VIP Industries

Rating:

Target price:

EPS:

How does our one year outlook change?

VIP Industries (VIP IN)s 4QFY15 performance was below our expectations with
the company recording ~8% revenue growth. We understand that the subdued
growth was on account of the muted performance of brand VIP, primarily in the
Canteen Store Department (CSD) channel. However, the companys three new age
brands viz. Skybags, Carlton and Caprese are on a robust growth trajectory driving
the companys growth. We believe addressing brand VIP and CSD channel growth
hurdles coupled with offtakes in other channels should lead to healthy recovery in
the growth rate. Macro factors coupled with VIP INs brands gaining higher traction
through distribution and marketing initiatives keeps us sanguine on VIP IN. We
retain our buy rating, TP of Rs.121 ( 21x FY17E EPS).
While VIP INs competitors in the organized space derive >40% of their revenues from
CSD channel sales, VIP IN currently derives only around 20-25% of its revenues from
the channel. We believe the revival of VIP brand sales coupled with a wider distribution
of Skybags, Carlton and Caprese in the CSD channel should arrest the market share
loss for VIP IN in the channel.
The company continues to witness robust growth in the modern trade and e-commerce
channels which are expected to drive growth in the near to medium term. Both these
channels together account for upwards of 20% of revenues currently.
VIPs Bangladesh subsidiary has already achieved break even with the unit reporting a
profit of Rs.15mn during the quarter. With the facility operating at ~70% of its capacity,
we believe once the unit operates at full capacity, a reasonable portion of the company's
requirement would be met in house aiding them in saving costs.
With the US$ not expected to significantly depreciate Vs INR in the medium term and
the cost of VIPs raw material viz polymer not decreasing despite high linkage to crude
oil prices, we dont see any RM led margin expansion over the near term,, though we
remain bullish on the scope of operating leverage led margin expansion.

How does our 3 year Outlook change?

Led by increase in number of airline passengers and Indian consumers innate
need to migrate towards branded goods, the oligopolistic organized luggage
market in India should witness improved traction in medium to long term. We
believe VIP, the market leader led by its strong products, brands and distribution
moat would be an indisputable beneficiary of the macro economic revival leading
to healthy growth for the company. With the company having straddled brands
across the pricing matrix and aggressively promoting and rediscovering its
brands, we believe it is leaving no stone unturned to keep competition at bay.
Depreciation in rupee and lower polymer prices can surprise positively.

TEJASH SHAH tejash@sparkcapital.in +91 22 4228 8155

GNANASUNDARAM S gnanasundar@sparkcapital.in +91 44 4344 0062
MADHAV PVR madhav@sparkcapital.in +91 44 4344 0061

CMP

Target

Rating

Rs.95

Rs.121

BUY

4QFY15 Update

May 15, 2015

Promoters

52.4

Bloomberg

VIP IN

Institutions

12.9

Shares o/s

141mn

Public

34.7

Market Cap

Rs. 13bn

52-wk High-Low

Rs. 130-88

1m

3m

12m

VIP

-11%

-4%

1%

Sensex

-6%

-6%

14%

3m Avg. Daily Vol Rs. 42mn

BSE FMCG

-5%

-2%

24%

Index

BSE 500

Key estimate revision

FY16E

FY17E

Old

New

Change

Old

New

Change

Revenues

12,015

11,951

-1%

14,009

13,804

-1%

EBITDA

1,010

1,003

-1%

1,338

1,351

1%

Margin (%)

8.4%

8.4%

-1bps

9.6%

9.8%

24bps

PAT

605

586

-3%

820

815

-1%

EPS (Rs.)

4.3

4.1

-3%

5.8

5.8

-1%

All figures in Rs. mn, except EPS, which is in Rs.

Financial summary
Sales
Year
(Rs. mn)

EBITDA
(Rs. mn)

PAT
(Rs. mn)

EPS
(Rs.)

PE (x)

ROE (%)

FY14

9,728

803

463

3.3

29.0

17.0%

FY15P

10,477

775

435

3.1

30.8

14.7%

FY16E

11,951

1,003

586

4.1

22.9

18.0%

FY17E

13,804

1,351

815

5.8

16.5

20.1%

FY18E

15,949

1,733

1,080

7.6

12.4

22.8%

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Page 1

VIP Industries

CMP

Target

Rating

Rs.95

Rs.121

BUY

Quarterly Financial Results

Rs. mn\Period

31-Mar-15

31-Mar-14

YoY Growth

31-Dec-14

QoQ Growth

Revenues

2,462

2,278

8%

2,532

-3%

Raw materials

1,347

1,228

10%

1,440

-6%

Employee cost

283

230

23%

264

7%

Other expenditure

695

682

2%

735

-5%

2,325

2,140

9%

2,439

-5%

137

138

-1%

93

47%

5.6%

6.1%

-49bps

3.7%

189bps

Depreciation

33

40

-18%

34

-3%

Other income

-11%

60%

112

107

5%

64

75%

40%

133%

PBT

105

102

3%

61

72%

Tax

17

51

-67%

35

-52%

16.2%

29.2%

PAT

88

210

-58%

85

4%

Adj PAT

88

82

7%

43

104%

PAT margin

3.6%

9.2%

-564bps

3.4%

22bps

EPS (Rs. )

0.6

0.6

7%

0.3

104%

Total Operating Cost

EBITDA
EBITDA margins

EBIT
Interest

Effective tax rate

VIP INs revenue grew ~8% y-o-y to Rs.2.46bn. The company

witnessed a volume growth of ~2% during the quarter.
Despite reduction in crude on account of high plastic prices and
flat polymer prices, COGS increased by ~10% y-o-y leading to
gross margins contracting ~80bps y-o-y.

