It's a story of competitive rating by the markets across geographies of two peers in the same space.

On Thursday the stock of the US company — Samsonite — closed 7.7 per cent below its issue price on its debut on the Hong Kong Stock Exchange. The VIP Industries counter here eased by around 1.5 per cent.

Analysts said that the economic slow down and rising raw material cost weighing down both the luggage players. Samsonite is focussing Asian market including India where they have stiff competition from VIP Industries, a domestic luggage maker.

P/E comparison

Mr Kishor Ostwal, CMD of CNI Research said: “VIP is currently trading at 12 times its book value, and at a P/E ratio of 25. This is far more expensive than many A group shares with excellent track records. Incidentally, Samsonite shares are trailing at 16.5 PE of 2011 whereas VIP is trailing at 25 times.”

Samsonite's IPO was priced at a P/E ratio of 18.3 based on forecast 2011 earnings. The market share of VIP in the domestic market is around 58 per cent in terms of revenue, and Samsonite has around 33 per cent, according to industry insiders. “International investors appear apprehensive about the earnings outlook of the luggage industry,” Mr Ostwal added.

Analysts view

According to UBS analysts, Mr Ajay Nandanwar, and Mr Gautam Chhaochharia, another significant slowdown could negatively impact VIP Industries' revenue growth. It had reported a seven per cent drop in revenue in FY-09 (when the economy slowed significantly), compared to a 30 per cent increase in FY08 and a 23 per cent rise in FY10.

“Raw material/product procurement costs made up 46 per cent of VIPI's revenue in FY-11. This compares to 52 per cent in FY-07 and 42 per cent in FY-10. A steep increase in raw material prices may be difficult to pass on as sustained inflationary pressures court consumers' real spending power,” they said.

Mr Rakesh Jhunjhunwala has 6.43 per cent stake in VIP. The prompters hold 43.94 per cent stake in the company.

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