Rating Rationale
September 07, 2022 | Mumbai
VIP Industries Limited
'CRISIL A1+ ' assigned to Commercial Paper; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.365 Crore (Enhanced from Rs.280 Crore)
Long Term RatingCRISIL AA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.50 Crore Commercial PaperCRISIL A1+ (Assigned)
Rs.50 Crore Non Convertible Debentures&CRISIL AA/Stable (Reaffirmed)
& carved out from proposed working capital facility of Rs. 76 crore
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities and Convertible Debentures (NCD) of VIP Industries Limited (VIP). Further CRISIL Ratings has assigned a rating of CRISIL A1+ for Commercial Paper of Rs.50 crore.

 

Performance during first half of FY2022 was impacted by second wave of COVID -19 due to muted travel, disruption of supply chain and subdued economic activity. However, with decreasing severity in impact of COVID-19 alongwith rising vaccination rate, rebound of domestic and international air traffic and easing up of economies, company’s performance picked up and the operating income of the Company increased to Rs.1290 cr in FY22 as against Rs.671 cr in FY21. To compensate for rising inflation, company had taken periodic price increase to cover inflation and increase in raw material cost for the short term. This apart, it is also resorting to alternate raw materials to reduce the impact of inflationary pressure while ensuring the quality. Subsequently operating margin improved to 11.38% in FY22 vis-à-vis operating losses in FY21.

 

With the increase in international student departures, domestic travel at pre-covid levels, steady increase in opening of schools, colleges and offices across the country, revenue recovery is expected to be strong in H1FY23. The same is visible from Q1FY23 wherein Company achieved EBIDTA of Rs.103 crore compared to Rs.33 crore in Q4FY22 and Rs.13 crore in Q1FY22; considering Q1 being the peak season for the company.             

 

CRISIL Ratings expects sales to be strong in balance three quarters of FY23 with operating margin ranging between 10-12% driven by wedding season in Q3FY23, and continued healthy momentum in travel and tourism. Company plans on additional capex to ramp up operations from India and Bangladesh and reduce its  dependence on China.

 

Medium to long term demand outlook however remain sanguine for VIP. The oligopolistic nature of the industry, favourable long term macro-economic factors like rising income, and shift in consumer preference for branded luggage augurs well for VIP given its market leadership position and strong brand name.

 

Additionally, over the years VIP has significantly strengthened its balance sheet providing adequate cushion to absorb losses in FY2021 and sustain the pressure of low EBDITA in first half of FY2022. Further, with repayment of NCD of Rs.50cr due in September, the Company will be long term debt free. In the near to medium term, the company plans to borrow through Capital Market instruments like CP or through WCDL using Bank lines for meeting short term working capital requirements. This apart, liquidity derives comfort from cushion available in the form of unutilised bank limits.

 

The ratings of VIP Industries Limited (VIP) continue to reflect VIP's market leadership position and strong brand in the domestic luggage industry and healthy financial risk profile. These strengths are partially offset by dependence on Chinese imports, competition from unorganised segment and highly working capital intensive operations.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of VIP and its subsidiaries due to common nature of business.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths

  • Market leadership and strong brand in the domestic luggage industry: VIP is the world’s fifth-largest luggage manufacturer and a leader in the Indian luggage market. Its brands cater to the lower and upper segments of the demand pyramid, with products across a wide price range. The company is also into the women’s handbags and backpack segment having healthy market share.  VIP has a strong distribution network across the country.

 

  • Healthy financial risk profile: Over the years VIP has strengthened its financial risk profile, backed by a conservative capital structure, healthy cash accrual and debt protection metrics. As on March 31, 2022, capital structure remained healthy, marked by large networth of Rs.558 crore and minimal debt. Credit metrics also remained healthy. Company’s unleveraged balance sheet provides adequate cushion to tide any uncertainty as well as raise additional debt if required without significantly impacting credit metrics.

