Can VIP Industries regain its lost ground in the Indian luggage market?

VIP Industries, a leading name in the Indian luggage industry with over five decades of operations, is currently facing challenging times. This challenge arises even as the Indian luggage market continues to experience robust growth, driven by factors such as increased domestic and international travel, higher demand during the wedding season, the rise of e-commerce, changing lifestyles, and the transformation of luggage from a mere utilitarian item to a fashion statement. 

Additionally, favorable demographics, increased purchasing power, and a shift in consumer preference from non-branded to premium brands have further fueled industry growth.

However, despite these positive trends, VIP Industries is grappling with intensifying competition from new-age startups and international brands entering the market. This influx of competitors has led to a loss of market share, as luggage is now increasingly viewed as a lifestyle statement. While durability was once the primary concern, today's travelers, particularly Gen Z and millennials, also prioritize design, color, and innovation.

Compounding these external pressures, internal challenges have also played a significant role in the company's underperformance in FY23. Despite a strong market environment, VIP struggled to capitalize on available opportunities, largely due to high inventory levels of soft luggage stemming from declining demand and a failure to realign its product range with evolving customer expectations.

These issues are clearly reflected in the financial results, with revenue from operations for FY 2023–24 showing modest growth of 7.8%, reaching ₹2,245 crore. While domestic revenue increased by 10% year-on-year, profit after tax (PAT) significantly declined to ₹54 crore from ₹152 crore in the previous year. The company also kicked off FY25 on a weak note, posting a 93% YoY drop in net profit to ₹4.03 crore.

Despite these challenges, analysts remain optimistic about VIP Industries' future, citing the company's strong focus on business revitalization as a key driver for potential recovery.

The company has outlined new strategies to reclaim its lost market share. It aims to outpace industry growth, anticipating market share gains in the first half of FY 2024–25 and enhanced EBITDA from the second half of FY 2025 onward.

VIP is Asia’s leading and the world’s second-largest manufacturer and retailer of luggage, backpacks, and handbags. It is an established leader in the organised and oligopolistic Indian luggage market with a 38% market share. Its extensive range of products in hard luggage and soft luggage segments includes school bags, trolleys, backpacks, suitcases, executive cases, duffels, overnight travel solutions, and handbags.

3 strategic priorities

To regain its lost market share and restore its former prominence, the management has identified three strategic priorities as the foundation for a resurgent VIP Industries: portfolio transformation, brand premiumisation, and process transformation.

Portfolio Transformation: The first pillar of VIP Industries' strategic roadmap is focused on revolutionizing the company's product offerings. VIP aims to launch several products that are the first of their kind in the Indian luggage industry.

In its FY24 annual report, the company informed investors that it has engaged an internationally award-winning designer to elevate the design and appeal of its product range. Additionally, it is launching new products across three distinct themes: lightweight, technology-enabled, and luxury categories.

Brand premiumisation: This will address the growing preference for premium products in India. It is set to launch upscale product lines specifically for the Carlton and VIP brands, designed to resonate with the evolving aspirations of the large middle-class customer base.

As part of this brand premiumisation strategy, the company is also fine-tuning its customer outreach campaigns to elevate the brand’s positioning. Initiatives include opening exclusive brand outlets at premium locations and enlisting celebrities as brand ambassadors to enhance the brand's premium appeal.

Process transformation: The third pillar, is directed towards optimizing VIP Industries' operations for better fill rates and cost efficiencies. It has restructured its Bangladesh manufacturing facility, including reducing manpower, in response to the decline in soft luggage demand.

Simultaneously, VIP Industries is actively increasing its hard luggage capacity to align with the growth trend in that category, as stated by Ms. Neetu Kashiramka, MD of VIP Industries, in the company's FY24 annual report.

Optimistic view

"In the long run we expect VIP to race ahead of competition with new launches, fully implemented cost saving measures leading to margin expansion; push for ecommerce, digital marketing & modern trade channels for sales and prepare for more structural changes in the industry, said domestic brokerage firm Kotak Securities. 

After a weak Q1 FY25, share price correction, and a new focus on management, the brokerage now recommends a 'buy' rating with a decreased fair value of ₹580 (from ₹635) at 33x FY26E.

Looking Ahead: Increasing demand for travel and business luggage

The demand for travel and business luggage is expected to grow due to the rise in leisure tourism and business travel. There is also a rising trend of students travelling domestically and internationally for higher education. 18 lakh students are expected to travel abroad in 2024, marking a 25% increase compared to 2020. Furthermore, religious tourism in India has been experiencing an upward trajectory.

All key travel indicators are displaying positive signs of growth, with domestic air passenger traffic, serving as a proxy for travel and luggage demand displaying an upward trend. According to ICRA, domestic air passenger traffic is estimated at 154 million in FY 2023–24, with a YoY growth rate of 13%, surpassing the pre-COVID levels of 142 million recorded in FY 2019–20.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.