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  • As luggage bags shed their traditional utilitarian tag, here is the stock to buy

    Publish Date: October 05, 2018

    Musician Carlos Santana once said, ‘Everybody sooner or later has to drop the luggage and the baggage of illusions.’ In the stock market, however, luggage bags are money-making opportunities you should pick up with all your might. In 1971, a small company was established in India by Dilip Piramal. Since then the company has sold over 60 million pieces of luggage to people around the world. This is the story of VIP Industries, famous for its brands such as Caprese, Alfa, Aristocrat, Buddy, and Carlton. It is now Asia’s No. 1 luggage manufacturer. After a decline of over 30% in the company’s share price in the last two months, it is time to get bullish about this proven wealth-generator. Read on to know why we are so optimistic.


    The recent price correction offers another opportunity to invest in the stock. Fundamentally speaking, VIP Industries has been consistently reporting strong quarterly results. While unfavourable macroeconomic factors may affect earnings, we continue to have a positive stance on the performance of the stock. As a market leader, VIP has shown robust volume growth and its delivery continues to be strong. We have recommended a buy with a target price of Rs 515 at 39 times the company’s FY20 earnings.

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    Our interaction with VIP Industries management indicates that its five brands are doing well. Skybags is now the largest luggage and backpack brand in India, with over 50% share in the backpack market. Aristocrat, a value brand, has witnessed a good year and is easily the fastest-growing brand. The company's premium brands such as Caprese and Carlton give high margins.

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    Across channels, VIP Industries shows promise. The company's hypermarket channel continues to deliver robust growth. Consumers in India have a preference for affordable luggage and convenience of a modern shopping format. In e-commerce, VIP is experiencing a slow pick-up, with many orders coming from Tier II and III towns. The general trade channel has also registered good sales growth. Moreover, the popular Canteen Stores Department (CSD) channel remains stable.

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    In recent years in India, luggage items and handbags have reached the status of lifestyle products. They are no longer just boring utility products. A number of factors such as a boost in business and leisure travel, higher disposable income, and organized retail have led to increased demand for luggage.

    The demand for brand names has risen. Consumers are aspiring for goods that are branded and count as status symbols. VIP Industries, with its strong brands and wide retail reach, has been and will remain one of the largest beneficiaries of this change. Do remember, though, that macroeconomic variables can play spoilsport for the company. Nevertheless, under the current situation, we estimate VIP to clock a revenue CAGR of 18% and an earnings CAGR of 21% over FY18–20. This will be underscored by strong operating margins and return ratios.

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    Disclaimer: Investments in securities market are subject to market risks, read all the related documents carefully before investing. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. By referring to any particular sector, Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing. Such representations are not indicative of future results. Click here for the detailed disclaimer.