30 Under 30 2024

VIP Industries' business woes could delay promoters' stake sale plan by a year

Arresting a fall in market share to smaller rival Safari, need to strengthen ecommerce business revenues and retaining talent in its middle management are challenges the company needs to resolve in coming quarters

Salil Panchal
Published: Jan 10, 2024 01:09:17 PM IST
Updated: Jan 10, 2024 02:15:57 PM IST

VIP Industries' business woes could delay promoters' stake sale plan by a yearVIP has been losing market share to a smaller, but more aggressive, luggage rival, Safari Industries, for nearly five straight financial years. Image: Shutterstock

VIP Industries, India’s largest luggage and travel accessories manufacturer, is facing challenging times ahead, over the next two-three quarters. A possible move of the promoters selling their stake in the company is now likely to be delayed, by at least a year, a person aware of the development, said.

VIP has been losing market share to a smaller, but more aggressive, luggage rival, Safari Industries, for nearly five straight financial years. Safari, under its chairman and managing director Sudhir Jatia—a former director at VIP—has, in recent years, focussed on the mass market, increasing product designs and offering a new range of backpacks and laptop bags, besides strengthening the distribution channel.

Safari’s market share in the branded space has risen to 24 percent in April-December 2022, from 16.7 percent in the year-ended March 2019. In the same period, VIP Industries has seen its market share fall to around 44 percent from 51.5 percent while another rival Samsonite India’s market share hovers around 32 percent.

VIP got a jolt in August 2023, when its then managing director Anindya Dutta resigned citing personal reasons, which led to the elevation of its then CFO Neetu Kashiramka as MD and CFO in November 2023, when Dutta’s term ended. News that the company had announced in its analysts meet in October 2023 that it will keep a Rs 200 crore capex plan for soft luggage expansion on hold has also hurt investor sentiment.

The loss of market share, inventory optimisation, tackling changes in the top management and inability to scale up its ecommerce business are challenges which VIP has faced and needs to resolve, analysts have said. VIP Industries stock now trades at Rs 570.5 at the BSE, its lowest point in FY24.

“It [the stake sale] may happen after one more year. The company has a new management and the results from the new management need to be seen,” the source told Forbes India.

InCred Finance, which is managing the deal, declined to speak on the matter. Veteran industrialist and VIP founder Dilip Piramal, when contacted, said he could not comment, as the company was in the silent period, ahead of its December-ended quarterly earnings.

A silver lining in all these negatives is that the company and the top management, including Kashiramka and the promoters are aware of the problems and have been candid to admit to analysts that VIP’s financial performance was not great in the April-September 2023 period.

“We need to do some work on the product, so I would say that yes, we did not do too much work on our products,” the new CEO told analysts during the Q2FY24 earnings call. She said 80 percent of the problems were “internal” and she looked forward to solve it.

But the competition from Safari, in the hard and soft luggage space, is real. Consistent gain in market share and rising share of indigenous manufacturing is likely to result in sales/net profit CAGR of 24 percent/32 percent in the FY23-FY26 period. Safari has announced a capex plan of Rs 215 crore which will double its hard luggage capacity from 6.5 lakh pieces per month to around 13 lakh pieces per month.

Safari in the September-ended earnings, reported a near 40 percent year-on-year rise in gross profit at Rs 168.4 crore, compared to a year earlier, on an 18 percent y-o-y rise in sales (at Rs 370 crore). The improved production and expansion meant that even its investors are happy. The Safari Industries stock trades at Rs 1,902 at the BSE, up 108 percent YTD.

Investcorp, which had invested Rs 75 crore into Safari in 2021, has been able to fully exit the company, realising a total return of Rs 285 crore, at 3.8x multiple on invested capital (MOIC) from the investment, the investment group showed.

India’s luggage and backpacks industry is in a sweet spot, having sprung out successfully from the pandemic woes, which crippled travel and demand for luggage bags. Anand Rathi Research forecasts a 15 percent CAGR for the next couple of years.

