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INDIAN LUGGAGE INDUSTRY

‘Trolleying’ Ahead

March 2015

Find Spark Research on Bloomberg (SPAK <go>),

Thomson First Call, Reuters Knowledge and Factset

TEJASH SHAH, [email protected] +91 22 4228 8155

GNANA SUNDAR [email protected] +91 44 4344 0062

MADHAV PVR [email protected] +91 44 4344 0061

Positive Sector Outlook

‘Trolleying’ Ahead THEMATIC NOTE

Bags & Luggage in Global Context

Global Bags & Luggage industry growth moderate at mid-single digits…

Source: Bloomberg BI , Spark Capital Research

…with handbags dominating among the offerings


Global household spend on bags & luggage hovering around $60…


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Bags & Luggage Market in USD mn (Including Unorganised)

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Per household spend on bags & luggage

…in an industry that is dominated globally by premium players (value share)


Product Player #1 Player #2 Player #3

Backpacks VF Corp Nike Adidas

Business Bags LVMH Samsonite Kering

Crossbody Bags LVMH Coach Kering

Duffel Bags Nike VF Corp Adidas

Handbags LVMH Kering Coach

Luggage Samsonite LVMH Delsey

Page 2

Others 25%

Crossbody Bags 10%

Backpacks 10%

Luggage 15%

Handbags 40%



LATIN AMERICA

Size:$14bn

2014-09 CAGR: ~2.5%

2019-14 CAGR: ~2.8%

PHC (USD): ~80

PHC (UNIT): 2

NORTH AMERICA

Size:$ 25.0bn

2014-09 CAGR: ~8%

2019-14 CAGR: ~5%

PHC (USD): ~185

PHC (UNIT): 5

EUROPE

Size:$30bn

2014-09 CAGR: ~2%

2019-14 CAGR: ~2%

PHC (USD): ~153

PHC (UNIT):3


AFRICA & GCC

Size:$7bn

2014-09 CAGR: ~2.4%

2019-14 CAGR: ~2.0%

PHC (USD): ~24

PHC (UNIT): 1

INDIA

Size:$2bn

2014-09 CAGR: ~14%

2019-14 CAGR: ~14%

PHC (USD): ~9

PHC (UNIT):1

China

Size:$24bn

2014-09 CAGR: ~15%

2019-14 CAGR: ~8%

PHC (USD): ~57

PHC (UNIT): 2

PHC: Per Household Consumption

Size: Includes Unorganised

Bags & Luggage in Global Context

Page 3



Wide consolidation visible across large players


Volume pressure keeping global luggage market growth subdued


Samsonite, 15%

LVMH, 6%

Delsey, 2% VIP, 2%

VF Corp, 1%

Kering, 1% Rimowa, 1%

Antler, 1%

Roncoto, 1%

Hermes, 1%

Brief overview of Top players in the world

Source: Company filings, websites & Spark Capital Research

Samsonite LVMH VF Corp Delsey Kering

Business

Description

Samsonite International S.A. is

the world's largest travel luggage

company, with a heritage dating

back more than 100 years

LVMH Moët Hennessy Louis

Vuitton SA is the holding company

for over 60 luxury brands spanning

across several industries

VF Corp is a manufacturer and

retailer of lifestyle-focused

brands. VF Corp is the biggest

backpacks player in the world.

A company founded in 1946,

DELSEY is synonymous with

French excellence in the world of

luggage.

A family-controlled, listed

company, Kering is a world leader

in apparel and accessories, which

develops an ensemble of

powerful brands

Origin

Country USA, Listed in Hong Kong France Greensboro, NC, USA France France

Products

Design, manufacture, sourcing

and distribution of luggage,

business and computer bags,

outdoor and casual bags, and

travel accessories

Apart from its omnipresent

handbags, brand Louis Vuitton‟s

products in luggage and wallets &

coin pouches are also luxury icons.

Operates across clothing,

footwear and personal

accessories.

Delsey S.A. manufactures travel,

leisure, urban, and business

luggage. It also offers camera

bags; and luggage security locks

among other accessories

Focused on a single business,

they design, manufacture and

market desirable products across

luxury and Sports f segments

Revenues CY 13 - $~2.1 billion CY14 – ~9.8bn Euro (Fashion &

leather goods) CY14 - $~12.3 bn $~400mn ~10bn Euro

Brands

Samsonite, American Tourister,

High Sierra, Hartmann, Lipault

and Speck and other owned /

licensed brand names

Louis Vuitton, Fendi, Donna Karan,

Loewe, Marc Jacobs, Céline,

Kenzo, Givenchy, Thomas Pink,

Pucci, Berluti, and Rossimoda

The company has 36 brands

including Timberland, Vans and

Lee, Jansport, Kipling and The

North Face brands in the bags

and luggage category.

Delsey

Gucci, Bottega Veneta, Saint

Laurent,, Tomas Maier, Sergio

Rossi, Girard-Perregaux,,

Pomellato, Nardin.and Tretorn

Distribution

Network

49,000 points of sale in more than

100 countries ~1534 exclusive stores ~1400 company owned stores ~6000 stores across 5 continents ~1186 company owned stores

Luggage in Global Context

Top 10 market players

Page 4

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Luggage marketsize in USD bn (Including Unorganised)



Led by volumes and premiumisation, Indian bags & luggage industry

growing in mid-double digits…


…led primarily by luggage industry, contrary to the global market where

handbags dominate


Per capita consumption opportunity looms large as Indian consumers

increasingly prefer branded goods


Industry dominated by luggage players given the nascent nature of

handbags and backpacks industry

Note: Inclusive of unorganised players, Top 8 players market share

Source: Bloomberg BI , Spark Capital Research;

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Rs.b

n

Bags and Luggage - Rs.mn (Including unorganised)

VIP, 12%

Samsonite, 9%

Hidesign, 2%

Liviya, 2%

Titan, 2%

LVMH, 1%

Wildcraft, 1%

Hermès, 1%

Bags & Luggage in Indian Context

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household

Bags & Luggage (USD per household)

Page 5

Others 10%

Backpacks 9%

Business Bags 9%

Handbags 25%

Luggage 47%



Indian luggage market has grown at ~13% over the past 13 years…


…led by healthy volumes and reasonable pricing power


Soft luggage continues to dominate in India…

Source: Company conference calls, Spark Capital Research

…with VIP IN commanding solid market leadership

Source: Company conference calls, Spark Capital Research; Organised market only

VIP, 53%

Samsonite, 38%

Safari, 8%

Delsey, 1%

Hard Luggage 25%

Soft Luggage 75%

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Luggage - Rs.mn

7%

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12% 12% 12%

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13%

15% 15% 16%

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9%

14%

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15%

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7.0%

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13.0%

14.0%

15.0%

16.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Voume Growth (%) Value Growth (%)

Luggage in Indian Context

Page 6

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Stock performance (%)

1m 3m 12m

VIP -1% -12% 28%

Sensex 0% 6% 32%

BSE FMCG 2% 4% 38%

Financial summary

Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) ROE (%)

FY15E 10,495 729 411 3.1 31.7 13.7%

FY16E 12,015 1,010 605 4.3 23.1 18.2%

FY17E 14,009 1,338 820 5.8 17.1 20.2%

Date Mar 13th ,2015

Market Data

SENSEX 28930

Nifty 8776

Bloomberg VIP IN

Shares o/s 141mn

Market Cap Rs. 14bn

52-wk High-Low Rs. 130-72

3m Avg. Daily Vol Rs. 54mn

Index member BSE 500

Latest shareholding (%)

Promoters 52.4

Institutions 14.2

Public 33.4

Initiating Coverage 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 industries (VIP IN), the market leader led by its strong products, brands and distribution moat would be

an indisputable beneficiary of the aforementioned macro economic triggers. VIP IN under its flagship VIP brand has

been one such domestic company that has not only shaped India’s luggage buying habits but has also withstood

competition effectively through constant rediscovery of brands, product innovations & wide distribution. Keeping

attune to changing consumer habits, VIP IN has over time also developed a number of alternate brands straddling

across pricing matrix that has enabled them to thwart competitive intensity. We see that the promotional campaigns

starting from ‘Kal Bhi Aaj Bhi’ in 1991 to Carlton in 2014 has kept the fine balance of brands’ heritage value and

relevance. Huge share of unorganized market in the category, possible inflection point in consumers’ preference for

branded luggage and probable gross margin expansion on the back of strengthening Rupee could be additional

levers. Though the near term risks in terms of severe competitive intensity, depreciating Rupee and weak macro

economic growth cannot be overruled, we believe VIP IN has built strong enough moats and would be a good proxy

play to revival in Indian urban consumption. We initiate VIP IN with a BUY rating at a TP: Rs.128 (22x FY17E EPS)

Investment rationale

Economic Progression: As witnessed in China, we believe Indian airline passenger traffic should increase significantly as

per capita consumption surpasses the $1500 mark driving the luggage industry market. Further increase in organized jobs,

higher number of women in workforce and increasing gifting habits should drive growth of handbags and backpacks in India.

