Dilip G Piramal, chairman, VIP Industries, says the company is aiming at 11-12 percent canteen store department (CSD) sales in FY14. In an earlier interview, VIP, one of India’s largest luggage maker, had said that the CSD sales declined due to working capital management issues in 2012-13.
CSD is a Government of India enterprise under the Indian Ministry of Defence that has depots and sub-depots in all military bases. Most goods are procured by CSD in bulk and sold at concessional rates to defence personnel.
However, the decline in CSD sales is a matter of the past as the canteen sales have become normal now, adds Piramal in an interview to CNBC-TV18.
Given the volatility in global currency rates, the company’s international business has bottomed out. "As far as margins go, it all depends on the currency rate. Otherwise, our EBITDA has gone down by about six percent last year. That is mainly because our cost of buying from abroad has gone up by about three percent. That has caused 300 basis points decrease in our margins," he elaborated.
What is also riding the wave of optimism for Piramal is the company’s launch of Skybag brand, which has helped in increasing it market share.
Below is the edited transcript of Piramal’s interview to CNBC-TV18.
Q: Do you think this entire canteen store department (CSD) issues has been fully resolved and are you feeling more confident now to talk about what kind of sales you can do in the next year?
A: From January onwards, CSD has become normal. Infact, our sales were very good because the pipeline was very slow in the first quarter of 2013,. So, we are quite optimistic about sales in the current year. Margins are something which we are not very sure about. The CSD sales should be very good. Trade sale is a question mark because the economic outlook is not all that great. Let us see these are early days yet.
Q: Your sales were up still about 8.5-9 percent which is not a great run rate. You have seen good double digit growth in the past. When do you see the basic volume growth actually picking up and where is the sluggishness kicking in from?
A: Sales were affected in all our segments last year. Particularly, the CSD segment was really bad, where the sales fell by more than 10 percent. International business also was not very good and we cut down on all loss making activities.
The trade was okay but it wasn’t buoyant. This year, we feel that CSD should do quite well. We should do something more than 11-12 percent. That will mean a good increase of 20 percent this year in CSD. Our trade sales also should go up anywhere between 10-20 percent. So, overall sales growth should be between 10-20 percent. It’s a very wide range that I am stating but that is the situation as it is.
On the international business also, we have reached our bottom. So, sales could only be better. As far as margins go, it all depends on the currency rate. Otherwise, our EBITDA has gone down by about six percent last year. That is mainly because our cost of buying from abroad has gone up by about three percent. That has caused 300 basis points decrease in our margins.
The remainder is because of the retailing cost. As we move to more modern retail formats like malls, hyper markets, our own shops which are also very modern, the retailing cost goes up considerably on account of rents. Rents have gone up quite a bit last year. Discounts given to the trade has gone up and so has man power cost because all these shops have to be manned by us including the hyper markets and all that. In every door we have atleast one person. The retailing costs are going up. Because the sales did not increase proportionately or to the extent desired, the cost of these sales has also gone up.
Q: Where do you see margins stabilising this year. They have improved a little bit to 7.8 percent this quarter. Do you see substantial improvement or is pricing power very limited in the market right now?
A: I think we have reached equilibrium as far as the retailing cost goes. We have moved over to the higher cost retailing. Margins will depend on two factors - one is on the currency rate which so far hasn’t been so bad. We are budgeting at about Rs 56 for the dollar. So far, we are doing at about Rs 54-54.20. The other thing is the overall sales. If sales increases by 20 percent, then margins will come back. Of course they won’t come up to that 14 percent level but they will definitely be better than what we did last year. If sales growth is only 10 percent then the margins will remain at the same level. It all depends on how much sales we can produce.
Q: Has this loss of sales also tied in with loss of market share? What did you guys enjoy at this point in terms of market share both in soft and hard luggage?
A: We are very buoyant as far as market share goes. We had definitely gained a couple of percentage points in the market share last year. Our market position is very strong. It has never been stronger than the last five years.
What had happened, initially, was that up till two years ago, Samsonite was our only big competitor. They were gaining market share because they were in a sort of nascent market. We have been able to reverse that trend. Now, there is a new equilibrium.
With the launch of our Skybags brand and our respective advertising and promotion both in Skybags as well as in VIP and Carlton, our market share has gone up. So, we are very confident on that front. On the whole, our competitive position is very good. What is affecting us is the Indian economy.