Sell V.I.P. Industries Ltd For Target Rs.245 by Prabhudas Liladhar Capital Ltd
BS cleansing over
We cut our FY27E/FY28E EPS estimates by 8% and downgrade VIP IN to a SELL (earlier REDUCE) with a TP of INR245 (36x FY28E EPS; no change in target multiple) as we fine-tune our interest expense assumptions given a debt of INR4,108mn (D/E 1.4x) on the BS. Adjusting for exceptional cost of INR530mn, VIP IN’s operating performance was better than our estimates with EBITDA loss of INR292mn (PLe EBITDA loss of INR445mn). While BS cleansing is over with no inventory provisions expected from here on, adjusted GM of 42.5% in FY26 indicates elevated competitive pressure. After assuming a recovery in GM to 47.5%/49.0% with an EBITDA margin of 10.7%/13.4% in FY27E/FY28E respectively, the stock trades at 45x FY28E EPS. We believe turnaround benefit is already priced in and anticipate a delay in recovery given heightened competitive environment and sharp inflation in RM prices. Downgrade to SELL.
Top-line falls by 11.7% YoY:
Top line decreased 11.7% YoY to INR4,362mn (PLe INR4,245mn) as compared to INR4,942mn in 4QFY25.Gross profit decreased 29.9% YoY to INR1,625mn with margin of 37.2% (PLe of 38.4%).
Adjusted EBITDA/PAT loss at INR292mn/INR764mn:
EBITDA loss widened to INR822mn as against an EBITDA of INR65mn (1.3% margin) in 4QFY25. Adjusting for the one-time costs of INR230mn and inventory liquidation support expenses of INR300mn, EBITDA loss stood at INR292mn (PLe EBITDA loss INR445mn). After adjusting for exceptional income towards insurance claim pertaining to fire incident at Guwahati of INR5mn, loss for the quarter stood at INR757mn (PLe loss INR701mn) as compared to a loss of INR316mn in 4QFY25.
Inventory provisioning exercise comes to an end:
VIP IN’s cumulative provision on slowmoving inventory stood at INR1,226mn in FY26, largely in line with INR1,219mn reported in 9MFY26, indicating no incremental write-offs in 4QFY26. Further, VIP IN has reduced the SKU count by 25-30%, provided liquidation support to channel partners and optimized channel inventory (all channels at 60 days, in comparison to 90days+ in Sep). As corrective measures are in place, we expect inventory days to decline to 80/75 in FY27E/FY28E respectively.
Online channel remains a battleground, but offline shows signs of improvement:
VIP IN’s standalone online revenue declined 36%/34% YoY in 1HFY26/2HFY26 respectively. However, after having declined 11% YoY to INR7,500mn in 1HFY26, the de-growth in standalone offline revenue was arrested largely in 2HFY26 (revenue down by 3% YoY to INR7,240mn) amid steps taken to improve the channel connect.
VIP IN conducted backpacks/luggage roadshows in 20+/10+ cities in Jan/Mar respectively. Led by these efforts, GT secondary sales have increased by 35% YoY while the total number of retailers billed have witnessed a surge by 30% YoY in April-26. While off-line channel is showing signs of recovery led by improvement in channel connect, we believe arresting the de-growth in online channel could be a bit challenging given it is plagued by heightened competition and mushrooming D2C brands.
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