V I P Industries Ltd Management Discussions

GLOBAL ECONOMY OVERVIEW

The global economy showcased remarkable resilience, experiencing a consistent but slow recovery with regional disparities. It maintained a steady but modest growth rate of 3.2% in 2023. However, underlying risks and vulnerabilities persist due to escalating geopolitical conflicts, the Red Sea crisis, sluggish recovery in China, volatility in energy and food markets, prolonged higher interest rates and inflation, which exerted pressure on discretionary spending. Despite these challenges, indications of stable growth, robust performance of the United States and several large emerging market and developing economies, along with inflation returning to target levels in advanced economies, suggest a diminished probability of a severe economic downturn.

Global inflation continues to decline at a faster pace from 8.7% in 2022 to 6.8% in 2023. However, core inflation has proven to be sticky and is expected to decline gradually. Global inflation is projected to decrease to 5.9% in 2024 and further to 4.5% in 2025. The ongoing disinflationary trend has instilled hope for further easing of financial conditions and the improvement of monetary policy frameworks.

Advanced Economies (AEs) experienced a growth rate of 1.6% while Emerging Markets and Developing Economies (EMDEs) grew at 4.3% in 2023. Among major economies, the United States demonstrated the strongest recovery, with its GDP growing at 2.5% in 2023. Furthermore, despite experiencing a contraction in GDP growth of 0.4% in 2023, the Euro Area managed to avert recession.

The International Monetary Fund (IMF) has projected that the global economy will sustain its resilience in 2024, with a growth rate of 3.2% for both 2024 and 2025. Advanced Economies (AEs) are forecasted to expand by 1.7% in 2024 and 1.8% in 2025, while Emerging Markets and Developing Economies (EMDEs) are anticipated to grow at a rate of 4.2% in both 2024 and 2025.

INDIAN ECONOMY OVERVIEW

Amid a volatile global economic landscape, the Indian economy stayed on a steady growth path, retaining its position as the worlds fifth-largest economy. According to the provisional estimates of gross domestic product (GDP) growth released by the National Statistical Office (NSO), Indias GDP growth rate has exceeded the second advance estimate and is estimated to reach 8.2% in FY 2023-24 compared to 7.0% in FY 2022-23. The economic growth was supported by higher-than-expected growth rate of 7.8% in the fourth quarter of FY 2023-24, growth in sectors such as manufacturing, construction and mining, strong domestic demand, moderate inflation, stable interest rates, and increased investment.

Headline inflation softened to 5.4% during FY 2023-24 from 6.7% in the previous year. However, volatile food prices hinder the trajectory of disinflation. The RBI keeps the policy repo rate unchanged at 6.50% and remains vigilant to take effective measures to achieve the target of 4% inflation while supporting economic growth.

Indias Index of Industrial Production (IIP) recorded a growth rate of 5.8% in FY 2023-24 compared to 5.2% in the previous year. The Mining sector recorded the highest growth at 7.5%, followed by Electricity at 7.1%, and Manufacturing at 5.5% in FY 2023-24. Additionally, the gross GST collection witnessed a healthy 11.7% Y-o-Y growth, reaching Rs 20.18 lakh crore in FY 2023-24. The average monthly gross GST collection for FY 2023-24 stood at Rs 1.68 lakh crore compared to the previous years average of Rs 1.5 lakh crore. Despite global challenges and disruptions in the Red Sea route, Indias merchandise exports in FY 2023-24 stood at USD 437.06 billion as against USD 451.07 billion in the corresponding period of the previous year.

The growth observed in the Index of Industrial Production (IIP), Goods & Services Tax (GST) collections, manufacturing Purchasing Managers Index (PMI), per capita income, and increasing private capital expenditure collectively signifies strong economic momentum. The rise in disposable income has stimulated increased household consumption, driving demand across various sectors.

