tag:blogger.com,1999:blog-7832676223555801988.post7585090672170798943..comments2023-05-07T16:38:33.184+05:30Comments on Manufactured Luck: VIP Industries – Packed off by the RupeeManufactured Luckhttp://www.blogger.com/profile/17054602349579736386noreply@blogger.comBlogger27125tag:blogger.com,1999:blog-7832676223555801988.post-52225608583290138912017-08-23T09:16:18.713+05:302017-08-23T09:16:18.713+05:30hi
NICE post!!
Wall Painting Service in indiahi<br />NICE post!!<br /><a href="http://ultratechcement.com/" rel="nofollow">Wall Painting Service in india<br /></a>Ritu Raajhttps://www.blogger.com/profile/14763490207174098625noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-9478264339987735232013-11-17T16:56:51.512+05:302013-11-17T16:56:51.512+05:30Hi Anonymous,
Thanks for your thoughts. Yes, VIPs...Hi Anonymous,<br /><br />Thanks for your thoughts. Yes, VIPs management believes that Caprese has great potential and has guided to 50 cr of revenues by next year and break even in next 3-4 years. While the early wins are interesting, let us see how this plays out over the longer term.Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-10320474443531950492013-11-17T10:50:35.771+05:302013-11-17T10:50:35.771+05:30hello everyone!
No one has discussed about VIP...hello everyone!<br /><br />No one has discussed about VIP's new brand or new segment "caprese" or "lady hand bag". They already have a stabilised distribution network and 500 company owned stores, how much revenue/profit they can generate from this. You ask your girl friend, sister, wife or even your mother there is hardly any brand.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-85906880659898814582013-10-23T02:13:27.111+05:302013-10-23T02:13:27.111+05:30Hi Guys,
I have been doing my own research on VIP...Hi Guys,<br /><br />I have been doing my own research on VIP and stumbled on your post. It does look like a good opportunity at current prices. It is a solid franchise and possesses all the charecteristics of a franchise as specified by Buffer 1) A product that is needed or desired 2) No substitutes 3) Not subject to price regulation. As Buffet says - "The existence of all three conditions will be demonstrated by a <br />company's ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mis-management. Inept managers may diminish a franchise's profitability, but they cannot inflict mortal damage."<br /><br />I do think that management could have done a better job what with only one competitor in the organized segment. <br /><br />However I have been thinking about the barriers to entry in the industry. Brand is definitely one, and VIP does enjoy and iconic status. But more MNC brands like Samsonite (any idea which are other big brands apart from Samsonite) are sure to enter India as the size of the pie gets bigger. Given this thought i would like to understand the proportion of revenue VIP earns from different brands. I have tried but have not been able to find this data point. My logic is that these MNCs might want to focus on premium products not compete with VIP in the mass market segment (although Samsonite has launched a product in the 1,000 rs range to compete in this category effectively with VIP). dissidenthttps://www.blogger.com/profile/00482007566601154027noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-2967681951115250612013-09-13T18:10:02.078+05:302013-09-13T18:10:02.078+05:30The co has been around for a few decades and its t...The co has been around for a few decades and its track record, in terms of value created for non-promoter shareholders, has been uninspiring to say the least. The only time the stock really outperformed was after 2009 for about 2 years. That huge rally was at least partly driven by the hype created by RJ buying a stake in the co. <br /><br />Coming to financials, the critical factor is pricing power and moat. My limited interaction with buyers tells me that except for the really high end segments occupied by Louis Vuitton, Gucci and similar, there is very little differentiation between brands. I don't think anyone buys a VIP in preference to Samsonite or American Tourister. The decades old lead enjoyed by the co over the international brands in establishing a sales network will surely erode over time, and the 60% market share could be under duress.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-83684509917152563082013-08-29T20:55:50.855+05:302013-08-29T20:55:50.855+05:30Hi Rohit,
Good to have your views as always. Fact...Hi Rohit,<br /><br />Good to have your views as always. Factors which could justify relatively low margins are 1) The need to compete with a large unorganised market which continues to grow at a healthy equal pace 2) Relatively high price points of the products in a price conscious market like India and 3) Value for Money positioning of the bigger brands from the company stable. While battery manufacturers no doubt have better margins inspite of similar challenges, the consumer durables industry for example falters in face of the same challenges.<br />Where VIP scores however is healthy return on capital ratios. We tend to focus on ROCE over margins. A good case in point is Britannia where margins are poor at 5-7% but ROCE still healthy.