Losses for two years: How VIP Industries can return to profitability 

Luggage maker VIP Industries Ltd continues to face significant pressure from intense competition, aggressive discounting and inventory write-downs, which have weighed on profitability over the past two years. The company has clocked quarterly losses in the last two years. The company has also logged losses in the last two fiscal. Brokerage Prabhudas Lilladher is of the view that gross margins are unlikely to return to the earlier 50% level in the near term. It believes the company’s recovery will depend largely on improving its cost structure.

The brokerage expects some relief from operating expenses, particularly professional fees and miscellaneous costs, although several other expense categories are likely to remain elevated.

Tougher cost structure than Safari Industries

VIP Industries' deteriorating gross-margin profile reflects the impact of aggressive competition and discounting. While both VIP Industries and Safari Industries have increased advertising spending to defend their market positions, Safari benefits from a more efficient manufacturing and cost structure.

Safari's freight expenses are lower, supported by manufacturing facilities in Halol in western India and Jaipur in the north. Its employee-cost structure is also leaner, while rental expenses are considerably lower than those of VIP Industries.

The brokerage listed out some avenues where the company faces challenges and suggested steps that could lead to a improvement in its financial performance.

Professional fees 

Professional fees averaged around 1.8% of sales over the past three years, compared with just 0.5% between FY19 and FY23. The increase was largely linked to VIP Industries’ engagement with consulting firms, including BCG, to address supply-chain and inventory-related challenges.

With the inventory optimisation exercise largely completed and a new management team in place, the brokerage expects professional expenses to decline going forward.

Advertising spending

Advertising and promotion expenses have averaged 7.6% of sales over the past three years as the company battles intensifying competition. The growing presence of direct-to-consumer luggage brands is expected to keep the competitive environment challenging.

As a result, the brokerage does not expect VIP Industries to significantly reduce its A&P spending in the near term.

Freight remains a structural cost challenge

Freight costs have averaged 9.5% of sales over the past three years. The brokerage noted that luggage is a relatively bulky product, meaning higher volumes, particularly when driven by discounting, can also increase logistics expenses.

VIP Industries' manufacturing facilities in Nashik and Bangladesh provide relatively cost-efficient access to western and eastern markets, although the network is not fully optimised. Freight costs for serving northern and southern India are likely to remain comparatively higher.

Limited scope for employee and job-work cost savings

Human-resource procurement costs have averaged 4.5% of sales over the past three years. Since volume growth is expected to remain an important driver, the company's reliance on outsourced labour is likely to stay high, limiting the scope for substantial cost reductions.

Similarly, job-work expenses have averaged around 2% of sales, with the brokerage seeing limited room for meaningful improvement as outsourcing requirements remain linked to volume growth.

Miscellaneous expenses 

Miscellaneous expenses averaged 2.4% of sales over the last three years. While VIP Industries does not separately disclose the precise composition of this cost head, the brokerage believes expenses related to the change in senior management, due diligence and legal matters surrounding the Carlton brand may have contributed to the elevated level.

This category, therefore, offers one of the more significant opportunities for cost reduction going forward.

VIP Industries path to profitability

The brokerage believes VIP Industries has two broad avenues to improve profitability: Restore gross margins or further optimise its operating-cost structure.

However, both routes face challenges. Cutting advertising expenditure could hurt the company's competitive position, while taking price increases to improve gross margins appears difficult in an intensely competitive market.

Employee costs also offer limited room for further savings. The expense declined 16.5% year-on-year to Rs 2,25.3 crore in FY25 following workforce reductions in Bangladesh, and fell another 3.2% to Rs 218 crore in FY26. This leaves relatively limited scope for further significant reductions.

The brokerage sees some potential for cost optimisation in rental and freight expenses, although the benefits are expected to be moderate. A more meaningful improvement could come if VIP Industries increases the proportion of products manufactured in-house, which could support a structural recovery in gross margins.

The brokerage expects VIP Industries' revenue to grow at a 9% CAGR over the next two years, with gross margins projected at 42.5% in FY27E and 46% in FY28E. Despite the expected improvement, the company is estimated to post an adjusted loss of Rs 187.1 crore in FY27E, narrowing sharply to Rs 6.9 crore in FY28E.

The brokerage has retained its Sell rating on VIP Industries with a target price of Rs 246, valuing the company at 1.75x FY28E sales.

Revenue rises after seven quarters

The company in its Q1 earnings release said it posted revenue growth of 3% y-o-y and 33% q-o-q. It guided for higher growth in Q2. The company said it recorded growth for the first time in seven quarters. It also said the company registered a
revenue uptrend within two quarters under the new management team. In the second half of 2025,  the company's board confirmed the appointment of Atul Jain as the new Managing Director, effective from 23 September 2025 for a five-year term. Jain is an alumnus of IIT Delhi and IIM Calcutta, with prior leadership roles at Aptech Ltd and senior positions at Godfrey Phillips India, Bharti Airtel, Coca-Cola, and Samsung Electronics.

Meanwhile,  VIP Industries reported net loss widening to Rs 53.6 crore in Q1 FY27 from Rs 13.1 crore in the corresponding quarter a year earlier, as higher raw material costs put pressure on margins.

The luggage maker’s revenue from operations rose 3% year-on-year to Rs 578 crore compared with Rs 561 crore in Q1 FY26. On a sequential basis, revenue increased 33%, marking the company's first year-on-year revenue growth in seven quarters.

Despite the recovery in sales, the improvement failed to translate into operating profitability. EBITDA swung into a loss of Rs 11.2 crore during the quarter, compared with an EBITDA profit of Rs 24.7 crore in the year-ago period.

The sharp decline in operating performance highlights continued pressure on the company's cost structure, with elevated raw material expenses weighing on margins. The combination of subdued growth and higher input costs continues to remain a key challenge for VIP Industries as it seeks to restore profitability.

The Q1 performance also underscores the difficulty of converting the recent improvement in revenue momentum into earnings growth, particularly amid intense competition and pricing pressure in the luggage market.