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May 03, 2012, 03.14 PM IST
Currently holding a share of 57% in domestic markets, VIP Industries sees some pick up in the domestic manufacturing segment. In an interview with CNBC-TV18, Dilip G Piramal, Chairman, VIP Industries expect topline growth of 15% for FY13.
Piramal clarified that the lower margin was mainly triggered by the loss of its largest customer, the Canteen Stores Department (CSD) which is the civil supplies department of the army. He further added that the extended discount season was not to be blamed for the pressure on margins. Rather, it was affected by rupee depreciation.
Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video
Q: What's happening with the guidance that you had set out in terms of doing 20% on the top line for FY13? Does that still hold or is it under review?
A: Right now we are giving a guidance of about 15% because the last year hasn't been very good. We are a bit cautious and we would try to achieve that and may even exceed it, if possible.
The last quarter has been quite bad. What happened is that we lost one of our largest customers - the CSD, the civil supplies department of the army. They did not place any orders in February and March because they wanted to make some arrangements to their working system. This is a very big segment and we lost a good chunk of sale.
It's nothing to do with demand. Demand was there and this has happened in a lot of products in the CSD. It hit us badly and our margins have been under pressure in the last two quarters because of the rupee depreciation.
We have had a tough last two quarters and particularly, the last quarter was a double whammy because of the loss of the CSD sales.
Q: So this 15% growth is taking into account a revival in CSD orders, can you just break up what 15% growth will be in terms of your domestic orders and exports?
A: It will be mainly in our domestic business. We have not had a very large growth in the CSD business because this problem has been there for the last two years.
Year before last, in 2010-11, the CSD placed orders but, they did not pay us at all in February-March. And that is why our debts went up. This year they had the same predicament and they decided not to buy at all.
For us, that is actually the worst thing because once you make the sales, money does come in. It's a matter of time and financing that is not a problem for us. But, when you lose sales, there is an absolute sales loss.
Q: How much of this damage that you have seen on the margins is because of what's happened on the currency and how much because you had to sell a lot of discounted items? There seems to be a sense that there was a larger chunk of discounted categories which crimped your margins down so much.
A: No, not really. So far the margins have been eroded mainly because of the rupee depreciation and also because we are now selling more products in our own retail shops, in modern retail shops which are a little more expensive.
The discount that is getting a bit exaggerated is an exchange offer which says that you can get up to a maximum of Rs 2,500 on an exchange. The offer is extended to very few items and it started only in April. So, it was not there during the last quarter or last year.
I think some research reporter has carried this but that doesn't apply to the last year and this is just a marketing strategy which our competitor had used last year, not us. They had the same exchange offer last year and we are doing it now in April-May.
Q: How will the 15% top line growth sit in terms of what you expect margins to hold for FY13 and what you expect to deliver on profitability?
A: We did Rs 95 crore before tax in the last year. We estimate to have a similar figure next year on a higher sales growth because last year our first quarter was very strong.
We achieved over Rs 50 crore PBT (profit before tax) and in the last two quarters of the last year, our margins got eroded. This year, the same trend will continue on the margins. That’s why in spite of higher sales, we'll be happy if we achieve last years profit.
We are also launching our ladies handbag business this year and we have budgeted a Rs 10 crore loss for that because it will be more of an investment and we will write it off. It is expected to impact the bottom line by about Rs 10 crore.
Q: One question on where VIP's market share stands at because that’s the other worry in the market that you are facing a lot of competitive intensity, primarily from Samsonite. In the domestic market where is it that market share stands at for VIP and what is it that you are confident of holding market share at through the course of this calendar year?
A: I would say that in the last 3-4 years, Samsonite launched a new brand called American Tourister and that is really competing in the VIP segment. But, things have now plateaued out and we launched our Skybag brand recently.
We started advertising it last year and now that brand is blossoming. Now, we will not have any erosion of market share and currently, our market share is about 60% or rather 57% and Samsonite would be about 37%.
We have more accurate figures because they have been publishing the figures for the first time in so many years and we are getting accurate figures. It shows our strength in the market. From now on, we will actually be able to gain at least a percentage point in market share because our Skybag brand is coming in its own this year and next year.
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