<br />We also think that no company however strong, enjoys limitless pricing power. With the extent of challenges that VIP has faced on the Rupee front in the past two years, it would surprise us if there was no margin erosion. Had the FMCG industry faced cost pressures of similar magnitude, we are not sure whether even HUL would have the stomach for annual price hikes of 10-15% in two succesive years as the situation demands in the case of VIP. <br />Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-67006079027373054982013-08-29T20:48:45.824+05:302013-08-29T20:48:45.824+05:30This comment has been removed by the author.Abhinav Mansinghkahttps://www.blogger.com/profile/12034794725087141585noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-29762493155637777382013-08-29T18:43:18.498+05:302013-08-29T18:43:18.498+05:30Hi abhinav/niren
I am not able reconcile the stron...Hi abhinav/niren<br />I am not able reconcile the strong brands with the poor pricing power of the company. Prior to looking at the annual report, i would have thought that the company would be making 8-10% net margins and high ROE/ROC - due to almost iconic brands and the very high market share.<br />A 60% market share and duopoly arrangement should have resulted in a very profitable company - look at batteries or sanitaryware or other consumer businesses where individual companies are not as dominant and still have much higher profitability<br />Does the management underprice its products due to historical reasons to maintain market shares ?<br /><br />rgds<br />rohitRohit Chauhanhttps://www.blogger.com/profile/00356455735241398199noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-14728679582676920142013-08-26T18:09:36.808+05:302013-08-26T18:09:36.808+05:30Rakesh Jhunjhunwala seems to be following your blo...Rakesh Jhunjhunwala seems to be following your blog. He has bought today.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-15922011854552797262013-08-26T12:16:23.810+05:302013-08-26T12:16:23.810+05:30Thanks for your views. They do make sense on why W...Thanks for your views. They do make sense on why W/C cycle might be stretched. Though rupee is more so down, VIP is standing its ground with decent quarterly results. I would request you to have a look into Mastek, a smallcap software company into insurance expertise and annuity based model. Its on a turnaround after posing losses in 2011-12 & has 80% of market cap as Cash on books. Thus it seems to be a graham play with limited downside & substantial upside if business turns out well for future VIKAS KUKShttps://www.blogger.com/profile/07801628829607740651noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-77888775348824487622013-08-25T19:47:06.183+05:302013-08-25T19:47:06.183+05:30Hi Vikas,
Thanks for sharing your thoughts..
Warre...Hi Vikas,<br />Thanks for sharing your thoughts..<br />Warren Buffett has been quoted as saying "I like to buy stock in businesses that are so simple that an idiot can run them. Because sooner or later one will". Without jumping to a conclusion on competence of current management, we like VIPs simple business model. The WC cycle is not great due to multiple reasons. Few of them could be 1)products are imported 2)They are not 'fast moving' like consumer staples 3)Company carries inventory in exclusive outlets 4)Large contribution from CSD and increasing reliance on modern trade resulting in higher debtors. However, inspite of a not so favorable WC cycle, ROCE is still healthy due to outsourced manufacturing and low investments in fixed capital creation.<br />Brand spends are a neccasity of any consumer facing business and this industry is not unique in that sense. The plastic furniture business does not seem to be a focus area and does not bother us as long as it is not a capital guzzler.<br /><br />The rupee of ofcourse continues to hurt even more as compared to when we wrote the post :)Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-62498104968698032762013-08-25T11:19:20.730+05:302013-08-25T11:19:20.730+05:30Hi ML,
Wonderful analysis and an interesting case...Hi ML,<br /><br />Wonderful analysis and an interesting case of a company that may benefit from tailwinds & mean reversion. The investing scenario does look good for VIP with reasonable margin of safety, however after going through AR I felt some issues with management, though small ones. Firstly, The W/C cycle doesnt inspire the confidence in management & it seems that either their products doesn't have strong brand pull to command advances or management seems to be a bit lethargic on this front and either of the case is negative.<br />Secondly, It seems that due to multiple product/Brand portfolio, their selling expenses are high & will remain so in future. Hence if sales doesnt pick up, certainly their bottom line will suffer substantially. Also, management will have to constantly evaluate the return on marketing expenses for various brands which again is challenging. <br />Third, The fact that they are into plastic furniture business, though in nascent stage was a big turnoff for me. They surely justified in AR abt how it is high end product and hence value product, I doubt if they will be able to get high returns from this area. It might just drag their return ratios down.<br />For me its a case of a good business in hands of a mediocre management at a lucrative price. Even with above mentioned negatives, Their product portfolio and brands seem to inspire confidence and may help increase in sales as urbanisation increases in future. <br />Would love to hear your perspective on above mentioned points.<br /><br />Regards,<br /><br />Disc: I am invested in VIP.VIKAS KUKShttps://www.blogger.com/profile/07801628829607740651noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-44232503956303144992013-08-21T20:27:37.804+05:302013-08-21T20:27:37.804+05:30Hey Anon,
