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Revenue growth sustains; margin recovery expected

VIP Industries reported a steady improvement in revenue momentum in 2QFY27, with consolidated revenue growing 15.2% YoY to INR4.7b, marking the second consecutive quarter of growth after seven quarters of decline. Revenue growth was primarily driven by new product launches, while gross margins expanded despite raw material inflation led by premiumization. However, profitability remained under pressure, with the company reporting an EBITDA loss of INR331m. The ongoing transformation under the new management team is beginning to reflect in the revenue trajectory, supported by new product launches, premiumization, and brand-building initiatives. While the initial phase of the transformation focused on stabilizing operations and restoring growth, the next phase will be centered on regaining lost market share, improving premiumization, and margin expansion through focused efforts.

Revenue growth of 15.2%; growth momentum sustains

Gross margin expanded to 46.7% (+1,610bp YoY and +520bp QoQ), despite elevated input-cost pressures (RM cost up ~11% YoY). This improvement was driven by the company’s continued focus on premiumization, while also carrying out focused price increases and cost-out plans. EBITDA loss was reported at INR331m and EBITDA margin at -7.1%, improving 1,910bp YoY but declining 530bp QoQ. Employee expenses remained elevated, growing 21% YoY. The company had taken a price hike of ~5% in 1H, part of which was taken in September, and its impact would be seen in 2H. Management is targeting a further increase in gross margins in 2HFY27, and remains focused on achieving EBITDA break-even by 4QFY27. We expect operating leverage to gradually improve as the company's growth initiatives gain traction and volumes scale up.

Valuation and view: Reiterate BUY; turnaround likely in FY27

We expect VIP to gain market share and deliver industry-beating growth, driven by sustained new launch momentum, product upgrades with rich features leading to premiumization, and continued inventory rationalization, pricing, and cost-out actions. We remain optimistic about VIP’s growth trajectory and believe the key challenges are largely behind the company. We have trimmed our estimates and reiterate our BUY rating with a revised TP of INR300 (implying 55x FY28E EPS). Risks: local competition, significant rise in input costs, and prolonged disruptions at the Bangladesh facility.

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