VIP Industries Ltd & Safari Industries Ltd- Q1FY21 Analysis

VIP Industries Ltd & Safari Industries Ltd- Q1FY21 Analysis

August 20, 20201:39 pm
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One of the worst affected sector due to COVID-19 must be the luggage industry. In our day to day life, we need luggage such as suitcases, backpacks only when we are going out. Now, the pandemic has forced us to be in home,so the need for luggage has dramatically declined. The best proxy of the luggage industry, which is Airline passenger traffic growth is in deep red. Also, the other proxy which is shopping mall footfall is another one which will take sometime to be back to pre-covid levels.

Another factor to keep in mind is that First Quarter of the financial year is always the best one for these companies due to holidays in schools & college. 

 

Link to all my blogs on VIP Industries & Safari Industries

VIP Industries Ltd & Safari Industries Ltd- Q1FY21 Analysis

VIP Industries Ltd- Q1FY21 Analysis

Given that Q1 is always the best quarter for the company, VIP Industries have stocked itself with inventory to the core to be prepared for the demand. But looking at the Q1 sales which is done by 93%, the management now expect this inventory to last for the entire year. 

Now, there has been drastic change in the business environment. To cope with the harsh reality, the company is planning to borrow ₹300cr to be prepared for its worst case scenario to meet expenses if current situation prevails. 

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Amidst the pandemic, the company has started manufacturing Personal Protective Equipment(PPE) kit as well as face mask to atleast have some sort of revenue generation, which is minuscule as of now.

Because of the bleak outlook in terms of revenue generation, the company has reduced 35% its costs via Reduction in Rent, Store Closure, Rationalization in Manpower Cost, Eliminate all discretionary spends but still the 93% drop in revenue was much more to handle. Store owners have been co-operative in terms of reducing the rents or with respect to not charging rent for some period as even their future depends on the survival of their clients.

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The company has 250 exclusive brand outlets, of which the company plans to close down 100 of them till the demand comes back.

Also, there was shrinkage in terms of gross margins owing to higher discounts doled by the company.

VIP Industries Ltd & Safari Industries Ltd- Q1FY21 Analysis
VIP product range in Masks & Face Shield
VIP product range in Masks & Face Shield
VIP Industries Ltd- Q1FY21 Analysis

VIP Industries Ltd -> Annual Report 2020 Takeaways

  1. Travel is an integral part of human existence and we are confident that it will come back to its natural demand as India and World learns to live with the virus.
  2. Company is also exploring newer opportunities in the PPE segment which is expected to have high demand for next 12-18 months.
  3. All spend on advertising will be tactical and below the line for higher and immediate return on investment in the year 20-21.
  4. The company is the lowest cost manufacturer of luggage in the world. 
  5. Company is also taking cost cutting measures. This would be the prime focus of the company for the near future.
  6. Also, looking to aggressively diversify as well as focus more towards the international expansion(mainly middle-east, SAARC & APAC).
  7. E-commerce has been the biggest growth driver.
  8. VIP Industries Ltd expect the sales of FY21 to be just 30-50% of FY20 sales.
VIP Industries Ltd & Safari Industries Ltd- Q1FY21 Analysis

Safari Industries Ltd- Q1FY21 Analysis​

Although there was similar drop in revenue of the company but their gross margins surpassed that of VIP Industries for the first time since I am tracking the company. But given the uncertainties in this particular quarter, it should be watched over sometime.

Even Safari Industries have been trying to cut costs, that is quite visible in the drop in expenses. 

VIP Industries Ltd & Safari Industries Ltd- Q1FY21 Analysis
Safari Industries Ltd- Q1FY21 Analysis​

Safari Industries Ltd -> Annual Report 2020 Takeaways

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  1. FY20 was overall a slow year as the domestic aviation growth was at just 3.74% compared to 18.6% growth in FY19. Despite that the company grew its revenue by almost 19%, growing ahead of the market.
  2. The Magnum brand continued to grow well with an enhanced product portfolio targeting mass market value seeking consumers.
  3. Safari’s management is focusing on tightening its cost structure and streamlining its supply chain to ensure all resources are optimally used. The Company will also invest selectively in consumer demand in selective channels to maximise sales in the segments that bounce back earlier.
  4. Similar to VIP Industries, they also pointed out the increase higher value of luggage purchase online.
  5. Going forward, they want to reduce the dependence on China & source more from India & Bangladesh.
VIP Industries Ltd & Safari Industries Ltd- Q1FY21 Analysis​
VIP Industries Ltd-Share Price Last 1 year
Safari Industries Ltd-Share Price Last 1 year

As you can see that since the March 24, 2020 crash, while most of the stocks have bounced back significantly but VIP Ind & Safari Ind share price still at those lows. Obviously, that is to do with the nature of the business. Since we use luggage going out, the pandemic which makes us stay indoor has caused severe damage to these businesses.

Listening to the interviews & concall, a lot of company’s management has said atleast in the near future they would prefer to continue doing work from home(WFH) as well as they feel WFH is much more effective. Many software companies have given WFH for a large percentage of employees, implying people are staying more and more indoors atleast for the near term.

But Schools will be back, so will the colleges, so will be the holidays/marriages. Also, executive need face to face meeting to build trust as well as personal relationships. I personally think, things will be back to normal, BUT HOW LONG WILL IT IS SOMETHING TO WATCH OUT FOR.

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Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

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