Detailed Rationale

Crisil Ratings has revised its outlook on the long term bank facilities of VIP Industries Limited (VIL) to ‘Negative’ from ‘Stable’ while reaffirmed the rating at ‘Crisil AA-’. The short-term rating has been reaffirmed at ‘Crisil A1+’.

 

The revision in outlook factors in lower growth, continued liquidation of soft luggage inventory, and deterioration in average selling price due to consumer preferences on value products and intense competition in mid-price segment despite 13% volume growth seen in fiscal 2025. As a result, revenue, profitability and financial risk metrics were lower than estimates. The ratings continue to reflect the established VIP brand in the luggage industry, which is underpinned by a diversified product and revenue profile. The ratings also reflect the comfortable financial risk profile of the company and the absence of any long-term debt. These strengths are partially offset by exposure to intense competition from organized and unorganized players and the large working capital requirement.

 

Revenues during fiscal 2025 de-grew by 3% to Rs.2,178 crore on account of sharp contraction in realization by 16% while volume grew by 13%. Steeper than anticipated fall in realization was owing to liquidation of slow-moving inventories & aggressive pricing in e-commerce platforms even though volume growth momentum continued owing to robust sectoral demand. Revenue from premium and mass premium segment (54% of revenues) de-grew by 2% to Rs.1,176 crore while revenue from value segment (46% of revenues) improved slightly by 2% to Rs.1,002 crore in fiscal 2025. Revenue share from e-commerce platforms increased substantially to 31% in fiscal 2025 from 22% in fiscal 2024. Revenue share of other channels such as General Trade (GT), modern trade (MT) etc witnessed de-growth. To improve profitability for the retail channel and overall throughput per square ft, company during fiscal 2025, closed 133 stores comprising of both company owned and franchise owned stores. Going forward, VIP aims to focus majorly on top tier cities and have already implemented several initiatives to promote premium & mass premium brands. This along with calibrated price hikes across segments, new innovative launches in premium segment are expected to translate to revenue recovery over near to medium term.

 

Operating profitability witnessed a steep moderation to 4.04% in fiscal 2025 from 8.8% in fiscal 2024 on account of decline in realizations fueled by intense price competition, higher discounts given to sell slow moving soft luggage inventories and aggressive pricing in ecommerce platforms which impacted gross margins by 650bps. Further, higher warehouse related expenses such as rent, handling/detention expenses due to high inventory levels also impacted margins. Going forward, operating margins are expected to recover supported by expected improvement in relations, reduction in rental expenses as inventories have reduced substantially (from Rs.915 crore as on March 31, 2024 to Rs.698 crore as on March 31, 2025), shutting down of non-profitable stores, new launches in premium/ mass premium segments, calibrated price hikes and efforts being taken to improve relations in e-commerce platform. Bangladesh operations have attained a breakeven during FY 24-25 despite lower production, by aligning fixed cost with market demand, along with various other cost improvement initiatives. All these are expected to translate to significant improvement in operating margins in fiscal 2026 and thereon. Any delay in the expected turnaround of operating margins or continuation of intense pressure from competition on realisations leading to operating margins remaining subdued may have a bearing on the rating and hence will remain a key monitorable.

 

With reduction in inventory levels, working capital debt reduced to Rs.415 crore as on March 31, 2025 from Rs.533 crore as on March 31, 2024. Company does not have any long-term debt. Overall debt (including lease liabilities) reduced to Rs.751 crore from Rs.871 crore as on March 31, 2024. As a result, gearing improved to 1.22 times as on March 31, 2025 from 1.29 times in as on March 31, 2024. With expected improvement in profitability accruing to Tangible Net worth (TNW), and with further reduction in debt with further reduction in inventory levels, gearing is expected to sustain below 1.2 times. Owing to sharp contraction in operating profitability, adjusted interest cover moderated to 1.25 times in fiscal 2025 from 3.54. Over medium term, interest cover, is expected to improve to over 3-4 times. Likewise, Net Cash Accruals to Adjusted Debt (NCAAD), which moderated to 0.07 times in fiscal 2024 (fiscal 2024: 0.14 times) is expected to improve to over 0.17 times in fiscal 2026 and over 0.22-0.25 times from thereon.

Analytical Approach

To arrive at its ratings, Crisil Ratings has combined the business and financial risk profiles of VIP and its subsidiaries, given the common nature of business.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established brand in the luggage industry, supported by a diversified product range and strong distribution network: VIP is the world’s second-largest luggage manufacturer and holds a dominant position in the Indian luggage industry. Its brands cater to the mass and premium segments of the demand pyramid. The company has a diversified range of products, priced across a wide range. It derived around 60% of revenue in fiscal 2025 from upright hard luggage, followed by upright soft luggage (16%), backpacks (13%), duffel bags (8%), and ladies’ handbags (3%). In addition, it has products ranging across the premium (Carlton), mass premium (VIP, Sky bags) and value (Aristocrat, Alfa) categories, and thus caters to a larger spectrum of the luggage industry. Value brands i.e. Aristrocrat and Alfa have grown at healthy double digits, registering around 20% compound annual growth over the past four years. In addition, the company has seen significant sales through the e-commerce route, which has also helped augment the product and revenue profile and improve its market share Furthermore, VIP has a strong distribution network with nearly 14,000 points of sale in India, across 1,400 towns. Currently, it has 500 exclusive brand outlets (EBOs) and plans to add more over the near to medium term.

