Dilip G Piramal, Chairman, VIP Industries is hopeful of clocking a 15 percent topline growth in FY16. The company has received a big institutional order of Rs 50 crore from CSD segment.
Dilip G Piramal, Chairman, VIP Industries in an interview to CNBC-TV18 spoke about the company’s fourth quarter performance and the outlook going forward.
The sales for the company have been tepid in the quarter but in line with that of other consumer goods companies, said Piramal. Institutional sales were lower but co-owned stores sales saw a decent uptick, he added.
However, he is hopeful of clocking a 15 percent topline growth in FY16. The company has received a big institutional order of Rs 50 crore from CSD segment, said Piramal.
The overall margins in Q4 were poor on account of higher ad spends and poor sales, he said. Going forward too for FY16 margins margins would be similar to those of FY15, he added.
Below is the transcript of Dilip G Piramal\'s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Ekta: Let us talk about Q4 first. It has been an overall muted quarter for you. What have been the few of the defining trends for this quarter, which have lead to the performance?
A: There is no outstanding which I can point out. It’s just been generally that the sales response has been tepid but I find that in some other consumer goods companies the sales have fallen in the last quarter. So I guess that is a general trend.
Anuj: We are getting mixed signals from consumer companies but the 7.7 percent revenue growth for you for FY15 is lower than the 10 percent guidance that you had setout. Given the weak macro picture, will this be a realistic growth number for FY16?
A: One of our major institutional sectors had flat sales in the last year otherwise our consumer sales, our own store sales in the last quarter was quite good. We have taken some measures to improve our inventory levels and all. So for the coming year that is the year which has just started, we are much more hopeful and we are looking at 15 percent growth and we should be able to achieve it.
Ekta: Talking about the margins this quarter, one of the drags this quarter has been the surge in employee cost. In the conference call yesterday you have spoken about revitalising the sales force to push the VIP brand going forward. Could you tell us more about the strategy?
A: What have affected our margins is that sales growth hasn’t been all that much because 7.5 percent sales growth, the expenses actually grew at slightly higher level. So the margins remain the same.
Last year we increased our advertising spend. The reorganisation of VIP brand means that we are now focusing on all our brands. Our major luggage brands are Carlton, VIP and Skybags and we are advertising all three. Last year we advertised for all three and even in the current year we will be advertising all three.
In addition to that we have the Caprese brand for handbags. It’s a new brand so we have to launch that, introduce that brand to India and develop that brand. So there the sales expenses are quite high. So all in all our advertising last year has been quite high and with sales not growing as fast, the margins are definitely under pressure and price increases also are not possible when the competitive situation is strong.
Anuj: Since you spoke about increasing ad spends as key strategy for FY16 to push sales, what will be the ad spends as a percentage of sales ratios for FY16?
A: We are increasing our advertising by about 1 percentage point or maybe 1.5 percentage points. Carlton is not a mature brand. It was UK brand but it was unknown in India and since last year we have followed a new strategy for Carlton, so it’s virtually like relaunching Carlton. Carlton is our brand in the uppermost segment and our advertising has got us good result. We had good growth in Carlton although the base is quite small.
Ekta: You are investing heavily into the newer brands like Caprese or some more mature brands like Carlton. By when can we expect these brands to start contributing more meaningfully to your financials? What might the internal targets be?
A: Our main brands VIP, Skybags are very large brands and they are about more than ten times the size of Carlton and Caprese. So even if they grow well, we are very happy.
So to compare the two brands and the relative strength and their market shares within our company or the composition of these brands’ sales in our total sales, doesn’t matter to us because if VIP grows 15 percent and Carlton grows 30 percent, we are happy because 15 percent of VIP is on much larger base.
Therefore, to address your question that Carlton is meaningful brand and even if we have 50 crore in that segment, we are quite happy.
Anuj: In the canteen sales department (CSD) segment, you lost a bit of market share to Safari. How big is this sales channel for you and how much of a financial impact did you have because of this?
A: What had happened in the CSD segment in the ten years till two years ago, in the period ending about from 2002 and 2012, they had become very weak generally and then there was a change in the management and the new management was in fact my erstwhile managing director but now they have recouped some of their losses in the CSD. And in fact, probably CSD accounts for about 50 percent of their sales, total sales.
However, now I do not think that we will lose any further market share, but in fact we are trying to regain some market share and we have already done that. There will be a new equilibrium and our growth will be very good in that segment.
In fact we have got one very large institutional order, which we will be executing in this quarter and probably some of it might split into July. So, that will also be as a good booster to our sales in the first quarter.
Ekta: And what is the size of this order, the quantum of this order?
A: It is about Rs 50 crore order. We will publicise it due time. So, I do not want to speak about it right now.
Anuj: Your gross margins got impacted a certain bit due to the currency fluctuation also for FY15. Given the volatility that we have seen on currency front, what can you guide us for gross margins for FY16?
A: I do not think that we are looking at much margin expansion because we are investing heavily into advertising for our new products and we have to look at the long-term. It is very easy for us to cut on advertising and increase immediate margins. But we are satisfied; we are content with what we are getting. It is better definitely to build for the future.
The Indian markets will explode sooner or later. The whole country was expecting much better economic performance in FY14-’15. But expectations after the change of the government were a lot and development of infrastructure etc takes time and the impact of that will start coming in the current fiscal year.
Ekta: That point is taken and the optimism is welcome, but can you give us some guidance for FY16 in terms of revenues, profit margins.
A: Margins is a bit dicey at the moment because like in the first quarter which is our biggest quarter, the dollar has become quite strong. The rupee has become weak. So, it is host of factors like our higher advertising etc and I do not think there is going to be very drastic change in our margin of profits.
Anuj: FY15 saw a weak festive demand and sluggish trends. Are things looking better in FY16?
A: Consumer trends are very mixed, so, it is very difficult to make any forecast. They are very mixed; they are different in different regions also, and at different price points. And there is no clear-cut trend. But there is growth, but it is tepid.