Conversion from unorganized: Driven by lifestyle choices and rising preferences for branded offerings luggage consumption

should also increasingly become organized. Higher ticket value and exhibitionist nature should accelerate conversion.

Oligopolistic market: Indian luggage market in line with global markets is oligopolistic in nature thereby developing strong

entry barriers and strong market structure that enables easier price increases and devoid disruptive price led competition.

Strong brands: VIP IN has managed to successfully develop several alternate brands to its flagship VIP brand. Wide portfolio

of brands straddling across price points with distinct positioning have been inline to meet changing consumer needs.

Entrenched distribution: With ~10700 points of sales, VIP IN has the strongest distribution network among peers. Revival in

Canteen Stores Department (CSD) sales under the reinvigorated management to lead to strong near term revenue traction.

Gross margin triggers: With ~3/4th of the cost of goods sold incurred for purchase of finished goods from China, Rupee

appreciation along with increasing contribution from Bangladesh facility should be a significant medium to long term lever.

Page 7

Big ‘BAG’ Theory

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Corporate Factsheet

Company Background

VIP Industries (VIP IN) which commenced operations as a job work unit for plastic moulding in 1968 under the name of

Aristo Plast Pvt. Ltd. has today grown into one of the largest luggage manufacturers in Asia. The Product Portfolio of VIP

consists of a diverse range of hard-sided and soft-sided luggage which includes trollys, suitcases, duffel-bags, backpacks,

executive cases, overnight travel solutions and school bags. The company is the owner of many renowned brands like VIP,

Aristocrat, Alfa, Caprese, Skybags and Carlton which cover the entire spectrum of bags & luggage products.

Presence VIP IN has more than 10700 points of sale (POS) across India comprising ~650 exclusive stores, ~3000 direct dealers and

over 7000 retailers.

Board of Directors & Management depth

Promoter Directors: Mr. Dilip G Piramal (Chairman – Executive director), Ms. Radhika Piramal (Managing Director)

Executive Director: Mr.A.K Saha (Director – Works),

Independent Non – Executive Directors: Mr. D.K Poddar , Mr.Vivek Nair, Mr.Vijay Kalantri, Mr. G.L Mirchandani, Mr.

Nabankur Gupta, Mr. Rajeev Gupta

Key Managerial personal: Mr.Jogendra Sethi (CF0)

Business Description VIP manufactures and markets hard luggage and soft luggage (largely imported from China); it is the largest player in the

luggage industry in India. It also has limited presence in the moulded furniture business through its Modern range.

Corporate Structure The company has a wholly owned subsidiary in Bangladesh under the name VIP industries Bangladesh private limited which

is a captive manufacturing unit for VIP Industries Limited.

Revenue Contribution Domestic - ~90%; International - ~10%

Brands VIP, Skybags, Carlton, Caprese, Aristocrat and Alfa

Manufacturing Facilities Total of 6 manufacturing facilities in India (Maharashtra – 5; Uttaranchal – 1)

International Operations

The company has a wholly owned subsidiary in Bangladesh which is primarily into manufacturing of luggage for the parent.

VIP also exports its goods to the Middle East, Europe and Asia-Pacific markets among others deriving close to ~10% of its

revenues from exports.

Credit Rating CRISIL A+/Positive/CRISIL A1

Corporate Banking State Bank of India, Central Bank of India, Axis Bank Limited, ING Vysya Bank Limited & IDBI Bank Limited

Auditors M/S M.L Bhuwania & Co.

Page 8

Executive Summary

Source: Company filings, Spark Capital Research

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

VIP IN has been at the forefront of luggage innovations in India


Facilities for hard luggage manufacturing majorly in central India


Nashik Sinnar

Haridwar

Jalgaon

Nagpur Paithan

Haridwar facility which

currently enjoys 30%

tax break, is expected

to come under full tax

regime from FY16

2008

2006

2004

2000

1996

1986

1982

1981

1971

2009

2010

2011

2011

2012

2013

2013

2014

Manufacturing Plant setup in Nasik

Enters moulded Furniture business

Commencement of operations in Jalgaon Plant

Nagpur plant commissioned - Alfa brand launch

Elanza variant launched

Delsey - joint venture

Acquired Carlton brand globally

Launch of Aura variant : India's first range of Luggage for Women

Merger of Aristocrat Luggage Limited with VIPIL

Launch of water and stain resistant bags with Teflo

Launch of VIP Superlite variant

Skybags launch

Manufacture of Polycarbonate cases

Manufacture of printed PC cases

Caprese handbags launch

Manufacture of hybrid PC cases

Commencement of production in Bangladesh Plant

Page 9

VIP – Business Description

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

~ Revenue Contribution ~50% ~23% ~6% ~2% ~19%

Brand Positioning

Style statement

cum Value for

money

positioning

Move in Style,

Youth centric

positioning

Young, passionate

breed of business

travellers

Fashion

handbag

offerings

Durable

offerings at

affordable

prices

Offerings

Luggage,

Backpacks,

Accessories

Luggage,

Backpacks

Luggage,

Backpacks Handbags Luggage

Price Range Rs. ~2500-

Rs. ~7000

Rs. ~2000-

Rs. ~5000

Rs. ~6000-

Rs. ~12000

Rs. ~2000-

Rs. ~4000

Rs. ~1500-

Rs.~4500

Key Competitors

American

Tourister,

Safari, Delsey,

Samsonite

American

Tourister, Safari

Samsonite,

Hidesign,

Victorinox, etc

Unorganised

Safari, AT,

American

Tourister,

Unorganised

Page 10

VIP IN– Business Description - Segments


VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Growth Levers

Source: Spark Capital Research

Underlying Airline passenger

growth f

f

f

- Negative - Strong - Weak - Positive - Neutral

Macro-

economic

growth

drivers

Travel and tourism market is expected to recover with improvement in GDP and consumer sentiment

function of (f) Weight Outlook

f

Bags &

Luggage

Industry

growth

drivers

VIP Growth

drivers

Enterprising business market

Spurt in gifting habits

Oligopoly market structure f

f

f Conversion from Unorganized

Premiumization – Favorable mix

Gross margin expansion drivers f

f

f Entrenched distribution

Strong brands led pricing power

f

f

f

f

Increase in disposable income to lead to non-linear growth of travel in India, as in other Asian markets.

Improvement in macro economic climate to see increasing number of business trips and conventions

Favourable demographics to lead to higher weddings – in which luggage is a key purchase item

Increase in travel has historically correlated positively to volumes in luggage industry

Despite low entry barriers, luggage market has remained oligopolistic across developed countries f

f

f

f

Aspirational consumers continue to pursue branded offerings converting from unorganised market

Aesthetic appeal and functional usage remain the key purchase considerations

Increasing contribution from premium offerings – Carlton, VIP and Caprese to lead to better margins

Appreciation of INR to improve gross margin significantly in near term. f

f

f

f

f

Being the pioneer in luggage market, VIP enjoys a significant distribution moat advantage over peers

Strong brand recall, makes VIP the preferred ‘aspirational’ brand on conversion from unorganised

Products straddled across price platform catering to all class of consumers

Market leadership coupled with strong brands afford pricing power to VIP

Page 11

VIP IN– Growth matrix

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Page 12

VIP IN – Growth Escalator

#1

Economic

Progression

#3

Favourable

Oligopoly

structure

#4

Wide

Product

Portfolio

#5

Strong

Brand

Equity

#6

Gross

Margin

triggers

#2

Conversion

from

Unorganised

#7

Entrenched

Distribution

Air passenger growth – Leisure

& Business tourism

Inflection in per capita GDP

Indian demographic dividend to

lead to Backpacks/ handbags

traction

Strong oligopoly structure

acting as a significant entry

barrier

Globally high concentration in

luggage industry

Enduring consolidation activity

Brand VIP – Synonymous with

luggage in India, has been the

pioneer of luggage revolution

in India

Niche brands – Niche

propositions

‘Kal bji Aaj Bhi’ to Carlton…

With ~10700 points of sales,

VIP bags has the widest reach

among organised luggage

players.

A significant competitive

advantage that acts as a strong

entry barrier

Increasing demand for

aspirational offerings

Low-priced well established

brand names to be the

beneficiary in conversion.

Wide presence of brands

across several price points

Acquisition of several brands to

cater to all demographic

audience

Competitively well positioned

Appreciation of Rupee to

positively correlate with gross

margins given majority of RM

is import of finished goods.

