VIP Industries, which has a 55% share in the Rs 2,500-crore lugagge market in the country, saw its stock surge last week on rumour of acquisiton of the European luggage firm, Delsey. The company had a tough time in the past when it had to shut five factories. For the last two years, it has been working towards brand/market segregation. In an interview, VIP Industries chairman Dilip Piramal, who is bullish on the company’s strong fundamentals, tells FE’s Shubham Batra about the good sales growth in the first quarter and the company’s attempts to scale down debt. Excerpts:
There has been lot of speculation about VIP Industries eyeing an acquisition in Europe. Is there any truth in it?
Last week, I had specifically mentioned that ‘if and when the possibility arises’ we might look at it. Delsey is a private-equity held firm. As a rule, the PE firm will make an exit by 2012-13. Hence, we might be interested in looking at the company.
Coming to your quarterly earnings, Ebitda has been up by 250 basis points. What would you attribute this to?
Unlike cement or chemicals, ours is a pure retail play. Hence, if we have a good sales growth, which in the last quarter has been around 17%, the Ebitda will move up accordingly. The rupee in the last quarter has been strong. If you look at our balance sheet, it is the simplest one can have. Our fixed cost has come down and simultaneously profits have increased. It is reflected in earnings per share, which is currently at 11.4, up from last year’s 7.7. Our gross margins have been good in the last quarter. Moreover, we were fairing a rise in the raw material cost but that also has more or less remained stable. Although, we have taken nominal price hikes in May. Interestingly, the Chinese demand has not been strong from where we import our soft luggage. The polymer or plastic prices do not seem to be rising.
The company has been able to reduce debt more than half since last year.
This quarter we’ve had a strong cash flow which enabled VIP Industries to reduce its total debt by Rs 47 crore. Our debt-equity ratio is now at 0.2:1. VIP reduced its debt from Rs137 crore to Rs 87 crore in the FY10. This has come down further to Rs 40 crore. I am sure we will be a debt-free company by the end of this fiscal.
What are the company’s expansion plans for this fiscal?
This year we are focussing on weak products like Skybags and laptop bags. So far, we have been promoting only the VIP brand. We will promote other like Alfa, Aristocrat and Skybags. We are going to penetrate deeper into the lower-end of the consumer segment by expanding more in the tier-III and IV towns. We are already quite strong in the higher-end segment. We already have a good range of products for the smaller towns but we will expand that range further. We hope to open 50-60 outlets every year for which the capex required is fairly small because we do not believe in setting up self-owned stores. Rather we prefer franchising our brand.
Will there be any launch?
We are planning to launch Carlton, which we had acquired last year, by next year in the country.
