CRISIL has upgraded its rating on the long-term bank facilities of VIP Industries (VIP) to ‘CRISIL AA/Stable’ from ‘CRISIL AA-/Positive’ while reaffirming its ‘CRISIL A1+’ rating on the short-term bank facility.
The upgrade reflects the expectation of steady improvement in VIP’s business performance over the medium term, driven by healthy revenue prospects for organised players in the luggage industry following implementation of Goods and Services Tax and VIP’s dominant market position in the industry, with strong brands and an extensive distribution network. Operating margin should remain steady, with improving sourcing efficiency, increase in captive capacity, cost control initiatives, and pricing flexibility. The financial risk profile and liquidity should improve over the medium term, supported by steady growth in accrual and moderate capital expenditure (capex), Crisil said in a statement.
These strengths are partially offset by dependence on Chinese imports in the soft luggage segment, intense competition in the industry, and large working capital requirement, it added.
Crisil believes VIP’s business risk profile will continue to be supported by its robust market position, healthy demand prospects for luggage, and improving operating efficiency. The financial risk profile should remain strong because of healthy cash accrual and low reliance on debt.
VIP Industries manufactures hard luggage and markets soft luggage imported from Bangladesh and China. VIP is the largest player in the luggage industry in India.
On a consolidated basis, the company’s net profit rose 0.3% to Rs 32.92 crore on a 2.6% rise in the net sales to Rs 412.27 crore in Q2 September 2019 over Q2 September 2018.
