Will Vijay Kedia’s bet on VIP Industries prove to be expensive?

At 19, he left Kolkata for Mumbai to chase his market dreams.

He lost big on Hindustan Motors shares early on, but in 1988, he struck gold with Punjab Tractor, his first big win. Later, a smart bet on ACC shares let him buy his first Mumbai home.

Over 30 years, Kedia shaped his unique "SMILE" strategy. He picks stocks that are Small in size, Medium in experience, Large in hopes, and Extra-large in market scope. This plan zeros in on small and mid-cap firms set to grow big.

It's helped Kedia pick stocks that grow faster and bigger than its contemporaries.

According to Screener.in, Kedia currently holds about 10 stocks in his portfolio, with a net worth of almost ₹950 crore.

Today, we dive into his latest investment, which had the market spectators and commentators alike divided…

The VIP Industries bet

Vijay Kedia recently made the news when he bought VIP Industries.

According to an article on CNBC-TV18, Kedia Securities acquired 7.25 lakh shares or 0.5% stake in the company at ₹545.97 apiece. He bought the stock on 23 September 2024.

This movement did influence the market sentiment towards VIP as on the 24th September the price jumped by 5% to ₹580.

It was, however, a temporary jump as prices fell to ₹567 on 25 September and to ₹548 on the following day.

As of 27 September, the price was ₹555, which means the 5% gain was lost in just two days.

The noteworthy thing here was that the trade came with a warning.

On 24 September, an account on social media platform X (formerly Twitter) highlighted for his followers that Kedia has made this big purchase.

Surprisingly, Kedia responded to the tweet with what sounded like a warning for investors who wanted to ride the share alongside him.

He hinted that the stock was trading at a price higher than it should be, which left many investors, who were looking to coattail him, in a lurch.

Let’s have a look at VIP to understand better where the company stands.

VIP Industries: Asia's largest luggage manufacturer

VIP is a leading luggage and travel accessories company in India. With a strong brand presence and a wide range of products, the company has been a prominent player in the domestic market for several decades.

The company is a leader in Asia and secures the second position globally in manufacturing and retailing luggage, backpacks, and handbags. In India's luggage market, characterized by a small number of dominant players, VIP has commanded a leadership position.

Also Read: How VIP is trying to shed its baggage

An estimated market share of about 38% underscores VIP Industries' dominant role and its ability to thrive in a competitive yet consolidated industry landscape.

The company has a diverse product range, catering to both hard and soft luggage segments. Their portfolio holds everything from school bags and trolleys to suitcases, executive cases, and handbags, marketed under well-known brands like VIP, Skybags, Carlton, Aristocrat, and Caprese.

In FY24, VIP expanded with 51 new offerings in the premium and mass premium categories, 26 additions to their value segment, and an impressive 174 new products in the backpack line.

The company operates through 10 owned manufacturing facilities in India and Bangladesh.

For more such in-depth analyses, read Profit Pulse.

Beaten at its own game

With a market cap of ₹7,884 crore, VIP has a current book value of about ₹48 per share.

Its only competition or peer in the market is Safari Industries and it makes sense to compare the two for better understanding of the vertical. Especially since Safari has been a standout performer in recent years.

Here is a table to get a top view of how the competition is panning out.

Mind you, this is not a representation of which one of the two is better, neither is this a recommendation.

It’s a simple comparison of numbers to have a more objective insight into the industry.

When you look at these numbers, it starts making sense why Kedia responded to the tweet on X with his input.

VIP's current valuation will have any investor filled with doubts.

The stock is currently trading at a P/E of a gigantic 13,363x… A number one may have never heard of. Having said that it needs to be put into context that this number is more a result of a recent collapse in earnings as shown in the chart above.

The below chart showing a stock price comparison between Safari Industries and VIP Industries, shows it clearly that VIP was beaten at its own game:

In the same period after the pandemic, while Safari was able to push through and get a lead, VIP failed to gear up and was left far behind.

A look at VIP’s financials will drive this point home.

Analyzing VIP Industries' financials

To take a look at other financials of VIP Industries, the Ebitda (earnings before interest, taxes, depreciation, and amortization) has shown a mixed pattern for the last 10 years. Take a look:

 

The Ebitda grew at a CAGR of 9.2% in the last 10 years. But in the last five years, it showed a decline of -2.74%,

The profit after tax (PAT) for the year ended March 2019 was ₹145 crore and for the year ended March 2024 was ₹54 crore, which again implies a sharp decline in the last five years.

The travel and leisure industries, along with the school bag section of the business took a huge hit in the pandemic as countries shut their borders and most people working from home across the globe.

Rise, roar, reclaim!

Since the end of the pandemic, VIP has been on a rebound, which it would appear that VIP is yet to capitalise upon.

Atleast when one looks at it from the point of view of the financials. The stock price has however moved up quite a bit. And there’s a reason for that.

Let’s look at the historical stock prices to understand the company’s market standing. 

In the company’s annual report 2023-2024, they have revealed what they call “Roadmap to Rise. Roar. Reclaim".

The company has identified three strategic priorities for reviving growth.

Product transformation, brand premiumisation and process transformation.

VIP also made changes to its leadership team, starting with the big one: It appointed Neetu Kashiramka as managing director designate in August 2023 and subsequently CEO in November 2023.

The same report also outlines the next goals VIP has set to revive things and get the edge back.

⦁ Increase market share to grow faster than the industry.

⦁ Market share gain from H1 FY2024-25

⦁ Tapping new price points with the help of a premium portfolio

⦁ Improved EBITDA ambitions from H2 FY25 onwards

⦁ Optimised inventory with reduced debt and interest cost

These are big goals, and it remains to be seen whether the company delivers on them.

Kedia's Investment: A strategic move or a gamble?

Kedia's investment in VIP can be looked at from multiple angles.

It could be a strategic move, given VIP's turnaround plans. This, backed by a strong market position, the company's brand recognition and extensive distribution network. Something that could provide a solid foundation for future turnaround.

Moreover, the growing Indian middle class, with increasing disposable income and a renewed vigour for travel post the pandemic, could continue to drive demand for luggage and travel accessories.

Or it could be a case of too high an expectation, especially after Kedia's tweet about the stock's high valuations.

Conclusion

Vijay Kedia's investment in VIP has both, potential upside and downside risks. While the company's strong brand and market position, and its plans for turnaround are appealing, the stock's valuation and potential risks must be carefully considered before taking the jump. Investors should conduct thorough due diligence, analyze the company's financials, and compare its valuation to industry benchmarks before making an investment decision.

Ultimately, the success of Kedia's investment will depend on whether VIP “Rise. Roar. Reclaim" follows through and the company is able to get its edge back.

Note: We have relied on data from www.screener.in and www.trendlyne.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.

Suhel Khan has been a passionate follower of the markets for over a decade. During this period, He was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.

Disclosure: The writer and his dependents do not hold the stocks/commodities/cryptos/any other asset discussed in this article.