Disclaimer: I am not a SEBI registered adviser. All the information provided by me are for educational/informational purposes only.
I was wrong in my previous article about VIP Industries. After visiting various blogs to find ideas, I came across the company again and after discussing my thoughts there I realized what I had missed earlier. Forum being: ValuePickr. I would suggest you to visit this blog for getting well researched opinion on stocks.
Earlier I had said that I could not find any Moat which could protect VIP’s market share. As Samsonite being a huge company has more resource than VIP to advertise and also they have their manufacturing plant in Nashik. But as various events have now turned the table.
Things I Found Out Now…
I started reading about the problems Samsonite is facing.
- In 2018, CEO of Samsonite, Ramesh Tainwala, had to resign due to governance issues and also on being accused of falsifying his resume.
- Samsonite got fined of Rs.25 cr in the month of May 2020. Around the time of crisis when company needs money for profiteering with regards to GST
- Samsonite’s per store revenue is double than that of VIP and now they are forced to close 100 of them.
- Samsonite’s debt was roughly three times its revenue, as of its September 30, 2019.
- Samsonite is getting crushed due to trade war between USA & China as their supply chain gets affected due to huge tariffs on imports.
Thanks to Malcolm Keith Dias for providing such inputs.
What Changed Now….
- India-China violent face-off in Galwan valley has changed the situation now. Imports from china has been affected heavily, which has affected the luggage Industry. Safari Industries totally depends on China for imports which is around 70% of their revenue, where as VIP Industries is partial dependent on China and had started to gradual shift to Bangladesh. This gives VIP an edge. Also, Safari’s balance sheet is also not strong enough to deal with this situation.
- Similarly looking at Samsonite, their major market was China and main hub is USA, but trade war between them has created huge problems for Samsonite. I think now Samsonite’s focus would turn to saving itself rather than trying to get market share from VIP and as they are not debt free it would be very difficult to fight as VIP is financially stable.
How VIP Industries Will Survive The Current Crisis
- VIP Industries has better key financial ratios than safari which shows their business efficiency. Being the market leader in a adverting driven market VIP has huge advantage against safari as they are efficient and also equipped with cash.
- Gradual shift of the manufacturing plant to their fully owned plant in Bangladesh which decreases dependence on China and provides with low fixed costs.
- Company also has around Rs.581 cr in reserves and surplus which could help the company in survival .
- VIP Industries is being backed by an excellent quality of management that is Dilip Piramal, Radhika Piramal & Sudip Ghose.
I would consider my earlier opinion on VIP Industries was wrong. As I had failed to analyze Samsonite and taken for granted that they will become the market leader soon. Instead when I looked deep into the company I came across many problem which led me to realize VIP Industries has played it quite well.
Inshort, VIP Industries has two Moats which would protect the company from its competitors one is the Economic Moat due to their efficient key financial ratios and second being the management.