Vendor costs


EXTERNAL GROWTH DRIVERS ECONOMIC MOAT RELATED GROWTH DRIVERS

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Indian tourism market grew at ~11% CAGR over the past 10 years…

Source: World Travel & Tourism council, Spark Capital Research

…leading to number of air passenger’s increasing 3x in 10 years

Source: World Bank, Spark Capital Research

Direct correlation between luggage market and tourism growth…


…so is the correlation between air passenger growth and luggage market


23.9 27.9

40.3

51.9 49.9 54.4

64.4 74.0 72.2 75.3

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In m

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Air Passengers Carried in India (mn)

16.0 16.5 19.0

24.1 26.7 25.4

31.4 35.8 35.9

41.2

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45.0

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US

D b

n

Indian Tourism Market (USD bn)

3%

15%

27%

11%

-5%

24%

14%

0%

15% 18%

12%

27%

6%

-1%

21%

11%

0%

6%

-10%

-5%

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5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013

YoY

gro

wth

(%

)

Indian travel and Toursim growth (%) Indian Luggage & Bags Industry growth (%)

16%

45%

29%

-4%

9% 18%

15%

-2%

4%

18%

12%

27%

6%

-1%

21%

11%

0%

6%

-10%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013

YoY

gro

wth

(%

)

Air Passenger Growth (%) Indian Luggage & Bags Industry growth (%)

Page 13

#1 – Macro Economic Growth Drivers – Underlying travel market potential

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

IATA predicts that improvement in living standards, lower flying cost…

Source: IATA , Spark Capital Research

…and demographics would lead to ~200mn new air passengers in 20 years

Source: IATA , Spark Capital Research

Chinese per capita Income crossing $~1500 led to spurt in air passengers…

Source: World Bank , Spark Capital Research

…so is expected as Indian per capita GPD crosses $1500


-2%

0%

2%

4%

6%

8%

India

Indonesia

Chin

a

Bra

zil

Tu

rkey

Mexic

o

US

Russia

UK

Germ

any

Japan

20 y

ear

CA

GR

(%

)

Living Standards Population & Demographics Travel cost

-2%

0%

2%

4%

6%

8%

-200

0

200

400

600

800

1000

Chin

a

US

A

India

Indonesia

Bra

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UK

Tu

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UA

E

Russia

Germ

any

Japan

Num

ber

of m

illio

ns o

f passengers

to

be a

dded o

ver

he n

ext

20 y

ears

Living Standards Demographics Price & Other

0

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China Per Capita GDP (USD) China Air Passengers (mn)

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India Per Capita GDP (USD) India Air Passengers (mn)

Page 14

#1 – Macro Economic Growth Drivers – Resurgence in travel market

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Air passenger growth in India to mimic China’s…

Source: World bank, Spark Capital Research

…led by increasing low cost carriers

Source: SpiceJet FY14 AR , Spark Capital Research

Number of outbound tourists to significantly increase…

Source: World Bank, Spark Capital Research

…as middle of the pyramid looks to move upwards

Source: Census India , Spark Capital Research

54.6% 50.6% 39.1% 36.7%

45.4% 49.4% 60.9% 63.3%

FY11 FY12 FY13 FY14

Domestic Domestic

97.7% 97.1% 84.2% 83.1%

2.3% 2.9% 15.8% 16.9%

International International

0

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800

0

10000

20000

30000

40000

50000

60000

70000

80000

Per Capita GDP (USD) No of Air Passengers (mn)

As in China, India Air

passenger growth to be

disproportionate to GDP

on account of low cost

carriers

10.9 11.0 13.0 14.1 15.3

16.6 17.9

0.96% 0.96%

1.12% 1.19%

1.26% 1.37%

1.47%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014

No Of Trips No Of Trips /Population

25m people

2.1% of India’s

population 23m people

2% of India’s population

164m people

13.5% of India’s population

125m people

10.3% of India’s population

874m people

72% of India’s population

<$1050

$1050-$1550

$1550-$3250

$3250-$5250

>$5250

Page 15


VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Leisure travel is the major driver of outbound international tourism…


…led by favorable demographics

Source: Industry data , Spark Capital Research

Increase in organized jobs…


…and buoyant business confidence to lead to business travelers growth


27.5 28.2 28.7 29.0 29.6 30.8

32.0

20

22

24

26

28

30

32

34

2008 2009 2010 2011 2012 2013P 2014P

In m

illio

n

Organised Sector Jobs (mn)

3 4 4 4 5 5 6

7 7 9

10 10

11 12

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014

no o

f tr

ips (

mn)

Business Leisure

Singles, 14%

Couples, 26%

Families, 32%

Group, 4%

Others, 24%

0

10

20

30

40

50

60

0

1

2

3

4

5

6

7

8

9

10

Nov-1

1

Jan-1

2

Mar-

12

May-1

2

Jul-12

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-13

Sep-1

3

Nov-1

3

Jan-1

4

Mar-

14

May-1

4

Jul-14

Sep-1

4

Nov-1

4

Consum

er

Fu

ture

Expecta

tio

n in

dex

India

Busin

ess C

ycle

Indic

ato

r

Consumer Future Expectation Index India Business Cycle Indicator

Page 16


VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Favorable demographics coupled with…


…rising propensity to spend should lead to increase in discretionary exp

Source: Data.gov, Spark Capital Research

Occasions as marriage and festivals remain key gifting season…


…with ~10% of India to be married in the next 5 years


33

55

94

117

0

20

40

60

80

100

120

140

~ No of Marriage in next 3 years




Mill

ions

Indian Auspicious calendar

January

February

March

April

May

June

July

August

Setember

October

November

December

Auspicious Inaspicious

6

3

0

0

0

0

7

11

5

6

12

5

December

November

October

September

August

July

June

May

April

March

February

January

Number of auspicious days

61 62 62 62 61

58 53

50 46

42 36

29 23

17 12

7 5

55 54 55 55 54

51 49

46 44

40 35

29 23

18 13

9 7

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Page 17

#1 – Macro Economic Growth Drivers – Celebrations and gifting habits

13.1 14.1 15.3 16.2 17.7 19.2 21.5

24.8 28.4

32.5 37.1

43.6

51.4

57.7

64.9

0

10

20

30

40

50

60

70

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

Th

ousands

PFCE ( expenditure incurred on final consumption of goods and services by a household)

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Increase in number of IT employees…

Source: Nasscom, Spark Capital Research

…and students to fuel backpack growth…

Source: data.gov, Spark Capital Research

…while rise in number of women in organized workforce and…

Source: Economic Survey , Spark Capital Research

…and their increasing affluence to lead to handbags growth.


20.0%

19.8%

20.4% 20.5% 20.5%

20.8%

21.3%

19.0%

19.5%

20.0%

20.5%

21.0%

21.5%

2008 2009 2010 2011 2012 2013 2014

% o

f to

tal w

ork

forc

e

% Women in Organised Workforce

25

42

22 25

10

891

232 288

32 24

0

100

200

300

400

500

600

700

800

900

1000

0

5

10

15

20

25

30

35

40

45

India China Indonesia Korea Japan

% g

row

th r

ate

by 2

030

% o

f w

om

en a

ir t

ravelle

rs

Percentage of Women Travellers in 2011 (%) Growth Rate by 2030 (%)

0.5 0.7

0.8 1.1

1.3

1.6 1.7

2.2 2.3

2.5 2.8

3.0 3.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Num

ber

of IT

em

plo

yees (

mn)

8.4 9.0 9.5 10.2 11.0

12.0 13.2

14.4 15.8

17.2 18.7

20.3 21.5

0

5

10

15

20

25

Num

ber

of colle

ge s

tudents

(m

n)

Number of college students (in mn)

Page 18

#1 – Macro Economic Growth– Growth beyond luggage category exciting…

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Organised, 38%

Unorganised, 62%

Unorganised market drivers

Lower Price

Wide availability

Mirrors Branded offerings

Close proximity

Limited Usage

Easy Sourcing

Higher distributor margins

Not a personal consumption

No quality verification methods

Limited after service requirement

Organised market drivers

Lifestyle Choice

Brand Equity

Rising Brand consciousness

Aesthetic Appeal

Functionality

Quality

Social Strata

High decibel A&P

Attractive Pricing points

Warranty

Page 19

#2 – Conversion from Unorganized – Pricing & Sourcing key deterrents

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Un-Organised

market

Non Users –

Increasing per

capita usage

Organised market

Social strata

Brand connect

Quality/sustainability/durability/warranty

Low priced offerings

Lifestyle choices

Higher discretionary spending habit

Increasing holiday travel culture

Migrant/low income travellers

Domestic tourism prospects

Individual usage consumption

Nuclear families


1.5 1.5 1.6 1.8

2.0 2.3

2.5

3.1 3.2 3.1

3.6 3.9 3.8 3.9

4.2

0.0

1.0

2.0

3.0

4.0

5.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

US

D

Value per household (USD)