According to the IMF, the Indian economy is expected to advance steadily at 6.8% in FY 2024-25 and 6.5% in FY 2025-26. The RBIs forecast is more optimistic, projecting a GDP growth of 7.0% for FY 2024-25. Indias economic outlook remains positive, benefitting from the demographic dividend, increased capital expenditure, proactive government policies, and robust consumer demand. As headline inflation eases towards the target, it is expected to stimulate consumption demand, especially in rural areas. Furthermore, the prospects for agriculture and rural activity appear favourable due to diminishing El Nino conditions and the expected above-normal southwest monsoon. Furthermore, the Interim Budget 2024-25 outlines a comprehensive economic management strategy, including infrastructure development, digital public infrastructure, taxation reforms, and proactive inflation management, and lays the foundation for achieving the vision of a developed and self-reliant India by 2047.

INDUSTRY OVERVIEW

Luggage Industry in India

The luggage market in India is estimated to be 20,000 crore with branded players contributing to ~54% of the market. Various factors have contributed to the growth of the industry, including a surge in domestic and international travel, increased demand during the wedding season, widespread adoption of e-commerce, evolving lifestyles and attitudes, and the transition of luggage from a utilitarian item to a lifestyle product and fashion statement. Additionally, favourable demographics, increased purchasing power, and a shift in consumer preference from non-branded to premium brands fuelled the growth of the industry. The repertoire of bags per individual, ownership of multiple bags, and shorter replacement cycles further stimulate this expansion. This transformation has resulted in the industry shifting from an unorganised to an organised sector.

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.

The aviation industrys growth momentum is expected to continue, buoyed by the increasing penchant for travel among millennial and Gen Z demographics, increasing disposable income, and the proliferation of online travel agencies (OTAs) offering diverse travel packages. Additionally, enhancements in airport infrastructure further bolster the industrys prospects. According to the American Express 2024 Global Travel Trends Report, there is a noticeable surge in travel interest among Indians, with 65% planning more domestic trips and 48% intending to embark on more international journeys in 2024. Moreover, the railway passenger segment also experienced significant growth, with a total of 648 crore passengers travelling during FY 2023-24, compared to 596 crore passengers in the previous fiscal year. The premiumisation of intercity train services by Vande Bharat is anticipated to provide an additional avenue for growth, mirroring the trend observed in air travel where consumers opt for branded luggage. With a rising inclination towards international travel, weekend getaways, and solo trips, Indians are reshaping the travel Landscape and contributing to the growth of the luggage industry.

Luggage is extending to customer cohorts beyond traditional travel purposes, driven by event-based consumption patterns. In India, wedding expenditures have been steadily increasing, with the post-pandemic era witnessing even greater investments in such celebrations. Luggage is an integral part of wedding shopping. Additionally, luggage is emerging as a preferred personal gifting item, mirroring consumer trends. There is also a discernible shift in demand from soft to hard luggage, reflecting evolving consumer preferences. Furthermore, the increasing preference for branded products, greater female workforce participation, and rising income Levels are positive factors that bode well for premiumisation in the industry.

The overall luggage industry in India is projected to grow at 14% in 2024, with higher growth expected for branded players. However, this growth trajectory is accompanied by intensified competition, fuelled by the ascent of international brands and the emergence of new-age startups and upcoming ventures in the organised market. The industry remains poised for expansion, presenting opportunities for industry players to innovate and adapt to shifting market dynamics.

COMPANY OVERVIEW

Established in 1968, VIP Industries Limited (hereinafter referred to as "VIP" or "the Company") is Asias leading and the worlds second-largest manufacturer and retailer of luggage, backpacks and handbags. It is an established leader in the organised and oligopolistic Indian luggage market with ~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. The Companys robust product portfolio, including brands such as VIP, Skybags, Carlton, Aristocrat, and Caprese, caters to consumers across all significant product categories, offering pricing range across value to mid-range to premium segments.

With a rich legacy of over 56 years, the Company has solidified its position as the most trusted brand in India and across many countries in the world. Through consistent product innovation, premium quality, and global aesthetics, it has transformed the luggage and travel industry, adapting to evolving customer preferences and market trends.

