ICICI Direct has given Buy recommendation for VIP Industries with a target price of Rs. 420 in its research report issued on May 26, 2021

ICICI Direct’s research report on VIP Industries

Luggage being a proxy play to the travel & tourism industry was among the worst impacted sectors owing to pandemic in FY21. Gradual reopening of economy and higher push towards domestic travel had perked up demand for luggage during January-March 2021. However, reimposition of lockdown restrictions derailed the revenue recovery. VIP reported revenue growth of ~4% QoQ (down 22% YoY to Rs 243.0 crore in Q4FY21). Gross margins expanded 530 bps QoQ to 43.8% but still continue to be significantly below pre-Covid levels (52-53%). This is mainly due to sale of lower margin products (value segment), higher discounting to liquidate existing inventory and significant increase in RM prices. However, the company was able to materially reduce operating overheads by 30% (employee & other expenses down 39% & 8% YoY, respectively). This led VIP to report positive EBITDA of Rs 3.2 crore in Q4FY21. Other income was at Rs 16.3 crore (vs. Rs 5.5 crore in Q4FY20), which includes profit on sale of land and building (Rs 8.9 crore).

Outlook

Given VIP’s healthy balance sheet and strong manufacturing capabilities in Bangladesh (soft luggage), we expect it to be able to effectively manage in the challenging environment. We maintain BUY rating on the stock with a revised target price of Rs 420 (35x FY23E EPS, earlier TP: Rs 370).

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