VIP Industries faced 'management crisis' over last few years, says promoter Dilip Piramal, ownership change 'best thing' for company

Talking about the deal that has been in the making for some time, Dilip Piramal pointed out that the professional management of the company was not able to deliver in a segment where competitive intensity was rising, and bringing in private equity to run VIP made sense to him as ownership also ensure there is skin in the game.

All that is needed at luggage maker VIP Industries is good management, and the company is in a structurally good position to compete globally with a 'fantastic long-term future', promoter Dilip Piramal told CNBC-TV18 during an interaction on July 14, a day after the promoter family announced selling 32 percent stake in the company to PE player Multiples Consortium, which has led to a change in the ownership.

Shares of VIP Industries - world’s second-largest luggage maker - are higher by over 2 percent in mid-day trade after a weak start. On a YTD basis, the share a nearly flat - down only 4 percent - having recovered from April lows, and over the last one year, the shares are down a mere 2 percent.

Talking about the deal that has been in the making for some time, Dilip Piramal pointed out that the professional management of the company was not able to deliver in a segment where competitive intensity was rising, and bringing in private equity to run VIP made sense to him as ownership also ensure there is skin in the game. "We have continued our market leadership but in the last five years, we have not been doing well. I would say we have had a management crisis in the last two-three years and our market shares is going down. The younger generations are not interested in the management," said Dilip Piramal.

While the company has always had a professional managing director since 1984, Dilip Piramal said he found that "professional management was not being able to run it well", and the company incurred four quarters of losses last year. "For the interest of shareholders, we needed a change of management as well as a change of ownership," Piramal added. "The only aim of private equity is to increase value, they are dedicated to that, and are experts in that."

Piramal, who will be the Chairman Emeritus of the company after the conclusion of the deal, added that the decision is the 'best thing' for the company, and he will refrain from recommending any management changes to Multiples Consortium, as PE will run the company. The Piramal family will have a representative Director on the board of the firm, which will likely be Dilip Piramal's wife, to represent the promoter family. However, the Piramal family will have the option to bring down their stake to 8 percent in five years, with Multiples have the Right of First Refusal to his stake in the firm.

Dilip Piramal also pointed out that India is the only market where MNC players are not the market leader in the luggage segment, and VIP has had a long stint of leadership. However, last couple of years have seen the share price of VIP Industries taper off from an all-time high of Rs 774.60 per share, even though the management had projected a recovery, but it has not played out, Piramal added. When asked what prompted him to sell his stake at a lower price, Piramal said, "That is the tragedy. Two years ago the share was around Rs 700 per share and the market cap was around Rs 10,000 crore. We got an offer at that price but my management at that time said in 6-12 months the share price will go up by 50 percent and in two years even 100 percent. Unfortunately that hasn't happened."

Reacting to the deal, Renuka Ramnath Founder, MD and CEO of Multiples Alternate Asset Management had said, "Multiples is excited to lead the ownership transition of the very strong legacy business of VIP and further build on its rich heritage and unlock its next phase of growth."