Expect sub-10% margin growth in H2FY16: VIP Ind

VIP Industries posted a 35 percent rise in its net sales during the quarter to Rs 296 crore. Speaking to CNBC-TV18, Dilip G Piramal, chairman of VIP Industries, says he expects sales growth of 20 percent going forward.Profit has seen a four-fold jump to Rs 15.7 crore during the quarter. This is a bit of an aberration due to low advertising and other expenses, he says, adding VIP will grow sub-10 percent in its margin for H2FY16.The company will now focus on consolidating its current brand portfolio and increase its ad spends to build all the big brands, Piramal adds.Below is the verbatim transcript of Dilip G Piramal's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: Really good quarter for you, scotching pace of revenue growth, where did that come from because no one on the street had that kind of estimates? If you could tell us what was the catalyst for this kind of revenue growth? A: This was an exceptional quarter because we got some very high institutional sales. Normally this is our weakest quarter. We had these institutional sales and they were two or three of them and one of them was very large. So, that has skewed the whole thing in our favour. Also, what happens is that in this quarter, our advertising is quite low. So, the expenses have been absolutely low. In a manufacturing industry whenever the sales go up, it is the gross margin which comes in as profit and not the net margin.Anuj: Would it be safe to say then that it was a bit of an aberration and it would be tough to sustain this kind of growth? A: We are not expecting, we grew by 35 percent over the previous quarter but I think we should be doing 20 percent growth even otherwise. Like in the first quarter, our sales growth was only about 8 percent. We had slightly lower sales growth. Also we have had in one of our major institutional segment, we had some setback last year and now we are gradually recovering our market share there. So, that also had helped in this quarter. However, there were some absolutely exceptional items also. Ekta: Can you break up how much growth you saw from your institutional business this quarter as well as your retail business? A: I will say this way that without these exceptional orders our sales growth was about 20 percent and with this order the sales growth was 35 percent compared to the same quarter in the last year. Ekta: But that is still better.A: Yes, 20 percent is very good. It is not only because of these exceptional items but even otherwise our performance in the quarter has been good. Ekta: Can you breakup how much you did in terms of growth and volumes from your three segments – Caprese, Skybags as well as Carlton this quarter?A: I don’t have the figures of all the brand-wise growth. However, Caprese sales, the growth rate was about 40 percent which is quite satisfactory. Otherwise it has been evenly spaced out. Anuj: A word on your margins and your net profit because that could mean a lot of difference to your earnings per share (EPS), the way your margins move, if you could tell us on that? A: The margins for this quarter have been exceptional. Normally, there used to be a time, about three or four years ago, when we never made any profit in the second quarter and this second quarter has been one of our highest profits for any quarter. Normally, nearly 50 percent of our annual profit is made in the first quarter. So, this year, second quarter has been exceptional. I don’t think we have ever made such a profit in any quarter apart from the first quarter. This has been exceptional but the margins should be alright. Of course you can’t compare this with last quarter’s margins.Ekta: What would be an average run rate in terms of your margins? You did around 11 percent in Q1 FY16, 8.6 percent which was boosted by a one-off income this quarter and 5.4 percent in same quarter last year. What is the average that we can see in the second half? A: I would say the average of the two.Ekta: So a sub 10 percent figure?A: Yes.Anuj: What is the discounting going on in the market right now and for your products what kind of discounts are you offering right now?A: There is no discounting. These were the normal trade margins. There is no particular discounting. However, like in some segments in the hypermarkets, there is this whole business model has become to a great extent that there is a very high retail price and then there are discounts as much as 50 percent. However, that has become the trend in a lot of consumer durables. However, it is not anything exceptional.Ekta: Your Caprese brand we understand that you are looking at around at least Rs 100 crore of revenues by FY17 and your ramping up your advertising and brand marketing quite significantly there as well. Do you think that, that is going to pressure your margins going forward particularly advertising and marketing cost that you plan?A: Yes, that is a pressure on our margins but it is always a trade-off between brand-building. In fact one of the reasons why our margins have been under pressure for the last few years is that we are building all our brands. We have so many brands like VIP, Skybags, Carlton and Caprese. So, the combination of these four brands - of course we also have Alpha which is another brand in the economy segment but these four brands have to be constantly nurtured and built up. However the results are there, like now Skybags has really blossomed out and it has become as major a brand as VIP. So, I think brand building is very important and it is a long-term process.Anuj: Would you be launching any other brands or would the focus be on consolidating the current portfolio?A: We have already too many brands so we have to consolidate them and it is always a struggle for us, which one to concentrate upon and how to distribute our advertising budget.Ekta: You have some capex which is planned as well, how much are you putting in to this manufacturing facility in Bangladesh and you also have a furniture business. Is there any sort of restructuring that you are undertaking there?A: The Bangladesh plant has already been set in place. We have an investment of about Rs 20 crore there and there is nothing major happening there. The furniture business, we had a very small moulded furniture business. Not to confuse at one time we had a proper furniture business but that was divested. We never pursued that in VIP Industries, we did that in another company and VIP was never involved in that. However, our moulded furniture business is very small, it is hardly Rs 10 crore at its peak, Rs 10 crore annually and we had tapered it down and now we are just doing the manufacturing, we are not doing the selling of that ourselves. So, that has been virtually tapered off now.