Rs.~42bn in Value Rs.~20bn in Value

Demographic leading growth

Business travellers

Low cost airlines fuelling travel

Long distance travellers

Increase in frequent travellers

4.2

5.3

5.9

6.1

6.3

9.1

9.7

21.1

22.2

22.5

25.9

26.3

26.3

27.0

0 5 10 15 20 25 30

India

Brazil

Argentina

Mexico

Thailand

World

China

United Kingdom

USA

Germany

Singapore

Malaysia

France

Japan

USD/household

Page 20

#2 – Conversion from Unorganized– Increase in per-capita consumption to be the

key driver

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Organized continues to gain share albeit at a slower pace…


…which presents a humongous opportunity for VIP


Though pricing continues to be the deterrent…


…unorganized share to come down as in other developed markets


75.0% 68.8% 67.5% 65.7% 64.0% 62.0%

25.0% 31.2% 32.5% 34.3% 36.0% 38.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2009 2011 2012 2013 2014

% m

ark

et share

Unorganised Market Organised Share 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

OR

GA

NIS

ED

MK

T

VIP

MA

RK

ET

OP

PO

RT

UN

ITY

Less Than Rs.3000

Rs.3000 – Rs.8000

Above Rs.8000

~45%

~80%

Less than 10%

Page 21

#2 – Conversion from Unorganized – Untapped potential

VIP IN Market share

1200

1500

2100

1500

2000

2600

0

500

1000

1500

2000

2500

3000

55CM 65CM 75CM

Rs.p

er

unit

Unorganised Price Organised Price

25% 33% 24%

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Apparels (13% CAGR &~36% Organized Share)

Footwear (14% CAGR, 40% Organized Share)

Bags (16% CAGR & ~15% Organized share)

Luggage (14% CAGR, ~38% Organized Share)

Jewellery (20% CAGR & ~20% Organized share)

Watches (19% CAGR & ~45% Organized Share)

Grocery Retailers (11% CAGR & ~5% Organized Share)

Leisure Retailers (13% CAGR, & ~18% organized share)

Eyewear (22%CAGR & ~10% Organized Share)

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

25%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

08-1

4 C

AG

R (

%)

Organised Share (%)

Page 22

#2 – Conversion from Unorganized – VIP to be key beneficiary in conversion

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Pricing

Distributor Promotions

Sourcing

Usage

Reach

Aesthetic Appeal

Functionality

Quality

Appeal

Advertisements

Wide Offerings

Brand

Unorganised strength Organised strength

With Indian consumer

becoming increasingly

conscious about branded

offerings, Organised

market across retail

categories to gain

momentum. Given the

exhibitionist nature of the

category, increasing

social pressure and rising

emphasis for quality,

organised offerings in

luggage to gain significant

momentum in long term.

Given the innumerable

number of unorganised

players, reach in par with

organised market. Easy

sourcing from China also

evens out manufacturing

moat.

Pricing continues to be a

key deterrent for

consumers to shift from

unorganised. Distributor

influence also tilts

purchase to unorganised.

Page 23

#2 – Conversion from Unorganized – Brand awareness & social pressure to be the

key drivers

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Only ~4-5 large organized players in the luggage market…


…who command ~88% of the market signaling significant entry barriers

Source: Company data , Spark Capital Research

Globally luggage market tends to be of oligopoly in nature…


…with consolidations happening at regular intervals


72% 70%

83% 84% 85% 85% 89% 88%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012 2013

Elongated

repurchasing

cycle

High ticket

prices

Retail space –

Low per

square feet

sales

Voluminous

product High Entry Barriers

1993

2000

2004

2008

2012

2014

Samsonite acquires American Tourister

VIP - Delsey joint venture

VIP acquires Carlton brand

VIP - Merger of Aristocrat Luggage

Samsonite - High Sierra & Hartmann acquisition

Samsonite - Lipault and Speck acquisition

44% 49%

53% 54%

66% 67% 70% 72% 73% 78% 80% 83%

88% 91% 92% 94%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

High

incentives for

channel

partners

Page 24

#3 – Oligopoly Market Structure – Sturdy market with strong entry barriers

Market share of top two players (%)

Market share of top two players (%)

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Despite several international brands entering

India in the luggage market, only a few who

have withstood losses and invested in brand

and distribution are reaping the benefits.

Though manufacturing moat is totally absent due to

relaxed import norms from China, moat in the luggage

space is very much on the front-end rather than on the

back-end. Entrenched distribution network and

consumer lifestyle choices to make branding a key

economic moat in medium to long term.

Page 25

#3 – Oligopoly Market Structure – Brand to be the strongest moat

Cap

acit

y C

on

str

ain

t

Ven

do

r S

ou

rcin

g

Tech

nic

al K

no

w-h

ow

Su

pp

ly C

hain

Netw

ork

Pare

nta

ge

Reta

il D

istr

ibu

tio

n

netw

ork

Dis

trib

uto

r R

eco

mm

en

dati

on

s

Gro

un

d S

ale

s w

ork

forc

e

Pro

du

ct

Po

rtfo

lio

Desig

n &

Fu

ncti

on

ality

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Premium

Popular

Mass

Luggage – Trolley/4

wheel Duffle/ Duffle trolley Bags

Rs.6480-Rs.14950 Rs.5950-Rs.10000 Rs.1299-Rs.3299

Rs.3100-Rs.8990 Rs.1090-Rs.4515

Rs.1964-Rs.7200 Rs.990-Rs.3105 Rs.714-Rs.2490

Rs.2488-Rs.4586 Rs.1759-Rs.3266

Rs.1646-Rs.4033 Rs.860-Rs.2100

Rs.695-Rs.2590

Page 26

#4 – Wide Product Portfolio – VIP brands across price points to drive growth

Source: Company Website, Spark Capital Research

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

PR

ICIN

G

UNORGANISED

VIP Samsonite Safari Others Delsey

< Rs.3000

Rs.3000 –

Rs.8000

> Rs.8000

Prominent players in the particular price segment

Page 27

#4 – Wide Product Portfolio – Different brands, at different price points


VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Growth in complementary categories presents an exciting opportunity…


…as they are expected outpace luggage growth drivers in long term


Key drivers of growth


9.1%

13.2%

13.8%

14.5%

14.7%

15.9%

16.1%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

Crossbody Bags

Luggage

Wallets & Coin Pouches

Duffel bags

Business Bags

Handbags

Backpacks

Product Growth Drivers

Handbags/

Business Bags

Handbags and business bags in India continues to be driven by the female and male populations, respectively. There are currently no signs of changing

preferences. Male handbags and women-centric briefcases are rare in India. Increase in organised workforce and rising number of Indians blue collar jobs

to support the growth of business bags. The rising presence of established brands and regional brands increasing their presence through modern retailing

and multi- brand outlets to drive near term offtakes

Backpacks/

Cross-body

Bags

Backpacks and crossbody bags have become more popular in recent years as these are functionally superior to handbags. Backpacks is the fastest

growing sub-category. Growth can be partially attributed to the increasing number of jobs in IT and related industries, with companies providing laptops for

their workers which are often carried in backpacks. Furthermore, growth is also being fuelled by increasing levels of education and more students enrolling

for higher education courses.

Duffel Bags Duffel bags remains one of the smallest categories in bags and luggage. Driven by domestic/outbound tourism and functional usage as visits to gym, spa

and fitness centres to drive growth of duffel bags in medium to long term.

Luggage, 90%

Backpacks, 7%

Handbags, 3%

Page 28

#4 – Wide Product Portfolio – Strong growth drivers beyond luggage

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Page 29

#5 – Brand Strength – Brand VIP has been at the forefront of Indian luggage market


1971

Launch of

VIP In India

1971

VIP launches

multi-safe lock

briefcase

1982

Wheeling luggage in India

1983

Enhanced

safety

briefcase

launched

1988

Launched

"ODYSSEY“

range of

Business

briefcases

1998

Gold plated Odyssey

range launched

2004

Single system

trolley introduced

2009

Water resistant Teflon

bags introduced

2010

Superlite range introduced

2011

360 degree wheeling

introduced

2012

Scratch resistant

Verve deluxe

2014

Lightest ever ‘Spacelight’

range launched

2006

Exclusive women

range ‘Aura’ introduced

2008

Business bags with ‘coupe’

1987

Cushion

handlers

introduced

1993

Launched

colorful

totes for

the young

and

upscale

1996

Launched

"ELANZA”, with

patented side

bumpers and

integrated shell

lining.

1997

Enriched luggage

shopping

experience by

introducing "VIP

lounge".