Thanks for your inputs. Will certainly ...Hey Anon,<br /><br />Thanks for your inputs. Will certainly look up on Tumi and Samsonite for key learnings on the sector.Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-39230133283726285352013-08-21T11:57:38.951+05:302013-08-21T11:57:38.951+05:30It is an interesting bull case for an investment i...It is an interesting bull case for an investment in VIP. At macro level, it is quite appealing to find a business that is going to ride the coat tails of increasing discretionary consumption story of the Indian middle class. However, if you really want to invest in VIP, my advise would be to also analyze TUMI in the US and Samsonite in Hong Kong. Both are pure-play publicly traded luggage companies and have financial data readily available for the last five years. Samsonite is obviously competing with VIP in India. TUMI will a sense of the margins at the high end. <br /><br />My biggest crib with VIP is that they don't do any currency hedging and I am not convinced of the mgt's position on the issue.<br /><br />I look forward to your analyses. regards,Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-88794281674727758872013-08-14T17:41:04.781+05:302013-08-14T17:41:04.781+05:30Hi Anon,
Thanks for sharing your thoughts. We hav...Hi Anon,<br /><br />Thanks for sharing your thoughts. We have mentioned that the management claims roughly 60% of the organised market in terms of share. Various articles on the industry freely available on the web seem to corroborate that data point, including interviews given by VIPs largest competitor Samsonite.Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-84721773078829743202013-08-14T09:09:44.767+05:302013-08-14T09:09:44.767+05:30Let's talk #s. If you have actual market share...Let's talk #s. If you have actual market share #s (like the FMCG) for this space, please share the same. That will help the analysis.<br /><br />I am willing to venture a guess that the duopoly you mentioned is already being challenged by global brands across a wider range, including the top ones like Louis Voutton.<br /><br />The brands you mentioned for VIP have no clout or mindshare. Anyone in India can create brands. Even Arvind Mills has brands in apparel. That does not make it a GAP.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-26750897604130871912013-07-23T09:47:14.239+05:302013-07-23T09:47:14.239+05:30Hi JK,
We agree that one cannot ignore other cons...Hi JK,<br /><br />We agree that one cannot ignore other consumption themes. On a case to case basis we might be willing buyers into auto/consumer durables as well.<br /><br />Relative to luggage however, these sectors generally have higher organized competition, risk of technology change leading to high R&D and product development costs and mostly inhouse manufacturing leading to weaker long trend ROCEs.<br /><br />Is there anything specific that worries you about VIP's governance?? Would like to hear if you have any major red flags.<br /><br />We dont want to prejudge the rupee. Our only hope is that the volatility and extent of movement would be less severe than the recent past giving opportunity for businesses like VIP to react appropriately.Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-57328073353052231932013-07-22T22:36:46.590+05:302013-07-22T22:36:46.590+05:30If you want to play discretionary consumption them...If you want to play discretionary consumption theme why this and why not any auto or AC or appliance company which do not import much and has better governance standards. To me looks like Dollar is in bull market up to End 2015.JKhttp://blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-37943604697420586642013-07-21T21:57:47.632+05:302013-07-21T21:57:47.632+05:30Hi @shwind
Not sure if it should have any meaning...Hi @shwind<br /><br />Not sure if it should have any meaningful impact. A slowdown may reduce the bargaining power of the suppliers on one hand. On the other hand they may want to pass through higher interest costs if any. If you force us to take a guess, we will say any major impact is unlikely.Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-1850685291899596352013-07-21T10:40:27.835+05:302013-07-21T10:40:27.835+05:30with most of its raw material sourced from China, ...with most of its raw material sourced from China, and China facing a possibel major slowdown, can you share your inputs, how this possible slowdown will impact VIP?@shwindhttps://www.blogger.com/profile/03270568778802506044noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-3040332272896986512013-07-20T17:40:06.256+05:302013-07-20T17:40:06.256+05:30Thanks Jagadish,
