<p>The economic slowdown has not spared even the consumption plays. After Mahindra Holidays and Resorts, luggage manufacturer VIP Industries also reported a discouraging financial performance in the March 2012 quarter, though the period is the peak season for travelling. Accordingly the stock is down close to 6% on bourses today.
Revenues are up just 9% year on year (y-o-y) to Rs 181 crore compared with 18% recorded in nine months ended December 2011.
Subdued demand in exports market (around 10% of overall revenues) has partly affected sales growth even as domestic slowdown has affected discretionary spending on travelling and leisure.
Operating profit and net profit has almost halved to Rs 14 crore and Rs 8 crore resulting in significant dip in margins-down 497 basis points (bps) and 732 bps respectively.
Manoj Bahety, analyst, Edelweiss Securities, said in his preview note that margin decline is expected to be largely driven by rupee depreciation and lower operating leverage.
For the full year ended FY12, the company’s sales have grown 15% but profitability has again disappointed with net profit growth of just 8%.
The company has announced the incorporation of a wholly-owned subsidiary in Bangladesh for setting up a luggage manufacturing plant. This will help in profitability due to relatively low cost of manufacturing there, say analysts.
Entering new categories such as fashion baggage, ladies fashion bag segment and accessories segment augurs well for revenue growth in the long term.
However, the medium term continues to be cautious as the outlook on the rupee is weak as the entire raw material for soft luggage (forming two-third of revenues) is imported.
The company had, in the previous quarter, hinted at the possibility of price hike in May, though the final call will be taken considering competitive pressures.