The Company has two state-of-the-art manufacturing units in India and eight in Bangladesh. VIP leverages its in-house design capabilities to consistently introduce innovative products and shape industry trends. It launched 51 new products in the premium/mass premium segment, 26 new products in the value segment and 174 for backpack category in FY 2023-24. Its extensive distribution network facilitates seamless accessibility for consumers to explore VIPs multi-brand luggage range across India, available at 13,000 points of sale including exclusive business outlets (EBOs), multi-brand stores, large-format retail locations, defence canteens, and various e-commerce channels across ~1300 towns.

FINANCIAL REVIEW

During FY 2023-24, the Companys net revenue from operations grew by 7.8% to Rs 2,245 crore from Rs 2,082.32 crore in FY 2022-23. Profit after tax in FY 2023-24 stood at Rs 54.30 crore compared to Rs 152.34 crore in the previous year. EBITDA stood at Rs 205 crore as against Rs 330.88 crore loss in FY 2022-23.

Financial Review (Consolidated)

(Rs in Crore)

Particulars	FY 2023-24	FY 2022-23	FY 2021-22
Revenue from Operations	2,244.96	2,082.32	1,289.51
EBITDA	205.31	330.88	180.76
PBT (Before Exceptional Item)	50.80	228.74	86.16
PBT (After Exceptional Item)	76.58	196.53	86.16
PAT	54.30	152.34	66.93
Net Worth	677.91	641.69	559.67
Debt Equity Ratio	0.79	0.28	0.22
Earnings per share (in Rs)	3.84	10.76	4.73

Financial Review (Standalone)

Particulars	FY 2023-24	FY 2022-23	FY 2021-22
Revenue from Operations	2,215.50	2,019.53	1,257.19
EBITDA	143.16	259.97	164.45
PBT (Before Exceptional Item)	10.40	178.38	83.85
PBT (After Exceptional Item)	36.18	193.38	83.85
PAT	28.02	160.93	63.73
Net Worth	616.75	607.06	505.25
Debt Equity Ratio	0.70	0.22	0.15
Earnings per share (in Rs)	1.97	11.37	4.51

Key Financial Ratios (Consolidated) Operation as per SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

Particulars	FY 2023-24	FY 2022-23	FY 2021-22
Debtors Turnover	7.70	8.79	7.03
Inventory Turnover	1.42	1.84	1.57
Interest Coverage Ratio	2.39	7.90	4.5
Current Ratio	1.31	1.62	1.74
Debt Equity Ratio	0.79	0.28	0.22
Operating Profit Margin (%)	4.19	11.53	5.77
Net Profit Margin (%)	2.42	7.32	5.19
Return on Net Worth (RONW) (%)	8.01	23.7	12

Key Financial Ratios (Standalone) Operation as per SEBI (Listing Obligations and Disclosures Requirements (Amendment) Regulations, 2018

Particulars	FY 2023-24	FY 2022-23	FY 2021-22
Debtors Turnover	7.80	8.98	7.11
Inventory Turnover	2.00	2.82	2.45
Interest Coverage Ratio	1.73	9.22	4.73
Current Ratio	1.32	1.74	1.83
Debt Equity Ratio	0.70	0.22	0.15
Operating Profit Margin (%)	1.98	5.92	4.69
Net Profit Margin (%)	1.26	7.97	5.07
Return on Net Worth (RONW) (%)	4.54	26.5	12.6

Operational Review FY 2023-24

• Opened net 7 Exclusive Business Outlets (EBOs) in FY 2023-24, reaching a total of 500+ EBOs, with a strategic focus on opening stores in top 14 cities in the next fiscal year.

• Secured contracts in 6 airports for exclusive Carlton stores.

• Expanded distribution network with the addition of 132 towns in FY 2023-24, resulting in a presence in 1361+ towns nationwide

• Revitalised connections with customers and partners by organising two dealer-distributor meets and backpack road shows after a four-year hiatus.

• Refurbished leadership, with over 50% of the senior management team comprising either new members or individuals handling new portfolios.

