistaken given the seasonality effect. Also, the planned year-long advertisement for VIP brands will help VIP industries to achieve robust growth on a year on year basis.
To add to this, the tailwinds supporting the Indian luggage industry makes VIP industries a strong candidate for medium to long term investment.