 

Weaknesses

  • Dependence on Chinese imports and exposure to competition from unorganised sector: The soft luggage segment, which accounts for a major part of VIP’s revenue, used to be sourced predominantly from China, thus exposing the company to geographical concentration risk and forex risk of sharp rupee depreciation. However, VIP in order to reduce the dependence on Chinese imports, has reduced the supplier exposure from China to about 11% from 40% in the past mainly through backward integration, increasing production at Bangladesh and by rationalizing other supplier options. Also, despite being a market leader in the organised segment, VIP is able to pass on increase in material prices only partially and with a lag, mainly because of intense competition from the large, unorganised segment; hence, ability to charge premium is restricted.

 

  • Large working capital requirement: The luggage industry is working capital-intensive in nature. VIP’s receivables stood at about 62 days as on March 31, 2022. The company has been able to prudently align its inventory level with payables, thus limiting the incremental net working capital. Further, any significant economic downturn can impact the working capital requirement especially stretch in receivables.

Liquidity: Strong

VIP has strong liquidity with  cash accruals of about Rs.102 crore in fiscals 2022. Fund based bank limits of Rs.349 crore remained moderately utilised at 44%. VIP also had Rs. 50 crore of cash surplus as of March 31, 2022. This coupled with the bank lines and CP issuance plans further aid liquidity. Further, with a gearing of 0.22 times as on March 31, 2021, the company has sufficient gearing headroom, to raise additional debt if required.

Outlook Stable

CRISIL Ratings believes VIP's business risk profile will continue to be supported by its strong brand and entrenched distribution network even as demand is expected to sustain in fiscal 2023. VIP is also well placed to take advantage of the long term structural tailwinds in the industry given its healthy market position. Furthermore, the company’s strong balance sheet and healthy liquidity should help offset impact of stressed business conditions.

Rating Sensitivity factors

Upward factors

  • Significant and sustained growth in revenues driven by improvement in business conditions, and operating margins recovering to ~17-18%, supported by ramp up in volumes and cost control initiatives
  • Sustained strong financial risk profile and steady increase in liquid surplus, supported by healthy cash accrual and continued moderate capex

 Downward factors

  • Slower than expected improvement in revenue and operating profitability, most likely due to delayed demand recovery, also impacting cash generation
  • Sustained increase in debt due to large debt-funded capex, sizeable acquisition, or stretched working capital cycle, leading to material weakening of the credit metrics, for instance, adjusted gearing above 0.8-1.0 times

About the Company

VIP, a Dilip Piramal group company, was incorporated as a wholly owned subsidiary of Blow Plast Ltd (BPL) in January 1968. In fiscal 2007, BPL was merged with VIP following restructuring of the group. The company manufactures hard luggage in India and markets hard and soft luggage sourced from India, China and its Bangladesh subsidiaries. VIP is the largest player in the luggage industry in India.

 

For the quarter ended June 2022, company reported net profit of Rs.83 crore on revenue of Rs.591 crore, compared to PAT of Rs.3 crore on revenue of Rs.206 crore during the corresponding period of previous fiscal.

Key Financial Indicators

Particulars

Unit

2022

2021

Revenue

Rs Cr

1290

619

Profit after tax

Rs Cr

67

-97

PAT margin

%

5.2

-15.8

Adjusted debt/adjusted networth

Times

0.22

0.30

Interest coverage

Times

6.58

NM

NM: Not meaningful

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Facility

Date of Allotment

Coupon

Rate (%)

Maturity

Date

Issue Size

(Rs crore)

