Is it true that VIP Industries, as a part of its strategy, is focusing on the mass category, a sector in which Safari has been slowly gaining market share? Additionally, do you contemplate venturing into new markets or proactively engaging with customers who express a desire to minimise reliance on China, thereby expanding your export basket significantly?
The value segment, as mentioned before, was a strategic focus and a major growth driver for volumes as well as share gain for the year. The segment had accentuated tail wind and VIP's play in the segment pre-pandemic was not to its full potential. Unorganised players - mainly operating in the value segment - have been yielding to branded players since even before the pandemic, which was a major tailwind for the organised sector. Our competitive PP strategy play was aimed at tapping this growing market. It is visible in our value brand growth of over 75 per cent compared to pre-pandemic and its salience going up to 38 per cent compared to 25 per cent pre-pandemic. Also, the international business reported significant growth this year with the highest-ever revenue and over double its pre-pandemic portfolio. The bottom line is our growth this year was driven by deeper penetration in existing geographies. In the coming year as well, we will focus on deepening our presence in existing high-potential markets. Beyond that, from FY25 onwards we may look to expand in US and European markets. Having said that, our focus to expand international business would be more from a branded point of view and not white-label manufacturing.
How do you view the trend where consumers are opting for lower-price or budget brands like Aristocrat and Sky Bags? Is it somewhere hampering VIP Industries?
The branded luggage sector in India is still in its early stages of penetration, a major growth driver is new consumers and therefore the higher demand for the low-priced value segment. To maintain its dominance in the sector, VIP Industries must be the choice of brand for value-seeking consumers. The brand ‘Aristocrat' plays the leading role in tapping into this opportunity. At the same time, we see good demand for the mass premium and premium segment ahead. Our power brands - VIP, Skybags and Carlton, play a pivotal role in tapping into this demand.
We are seeing consistent growth across our brands catering to both premium and value customers. In fact, our premium brand - Carlton - reported the highest growth across brands this year. Even other industries be it cars, phones or even household items have been reporting rapid pick up in the premium segment demand.
Give us some insight into the demand for domestic and international travel. Because I feel there's outsized demand for both?
You are right. There is a growing demand for both domestic and international travel. ICRA has predicted growth of 8 - 13 per cent for domestic air passenger traffic in FY24 (145-150 million) - surpassing pre-Covid levels in FY24. International passenger traffic is expected to surpass pre-Covid levels in FY23 itself and then exceed its peak traffic level, which it touched in FY19. That said, Global aviation company Boeing forecasts India's long-term passenger growth rate of nearly seven per cent annually over the next 20 years. Travel booking websites are reporting an upward trend in bookings this summer (domestic and international) despite airfares being 60 -70 per cent higher than pre-pandemic levels. A research report by the travel search engine Kayak points to a sharp uptick in summer travel searches in India.
As outbound travel from China has ebbed - airline and hotel companies around the globe are tempting Indians to travel and stay abroad with discounts and buy-one-get-one-free deals. While railway traffic recovery is slow, bus travel has seen growth at an unusually rapid pace in India post-Covid as per Inter City Smart Bus cofounder. Considering all these data points, we expect the luggage sector as a whole to grow in the range of 10-11 per cent and within that branded segment to grow 15 per cent+.
What are your expansion plans in terms of store expansions and domestic manufacturing? Also, can you give us an insight as to what impact this will have on your top line?
As far as our store portfolio is concerned, we exited FY23 with a store portfolio of 500 stores. For the year FY24, we aim to add another 300 to take our portfolio to ~800 stores. With respect to adding manufacturing capacities - we spent Rs 100 crores in FY23 and would further, invest Rs 200 crores in FY24 to create capacities for the next three years. We forecast peak revenue potential of this capex would be around Rs 3,200 to 3,500 crore. That said, our expansion would be in the form of greenfield as well as brownfield in India as well as existing SEZ locations in Bangladesh. Currently, our capacities are running at almost 100 per cent and we have pegged our capacity additions in the future to have a utilisation of ~80 per cent. We conduct a bi-annual exercise called LTCP - Long term capacity planning - wherein we continuously monitor demand for a rolling three-year period. Based on demand, we evaluate which part of the country and what categories the output of this exercise was undertaken. Our capacity expansion is planned based on this output at the most optimised location.
