MANAGEMENT DISCUSSION AND ANALYSIS REPORT A. INDUSTRY STRUCTURE AND DEVELOPMENT DOMESTIC LUGGAGE The Luggage industry kept up its growth trajectory this year, due to continued increase in travel, new luggage and backpacks advertising campaigns, strong new product launches and new distribution schemes. Travel expenditure among households has risen which also fuels growth. Branded bags and luggage are gaining customer brference around the world including India. The key growth drivers are increasing disposable incomes, increasing fashion consciousness and aspiration levels. Bags and luggage are becoming status symbols as they are considered lifestyle products helping wider acceptance of fashionable and high end luggage. Soft luggage uprights, polycarbonate uprights and backpacks have registered growth whereas traditional categories like hard luggage suitcases continue to decline. This shift is due to change in consumer brferences towards the convenience of light and wheeled travel products, away from heavier products. This is happening across all geographies including the country's heartland, which used to be the stronghold of traditional luggage. Backpacks and handbags both registered the fastest retail growth during the year. Backpacks are mainly targeted at people who travel frequently and college students who want to maintain a casual image. This category saw tremendous growth as the company increased its focus with new launches and advertising. Backpack sales have grown substantially in the last three years, strengthening overall short haul category sales and suggesting an increasing affinity of consumers towards young and youthful categories. Hypermarket channel continues to witness the strongest growth amongst all channels suggesting that Indian consumers are showing brference towards affordable luggage and convenience of modern shopping formats which are clean and air conditioned. E-commerce is another channel to look for in the near future as it rapidly expands with Indian consumers. Affordable luxury brands continue to grow well in India. Introduction to business accessories and leather collection through the "Carlton" brand did exceedingly well. Brand Carlton will keep expanding in this space going forward. LADIES HAND BAGS Cabrse, the ladies handbags brand, has seen positive growth in line with the company vision to become the largest ladies handbags brand in India within few years. Robust advertising campaigns, along with differentiated and relevantly priced products tailored for each distribution channel have fueled the growth this year. Cabrse is now available at more than 600 points of sale across the country across all meaningful distribution channels including select Company run stores, franchisee stores, multi brand dealers and leading Department store chains like Shoppers Stop, Lifestyle, Central and Pantaloons, as well as e-commerce platforms. Focus is continuing to expand distribution in meaningful locations and channels. Cabrse has established itself as a purveyor of international fashion and witnessed heightened brand awareness by delivering successful advertising campaigns with Alia Bhatt, the brand ambassador, that have resonated with Indian consumers. The brand will continue to introduce latest international fashion trends and to live up to the promise of delivering high quality and affordable fashion catering to the discerning Indian woman. MOULDED FURNITURE Moderna is perceived to have superior quality and brmium image but the moulded furniture business is declining due to intense competitive brssure. Your Company's products continue to enjoy a brferred position in consumer segment particularly in Northern, Western and Southern India where it has a major share in Institutions and hire markets. The company is planning to restructure Moderna business to ensure that lower sales do not affect profits of the company. SUPPLY OF PRODUCTS The "Theory of Constraints" (TOC) is an overall inventory management philosophy introduced by Mr. Eliyahu M. Goldratt since the 1970s to help organizations continually achieve their goals by better availability of supplies in tandem with demand. TOC helps the entire supply chain from raw material vendors to manufacturing plants to central warehouse to sales points and end-consumers by improving availability and managing inventory. TOC has been successfully implemented in all manufacturing facilities of the company and is being gradually rolled out to selective vendors of the company. TOC has also been successfully implemented at Company run stores which has significantly improved availability of products at stores to minimize sales loss. EXPORTS AND INTERNATIONAL OPERATIONS Due to subdued market conditions in UK, Europe and Asia Pacific, the International Business of the Company declined during the year. While sale of private label business has grown, branded goods sales declined in select geographies in Europe. B. OPPORTUNITIES AND THREATS LUGGAGE With six brands operating at various price points and categories, VIP industries now in an unique position to cater to all strata of society. With Carlton, we appeal to the young business travellers. Skybags