1970 1975 1980 1987 1990 2015 2010 1998

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Increasing A&P expenses to facilitate ‘PULL demand and create a equity…


…as discounts and commissions as a % of sales decline


…as VIP IN increasingly begins to position brands as aspirational offerings


126 125 127 158 164

287 372

446 441

571

4.1% 3.8%

2.9% 2.8% 2.9%

4.5% 4.9%

5.2% 5.3%

5.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

0

100

200

300

400

500

600

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Advertising and Marketing % of Total Income of Operation

Investments behind field sales force on the rise…


26 31

271

529 641

507 544 661

363 307

0.8% 0.9%

6.1%

9.2%

11.4%

7.9% 7.2%

7.7%

4.3%

3.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Discounts and Commission % of Total Income from Operation

Lifestyle

Functionality

Aspirational

Page 30

#5 – Brand Strength – VIP rightly investing in brands

82 121

199 228

0.8%

1.2%

1.7% 1.6%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

0

50

100

150

200

250

FY 11 FY 12 FY 13 FY 14

Field Sales force cost (Rs.mn) % of sales

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

1990 1991

1992

1996

1998

1998

1998

2006 2006

2008-13

2006

2013-14

2013-14

Lifestyle Functionality Aspirational

Page 31

#5 – Brand Strength timeline – ‘Kal Bhi Aaj Bhi’ to Carlton

Source: YouTube , Spark Capital Research

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Gross margins have been impacted by USD/INR and rise in vendor costs


…given that majority of raw materials are purchased as finished goods


Increasing soft luggage has resulted in purchased goods increasing


Key raw material used for hard luggage's are polypropylene and aluminium


Raw Material

purchased

(~23% of

FY14 COGS)

Polypropylene f

Purchase of

stock in trade

(~77% of

FY14 COGS)

f Packaging and other costs

HDPE f

Others f

f Base Crude Derivate

f Base Crude Derivate

f Rising wage costs

INR/USD f

Vendor Costs f

f Stability of Rupee Vs Dollar

44.3% 43.6% 44.1% 47.3% 46.4% 51.5% 61.5% 66.2% 65.9%

76.9%

55.7% 56.4% 55.9% 52.7% 53.6% 48.5% 38.5% 33.8% 34.1%

23.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% Of Stock in trade % of raw materials

Other Materials 62.1%

Polypropylene 27.4%

Aluminium 7.8%

HDPE 2.3%

Polyster Nylon 0.4%

Page 32

#6 – Gross Margin tailwinds – Headwinds for INR subsiding

55.9% 53.5% 51.9%

46.8% 45.4% 44.4% 45.0% 45.4%

0%

10%

20%

30%

40%

50%

60%

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Gross Margin (%)

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Historically USD prices have had an inverse impact on VIP gross margins

Source: Company data, Bloomberg , Spark Capital Research

With USD gaining in strength Vs INR, impacts were felt on VIP margins too

Source: Bloomberg, Spark Capital Research

Chinese Inflation though has also led to increase in vendor costs…


…leading to VIP looking at Bangladesh as alternate option.


45.2 40.3 46.0 47.4

45.6

48.0

54.4

60.4 60.8

49%

51% 52%

56%

54%

52%

47% 45% 45%

40%

42%

44%

46%

48%

50%

52%

54%

56%

58%

40.0

45.0

50.0

55.0

60.0

65.0

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E

USD/INR VIP gross margins

30

35

40

45

50

55

60

65

70

Fe

b-0

5

Jun-0

5

Oct-

05

Fe

b-0

6

Jun-0

6

Oct-

06

Fe

b-0

7

Jun-0

7

Oct-

07

Fe

b-0

8

Jun-0

8

Oct-

08

Fe

b-0

9

Jun-0

9

Oct-

09

Fe

b-1

0

Jun-1

0

Oct-

10

Fe

b-1

1

Jun-1

1

Oct-

11

Fe

b-1

2

Jun-1

2

Oct-

12

Fe

b-1

3

Jun-1

3

Oct-

13

Fe

b-1

4

Jun-1

4

Oct-

14

Fe

b-1

5

-4

-2

0

2

4

6

8

10

May-0

5

Sep-0

5

Jan-0

6

May-0

6

Sep-0

6

Jan-0

7

May-0

7

Sep-0

7

Jan-0

8

May-0

8

Sep-0

8

Jan-0

9

May-0

9

Sep-0

9

Jan-1

0

May-1

0

Sep-1

0

Jan-1

1

May-1

1

Sep-1

1

Jan-1

2

May-1

2

Sep-1

2

Jan-1

3

May-1

3

Sep-1

3

Jan-1

4

May-1

4

Sep-1

4

Jan-1

5

Chinese 10 year CPI inflation

Avg inflation – 3% per year

Page 33

#6 – Gross Margin tailwinds – Bangladesh emerging as an alternate option

VIP has commenced production in Bangladesh and the capacity is

expected to achieve 100% utilization by March 2015.

Bangladesh facility with a capacity ~100,000 units per month is

currently at ~80% capacity

Purchase from Chinese vendors, beyond being exposed to USD/INR

vagaries also is open to increasing vendor costs despite the market

being oligopsony.

The Bangladesh facility under full utilization is expected to contribute

to ~25% of volume demand of soft luggage.

Though purchase from Bangladesh continues to be pegged with US

Dollar, rise in vendor costs (Employee expenses) could be relatively

lower in comparison to China.

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Page 34

#6 – Gross Margin tailwinds – Rupee to appreciate on Improving macro

Around $12bn FII flows are expected in corporate bonds; FII limit in debt to

go up by $10bn in 2015

Source: SEBI, Spark Capital Research

Lower crude oil prices pose no major risk to India’s remittances as 73% of

India’s remittances are dollar linked

Source: RBI, Spark Capital Research

Rupee appreciated 6% against the dollar during the last phase of current

account surplus in India


Saudi Riyal 7%

UAE Dirham 9%

US Dollar 57%

GB Pound 8%

Euro 7%

Others 12%

Currency Composition of Remittances (India)

The Saudi

Riyal and UAE

Dirham are

pegged to the

dollar

-0.7

0.7

0.3

0.6

0.1

0.1

1.5

0.1

0.3

0.6

0.7

1.1

1.0

1.2

-5

.7

-2.0

-1

.6

-0.9

-2

.2 -1

.0

0.9

2.1

1.8

1.9

-1

.5

3.3

2.8

3.8

2.8

2.6

2.9

1.9

1.8

3.3

2.1

-6

-4

-2

0

2

4

Apr-

12

Jun-1

2

Aug-1

2

Oct-

12

Dec-1

2

Fe

b-1

3

Apr-

13

Jun-1

3

Aug-1

3

Oct-

13

Dec-1

3

Fe

b-1

4

Apr-

14

Jun-1

4

Aug-1

4

Oct-

14

Dec-1

4

Fe

b-1

5

Net FII flows: Debt

FII limit of $30bn in Gsec is fully

exausted . Of the $51bn limit in

corporate bonds, $12bn yet to come

RBI has bought $38bn since Jan’14 which is more than sufficient to cover

the $32bn India received under FCNR (B) deposits


3.5

-1.9

-0.5

7.8

5.9

1.8

2.6

5.5

-0.5

1.4

2.7

3.1

6.7

Jan-1

4

Fe

b-1

4

Mar-

14

Apr-

14

May-1

4

Jun-1

4

Jul-14

Aug-1

4

Sep-1

4

Oct-

14

Nov-1

4

Dec-1

4

Jan-1

5

US

$, bn

RBI Intervention: Net US$ Purchase

20

25

30

35

40

45

50

55

60

65

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15E

Current ac balance (% of GDP) INR/USD - RHS

Rupee had appreciated 3% avg. per

annum for the three consecutive years

during FY04-FY06

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

VIP has the strongest distribution channel among its peers…

Source: Company Data, Spark Capital Research

…with a presence across several formats


EBO’s not only act as a retail format but also an effective marketing tool


Equated retail presence across Indian landscape


POS (~10700)

Direct Dealers

(~3000)

Distributors

(~100)

EBO

(~700)

Franchisee

operated (~400)

Company owned

stores (~250)

Retailers

(~7000)

Number of counters

Traditional, 40%

CSD, 20%

Own Stores, 20%

Hypermarkets, 15%

Others, 5%

42 23

113 132 176 198 194

267

359 367

1.4%

0.7%

2.6% 2.3%

3.1% 3.1%

2.6%

3.1%

4.3%

3.8%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

50

100

150

200

250

300

350

400

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Rent % of Total Income of Operation

North 27%

East 25%

West 25%

South 23%

Page 35

#7 – Entrenched Distribution – VIP IN has built a significant moat with its presence

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Page 36

#7 – Entrenched Distribution – CSD remains a key channel serving ~5% population

Contribution from CSD lower for when compared to peers


20%

40%

40%

0% 10% 20% 30% 40% 50%

VIP

Samsonite

Safari

Canteen Store Departments (CSD) is a Government of India

Enterprises under Indian Ministry of Defence. CSD sells a wide

variety of products like household provisions, kitchen appliances,

alcoholic drinks, cars, sports equipment.

