Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- VIP Industries Ltd (BOM:507880, Financial) gained 2% market share last quarter and expects another 2% gain in the current quarter.
- The company successfully reduced its inventory by INR120 crores, equivalent to 13 lakh pieces.
- E-commerce channel showed significant growth, increasing by 66% during the quarter.
- The premium segment held steady at 56% of revenue, with Carlton brand contributing to premiumization and a 16% increase in average selling price.
- New product launches, particularly in lightweight and tech-enabled luggage, drove growth, with Skybag volumes being impressive.
Negative Points
- Overall revenue growth was low due to poor performance in April, impacted by fewer wedding days, heat waves, and availability issues.
- Gross margin declined by 510 basis points, primarily due to soft luggage liquidation, channel mix, and under-absorption of overheads in Bangladesh.
- EBITDA was negatively affected by lower gross contribution and increased other expenses, including ForEx and marketplace costs.
- International business was impacted by challenges in Asian and GCC countries.
- The company faces ongoing risks and uncertainties related to the political situation in Bangladesh, which could affect production and operations.
Q & A Highlights
Q: Madam, in the opening remarks, you mentioned that the inventory reduction in 1Q was about INR120 crores. So can you highlight how much of it was soft luggage? And I believe, in the last quarter, our slow-moving soft luggage inventory was about INR300-odd crores. So when do you think the full liquidation will happen, especially given your comments that, from 3Q, you may see margin improve. But given the liquidation, which we have to do in 1Q, our margins were under considerable pressure.
A: So the soft luggage inventory has reduced by INR80 crores. And, I think, one more quarter -- so today, as we speak in number of pieces, it is around 6 lakhs, and we are selling 1.5 lakh pieces approximately a month. So that's where most of this old inventories will get cleared by September.
Q: My second question pertains to our other expenses, which is at about INR175 crores in this quarter. Now, given INR120 crores of inventory reduction has happened, perhaps our warehousing and freight costs should have fallen -- leading to a fall in other expenses. And also, from this quarter, you have mentioned in your PPT that payout relating to e-com is getting netted off from the revenue rather than getting clubbed in the other expenses. Despite these levers, our other expenses up by 4%. So any specific reason which you would want to highlight here?
A: So one, there is a ForEx loss of around INR5 crores, which was impacted. Other one is warehouses cost reduction takes time. Like once -- it's a cycle. If we have to give notice also, there is a three-month lock-in. So most of these reductions in the warehousing cost will actually start to come in quarter two and large part in quarter three.
Q: Madam, one last question from my side, you also mentioned that we have engaged BCG for EBITDA improvement. So can you highlight some of the details surrounding this? What is the term? What will be the outgo for it?
A: I don't think I can give you more details because I'm not going to be [calving] out as it happened in the e-commerce because it's all dependent on reduction in costs. So the reduction in cost will be much higher than what we are paying to them.
Manish Desai: So in short, it is linked to the outcome, Jinesh, so.
Q: So first question is that you did mention that the inventories cut by 16 like basis. But if you can help us to understand this 11% growth, how the growth has happened in terms of volume for the premium and mass and versus.
A: Yes, I will give you and for some premium is 10 and value is 18.
Q: So what is the total number of pieces which would have sold in Q1?
A: For around 50 lakhs.
Q: What explains this 510 basis point decline in gross margin, is it largely the discounting is gone in the system or something else?
A: It's been one itself. Lineage is sold a discount. The second is the channel which are growing at actually the lower end of the pyramid. So for example, e-commerce now on e-commerce, we don't sell high premium. It is the mass and slightly complementary. Ibm SkyBet, which is in the opening price point range only will sell on e-commerce.
Q: So you mean to say that the contribution of e-commerce is rising because we are giving discounting, and that's why which is we are getting the most.
A: I won't say that. But the e-commerce is actually so we were under-indexed on e-commerce. We are catching up the game. So e-commerce travel industry revenue from e-commerce is around 30%. We were at 20, we are catching up and therefore, the growth is high. But on e-commerce, we don't sell too much of Titan and the IP premium. So it will be opening price point, which gets into my average realization of e-commerce is actually lower than me and there is a genuine.
Q: Where is the margin lever and what is the confidence we are talking about?
A: So clearly, there are many levers on which the cost optimization drive needs to work to improve the overall margin. And when I say about it in terms of the bulk of the growth is coming at a cost. I would not like to agree on it because we have to align with the market demands. The market is asking for a value product. I cannot do TomTom on the premiumization, and that's the alignment what we did. And that's why I'm repeatedly saying that our volume growth was looked so also has our competitor value, one the cost optimization drive on which we are working towards that, including the calibrating the price at which we are seeing the option to go up will certainly contribute in the overall gross margin. And what I repeatedly said again, for retail that Andy said, it can be seen only from the quarter two quarter three, and that's what our objective is.
Q: Just one question here. Where do you think the price of input prices will remain stable from here to next two, three quarters.
A: Import price, you're talking about Ashish input prices in oil prices, it will we'll have to see what they are looking into the geopolitical situations. But if I see the last 10 days trend, it is showing on a downward side. Furthermore, on a continuous, we are also working on value engineering drive what a few minutes back can be explained. So altogether, we like to contain our input cost from where we are currently rather improving upon it.
Q: My first question is related to netting of e-commerce. So think of is it possible to quantify the amount of net off from revenue related to e-commerce?
A: It's around four, 15 crores, 15 crores.
Q: And do you think this will continue going ahead or decline.
A: I see that as we all know, our Q2 largely e-com or anyone say so probably it was between social frequencies and kind of increment and we are growing as well. So obviously an e-comm channel. So the amount will keep on increasing as a percentage of revenue, it might remain the same.
Neetu Kashiramka: However, it will change depending on the restaurant among the under virtually any percentage to revenue, expect it to remain.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
