Healthy growth momentum to continue
VIP Industries (VIP) reported healthy set of numbers for Q3FY18 with a revenue and PAT growth of 12.1% & 68.5% YoY. Aided largely by appreciation in INR and operating leverage, the EBITDA margins improved by 349bps YoY to 12.2%, which was encouraging. Going forward, we expect healthy growth momentum to continue, considering the robust outlook of Indian organized luggage industry, the company’s market leadership, its wide and expanding distribution network, increasing focus on new age brands and constant focus on innovation & brand building. We recommend a BUY on the stock with target price of Rs 383.
Q3FY18 Result Update:
* VIP’s revenue grew by 12.1% YoY to Rs 338cr, driven by healthy growth in domestic luggage (largely volume led). However, International business reported a marginal de-growth. The company has been able to capture market share from unorganized players (due to narrowing of price differential between the organized and unorganized segments post GST implementation) and from organized players (helped by effective pricing strategy and regular supplies).
* EBITDA surged 57.2% YoY to Rs 41.2cr, while EBITDA margins improved by 349bps YoY to 12.2%, aided by 415bps YoY improvement in gross margins (at 51%; helped by appreciation in INR) and benefits of operating leverage. PAT grew by 68.5% YoY to Rs 26.9cr, driven by higher other income and lower effective tax rate.
* Other Key Highlights: i) Skybag, VIP, Carlton and latest collection of Aristocrat brands performed well during the quarter. Within the fastest growing category of backpacks (where Skybag is a leading brand) the company has launched Aristocrat range for value segment and VIP range targeted at professionals; ii) The company is looking to expand cautiously in Bangladesh due to challenges on the infrastructure front.
Outlook & Valuation:
We expect VIP’s revenue and PAT to grow by 11.8% & 25% CAGR over FY17-20E. India’s organised luggage industry is set to grow at a healthy pace, led by rising disposable income, increasing women workforce, growing interest of people in tourism and rising preference for branded products with growing acceptance of handbags as a lifestyle product. GST implementation would result in meaningful shift in market share from unorganized (currently over 50%) to organized players in the coming years. This would help VIP further improve its market share (from ~50% at present) and maintain its dominant position in organized Indian luggage industry. Expanding reach, increasing focus on fast growing new age brands (Carlton, Caprese, Skybags), constant focus on innovation and brand brand-building should enable the company to further strengthen its brand equity and drive its volume growth. Margin expansion would continue at a steady pace, led by improved mix (rising share of premium brands) and operating leverage. Leverage free balance sheet, improving return ratios and steady and rich dividend payouts should provide valuation comfort. We recommend BUY on the stock with a target price of Rs 383.
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