Stock Pick from Plastic Industry

HERE IS WHY

• The tourism industry is growing rapidly in India
• Multi branding strategy will help company to improve its revenue mix 
• It’s almost debt-free company

This time we are focusing on company which is engaged in the business of manufacturing of luggage bags. However, the company has posted a lower sales growth and decline its margin in FY15. It has largest market share at around 47 per cent in domestic market. The tourism industry is also growing rapidly in India which will benefit the company to get higher growth in future.

New entrants from the global market like American tourister, Samsonite etc. may reduce the market share of VIP from the tier I and tier II cities. Therefore, VIP now uses multi branding strategy which will help to improve its revenue mix. This will also help company to improve the realization. Therefore, the company has spent on advertisement by 50-100bps higher than normal advertisement spend as proportion of sales to create awareness of other brands like Alfa, Skybags, and Carlton. Carlton is a premium brand and advertising has given a good result.

Carlton is not a mature brand. It was UK brand but it was unknown in India and since last year the company has followed a new strategy for Carlton, so it’s virtually like re-launching of Carlton. The company’s main brands VIP and Skybags are very large brands which are about more than ten times the size of Carlton. They have also introduced the range of ladies handbags under the new brand called Caprese which will help the company in the upcoming future to cater a business from the new business segment.

The company’s Bangladesh subsidiary has already achieved break even with the unit reporting a profit of Rs 1.5 crore during the quarter. With the facility operating at around 70 per cent 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.

In Q4FY15, net profit of VIP Industries declined 49 per cent to Rs 10.3 crore as against Rs 20.3 crore where revenue grew by 8 per cent to Rs 246.2 crore as against Rs 226.90 crore as during the same quarter of the previous year. For the full year, net profit declined 19 per cent to Rs 46.6 crore in FY15 as against Rs 57.7 crore in FY14. Sales rose 7.7 per cent to Rs 1047.7 crore in FY15 as against Rs 972.80 crore in FY14. Higher expenditure on advertisement in FY15 and extraordinary income of Rs 1.59 crore from sale of assets in Q4FY14 which makes big difference at bottom-line on quarterly level as well as yearly level.

The company is almost debt-free. The company generate more revenue profitability from Caprese, Carlton and through Bangladesh facility. We recommend taking an exposure in the stock with expectation of 25-30 per cent upside in the next one year.