This luggage brand will make ace investor Rakesh Jhunjhunwala richer by 38% - Should you buy for big gains?

Even when the majority of stocks had disappointed big bull Rakesh Jhunjhunwala during 2018, there was only one company where the gains were quite a treat to watch. VIP Industries, which is a leading luggage maker, was the only stock in 2018 that gave Jhunjhunwala his fruits for investment. In fact, the gains in VIP was over whopping 30%. Guess what! The glory days of VIP does not end here, as Jhunjhunwala is set to be richer ever than before in this stock. If you also want to bag heavy returns in your kitty, then VIP is a stock to buy for big gains.

As on December 2018, Jhunjhunwala holds about 3.69% stake in VIP with 5,215,000 equity shares worth Rs 249.1 crore. VIP gave over 33% return to Jhunjhunwala in 2018. 

Four reasons why VIP is a stock to buy as per AMBIT Capital:-
1-Successfully evolved from a commodity to a brand! 
In the commoditised $3 billion luggage industry, VIP was number 1 for the past 5 decades with over 1500 SKUs in luggage, backpacks and ladies handbags across price points. Strong distribution over 11,000 touchpoints, superior quality, product innovation, strong after-sales with a lifetime warranty in new launches and heavy brandex-aided transition from luggage company to a brand. This allows it to charge 20-30% premium over unbranded players. 

2-Power of 3! 
VIP’s recent success resonates with turnaround strategy of Samsonite over CY09-15. Through a combination of clear brand segmentation (avoiding brand cannibalization), distribution expansion (ramping up focus on MT, e-commerce), heavy brandex and WC improvement (implemented ToC in FY14), VIP delivered robust 25% EBITDA CAGR over FY14-18 VS 9% growth over FY00 - 14. Simply put, Product + Distribution + Brandex = VIP’s success mantra. 

3-Samsonite has strongest brand pull BUT product scores over brand! 
Whilst Samsonite India has the highest brand equity, channel checks indicate luggage product scores over brand as customers are spoilt for choice. Moreover, roping in celebrities like Hrithik Roshan (VIP), Varun Dhawan (Skybags) and Alia Bhatt (Caprese) have increased VIP’s brand pull. Increasing leisure and business travel are other strong tailwinds for industry and brands.

4-Near Multiples don’t aptly build brand-and-opportunity confluence! 
Success in Skybags and Caprese amid rising penetration and market share gains in luggage should drive 24% and 29% of VIP’s revenue and EBITDA CAGR over FY18 - 23E. Given the change in perception from a ‘utilitarian product’ to a ‘style statement’ and strong growth runway, DCF best captures long-term value creation.

Karan Khanna, Amandeep Singh Grover at Ambit have given Buy call with a target price of  Rs 653 on VIP. They have built this target on high-teen revenue growth over the next decade as penetration and brand salience risk. 

Currently, the valuation of VIP is at 25.3x FY21E P/E is at 17% discount to other brand discretionary players. 

On Monday, the share price of VIP was trading near Rs 474 per piece on BSE. If we take the target price of Ambit and the current price of VIP, then Jhunjhunwala is set to gain a massive 38% returns ahead. VIP is one golden Midas for Jhunjhunwala. If you plan to invest in equities, then VIP can be your best bet!