IGI Logo

Strong recovery ahead, Maintain BUY

Summary

VIP Industries Q1FY23 results were stronger than our forecasts. Its net sales increased by ~2x to Rs5.9 bn on account of strong wedding season and reopening of schools and colleges. Despite gross margin falling by 101 bps YoY to 49.9%, its EBITDA margin expanded 1112 bps to 17.4%. EBITDA jumped ~7x YoY on a lower base to Rs1,029 mn. It reported adjusted net profit of Rs541 mn in Q1FY23 compared to Rs25 mn in Q1FY22. We raise our FY23/FY24 sales estimates by 5% each. Our FY23/FY24 EBITDA forecasts stand revised upwards by 6%/11%. We continue to value the stock at a PER of 42x FY24 EPS to derive a target price of Rs774. Given the industry tailwinds, we maintain our BUY rating on the stock.

Key Highlights and Investment Rationale

* Stronger headwinds to facilitate growth: VIP aims to focus on premium and mass segments which will enable to reap benefits of increase in sales growth backed by recovery in demand. Despite sharp rise in prices of key inputs, its gross margin fell only 101 bps YoY to 50% in Q1FY23 and the company aims to increase it to 55% in coming quarters. Looking ahead, its EBITDA margin is likely to improve further as its sales improve over FY23-24 and contribution from captive operations at Bangladesh plant increases.

* Outlook: We remain structurally positive on the growth prospects of luggage industry. With strong top-line growth in Q1FY23, we believe further improvements should follow - especially in the handbags and school bags segments. Captive operations in Bangladesh give VIP a strong advantage on raw material front compared to its peers. Also, its leadership in luggage industry and brand positioning remains unmatched. Hence, we have a positive view on the stock.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://idbicapital.com/offerdisclaimer.asp
SEBI Registration No. U65990MH1993GOI075578

Above views are of the author and not of the website kindly read disclaimer