Lower gross margins led to EBITDA margins contracting ~49bps

y-o-y.
Skybags, Carlton and Caprese brands delivered robust
performance this quarter growing by ~40%, ~30% and ~25%
respectively.
E-commerce channel is the fastest growing channel growing at a
triple digit growth rate however contributing to lesser than
Rs.500mn. Modern trade continued to grow at a healthy rate
currently accounting for ~20% of revenues.
The BOD declared a final dividend of Rs.1 per share taking the
total dividend of the year to Rs.1.50 per share.
Lower effective tax rate at ~16.2% Vs ~19.5% during the base
quarter.

19.5%

Higher PAT in 4QFY14 on account of extraordinary income of

Rs.15.9mn from sale of assets.

Page 2

VIP Industries

CMP

Target

Rating

Financial Summary

Rs.95

Rs.121

BUY

Abridged Financial Statements

Rs.mn

Key Metrics
FY14

FY15P

FY16E

FY17E

Profit & Loss

Revenue
EBIDTA

9,728

10,477

11,951

13,804

803

775

1,003

1,351

Other Income

25

25

28

30

Depreciation

170

175

179

189

EBIT

658

625

852

1,192

Interest

FY14

FY15P

FY16E

FY17E

Growth Ratios (%)

Revenues

16%

8%

14%

16%

EBIDTA

17%

-3%

29%

35%

Normalised PAT

47%

-6%

35%

39%

45.3%

45.3%

45.0%

45.0%

EBIDTA

8.3%

7.4%

8.4%

9.8%

Normalised PAT

4.8%

4.2%

4.9%

5.9%

Margins (%)
Gross

18

13

24

20

PBT

798

655

828

1,172

Reported PAT

577

466

586

815

Leverage Ratios (x)

Normalised PAT

463

435

586

815

Debt to Equity

0.1

0.1

0.1

0.1

Current Ratio

2.3

2.5

2.6

2.7

Balance Sheet
Net Worth
Loan Funds
Deffered Tax Liabilities

2,870

3,058

3,439

3,999

Return Ratios (%)

171

325

275

225

RoCE

15.7%

13.8%

17.0%

19.3%

RoE

17.0%

14.7%

18.0%

20.1%

3.2

3.2

3.4

3.2

Normalised EPS (Rs.)

3.3

3.1

4.1

5.8

Dividend (Rs.)

1.7

1.5

1.2

1.5

141

141

13,305

13,106

-14

-31

-31

-31

3,056

3,383

3,714

4,224

838

699

681

653

Capital WIP

11

11

11

Goodwill

290

287

290

290

Total Current Assets

3,332

3,952

4,466

5,214

Current Market Price

Total Current Liabilities

1,422

1,580

1,747

1,958

Shares Outstanding (mn)

Net Current Assets

1,910

2,372

2,719

3,256

Market Cap. (Rs. mn)

Application of Funds

3,056

3,383

3,714

4,224

Enterprise Value (Rs. mn)

502

88

445

605

Cash Flow from Investments

-18

-30

-136

-131

Price/Book (x)

4.7

Free Cash Flow

376

45

284

444

EV/EBIDTA (x)

16.4

-493

-137

-278

-325

2.8%

0.3%

111

32

106

255

Sources of Funds
Net Block

Investments

Cash Flow
Cash Flow from Operation

Cash Flow from Financing

Closing Cash Balance

Total Asset Turnover (x)

Per Share

Valuation Metrics

EV /Sales (x)
Price/Earnings (x)

FCF Yield

95
141

141
13,425

13,196

13,431

1.4

1.3

1.1

0.9

29.0

30.8

22.9

16.5

4.4

3.9

3.4

17.3

13.3

9.7

2.1%

3.4%

Page 3

VIP Industries

CMP

Target

Rating

Recommendation History

Rs.95

Rs.121

BUY

VIP Industries Ltd

140
120
100
80
60
40
20
0
1-Apr-12

1-Oct-12

1-Apr-13

1-Oct-13

Historical

Report Date
13/Mar/15

1-Apr-14

1-Oct-14

1-Apr-15

Target

CMP (Rs.)

TP (Rs.)

99

128

Recommendation
Buy

Page 4

VIP Industries

CMP

Target

Rating

Disclaimer

Rs.95

Rs.121

BUY

Absolute
Rating
Interpretation

BUY

Stock expected to provide positive returns of >15% over a 1-year horizon

REDUCE

ADD

Stock expected to provide positive returns of >5% <15% over a 1-year

horizon

SELL

Stock expected to provide returns of <5% -10% over a 1-year

horizon
Stock expected to fall >10% over a 1-year horizon

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VIP Industries

CMP

Target

Rating

Disclaimer (Contd)

Rs.95

Rs.121

BUY

Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,
Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:
Disclosure of interest statement

VIP IN

Analyst financial interest in the company

No

Group/directors ownership of the subject company covered

No

Investment banking relationship with the company covered

No

Spark Capitals ownership/any other financial interest in the company covered

No

Associates of Spark Capitals ownership more than 1% in the company covered

No

Any other material conflict of interest at the time of publishing the research report

No

Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:
Managing/co-managing public offering of securities
Investment banking/merchant banking/brokerage services

No

Products or services other than those above

In connection with research report
Whether Research Analyst has served as an officer, director or employee of the subject company covered

No

Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company;

No

Analyst Certification of Independence

The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research
analysts compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
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This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under
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Page 6