CSD currently runs with 34 area depots and ~3500 unit canteens

across the length and breadth of the country reaching to even

remotest of the locations.

Given that CSD caters to ~5% of Indian population, it becomes a key

distribution channel format for consumer firms.

CSD maintains an inventory of 2800 items that cover a wide range,

from shoe laces to cars.

Given that fulfilment of certain procedural conditions and quality

adherence, any manufacturer can get his products sold through the

channel, which makes it an attractive entry channel for new entrants.

CSD product catalogue indicates that Safari, VIP and Samsonite brands dominate in mass, popular and premium ranges respectively

Source: CSD Catalogue, Spark Capital Research

VIP Skybags Carlton Aristocrat Alfa American

Tourister AT Samsonite

High

Sierra Safari Others

Backpacks/Rucksacks/Duffle Bags 4 1 2 3 1 3

Brief Case / Business Bags / Office Bags 3 1 1

Ladies Hand Bags (Synthetic) 1

Luggage Moulded-Suitcases > 24" 10 1 1 1 2 9 2

Luggage Moulded-Suitcases Upto 24" 6 1 1 3 3

School Bags 1 4

Soft Luggage More Than 24" 6 4 9 6 1 2

Soft Luggage Upto 24" 15 2 2 2 4 2 8 4

Travel Bags 2 5

Vanity Case 1

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

BOD Remuneration as a % of PAT

Source: Company Filings, Spark Capital Research

Holding Structure


me Remuneration

(Rs. mn)

Remunerati

on as % of

PAT

Position

Mr. Dilip G Piramal 15.37 3.3% Chairman

Ms. Radhika Piramal 19.75 4.3% M.D

Mr. Ashish K Saha 4.86 1.1% Exe. Director

Mr. Vijay Kalantri 0.12 Ind. Director

Mr. D.K Poddar 0.10 Ind. Director

Mr.G.L Mirchandani 0.125 Ind. Director

Mr.Bankur Gupta 0.105 Ind. Director

Mr. Rajeev Gupta 0.08 Ind. Director

Total 40.50 8.8%

52.1% 52.1% 52.1% 52.1% 52.4% 52.4% 52.4% 52.4% 52.4%

7.8% 7.6% 6.3% 5.0% 5.1% 5.8% 8.1% 5.0% 5.3%

0.7% 0.9% 0.8% 1.0% 1.7% 2.8% 4.3% 7.6% 8.9%

39.5% 39.4% 40.8% 41.9% 40.8% 39.0% 35.2% 35.0% 33.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14

Promoter group FII DII Others

Well diversified board presence as per SEBI guidelines


Mr.Dilip

G. Piramal

Ms.

Radhika

Piramal

Mr.D.K

Poddar

Mr.Vijay

Kalantri

Mr.G.L

Mirchandani

Mr.Bankur

Gupta

Audit

Committee Yes

Yes

Yes

Yes

Nomination

and Comp.

Committee

Yes

Yes

Yes

Yes

Stakeholders

Relation.

Committee

Yes

Yes

Yes

Page 37

Management tenets – Pay scale and holdings

Average dividend payout of ~42%


165

329

263

165

281

34.2% 37.1%

38.9%

52.4% 48.8%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

50

100

150

200

250

300

350

FY 10 FY 11 FY 12 FY 13 FY 14

In R

s.M

n

Dividend Dividend payout

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

BOD/Top

Management

Contingent

Liabilities

Succession

Planning

Cases against

management/

Company

2008 2009 2010 2011 2012 2013 2014

Total No. of Directors 6 6 7 9 9 10 9

No. of Independent Directors 4 4 4 5 6 7 6

No. of changes in directors over last year - 2 1 2 2 2 1

Mr. Radhika Piramal took over the reins of the company in 2011 which indicated the third generation change

in the business. While Mr. Dilip Piramal continues to remain as the chairman of the company, Ms. Radhika

oversees the day to day affairs of the company as the Managing director.

Other than conventional excise, tax and customs cases there are no other known criminal/fraudulent cases

or litigations against the company or its promoters which can materially impact the company.

Page 38

Management tenets – Corporate Governance

Related Party

Transactions

Transactions during the year (In Rs.mn) 2008 2009 2010 2011 2012 2013 2014

Remuneration and commission paid to promoter

directors - 11.4 25.5 46.6 30.8 25 40

Investment in VIP Industries Bangladesh Pvt.Ltd* - - - - - 34.1 180

Bad Debts written off in Carlton Travel Goods Ltd* - - - - 270 - -

*Both wholly owned subsidiary companies

(In Rs.Mn) 2008 2009 2010 2011 2012 2013 2014

Contingent Liabilities outstanding as on March 31st 348 328 481 222 222 253 855

Contingent Liabilities as a % of Networth 27% 29% 33% 11% 9% 10% 30%

~90% of Contingent liabilities on books pertains to sales tax

related disputes. Management expressed optimism in

obtaining a favourable ruling in this regard

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Page 39

Risks and concerns


Competitive intensity from Samsonite in popular & premium categories and from Safari

in the mass segment poses a significant near term growth threat. Earnings could be

impacted on account of market share loss or increase in A&P outlay.

Competitive Intensity

Given that ~3/4th of the cost of goods sold is in the form of purchased goods that are pegged to USD, any significant fluctuations/vagaries in INR/USD could impact the margins. Any compelling increase in vendor costs (China) also could derail margins.

INR/USD Fluctuation

Given that Samsonite and Safari derive close to ~40% of their revenues from the CSD channel, any slip-up from VIP IN in this particular format could tilt market share in favor of competition.

Tepid off-takes in CSD channel

With the underlying opportunity for increase in air passenger growth widely dependant on revival of urban consumption, any delay in revival could lead to luggage market offtakes also proportionately slowing down.

Delay in revival of urban consumption

• VIP IN derives a significant competitive advantage with its widespread distribution network which could be under a sever threat if online sales of bags& luggage gains prominence.

Emergence of e-commerce

VIP IN currently has contingent outstanding liabilities amounting to Rs.~855mn of which sales tax related liabilities amount to Rs.~774mn. Though management remains confident of a favorable ruling, we note that current contingent liabilities is ~30% of the company’s net worth.

Significant contingent liabilities

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Revenues to improve as urban consumption improves…

Source: Company, Spark Capital Research

…also leading to operating margins expanding steadily


Rupee strengthening could provide positive near term trigger…


…which should see PAT margins also expanding


Page 40

Financials (1/3)

7.56 8.58 8.35

9.71 10.46 11.97

13.96

0

2

4

6

8

10

12

14

16

FY 11 FY 12 FY 13 FY 14 FY 15E FY 16E FY 17E

In R

s.b

n

Net Sales

4.06 4.46

3.92 4.42 4.66

5.41

6.36

54% 52%

47% 45% 44% 45% 45%

0%

10%

20%

30%

40%

50%

60%

0

1

2

3

4

5

6

7


In R

s.b

n

Gross Profit Gross Margin

1.20 1.19

0.68 0.81 0.73

1.01

1.34

16%

14%

8% 8%

7%

8% 10%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

0

0

1

1

1

1

1

2


In R

s.B

n

EBITDA EBITDA %

887

676

315 462 411

605

820

12%

8%

4% 5% 4%

5% 6%

0%

2%

4%

6%

8%

10%

12%

14%

0

100

200

300

400

500

600

700

800

900

1000


In R

s.m

n

PAT PAT Margin

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Increasing A&P behind brand investments and creating a ‘pull’


Effective tax rate near to corporate tax rate


Reducing interest expenses…


…with negligible debt on books


Page 41

Financials (2/3)

372 446 441 571

4.91%

5.19%

5.26%

5.87%

4%

5%

5%

5%

5%

5%

6%

6%

6%

0

100

200

300

400

500

600

FY 11 FY 12 FY 13 FY 14

In R

s.m

n

A&P A&P as a % of sales

145

283

138

221 189

259

368 14.0%

29.5% 30.5%

27.7% 30.0% 30.0% 31.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

50

100

150

200

250

300

350

400


In R

s.M

n

Tax Effective tax rate

45 69 51 21 11 10 11

0.6%

0.8%

0.6%

0.2%

0.1% 0.1% 0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

0

10

20

30

40

50

60

70

80


In R

s.M

n

Interest Expense % of sales

1,034 847

404

171 127 127 137

0.51

0.35

0.16

0.06 0.04 0.04 0.03

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0

200

400

600

800

1,000

1,200


In R

s.M

n

Total debt Debt equity ratio

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Moderate working capital management…


