Yes, I’m still understanding why Mr.Vijay Kedia took position in falling market player.
Q2 FY25 Concall Summary
Business Updates
- In past six months the inventory has reduced by Rs 174 crores and market share has improved from 36% to 40%
- Volume growth was at 18% yoy for Q2 FY25
- Ecommerce continues to perform well with over 50% growth while traditional offline channel continues to under perform
- Hard luggage continues to be the fastest growing category with over 60% of overall revenues contributed from this category
- The Bangladesh factory is running well and should come in profit from Q3 onwards
Participants
Avendus SPARK
PL Capital
Centrum Broking
Investec
Sunidhi Sec
B&K Sec
QnA
- The inventory was liquidated at a lower cost because it was old inventory
- Going forward will focus disproportionately on brand VIP which has 800 bps higher gross margin than Aristocrat
- There are a lot of new D2C players entering the industry and they have a lot of money to burn which incumbents don’t have
- One more quarter of inventory woes remain post which will return back to normal
- For offline channels will give additional warranties and especially for VIP brand will keep pricing discipline even on online portals
- The quantum of slow moving inventory in soft luggage along with back packs and duffel bags is around 7 lakh units with value of around Rs 180 crores
- Modern trade has seen some de growth while ecommerce channel has grown much faster
- In H1 volume growth is 8% while value growth is 0% and this difference will narrow quite a lot in H2
- For FY25 clean up of the inventory is a must otherwise it will entail additional warehousing costs and also lead to a risk of inventory write off
- Once inventory liquidation is complete will focus more on profitability
- The BCG project is a 15-month project and two waves are over and currently in the third wave and the additional two waves will happen post the current one. This project should lead to a benefit of Rs 250 crore to the bottom line
- The insurance companies have not yet indicated anything much on the Bangladesh claim and small amounts are coming every quarter with Rs 5 crore expected in Q3 as well
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When I see the result, everything looks perfect i.e. Their debt is reducing, they have been able to increase their market share. Moreover, as they predicted they reduced their inventory.
Finally, their Bangladesh Plant has also become profitable, however, the stock price has kept falling?
Can you state few reasons why you think it might be happening?
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couple of reasons that i can think of:
- lack of clarity on who will lead the company into the future given that there has been a lot of management flux of late.
- impact of more irrational competition entering in the form of new startups since luggage is on the radar for disruption now.
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Q4 results yet to be declared . Sudden spurt in price… Any good news in the offing ? !
On D street chatter yesterday there was talk of some corporate development in the company, any idea what this could be?
While we all know now that stock is rising mainly on the news that promoter is selling his stake, however, is there any way to understand how much we can expect the uptick due to this news?
Can anyone direct me to some resource.
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Can anybody please help me understand the impact of Carlton brand name discontinuation due to recent court ruling.
It contributes 5-6% to revenue but what is the impact on margins given it was high margin premium product? In my view in FY25 it contributed ~Rs.130 Cr to Revenue and being premium product it should have EBITDA% of 15%-20%, hence it is Rs.20 Cr EBITDA impact minimum, which is substantial. But stock seem to be not reacted news.
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I would like to understand from a learning perspective i.e., why the VIP stock has not crashed.
After the sale of 32% by Promoters, it was evident that the open offer would come at Rs 388 per share, which was approximately a 15% discount from the closing price of 480.
However, I didn’t see a huge drop, and the stock is still at 450 .
Am I not correct that a person is better off selling his stake at 480 rather than participating in the open offer?
In case, someone believes in a turnaround, Due to the open offer at 388, the stock will definitely try to come at that price, thus won’t selling right now - makes much more sense
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The correct answer would be - ‘none of us know’.
We may pretend we know - here are some pretenses …
- Market believes the governance hence forth will be better and hence performance too, so it is okay to pay a premium (over 388) now for latching on to future growth. Similar discrepancy in Manappuram - Bain Capital and cohort open offer will be at 236, but scrip is trading in 270s.
- No one will sell to the PrivateEq companies at 388 when the open offer is presented. So market is happy trading at these levels.
- Big money holders/operators/traders are able to keep the price afloat in this zone
… may be more that others can list…
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My understanding is the following
a. An open offer is triggered when a buyer acquires a substantial amount of shares (I think the threshold is either 25% or 26%) and a change in control. In this case the private equity consortium has acquired a 32% stake and has control so an open offer is triggered
b. The acquirer is obliged to make an open offer to other shareholders to buy them out at the same price that they have acquired the majority stake - so in this case Rs 388
c. The shareholders are not obliged to sell - irrespective if the price is at a premium or a discount.
d. In this case it is at a discount, no shareholder is likely to sell at the discounted price - or at least no small shareholder. Perhaps a much larger shareholder may want to do so for liquidity reasons if they are holding a large block and want to exit / or they want to exit since change of control. It is unlikely though - if the private equity entity sees value at Rs 388, most shareholders will likely continue holding (big and small) and this is probably why you see a slight premium in the market
e. After the period of the open offer lapses, life just returns to normal - with the acquirer either having more or the same amount of shares that they bought from VIP
It is just a market mechanism - so not much to read into this in my view.
A similar scenario played out in Nazara Technologies a few weeks ago.
Disc. Not invested in VIP but tracking as am invested in Safari. Not a registered SEBI analyst or providing any investment advice
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Thanks for the response.
But it’s quite interesting when the CEO himself came on TV and said that it will take a while before the VIP brand can stabilize.
Market Mechanism can be, at times, just beyond any understanding.
P.S.: I sold all my shares the moment I heard about the open offer - thus might be biased.
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