today is fast becoming an iconic youth brand. Brand VIP remains the first choice of Indian family travel, while Aristocrat and Alfa are providing value to consumers in hyper markets and trade channels respectively. Hence, today if there is a true luggage company of the country, it has to be VIP Industries Ltd. MOULDED FURNITURE Moulded chairs may continue to experience sales and pricing brssure due to intense competition. C. SEGMENT / PRODUCT WISE PERFORMANCE LUGGAGE Polycarbonate luggage has been the flavor of this year. Indian consumers have discovered the safe yet lighter mode of travel in a big way. Soft luggage continues to grow and traditional polypropylene suitcases continue to decline. Skybags today is the undisputed leader in the short haul category in this country. Youth of India has given a big Thumbs up to this brand. Skybags backpack advertisement featuring Varun Dhawan has become very popular. "Carlton" brand continues to do well in the top end of the segment. With latest brand ambassador Hrithik Roshan on board, brand VIP is all set to get a stylish makeover and we are positive that the brstigious brand of the country will keep performing the way it has done over the years. D. OUTLOOK Indian luggage and bag industry is large with plenty of opportunities. We would continue to separate the brands in terms of pricing, target consumer and channel so that minimal cannibalization happens between them and they keep growing by getting major share of the market. E. RISKS AND CONCERNS Weaker rupee against USD continued the brssure on sourcing costs for soft luggage including uprights, duffels and backpacks. Soft luggage across product categories is the highest contributor to sales of the Company. During FY 2015-16, rupee remained weak and the Company's buying costs of soft luggage products remained high in rupee terms although the company was able to negotiate and limit cost increases in dollar terms due to weakening of Chinese Yuan against USD, lower international raw material prices and scale of operations. Prices of main raw materials for hard luggage remained high during major part of year except last quarter of the financial year 2015-16. The strength of the Company's brands and its dominant market share position in the Indian luggage industry, enabled price rises which partially but not fully offset these high inputs costs. F. INTERNAL CONTROL SYSTEMS M/s. Suresh Surana & Associates LLP, Chartered Accountants, were appointed as the Internal Auditors of the Company for maintaining internal controls to safeguard Company's assets against losses from unauthorized use, to ensure proper authorization of financial transactions, to evaluate the current state and identify performance gaps, to prioritize improvement opportunities, to provide a high degree of assurance regarding the effectiveness and efficiency of operations, to assess the reliability of financial controls and compliance with laws and regulations. The Company has a budgetary control system to monitor all expenditures against approved budgets on an ongoing basis. The Internal Auditors submit their reports to the Audit Committee every quarter. The management considers and takes appropriate action on the recommendations made by the Statutory Auditors, Internal Auditors and the Audit Committee of the Company. All significant changes, if any, in the accounting policies during the year, have been disclosed in the notes to the financial statement. G. FINANCIAL PERFORMANCE SALES: The Revenue from Operations and Other Income of the Company for the year ended 31st March, 2016 was at Rs. 1218.75 Crores (Previous Year Rs. 1050.29 Crores). EXPENDITURE: The Company continued its focus on cost management initiatives. PROFIT: Profit after Tax for the year under review amounted to Rs. 63.41 Crores (Previous Year Rs. 47.86 Crores). H. HUMAN RESOURCE DEVELOPMENT & INDUSTRIAL RELATIONS The Human Resources department of your company has effectively partnered the business in the year under review to register good growth in line with the company's targets. Through structured Human Resource processes your Company has been able to attract and retain the right talent at all levels. The company embarked on a journey last year to become a Great Place to Work where employees trust the Company they work for, take pride in what they do and enjoy the company of the people they work with. The Company strongly believes that an engaged workforce is critical in achieving its business goals and building a sustainable organization. Under this initiative, over the last one year your Company did considerable work around Rewards & Recognition, Training & Development, Compensation & Benefits and Work Life Balance. A positive work environment, employee driven initiatives and exciting career prospects have helped keep attrition under control, inspite of aggressive external market factors. Your Company had been in a long drawn dispute with workers over the retirement age in your Company being 56 years and the matter was referred to Industrial Tribunal, Nashik. The court has given the ruling in your Company's favour. The employee strength as on 31st March, 2016 is 2744. |