 

Comfortable financial risk profile: The financial risk profile remains comfortable, though it has been impacted adversely during the fiscals 2024 and 2025.  Despite net losses incurred in fiscal 2025, tangible networth was comfortable at Rs.614 crore as on March 31, 2025 (March 31, 2024: 675 crore). Owing to significant reduction in debt, adjusted gearing (including lease liabilities) improved to 1.22 times as on March 31, 2025 (from 1.29 times as on March 31, 2024). With expected further reduction in debt, gearing is expected to sustain below 1.2 times over the medium term. Owing to moderation in operating profitability, adjusted interest cover declined to 1.25 times in fiscal 2025 from 3.54. Over medium term, interest cover, is expected to improve to over 3-4 times. 

 

Weaknesses:

Exposure to intense competition from organized and unorganized players in the luggage industry: Realization and therefore value growth has been a key concern due to intense competition from the existing and new entrants. While revenue contribution from value brands growing at a healthy pace, that from premium brands has seen muted growth. Nevertheless, the focus on the e-commerce channel, launch of new products and widening of the geographical reach has helped VIP to continue with its leadership at a market share of 36% amidst tough market conditions, entrance of new players and intense competition. Share of revenue from the e-commerce channel increased sharply to around 31% in fiscal 2025, from 22% in the fiscal 2024 supporting increase in overall market share on a year-on-year basis.

 

Large working capital requirement: The luggage industry is working capital-intensive mainly due to large inventory maintained via several stocks keeping units (SKUs). As a result, gross current assets (net of cash) have been historically high at over 150 days. However, the company has been able to prudently align its inventory with payables, so as to limit incremental working capital expenses. As an exception, it did witness substantial inventory build-up during fiscal 2024.

 

The company has taken significant efforts to bring down inventory levels, from Rs 916 crore as on March 31, 2024 to Rs 698 crore as on March 31, 2025, and plans to bring down stocks further. That said, reduction in working capital debt and expected improvement in operating margins will be key monitorable.

Liquidity: Strong

In the absence of debt obligations, expected cash accrual of Rs 130-150 crore per annum, shall be more than sufficient to cover yearly capex of Rs 50-70 crore. While fund-based bank limit has been utilized to the tune of 65% as on March 31, 2025 over the past 12 months, incremental working capital expenses are likely to be met largely via internal accrual. The average unutilized fund based working capital limits of Rs.166 crore provides additional comfort to the existing liquidity position. Company had average unutilized non fund based limits of Rs.156 crore which is fully fungible with fund based limits. Even the average  commercial paper (CP) utilization during the last 12 months stood at around 46%.

 

Environment, Social, and Governance (ESG) profile

Crisil Ratings believes the ESG profile of VIP supports its already strong credit risk profile.

This sector can have a significant impact on the environment owing to high water consumption, waste generation and green house gas (GHG) emissions. The sector’s social impact is characterized by health hazards leading to higher focus on employee safety and well-being and the impact on local community given the nature of its operation.

 

VIP has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights

• The greenhouse gas (GHG) emissions intensity has increased slightly from 7.93 tCO2/revenue to 8.17 in 2024. However it is still lower than previous high levels of 11.01 tCO2/ revenue in 2022. The Company has taken up various steps like localization of zipper, replacement of high-pressure sodium vapor street light by low power LED lights, etc to reduce GHG emissions.
• The total waste generation has increased from 0.35 tonnes / revenue in 2023 to 1.31 tonnes / revenue in 2024. The company has started manufacturing hard luggage by using polypropylene and polycarbonate material which is 100% recyclable.
• The attrition rate for the Company has declined slightly from 17% in 2023 to 18% in 2024.
• VIP’s governance profile is marked by 50% of its board comprising independent directors, split in chairman and CEO position and presence of robust internal control systems and processes. It also has extensive disclosures.

There is growing importance of ESG among investors and lenders. The commitment of VIP to ESG principles will play a key role in enhancing stakeholder confidence and access to capital markets.

Outlook: Negative

The negative outlook reflects the moderation in the business risk profile on account of decline in operating margins led by contraction in realization owing to ongoing efforts to liquidate slow moving inventory, elevated expenses emanating from a high inventory level, and advertisement spends. While the financial risk profile continues to remain comfortable owing to the absence of long-term debt obligations, the recovery in operating margins and timely liquidation of inventory, shall remain key monitorable.

Rating sensitivity factors

Upward factors

• Significant and sustained growth in revenues driven by an increase in market share and operating margins recovering to around 13-15% on a sustained basis, supported by a ramp up in volumes and cost control initiatives.
• Improvement in financial risk profile with adjusted gearing (excluding lease liabilities) around 0.50 time leading to further improvement in key debt protection metrics

 

Downward factors

• Significant moderation in business performance or further decline in market share with operating margins remaining below 8% resulting in weakening of key debt protection metrics.
• Debt levels remaining high due to continuing stretch in working capital cycle or large debt-funded capex limiting the improvement in adjusted gearing

About the Company

VIP, a Dilip Piramal group company, was incorporated as a wholly owned subsidiary of Blow Plast Ltd (BPL) in January 1968. In fiscal 2007, BPL was merged with VIP, following restructuring within the group. The company manufactures hard luggage in India and markets hard and soft luggage sourced from India, China and its Bangladesh subsidiaries. VIP is the largest player in the luggage industry in India.

Any other information: Not Applicable