…marked by reducing debtors and consistent inventory …


…leading to healthy operating cash flow


Moderate return ratios


Page 42

Financials (3/3)

99 86

77 64 64 64 64

0

20

40

60

80

100

120


Days

Working capital days

57

61 63 66 66 66 66 67

53 45

36

36 36 36

26 28

31

37

38 38 38

0

10

20

30

40

50

60

70

80


Inventory Days Debtor Days Creditor Days

51%

30%

13% 17%

14% 18%

20% 35%

23%

11%

16% 13%

18% 20%

0%

10%

20%

30%

40%

50%

60%


ROE ROCE

128 841 737 502 459 484 620

0.02

0.10

0.09

0.05 0.04 0.04

0.04

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0

100

200

300

400

500

600

700

800

900


In R

s.B

n

OCF OCF/Netsales

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

VIP – P/E Band historically traded at rich valuations

Source: Bloomberg, Spark Capital

Valuations and View – Given VIP’s earnings susceptibility to GDP growth

and USD/INR fluctuations, the stock’s historic multiples been subjected to

fluctuations. With anticipated economic revival and Rupee appreciation on

cards, we believe earnings and multiples would correct in a hurry. We

value the stock at 22x FY17E EPS and arrive at our target price of Rs.128

and initiate coverage on VIP industries with a buy rating betting on urban

consumption revival theme.

Investment thesis risk: – Our investment thesis largely hinges around

revival in urban spending climate and hence delay in revival of uptick in

urban consumption could lead to subdued earnings and stock performance.

Further weakening of Rupee or rise in competitive intensity could impact

our earnings expectations.

Valuations and View

VIP - 12month one year forward P/E

P/E Multiple

range

No. of days

traded % of no. of days

Cumulative

traded no. of

days

%of Cumulative

no. of days

under 10x 37 2% 37 2%

10 - 12x 80 5% 117 7%

12 - 14x 286 17% 403 25%

14 - 16x 334 20% 737 45%

16 - 18x 297 18% 1034 63%

18 - 20x 378 23% 1412 86%

20 - 22x 183 11% 1595 97%

22 - 24x 41 3% 1636 100%

Total 1636 100%

Source: Bloomberg, Spark Capital

VIP has traded at an average of 22.8x on a one year forward EPS


10x 13x 16x 19x 22x 25x

0

50

100

150

200

250

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

CM

P (

Rs.)

Average

+1PE

-1PE

+2PE

-2PE

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

25.0

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

PE Average +1PE -1PE +2PE -2PE

Page 43

Valuations & View

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Page 44

Valuation metrics in comparison with other discretionary peers

Company CMP

(Rs.)

Market

Capitalisation

Enterprise

Value

FY16E

Sales

FY16E

EBITDA

FY16E

PAT

FY16E

EPS

FY16E

EV/Sales

FY16E

EV/EBITDA

FY16E

PE

FY16E

ROE

Titan 400 3,54,981 3,55,137 1,47,048 15,326 10,891 12 2.4 23.2 32.7 29.9%

Bata 1,222 78,553 76,022 29,313 4,581 2,883 45 2.6 16.6 27.1 24.4%

Arvind 295 76,053 1,06,618 92,114 12,570 4,879 20 1.2 8.5 15.1 14.5%

Page

Industries 12,789 1,42,647 1,43,486 19,386 4,092 2,601 235 7.4 35.1 54.5 55.9%

Asian Paints 809 7,75,991 7,64,472 1,66,558 31,926 20,528 21 4.6 23.9 38.1 33.5%

Berger Paints 210 1,45,728 1,49,861 43,984 6,684 4,004 6 3.4 22.4 36.2 27.5%

Thomas

Cook 212 54,009 50,781 40,874 4,512 2,271 7 1.2 11.3 32.5 13.5%

Shoppers

Stop 437 36,385 42,612 36,521 2,509 823 9 1.2 17.0 47.4 2.4%

La Opala 368 20,424 19,782 2,738 875 561 10 7 22.6 36.4 26.9%

Jubilant

Foodworks 1,552 1,01,761 1,00,582 26,892 3,794 1,838 28 3.7 26.5 54.8 20.6%

VIP

Industries 99 14,005 14,082 12,020 1,371 813 4 1.2 10.3 22.5 15.7%

VIP Industries CMP

Rs. 99

Target

Rs. 128

Rating

BUY

Abridged Financial Statements

Rs. mn FY14 FY15E FY16E FY17E FY14 FY15E FY16E FY17E

Profit & Loss Growth Ratios (%)

Revenue 9,725 10,495 12,015 14,009 Revenues 16% 8% 14% 17%

EBIDTA 806 729 1,010 1,338 EBIDTA 18% -10% 38% 33%

Other Income 26 27 31 36 Normalised PAT 47% -11% 47% 35%

Depreciation 171 157 166 175 Margins (%)

EBIT 661 599 875 1,198 Gross 45.4% 44.4% 45.0% 45.4%

Interest 21 11 10 11 EBIDTA 8.3% 6.9% 8.4% 9.6%

PBT 798 631 865 1,188 Normalised PAT 4.8% 3.9% 5.0% 5.9%

Reported PAT 576 441 605 820 Leverage Ratios (x)

Normalised PAT 462 411 605 820 Debt to Equity 0.1 0.0 0.0 0.0

Balance Sheet Current Ratio 2.3 2.4 2.5 2.6

Net Worth 2,870 3,149 3,511 4,021 Return Ratios (%)

Loan Funds 171 127 127 137 RoCE 15.8% 13.2% 17.6% 19.7%

Deffered Tax Liabilities -14 -14 -14 -14 RoE 17.0% 13.7% 18.2% 20.2%

Sources of Funds 3,056 3,290 3,652 4,173 Total Asset Turnover (x) 3.2 3.3 3.4 3.3

Net Block 838 848 842 847 Per Share

Capital WIP 7 0 0 0 Normalised EPS (Rs.) 3.3 2.9 4.3 5.8

Goodwill 0 0 0 0 Dividend (Rs.) 1.7 1.0 1.5 1.9

Investments 290 290 290 290 Valuation Metrics

Total Current Assets 3,332 3,665 4,191 4,915 Current Market Price 99

Total Current Liabilities 1,422 1,524 1,682 1,890 Shares Outstanding (mn) 141 141 141 141

Net Current Assets 1,910 2,142 2,509 3,025 Market Cap. (Rs. mn) 13,990

Application of Funds 3,056 3,290 3,652 4,173 Enterprise Value (Rs. mn) 13,761 13,608 13,507 13,351

Cash Flow EV /Sales (x) 1.4 1.3 1.1 1.0

Cash Flow from Operation 502 459 484 620 Price/Earnings (x) 30.2 34.0 23.1 17.1

Cash Flow from Investments -18 -133 -129 -144 Price/Book (x) 4.9 4.4 4.0 3.5

Free Cash Flow 376 299 324 440 EV/EBIDTA (x) 17.1 18.7 13.4 10.0

Cash Flow from Financing -493 -218 -254 -309 FCF Yield 2.7% 2.2% 2.4% 3.3%

Closing Cash Balance 111 220 321 487

Page 45

Financials

Safari Industries CMP

Rs. 800

Stock performance (%)

1m 3m 12m

SII 0% 1% 153%

Sensex 0% 6% 32%

CNX FMCG 2% 4% 38%

Date Mar 13th,2015

Market Data

SENSEX 28930

Nifty 8776

Bloomberg SII IN

Shares o/s 4mn

Market Cap Rs. 3bn

52-wk High-Low Rs. 925-308

3m Avg. Daily Vol Rs. 1mn

Index member -

Latest shareholding (%)

Promoters 60.4

Institutions 0.1

Public 39.5

Company Update Corporate Factsheet

Promoter Background Safari Industries is currently headed and majorly owned by Mr. Sudhir Jatia who was the

former managing director of VIP Industries and also in the past the MD of erstwhile

Aristocrat Luggage Limited which was merged with VIP Industries in 2007. In 2011,

Sudhir Jatia (former MD of VIP Industries) acquired a majority stake in SIIL for around

Rs.29 Crores.

Presence The company currently retails its products in more than ~700 MBOs, ~380 doors in

Hyper market and ~50 EBOs on a pan India basis. In addition, the company also retails

through various online channels.

Board of Directors Shri Sudhir Jatia (Chairman & Managing Director)

Shri Anujj Patodia (Director)

Shri Shailesh Mehta (Independent Director)

Shri Punkajj Lath (Independent Director)

Shri. Dalip Sehgal (Independent Director)

Business Established in 1974, Safari Industries (India) Limited (SIIL) is engaged in the

manufacturing and marketing of hard and soft luggage. While its hard luggage

manufacturing facility is located in Halol, Gujarat, it imports all of its soft luggage and

some part of its hard luggage requirement from China. The company is the third largest

manufacturer and seller of luggage in India after VIP Industries and Samsonite.

