For luggage maker VIP, GST brings bagful of gains

VIP Industries's chairman Dilip Piramal is among a handful of industrialists in the country who do not see Goods and Services Tax (GST) regime as something that has dealt a short-term jolt to the economy.

"Benefits of GST are already coming in. There has been much adverse propaganda over GST. The new tax regime is going to raise India's gross domestic product (GDP) by about 5% over the next five years. "For organised players like us, it has abolished multiplicity and cascading of taxes. We used to pay excise duties and VAT. And then in places like Mumbai, you had to pay octroi which was a breeding ground for corruption leading to sometimes 12 hours delay in the shipments," said Dilip Piramal, chairman and managing director of VIP Industries.

For VIP Industries, country's largest luggage-maker, the figures speak for itself.

While several corporate have complained of introduction of GST leading to disruptions in distribution and stifled demand, VIP industries saw a 27.43% jump in consolidated net profit at Rs 23.83 crore for the second quarter.

The luggage industry was paying 12% excise duties and 14% VAT, leading to 26% burden.

"Since for luggage, retail margins were high, the effective excise burden at the retail level was just 5%. This plus a VAT of 14% led to a total tax burden of 19%. So, when we were put in the 28% GST bracket initially, it was a bit harsh on us. But the good thing is that it has been revised. This showed the government was responsive removing three-quarters of the items," Piramal told DNA Money at the sidelines of the Horasis Asia meeting, organised by the Indian Chamber of Commerce.

Piramal don't see any change in the structure of the industry with respect to the share of organised and unorganised players post GST regime.

Piramal is bothered about the growing cost uncompetitiveness of China that might impact his sourcing strategy. While in the short term, it might upset his sourcing costs, in the long term, China's weakness would lead to strengthening of India's production base, he said.

"Today, about 70% of my production and sales comes from China. But producing in China is becoming expensive. I believe in the next 10 years China would cease producing all the consumer goods that they export. And I believe a lot of it would move to either India, Bangladesh and Vietnam," he told the audience.

With a 50% market share in the domestic market with a host of brands like Skybags, VIP, Aristocrat, Carlton and Caprese, Piramal can afford not to get excited about competition, domestic as well as external.

The company, however, need to reinvent the mother brand VIP.

"We might need to modernise a little bit. We are working on it," he said, adding that there are plans to merge Aristocrat and Alfa.