V I P Industries Ltd (NSE: VIPIND): VIP Industries did not perform very well in its September quarter. However, the company has succeeded in reducing inventory.
Its market share has risen. Because of this, the second quarter of FY24 will be a better one. In particular, the fourth quarter will be beneficial for the business.
There are positive prospects for the industry of luggage in the future. The company’s revenue didn’t grow on a year-on-year basis during its second quarter.
However, the volume growth was 18 percent on a year-over-year basis. The sales from online stores have experienced a phenomenal 74 percent growth.
Successful In Increasing Market Share
A good volume increase has enabled the company to decrease the inventory that is slow to move luggage. However, this has hurt the average realization.
This has led to a greater gap between value growth and volume. But, VIP Industries has been successful in expanding its market share.
The management of the company has expressed the desire to increase its market share over the coming quarters too.
Margin and gross revenues were unchanged in the quarter-to-quarter comparison. The percentage that premiums and bulk premiums make in revenue total has dipped.
This is why prices for selling averages were lower.
Better Performance Expected In The Third Quarter
The decrease in production in Bangladesh has also impacted the margin. The impact of lower gross margins was felt on operating margins.
Because of unsold inventory as well as the increased costs for warehouses, the cost of warehousing was also higher.
Hopefully, it will be able to make substantial reductions in its inventory by its 3rd Quarter.
The general trend is that the efficiency for the sector of bags is much better at the end of third quarter.
In this period, the holiday season, people are out on the town for celebrations. It is also the wedding season.
Focus On Premium Products When Inventory Decreases
The company will intensify its concentration on premium brands following the inventory reduction. In particular, it will put greater focus on premium brands.
The company hopes to reach an average gross margin of 50 percent and an operating margin of 12 percent by the end of the 4th quarter.
Management claims that there’s a gap between 800 basis points of gross margins between premiums and those that are economy.
The market for luggage that is hard is expanding which is a good thing for the company.
Should You Invest?
The competition has increased in the world of luggage. The inventory of VIPs is very high, and consumer confidence is low.
In this situation, the future does not appear straightforward. There has been an increase in travel in the years since Covid.
The number of air travelers is growing. The hotel occupancy has increased. The increasing attention of customers on brand-name products is good for companies such as VIP.
However, you may be required to be patient until you earn a profit from the VIP Shares. Investors who are willing to take on greater risk can take advantage of VIP shares as a longer-term investment.
Quick Fact
VIP Industries
| Company name | VIP Industries |
|---|---|
| Quarterly performance | Weak September quarter performance |
| Inventory status | Reduced inventory successfully |
| Market share | Increased; focus on further growth |
| Revenue growth | Flat year-on-year in Q2 FY24 |
| Volume growth | 18% year-over-year in Q2 FY24 |
| Online sales | 74% growth in Q2 FY24 |
| Premium products | Decrease in premium contribution |
| Average realization | Lower due to inventory reduction efforts |
| Gross margin | Target: Possible 50% by Q4 FY24 |
| Operating margin | Target: Possible 12% by Q4 FY24 |
| Production impact | Affected by decreased output in Bangladesh |
| Inventory reduction goal | Significant decrease by Q3 FY24 |
| Seasonal benefits | Stronger Q3 due to holidays and weddings |
| Consumer behavior | Growing preference for branded products |
| Luggage market | Inventory Status |
| Investment advice | Long-term potential; risk involved |
Disclaimer: The website and its content are for informational purposes only and should not be considered investment advice.