Factory(ies) GIDC Industrial Estate, Halol 389 350, Dist Panchmahal (Gujarat)

Revenue Model (FY14) Distribution: CSD ~40%, Hypermarket ~25%, MBOs and EBO’s ~35%

Geography: Exports : Nil; Domestic sales: 100%

Product wise: Soft Luggage: ~70%; Hard luggage: ~30%

Credit Rating IND B+/Stable

Corporate Bankers Central Bank of India

Axis Bank Limited

Auditors M/S Bansi S. Mehta & Co.

Executive Summary

Page 46


Rs. 800

…However concentrated towards soft luggage


CSD is the key distribution channel for Safari Industries


Diversified offerings within the budget segment aimed at the ‘value for money’ customer…


Soft luggage, 70%

Hard luggage, 30%

CSD, 40%

Hypermarkets , 25%

EBO's & MBO's , 35%

Product Price Range

(M.R.P) Segment Sizes offered Sub-Brands

4 Wheel Trolley Rs.3,397-Rs.7,750 Soft & Hard Luggage Cabin, Medium and Large Stronn, DNA, Allstorm,

Hexalite

2 Wheel Trolley Rs.2,600-Rs.6,300 Only Soft Luggage Cabin, Medium and Large Pergo. Curv, VJ

Duffle Bags Rs.1175 – Rs.4585 Soft Luggage Cabin and Medium Aztec, Curv,RD,Vista,

Trac,Tierra,Azure

Backpacks and Laptop bags Rs.1,655- Rs.3,675 NA NA Chase, Azure,

Business Overview

Page 47


Rs. 800

…however EBITDA margins halved in 4 years…


…on account of significant increase in other expenses


Improving gross margins over last four years…


Healthy 5-year revenues CAGR of ~22%


620 660 617

934

1,665

0

200

400

600

800

1000

1200

1400

1600

1800

FY 10 FY 11 FY 12 FY 13 FY 14

In R

s.M

n

Net Sales

279 252 242

411

744

45.0%

38.2%

39.3%

44.0%

44.7%

34%

36%

38%

40%

42%

44%

46%

0

100

200

300

400

500

600

700

800

FY 10 FY 11 FY 12 FY 13 FY 14

In R

s.m

n

Gross Profit Gross Margin

51 56

22

35

65

8.2% 8.5%

3.5% 3.8%

3.9%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

10

20

30

40

50

60

70

FY 10 FY 11 FY 12 FY 13 FY 14

In R

s.m

n

EBITDA EBITDA %

100

52 66

111

221

16.2%

7.9%

10.7%

11.9% 13.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

50

100

150

200

250

FY 10 FY 11 FY 12 FY 13 FY 14

In R

s.m

n

Other expenses Other expenses as a % of sales

Financial Overview

Page 48


Rs. 800

Highly leveraged balance sheet


Poor return ratios on account of decreasing net profit


…on account of reducing inventory holding


Improving working capital management…


110

157 165 164

105

0

20

40

60

80

100

120

140

160

180

FY 10 FY 11 FY 12 FY 13 FY 14

Days

Working Capital Days

76

90

138

114 102

125

158

120

124

69

90

91 93

74 66

0

20

40

60

80

100

120

140

160

180

FY 10 FY 11 FY 12 FY 13 FY 14

Inventory Days Debtor Days Creditor Days

22% 21%

-5%

3% 1%

18% 18%

8%

5% 2%

-10%

-5%

0%

5%

10%

15%

20%

25%

FY 10 FY 11 FY 12 FY 13 FY 14 ROE ROCE

104 137 167

341

518

0.88 1.01 1.30

2.79

4.20

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

0

100

200

300

400

500

600

FY 10 FY 11 FY 12 FY 13 FY 14

In R

s.m

n

Debt Det-equity ratio

Key Financials

Page 49


Rs. 800

Safari has clearly outperformed the broad indices


Sudhir Jatia – Career Timeline


BOD remuneration


Promoter shareholding reduced in FY15 with entry of Tano Capital


76.8% 75.5% 75.0% 75.0% 75.0% 75.0% 59.5% 59.5%

0.1% 1.1% 1.1% 1.1% 1.1% 1.1%

0.09% 0.09%

3.5% 3.5% 3.5% 3.3% 3.2% 3.1%

2.24% 2.35%

19.6% 19.9% 20.4% 20.5% 20.7% 20.8% 38.1% 38.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Sep-14 Dec-14

Promoter group DII Bodies corporate Others

Director Amount

(In Rs.mn) % of EBITDA

Mr. Sudhir Jatia

(MD) 1.36 2.1%

Director Fees 0.14 0.2%

Total 1.50 2.3%

Key Financials

Page 50

Year Particluar

Until 2006-07

Director of Starcom Information Technology Ltd.

(Formerly Known as Jatia Finance Ltd.)

Director of Ramgopal Polytex Ltd.

Director of BP Ergo Limited until

2006-2008 Managing Director of Blow Plast Ltd

2007-2010 Managing Director of VIP Industries Ltd

2012 Additional Director of Safari Industries

July 2013 till date Chairman of Safari Industries India Ltd

0

500

1000

1500

2000

2500

Fe

b-1

0

May-1

0

Aug-1

0

Nov-1

0

Fe

b-1

1

May-1

1

Aug-1

1

Nov-1

1

Fe

b-1

2

May-1

2

Aug-1

2

Nov-1

2

Fe

b-1

3

May-1

3

Aug-1

3

Nov-1

3

Fe

b-1

4

May-1

4

Aug-1

4

Nov-1

4

Fe

b-1

5

Safari Industries Sensex Index CNX Consumption Index


Rs. 800

Abridged Financial Statements

Rs. mn FY11 FY12 FY13 FY14 FY11 FY12 FY13 FY14

Profit & Loss Growth Ratios (%)

Revenue 660 617 934 1,665 Revenues 6% -7% 51% 78%

EBIDTA 56 22 35 65 EBIDTA 10% -61% 61% 85%

Other Income 11 4 7 6 Normalised PAT 10% -127% -157% -57%

Depreciation 4 4 4 13 Margins (%)

EBIT 64 22 38 58 Gross 38.2% 39.3% 44.0% 44.7%

Interest 25 28 31 50 EBIDTA 8.5% 3.5% 3.8% 3.9%

PBT 38 (7) (11) 5 Normalised PAT 4.0% -1.1% 0.4% 0.1%

Normalised PAT 26 (7) 4 2 Leverage Ratios (x)

Balance Sheet Debt to Equity 1.0 1.3 2.8 4.2

Net Worth 135 128 122 123 Current Ratio 2.0 2.2 2.5 2.3

Loan Funds 137 167 341 518 Return Ratios (%)

Deffered Tax Liabilities 1 2 (3) 1 RoCE 17.7% 8.3% 5.5% 2.3%

Sources of Funds 273 297 459 642 RoE 20.9% -5.4% 3.2% 1.4%

Net Block 31 29 38 116 Total Asset Turnover (x) 2.7 2.2 2.5 3.0

Capital WIP - - - 0 Per Share

Goodwill - - - 1 EPS (Rs.) 8.9 (2.4) (2.1) 0.4

Investments 4 9 23 35 Dividend (Rs.) 2.9 - - -

Total Current Assets 473 466 662 860 Valuation Metrics

Total Current Liabilities 234 207 266 375 Current Market Price 800

Net Current Assets 239 258 396 485 Shares Outstanding (mn) 3 3 3 3

Application of Funds 273 297 459 642 Market Cap. (Rs. mn) 2,392

Cash Flow Enterprise Value (Rs. mn) 2,504 2,532 2,677 2,841

Cash Flow from Operation 11 12 (41) (29) EV /Sales (x) 3.8 4.1 2.9 1.7

Cash Flow from Investments (1) (1) 16 (93) Price/Earnings (x) - - - -

Free Cash Flow 10 9 (24) (120) Price/Book (x) 17.7 18.6 19.6 19.4

Cash Flow from Financing (3) (13) 38 120 EV/EBIDTA (x) 44.4 115.9 76.1 43.6

Closing Cash Balance 21 18 33 34 FCF Yield 0.4% 0.4% -1.0% -5.0%

Financial Summary

Page 51

Page 52

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Absolute

Rating

Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year

horizon

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

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

(1/2)

Page 53

Disclaimer

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Disclosure of interest statement VIP IN SII IN

Analyst financial interest in the company No No

Group/directors ownership of the subject company covered No No

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Managing/co-managing public offering of securities

Investment banking/merchant banking/brokerage services

products or services other than those above

in connection with research report

No

No

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