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Last Updated : Apr 07, 2016 01:15 PM IST | Source: CNBC-TV18

VIP banks on high-profile ad campaigns to drive sales momentum

The past several quarters for VIP Industries have fared well for the company, thanks in part to a series of high-profile campaigns the company has come out with starring Hrithik Roshan, Varun Dhawan and Alia Bhatt, says Chairman Dilip Piramal.

The past several quarters for VIP Industries have fared well for the company, thanks in part to a series of high-profile campaigns the company has come out with starring Hrithik Roshan, Varun Dhawan and Alia Bhatt.

Consequently, the company is targetting revenues of about Rs 1,200 crore in fiscal year 2016, up from about Rs 1,060 crore in FY15, Chairman Dilip Piramal told CNBC-TV18, adding that leader VIP's market share in its industry has inched up to 50 percent.

However, despite the high spend on advertising, about 5-6 percent of revenues, Piramal said he does not see impact on margins.

"The company's gross margin for FY16 was around 44 percent and they will likely increase further in FY17, provided the currency is favourable," Piramal said.

The company's shares have been outperformers in the market, trading at 52-week highs of Rs 117.20.


Below is the transcript of Dilip G Piramal’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: If you can point out to some green on the screen, there is not so much in the stock markets, but is business looking good? Was the fourth quarter in terms of sales better than the previous fourth quarter?

A: Yes, the last two quarters have been quite good for us, in fact the last three quarters. And basically, what is happening is I feel that our advertising has been quite successful, particularly, we just released a VIP advertising last week with the Hrithik Roshan campaign. And for skybags, we have Varun Dhawan. And, which we broadcast quite extensively in March. And the advertising seems to be quite well received. And our product range is really good. We have never had such a good product range in all our brands. We have five luggage brands and then we are also now, launching a new campaign for our Caprese handbags brand.

So, there is a heavy pressure on advertising. Of course that means a lot of expenses in this quarter and the impact of advertising lasts much longer. So, on the whole, we have been doing quite well.

Sonia: I am sure Hrithik Roshan and Varun Dhawan have come at a very hefty cost. What would your ad expenses be as a percentage of your revenues and would it put more pressure on your margins in the quarter to come? Could you see your margins crunch down further from the 7 percent level?

A: We should be able to maintain our margin and in fact, our effort is to increase our margin, because for such a leading brand, the brand leader, our margins are a bit low. But, then that is the nature of the industry. In the first quarter, the sales are very good. That is our largest quarter, so hopefully, if sales are booming, if they grow at a very good pace, then margins should be alright.

Latha: When you said first quarter, do you mean the calendar quarter? The other question is on gross margins.

A: No, the first quarter which has just begun. Gross margins are alright, but otherwise, earnings before interest, taxes, depreciation and amortisation (EBITDA) and profit before tax (PBT) and all is more or less the same because we have virtually no interest.

Latha: Your gross margins went up to about 43-44 percent. Does it still remain as good even in FY17 at least first half?

A: Yes, I think so, because one of the things which affect us very strongly is the exchange rate and the pressure has eased out in the last one month. The rupee has become a bit stronger. So, let us see how that pans out.

Sonia: What is the current market share in the Canteen Store Department (CSD) segment and have you seen any improvement in market share in some of the other segments as well?

A: The CSD segment was one segment where we had lost market share. And in the last year, we have retrieved that to a good extent whereas in the other trade market, our market share is very good. It is nearly 50 percent, maybe a little bit, 1-2 percentage points higher.

Sonia: So, on the CSD segment what have you retrieved it to?

A: I am not very sure of the exact figures because those are a bit confidential. But we are still not at the trade level, we are a little bit below the trade level. Ideally, we should like to be whatever we have in the general market, should be our share in the CSD market also.

Latha: I just wanted elaborate and say that CSD is Canteen Stores Department and that is a large chunk.

A: That is the retail arm of the army. They have a very extensive distribution network for all retail sales for their employees and their families.

Latha: If you said it, I missed it. What exactly is your ad spend as a percentage of total revenues and does it go up in FY17?

A: Our ad spend is about, we have a 5-6 percent spend and we will maintain that because while Hrithik Roshan and Varun Dhawan are expensive, but in overall scheme of things, the sales also go up. We always had some celebrity. This is the first time that we will be having three major celebrities in the form of Hrithik Roshan, Varun Dhawan and Alia Bhatt and we will be spending on all the three brands quite strongly.

Latha: So, can we assume that for FY17, you would do about Rs 1,200-1,300 crore revenues?

A: That is what we will do this year, Rs 1,200 crore. So, we should be doing, our sales growth target is about 15-20 percent. I am quite confident of 15, but we will aim for 20 percent. I know that is a big margin.

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First Published on Apr 7, 2016 10:39 am
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