VIP tries to shed its baggage, with cost cuts, new designs
Before the Samsonites and Mokobaras, one Indian brand ruled the local luggage market: VIP. Eight out of 10 branded luggage pieces sold in the country were a VIP, a brand that came to define the luggage industry. That was then.
When challengers arrived with unique designs and novel features, VIP fell back, entering a long period of decline in margins and market share, prompting its owners to finally consider a sale. But, in a rethink, the promoters decided to give it another chance last year, hiring a new managing director to raise revenue and cut costs, in an attempt to revive the brand's fortunes.
The task is tough—Neetu Kashiramka is VIP’s third MD in as many years. The company’s margins have slumped to 9% and the company is sitting on a large pile of inventory, raising costs. With its promoters—the Piramal family—unlikely to step in and take charge, the business also faces a succession challenge.
“This organization is on the verge of transformation,” said Kashiramka, who was named
MD on 15 August 2023 and took over on 14 November. “There are a lot of challenges when it's a legacy organization; every cost will have a bulge.”
Mint reported in October that promoters were looking to sell the business, which has a market capitalization of ₹7,675 crore. That plan, however, has been put on hold as VIP focusses on improving its margins, before seeking a better valuation, a person with knowledge of the matter told Mint.
The company, which owns brands including Aristocrat, Skybag, Caprese and Carlton, alongside its flagship, VIP, has been battling a decline in revenue and loss of key personnel to both long-standing competitors and emerging startups.
and the money it earns from other investments. There are over 270 Indian companies as of December 2023 in which LIC owns at least 1% or more, the holdings being worth ₹13 trillion. As a shareholder at these firms, it was part of the voting decisions for a total of 1,965 proposals during AprilDecember.
The December-ended quarter saw the highest share of proposals (8%) being turned down by the insurer, compared to less than 2% each in the other two quarters. Among the directors-related proposals that the LIC voted down were the re-appointment of billionaire industrialist Nusli N. Wadia as director of biscuit-maker Britannia Industries Ltd and the appointment of Varun Berry as its managing director in August 2023. LIC attributed its dissent to non-compliance with regulatory listing norms and excessive remuneration, respectively, the filings revealed.
In November, LIC voted against the replacement of Karthik Natarajan as director of shaving-blade maker Gillette India Ltd, citing governance concerns. In July and December, LIC voted against the re-appointment of directors including Alicia Yi, Vivek Mehra and Sasha Mirchandani as directors of Zee Entertainment Enterprises Ltd., stating the company’s board, during their preceding tenure, had failed to address and adequately deal with governance concerns. The insurance behemoth also objected to the appointment of Adesh Kumar Gupta as a director over governance concerns.
Typically, large public shareholders, while investing in Indian companies, often follow LIC’s cues, given its 60% market share in the insurance industry and about 68% share in terms of equity holding among insurers.
Due to its “substantial say in the listed space, LIC’s voting may have not only protected the interest of thousands of common investors but also may have sharpened India Inc.'’s focus on governance,” said the head of a shareholder advisory firm.
Some of the proposals where LIC voted against included the re-appointment of celebrity adman Piyush Pandey as director of Fevicol-brand owner Pidilite Industries Ltd citing conflict of interest; re-appointment of a director on the board of car battery maker Amara Raja Batteries Ltd citing disproportionately high remuneration; and a change in employee stock option scheme and a loan proposal of Larsen & Toubro’s software arm LTIMindtree Ltd. over governance and transparency concerns.
However, LIC’s displeasure did not have much effect on the final outcome. Wadia is still non-executive non-independent chairman of Britannia, while Berry is MD. The replacement proposal of Natarajan at Gillette didn’t go through, but he has recently resigned with effect from 31 March and is no longer a director on Gillette board. Pandey is still a non-executive independent director on Pidilite.The resolutions on appointment of directors on Zee board didn’t go through and they are no longer the directors on the company’s board.
The data also showed that in 141 instances, LIC abstained from voting, while cautioning investors. Among such cases, it expressed its unhappiness over remuneration in 14% of the proposals and pointed out incomplete details in another 11% of proposals. Around 6% of the abstentions were because the insurer was prohibited from voting as it was a promoter.
Yet, Kashiramka, with her conservative Marwari family upbringing, knows the value of a good hustle, and with over 27 years as a finance professional, she has been keeping a tight rein on costs.
“They (promoters), anyway, want to sell this company, right? But my view is that I should be allowed at least three years for this transformation. So, minimum three years I have before they sell at a great valuation,” Kashiramka said in an interview.
This mean, she needs to make sure the organization “stays relevant”, grows profitably and attains margins aligned with the industry.
“But it's a legacy organization and it is like taking a U-turn of a large ship, like a Titanic. That's the challenge,” she noted.
Dilip Piramal, 74, is the chairperson of VIP Industries, while his daughter Radhika Piramal, an Oxford and Harvard Business School graduate, is the vice chairperson, based in London.
With a clear plan to elevate Ebitda (earnings before interest, tax, depreciation and amortization) margins to 15% by 2024-25, Kashiramka has a three-year goal of reaching 20%, which is closer to VIP's historical benchmarks.
Her strategy? Cutting costs, shifting to an asset-light model, and quicker product launches.
VIP’s biggest problem is no secret—it has steadily lost market share over the last decade to entrenched rivals such as Samsonite and Safari Industries, as well as new-age D2C brands such as Mokobara and startups like Acefour Accessories. Many of these brands are now led by former VIP executives.
In a span of five years, VIP’s market dominance has shrunk from 48% of the organized market to a 37% share. This means about four out of 10 buyers of branded luggage owns a VIP product.
“Can I make it five?,” Kashiramka asked. “It used to be eight, 15 years ago,” she said.
“As soon as I took over, I visited 20 markets…customers are not buying because they feel the product is not relevant for them,” she said.
In response, VIP is making its products more premium with features such as USB ports, and introducing advanced trolleys and vibrant colours. According to a Nuvama research report dated 24 March, VIP has stopped making 50 products that had few takers.
Kashiramka has brought on board a new designer with the mandate to create new products, “something the industry has not seen before”.
VIP is targeting 15-20% compound annual growth rate in revenue over the next three to five years. In 2022-23, the luggage maker clocked a revenue of ₹2,082 crore, up 61% year-on-year.
Kashiramka is exploring new product domains including backpacks and duffles, targeting a significant shift in VIP’s product mix towards a more even distribution between luggage and non-luggage items. Currently, 75% of
VIP’s business comes from luggage. While luggage replacement cycle has come down to two to three years, backpacks are replaced annually by most, she said.
Over the next three years, she expects the revenue split to change to 60-40 in favour of luggage. “Major raw materials consumed in manufacture of hard luggage are polypropylene and aluminium. Any substantial rise in their prices will adversely impact the company's margins and hence profitability. However, the company has been taking price increases and changing their sourcing from low cost countries India and Bangladesh versus China earlier, which will lead to structural gross margin improvement,” the Nuvama report said. It added that the company has held two vendor meets and addressed many issues.
VIP’s other major problem is its inability to correctly forecast trends. Soft luggage has become a major headache for VIP with the company sitting on ₹400 crore worth of inventory, because demand suddenly dropped. It used to sell 250,000 pieces of soft luggage per month until six months ago, but now it is down to 50,000.
19.4% of the proposals voted down on lack of clarity