• Hired and on boarded an award-winning international designer to upgrade the portfolio.

• Collaborated with BCG to accelerate growth in the e-commerce channel.

• Restructured the Bangladesh facility with a reduction in workforce, currently headcount standing at ~4,400, in response to softening SL demand and global macro- industry trends.

OUTLOOK

The luggage sectors long-term outlook is promising, bolstered by favourable factors such as deflationary trends, softened raw material prices, growth in business and leisure travel in India, increased discretionary income among the upper middle and high-income group, urbanisation and rising demand from Tier I and II cities. With travel and hard luggage segment gaining strong traction, the Company intends to increase its manufacturing capacity of hard luggage to meet the market demands. With a greater focus on the premium segment, the strategic realignment of distribution channels with an emphasis on expanding EBOs and the re-positioning of its brands, the Company anticipates sustainable growth in the dynamic luggage industry landscape.

Despite the challenges in the international market and intense competition in the domestic market, the Company strives to capitalise on emerging market opportunities and strengthen its competitive position by enhancing operational efficiency and fostering innovation in product development. It aims to outpace industry growth expanding market share, enriching its premium portfolio with new price points, optimising inventory and reducing debt and interest costs.

RISK MANAGEMENT

The Company is exposed to various risks and uncertainties which may adversely impact its performance. The major risks are demand risks due to the global economic slowdown, high inflation and declining demand in key markets, currency risk associated with imports, volatility in raw material prices, competition risk, operational risk, personnel risk, and technology risk, among others. With a structured risk management framework in place, the Company ensures the timely and effective identification, assessment, and mitigation of key business and operational risks. By prioritising the key risks based on their severity and probability, it develops robust mitigation strategies to monitor and mitigate them effectively and minimise their impact on the Companys operational and financial performance.

HUMAN RESOURCES

The Company believes that employees are its most valuable assets and core strength in preserving its high- quality standards and facilitating its growth. Embracing the ethos of empowering its workforce, the Company has meticulously crafted an HR policy, aimed at establishing a secure, harmonious, and transparent work environment. It ensures that employees goals are in harmony with the organisations vision for growth. The HR team consistently organises training and engagement initiatives aimed at enhancing the skills and capabilities of employees. Aligned with the Companys values of youthfulness, meritocracy, entrepreneurship, and innovation, and guided by its foundational pillars of open communication, transparency, and agility, the Companys talented workforce is motivated to elevate the organisation to new levels of success. As on March 31, 2024, the Companys total employee strength stood at 9800 (including employees of subsidiary companies).

INTERNAL CONTROL SYSTEM

The Company maintains a robust internal control system, commensurate with the size and nature of its business. The internal control framework is designed to ensure operational efficiency and alignment with the Companys strategic objectives. Additionally, the Companys budgetary control system continuously monitors all expenditures against approved budgets. M Mahajan & Aibara, Chartered Accountants, LLP serve as the Companys Internal Auditors, responsible for maintaining internal control systems to protect the Companys assets, ensuring operational effectiveness and efficiency, and evaluating the reliability of financial controls and compliance with applicable laws and regulations. All their audit findings and reports are submitted to the Audit Committee on a quarterly basis. The Audit Committee regularly reviews the adequacy of the internal control systems and internal audit findings. It proposes corrective action plans to enhance business processes and the internal control system. The management takes suitable action based on the recommendations provided by the Statutory Auditors, Internal Auditors and the Audit Committee.

CAUTIONARY STATEMENT

The Management Discussion and Analysis may contain some statements describing the Companys views of the industry, objectives, projections, estimates or expectations, which may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results may differ substantially or materially from those either expressed or implied in the Statement depending on the factors that could affect the Companys operations such as economic conditions affecting demand and/or price conditions in the domestic and overseas markets in which the Company operates, changes in government regulations, tax laws and other statutes and incidental factors. The Company undertakes no responsibility to publicly amend, modify or revise any forward-looking statements, whether as a result of any subsequent developments, new information, future events, or otherwise.