The Grand Indian Equity Sale – Buy ideas📝

2018 was rocking year; I travelled to 4 countries and within India visited 5 new cities. And it was not just for me, 2018 was euphoric for people, companies, markets; there was optimism and feel good all around.

And it’s during these trips that I began to notice the range of colourful, smart suitcases and bags that people were walking around with; and I stumbled on to VIP Industries – India’s favourite luggage company. In 2018 the stock of VIP Industries was on a steady climb from Rs. 300+ to Rs. 600+. I added it to my list of shares to buy when the equity market was down.

Share price movement of VIP Industries over the past 2 years: Source Moneycontrol.com
Share price movement of VIP Industries over the past 2 years: Source Moneycontrol.com

The company with over 4 decades of operations has a steady set of numbers to show for the last 5 years as highlighted in their latest annual report 2018-19.

To highlight some key figures…

Y-o-y growth in revenue and profits - VIP Industries
Y-o-y growth in revenue and profits – VIP Industries
Y-o-y growth in ROE and EPS - VIP Industries
Y-o-y growth in ROE and EPS – VIP Industries

Last financial year 2018-19 began as a great year for them; but ended on a weak note and Q1 of the current financial year 2019-20 was challenging too; but the company still managed to put out a good set of numbers. 

Q1 FY 2019-20

The first quarter of the year – April, May, June is most important for the company as it is the main season for travel and marriages, says the Executive Vice Chairperson Ms. Radhika Piramal. But Q1 of this year saw a decline is air travel, Jet Airways shutting down, the general election, decline in market sentiments with fears of a recession, decline is consumer spending – all this resulted in a growth in revenue of only 9% from the prior quarter, while in 2018, the growth was 25%. And moving in tandem, the stock price is down too.

The first quarter of this year was notable as the company crossed Rs. 100 cr profit in a quarter for the first time (last year same quarter was Rs. 94 cr), but there was an exceptional loss of Rs. 48.5 cr due to fire at their Ghaziabad warehouse, bringing the reported net profit down. But the warehouse is fully insured and the loss will be written back, once the claim is received, says the management. Q1 also had a negative cash flow from operations as there was an increased spending on inventories.

There are some positives as highlighted by the management – due to the tariffs imposed by US on China, India has become an important market for China and hence the company was able to negotiate better terms with the Chinese suppliers. Their subsidiaries in Bangladesh have commenced operations and will see better results from them in the coming quarters. Introduction of GST has resulted in unbranded players increasing prices as they have to pay tax now; so the gap between unbranded and branded has narrowed and it is hopeful that the customers will upgrade to branded wares.

Q2 ending in September does not hold much promise, will have to wait to see the results. It’s a company that will do well when there is an upturn in the market sentiments; people will not spend on new luggage in times of gloom and doom.

And now the stock is on sale at a discount of 30% from the highs of prior year. But as experts caution, price is not the only factor to be considered while buying stocks. If you are searching for value, you must know what the so called intrinsic or true value of stock is and its a value buy, only if it is available at a price below the intrinsic value. And to calculate the intrinsic value, you must know what the company owns (assets), it’s liabilities, how much cash the company is generating and forecast its future growth. It’s is not an easy exercise and while the above data can be derived from the financial statements, there is no value to account for intangible factors like – the brand name build over the years, the distribution network in place, the know-how of the management, the market share dominance etc. People can quote different intrinsic values for the same stock and ultimately value is just an opinion (it is based on several assumptions). Since this post is not about finding the intrinsic value of a stock, we will leave it at that.

Here are some other shares that are at a discount

[1] TVS Motors

[2]Federal Bank 

[3] Quess Corp

[4] ITC

A word of caution, the quality of management is a criterion of paramount importance, everything else is secondary to that. There are lot of companies going belly up due to mis-management and the individual investor (the common man) always comes to know a little too late !!

To end, a word from Buffet; he has said that you don’t go to a sale and buy a little bit of everything you see, just because they are selling at a discount. You should already have  a carefully researched list of stuff that you want to buy and use the discount sale to get a good bargain. Be extremely choosy even during a sale. Else you will end up with a lot of junk, you will later wish you hadn’t bought in the first place. Now that is a good strategy !!

Once again…Please do not forget to do your due diligence before any investments (equity investments are subject to market risks).

Till next post, take care !!

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