IGI Logo

Inventory burden delays recovery

VIP Industries ( VIP IN) continue d to deliver poor performance in Q3FY26. E levated discounting (to clear slow -moving inventory ) and h eightened competition from D2C players curtailed growth momentum, resulting in a 6.2% revenue miss versus our estimates. Gross margin declined 1,707bps YoY to 29.5%, largely due to inventory provisioning of INR 543.2mn in Q3FY26 (INR 549.5mn in Q2FY26), marking the second quarter of elevated write -offs. VIP partner ed with ‘ Chennai Super Kings’ to strengthen appeal among the youth and drive brand -led growth. Post the leadership transition, limited strategic visibility and continued weakness in brand and channel performance keep us cautious on the near -to medium -term outlook. Accordingly, we trim our revenue estimates by 3.6%/2.2%/1.8%% for FY26E/27E/28E and expect VIP to report net profit of INR 609mn in FY28E. We maintain our TP at INR 430 , valuing the stock at 2 6x FY28E EV/EBITDA. We revise VIP to Accumulate from Buy

.

Competitive pressure and elevated discount constraint Q3 growth: Revenue decline d 9.4% YoY to INR 4,541mn. Limited uptick in physical chann els due to store consolidation and competitive pressure on e-comm erce from new entrants capped revenue growth for VIP. We expect revenue CAGR of 3.6% in FY25 -28E, driven by premium SKUs, strengthening supply chain and strong er traction across channel.

EBITDA margin to reach 10.2% in FY28E: Gross margin decline d 1,707bps YoY to 29.5% versus 46.5% in Q3FY25, largely due to inventory provisioning of INR 543.2mn in Q3FY26 (INR 549.5mn in Q2FY26), marking the second quarter of elevated write -offs . Operating leverage deteriorate d drastically resulting in EBITDA margin decline of 2,263bps YoY to -16.9%. EBITDA loss was INR 768mn, due to higher employee cost (3.2 % YoY) and other expenses (2.9 % YoY) . Adjusting for inventory provisions, gross margin was 41.6% and EBITDA margin stood at 4.8%. Adjust ing for exceptional items, VIP reported a loss of INR 1,241mn in Q3. We expect improvement in premium product mix and pricing discipline to help EBITDA margin to reach 10.2% by FY28E .

Downgrade to Accumulate from Buy; TP retained at INR 430: We expect VIP to deliver revenue/ EBITDA CAGR s of 3.6%/44.2% in FY25 -28E, with PAT reaching INR 609mn in FY28E, supported by renewed focus on brand premiumization, product innovation, channel transformation and process improvement along with a change in ownership. Performance has remained weak in the past two years amid management churn, intense price competition and persistent margin pressure from slow -moving inventor y. Post the leadership transition, strategic visibility is weak and brand and channel performance may take time to revive , keeping us cautious on the near -to medium -term outlook. Accordingly, we trim our revenue estimates by 3.6%/2.2%/1.8% for FY26E/27E/28E and expect VIP to report net profit of INR 609mn in FY28E. We maintain our TP at INR 430 and value the stock at 26x FY28E EV/EBITDA . Factoring in the recent run up in the stock price , we downgrade VIP to Accumulate from BUY. Key risks are any failure to regain market share, intensifying competition and sharp volatility in raw material prices.

Please refer disclaimer at Report
SEBI Registration number is INH000000933