Good to have your thoughts on bo...Thanks Jagadish,<br /><br />Good to have your thoughts on boardManufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-33339778006810122392013-07-20T15:17:42.331+05:302013-07-20T15:17:42.331+05:30I checked their operating profit margins in screen...I checked their operating profit margins in screener.in. Margin of around 15% was achieved becoz of high sales growth. If growth slows down, taking last 3yrs margins as normal’s is risky as the co has long history of low margins.<br />Slowdown in sales growth, increase in costs (prolonged depreciated rupee), high working capital intensity and competition (new and old) are serious factors while low debt is a positive factor. What we are betting here is that management can effectively manage all those risks! <br /><br />Circular trading among promoters in sep-2012. Also chk this wrong reporting of promoter holding http://www.bseindia.com/xml-data/corpfiling/AttachHis/VIP_Industries_Ltd1_110811.pdf<br />Shares pledged to deutsche investments? 20th march filing to BSE?<br /><br />At current price margin of safety may be little less.<br />Well this industry is a consumption story but will VIP be the major beneficiary in industry? How have been the market share dynamics in the past? Market growth Vs. market share growth.<br /><br />Calls like "return to revenue growth is but a matter of time", “rupees recent behavior is more of an aberration” scare me. What can go wrong will go wrong -further cut back in csd sales, drastic slowdown in exports, so on and on- deceleration will exceed acceleration.<br /><br />Building a worst case scenario will be of some help. As discretionary spend has high correlation to economy, How a low margin biz will look like in a new normal GDP growth (>5%)?<br /><br />You are expecting a muted or bad quarter and stock chart also saying the same hence suggest waiting for sustained uptick in price before buying. Anyways earnings are around the corner.There was earnings downgrade recently for 2014 EPs from Rs. 6.5 to 3.8. (When analyst abandons the ship- margin of safety will be more)<br />jagadishhttps://www.blogger.com/profile/04584006395135801255noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-37573174673945549112013-07-20T11:59:43.738+05:302013-07-20T11:59:43.738+05:30Thanks Thanks Anil Kumar Tulsiramhttps://www.blogger.com/profile/08957135865779188117noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-21538894380355070972013-07-20T11:16:13.371+05:302013-07-20T11:16:13.371+05:30Hi Anon,
Thanks for your views.
It would be fool...Hi Anon,<br /><br />Thanks for your views.<br /><br />It would be foolish to think what you are predicting cannot happen. However, it is probably wrong also to be certain that it will happen.<br /><br />VIP Industries is not about only the VIP brand but also brands like Carlton, Skybags, Alfa, Aristrocat etc. other than Caprese their latest handbag brand. Other than straddling various price points, multiple brands help brand marketeers overcome brand specific perception issues, if any. Also, while some brands might represent 'old and tired' for some, the same may stand for durability and dependability for others.<br /><br />We would not be hasty in jumping to conclusions based on our perceptions.<br /><br />Of course competition will always be a worry in any consumer facing businesses and hence always a key monitorable. We so far draw comfort from VIPs successful defense of its market share over the years, but in case it stumbles meaningfully in future years, would be quite willing to change our positive view.<br />Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.comtag:blogger.com,1999:blog-7832676223555801988.post-37064609750811799082013-07-20T10:52:09.081+05:302013-07-20T10:52:09.081+05:30Hi Anil,
Always great to have regular constructiv...Hi Anil,<br /><br />Always great to have regular constructive feedback from you. We agree that judging where the mean is in terms of growth and margins is the key risk to the investment thesis.<br />When we consider growth, we think it is also relevant to look at growth in Airline passenger traffic over the years since VIP sales tends to have a high correlation. This might be (just guessing)because air travellers may be more brand/quality conscious as compared to their train/bus counterparts. If you see growth in air traffic over the years, you would notice that it also has a better 5-6 year growth record (post the advent of low cost airlines) as compared to the much longer term. While last year was weak and even this year does not seem great so far for air passenger growth, it might not be unrealistic to bet on higher growth in future years.<br />On margins, in any case we are generally not in favor of looking way beyond the past 5-6 years especially during periods of healthy growth. This is because product mix could have changed appreciably over the period. Also, brands could add some pricing muscle over time, not to forget the impact of operating leverage. We think near term 5-6 years of margins is a better judge as compared to the very long term.<br />Of course the risks remain as you point out..Manufactured Luckhttps://www.blogger.com/profile/17054602349579736386noreply@blogger.com