Complexity

level

Rating

NA

Fund-Based Facilities&

NA

NA

NA

50

NA

CRISIL AA/Stable

NA

Fund-Based Facilities^

NA

NA

NA

80

NA

CRISIL AA/Stable

NA

Fund-Based Facilities%

NA

NA

NA

85

NA

CRISIL AA/Stable

NA

Fund-Based Facilities

NA

NA

NA

10

NA

CRISIL AA/Stable

NA

Fund-Based Facilities#

NA

NA

NA

60

NA

CRISIL AA/Stable

NA

Fund-Based Facilities@

NA

NA

NA

14

NA

CRISIL AA/Stable

NA

Non-Fund Based Limit

NA

NA

NA

19

NA

CRISIL A1+

NA

Proposed Fund-Based Bank Limits

NA

NA

NA

47

NA

CRISIL AA/Stable

INE054A07032

Non-Convertible Debentures&

07-Sep-20

6.25%*

06-Sep-22

50

Simple

CRISIL AA/Stable

NA

Commercial Paper

NA

NA

7-365 days

50

Simple

CRISIL A1+

& - interchangeable with non-fund based limits of Rs 10 crores

^ - interchangeable with non-fund based limits of Rs 80 crores

% - interchangeable with non-fund based limits of Rs 20 crores

# - interchangeable with non-fund based limits of Rs 50 crores

@ - interchangeable with non-fund based limits of Rs 14 crores

* Coupon Rate was 7.25% from 07-Sep-2020 to 06-Sep-2021 and is 6.25% from 07-Sep-2021 to 06-Sep-2022.

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of consolidation

Rationale

Blow Plast Retail Limited

Full

Wholly owned subsidiary

V.I.P Industries Bangladesh Private Limited

Full

Wholly owned subsidiary

V.I.P Industries BD Manufacturing Private Limited

Full

Wholly owned subsidiary

V.I.P Luggage BD Private Limited

Full

Wholly owned subsidiary

V.I.P Accessories BD Private Limited

Full

Wholly owned subsidiary
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 346.0 CRISIL AA/Stable   -- 26-11-21 CRISIL A1+ / CRISIL AA/Stable 01-09-20 CRISIL AA/Stable 30-12-19 CRISIL AA/Stable CRISIL AA-/Positive
      --   -- 25-03-21 CRISIL A1+ / CRISIL AA/Stable 17-07-20 CRISIL AA/Stable   -- --
      --   -- 21-01-21 CRISIL A1+ / CRISIL AA/Stable 04-05-20 CRISIL AA/Stable   -- --
Non-Fund Based Facilities ST 19.0 CRISIL A1+   -- 26-11-21 CRISIL A1+ 01-09-20 CRISIL A1+ 30-12-19 CRISIL A1+ CRISIL A1+
      --   -- 25-03-21 CRISIL A1+ 17-07-20 CRISIL A1+   -- --
      --   -- 21-01-21 CRISIL A1+ 04-05-20 CRISIL A1+   -- --
Commercial Paper ST 50.0 CRISIL A1+   --   --   --   -- --
Non Convertible Debentures LT 50.0 CRISIL AA/Stable   -- 26-11-21 CRISIL AA/Stable 01-09-20 CRISIL AA/Stable   -- --
      --   -- 25-03-21 CRISIL AA/Stable 17-07-20 CRISIL AA/Stable   -- --
      --   -- 21-01-21 CRISIL AA/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities& 50 The Federal Bank Limited CRISIL AA/Stable
Fund-Based Facilities^ 80 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA/Stable
Fund-Based Facilities% 76 Kotak Mahindra Bank Limited CRISIL AA/Stable
Fund-Based Facilities% 9 Kotak Mahindra Bank Limited CRISIL AA/Stable
Fund-Based Facilities 10 YES Bank Limited CRISIL AA/Stable
Fund-Based Facilities# 60 Axis Bank Limited CRISIL AA/Stable
Fund-Based Facilities@ 14 Citibank N. A. CRISIL AA/Stable
Non-Fund Based Limit 19 YES Bank Limited CRISIL A1+
Proposed Fund-Based Bank Limits 47 Not Applicable CRISIL AA/Stable
 
This Annexure has been updated on 07-Sep-2022 in line with the lender-wise facility details as on 07-Sep-2022 received from the rated entity.
& - interchangeable with non-fund based limits of Rs 10 crores
^ - #interchangeable with non-fund based limits of Rs 80 crores
% - ~interchangeable with non-fund based limits of Rs 20 crores
# - $interchangeable with non-fund based limits of Rs 50 crores
@ - *interchangeable with non-fund based limits of Rs 14 crores
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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