VIP’s Bangladesh Operations – Game Changer or Non-event?
VIP has recently announced capex plan of Rs.200 crore for FY24 and a significant portion of that is planned towards manufacturing bagpacks, handbags and soft luggage in India.
If we go back in the history, VIP had announced successful completion of manufacturing facilities in Bangladesh with eight years of efforts during FY20. As per the management, this was supposed to provide significant advantage due to low cost of production and could help in sourcing almost entire soft luggage from Bangladesh. VIP has time and again showcased its Bangladesh operations as major game changer due to supposedly lower cost of production.
By the time Bangladesh Operations were streamlined, it was quite evident that trend has changed towards Hard luggage (hard to soft ratio of 1:1 in FY20 to 2:1 in FY23), here Bangladesh has no cost advantage due to low labour intensive product. The same resulted in all industry players incurring capex for Hard luggage in India (including VIP) during FY22 to FY23. However, Bangladesh plants were still perceived advantageous to VIP for catering to soft luggage, bagpacks and bags.
The recent capex plans in India are justified by the VIP management – to supply in certain regions to balance between logistics and production cost advantages. While the capex in India might be required; Bangladesh plants which were time and again presented as major game changer for the company, do not seem to be so. To best of my understanding, Bangladesh plants could have been used interchangeably for soft luggage, bag packs and bags; had total landed cost actually been low.
In my view, VIP management could not judge the industry trend & cost matrix and ended up spending significant management bandwidth and capital in Bangladesh operations, with benefits not proportionate to the efforts.
Disclosure: Invested in VIP’s competitor and hence may be biased. I am not SEBI registered Advisor/Analyst. The information provided above is for education purpose only.
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