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Strategy reset showing in result now; turnaround in FY27

VIP Industries’ 1QFY27 print was below our estimates; consolidated revenue grew 3.0% YoY to INR5.8b after seven straight quarters, reporting losses at the EBITDA/PAT levels. The increase in revenue was fueled by new product launches with 80+ SKUs contributing ~50%. April and May witnessed weaker performance due to subdued wedding-related demand, while growth recovered strongly in June. The company has taken initiatives for brand building by revamping its websites, influencer campaigns, and outdoor advertising, which will boost upcoming growth. VIP has optimized inventory across the company and channel network, reset brand and pricing guardrails, onboarded a strong leadership team, and re-energized the channel ecosystem. VIP has reversed the inventory provision of INR123m. Management expects stronger growth in Q2, with margins also expected to improve and turn around going forward. With Mr. Atul Jain’s leadership and ongoing premiumization trends, VIP is poised for margin recovery and market-share gains in our view.

Revenue growth of 3%; guides for higher growth in 2Q

VIP’s 1QFY26 consol. revenue grew 3.0% YoY to INR5.8b. The offline channel delivered flat growth, while e-commerce grew in mid-single digits. April and May witnessed weaker performance due to subdued wedding-related demand, while growth recovered strongly in June. The company has taken initiatives for brand building by revamping its websites, influencer campaigns, and outdoor advertising, which will boost upcoming growth. VIP has reversed an inventory provision amounting to INR123m in 1Q. We believe conditions should stabilize in 2HFY27, supporting revenue growth of over 14% in FY28.

Gross margin dips to 41.4% due to higher RM prices

Gross margin dipped to 41.4% (-360 bp YoY & +420bp QoQ) due to higher raw material prices (Polypropylene- PP and Polycarbonate- PC). The operating loss came in at INR111m, leading to an EBITDA margin of -1.9% (-630bp YoY, but +1,700bp QoQ). This was on account of higher employee costs (+16.9%) and other expenses (+7.8%). There is a one-time adjustment in the COGS of INR123m for the reversal of inventory provisioning. With the new management prioritizing inventory cleanup and re-establishing price discipline, we believe EBITDA will turn around in 1HFY27.

Valuation and view: Reiterate BUY; turnaround likely in FY27

We expect VIP to gain market share and deliver industry-beating growth, leveraging the strategic drivers, which include:

1) a celebrity-led campaign to drive brand recall

2) product upgrades with distinctive features (such as a smart Bag-Tag)

3) store rationalization (closure of low-ROI EBOs). We remain optimistic about VIP’s growth trajectory and believe the key challenges are largely behind the company. We reiterate our BUY rating with a TP of INR430 (implying 41x FY28E EPS). Risks: local competition, significant rise in input costs, and prolonged disruptions at the Bangladesh facility

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