VIP Industries' business woes could delay promoters' stake sale plan by a yearBesides travelling returning in a big way and schools and colleges reopening—boosting bagpacks demand—there has been a structural factor driving its growth, which includes “the accelerated consumer preference shift from non-branded luggage to labels, ownership of many bags and shorter replacement cycles”, Rathi’s analysts Shobit Singhal and Pranay Shah have said in an April 2023 report while initiating coverage for the luggage sector.

Also read: Throwback: Kal Bhi, Aaj Bhi and a journey of memories with VIP luggage ad campaign


Safari, under Jatia’s leadership, probably saw the shift towards branded luggage quicker than others. The organised market now commands a 57 percent market share with 43 percent for the unorganised (unbranded) segment. This was a 45:55 ratio pre-pandemic.

Safari has focussed on the mass segment and been able to capture market share (see chart) offering value proposition and competing at Rs 1,800+ price levels with price gaps. It competes not just with unbranded players, but also with Aristocrat (a VIP brand) and Kamiliant (a Samsonite India brand) in the mass-premium bracket.

Analysts also indicate that Safari was an early adopter to online ecommerce sales, resulting in a better channel mix. This has meant that ecommerce revenues, as a percentage of total revenues in FY23, was higher for Safari (20-25 percent), compared to VIP (near 16 percent).

VIP Industries' business woes could delay promoters' stake sale plan by a yearBesides travelling returning in a big way and schools and colleges reopening—boosting bagpacks demand—there has been a structural factor driving its growth Image: Shutterstock

VIP’s Kashiramka, in its October 2023 analysts call, said revenues from the ecommerce channel grew 50 percent in the July-September 2023 quarter and “the channel salience in ecommerce was 30 percent, which is close to the industry”. But this hurt Ebitda for the quarter–down 34 percent quarter-on-quarter at Rs 52.9 crore, due to higher spends on the ecommerce channel, payment of Rs 6 crore to Boston Consulting Group for an ecommerce project and Rs 15 crore was spent on additional freight and handling charges. One needs to see if VIP can maintain this jump in ecommerce business channel growth.

The delay in the stake sale gives Kashiramka and VIP Industries time to show that business is picking up.

Dilip Piramal’s daughter, Radhika, VIP’s executive vice-chairperson, did address an analysts query on whether the company was on the block for a sale. “My father has, over the years, decades even, received many different offers from different PE funds. It's a continuous process, it keeps happening. I understand this rumour is particularly strong at this time, and it is possible that ultimately the sale might happen in the future. But I can tell you it's not happening today, not happening tomorrow and Neetu [Kashiramka] is fully focused on improving the performance of this company for short term, medium term and long term,” Radhika told analysts.

VIP Industries' business woes could delay promoters' stake sale plan by a year

For now, Kashiramka has much on her hands. “VIP needs to revamp its distribution (particularly the ecommerce channel) and iron out issues relating to people management at the middle level to bring back company on a sustained growth path,” says Jinesh Joshi, lead analyst (institutional equities–midcaps) at Prabhudas Lilladher.

VIP has recently hired Sushant Junnarkar and tied up with BCG to boost ecommerce sales. “In addition, it has also started focusing aggressively on the mass segment (share of mass brand aristocrat has increased from 22 percent in 2QFY20 to 38 percent in 2QFY24) to address concerns surrounding fall in market share. Thus, we believe it taking steps in the right direction to institute a turnaround,” Joshi told Forbes India.

After VIP’s Q2FY24 earnings, Prabhudas’s Joshi lowered their EPS estimates by 21 percent for FY24 and downgraded VIP to a ‘hold’ investment rating. Concurrently, he upgraded Safari’s EPS FY26E estimates by 7 percent, as the “full-fledged benefits of upcoming capacity expansion will be evident in the next 12-15 months”.

VIP Industries could still command a valuation premium, as it still retains its leadership position in India. But it will have to arrest the fall in market share and align better with changing consumer behaviour as travel needs, infrastructure and booking platforms continue to increase.

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