Prabhudas Lilladher has given Buy recommendation for V.I.P. Industries with a target price of Rs. 726 in its research report issued on Nov 25, 2021

Prabhudas Lilladher’s research report on V.I.P. Industries

Our interaction with management of VIP reveals 1) price hike of 4.5% has been taken from 15th Nov to counter inflationary trends 2) capex plan of ~Rs500mn odd is on the anvil to expand capacity at Bangladesh and Nashik and 3) ocean freight is at abnormally high levels due to scarcity of containers resulting in SKU shortages. However, VIP has tied-up with contract manufacturers to counter this problem temporarily. Anticipating a normal sales season in 1QFY23, inventory stocking is expected in 2HFY22 (out of Rs3.2bn of inventory on BS, FG component is ~60%). We increase our target P/E multiple to 40x (35x earlier) as 1) Samsonite’s Oct-21 sales (acts as a lead indicator for 3Q performance) was just 29% lower than the comparable pre-COVID month (Oct-2019) indicating sharp demand recovery from 2nd wave and 2) long term margin expansion is on the cards as share of own manufacturing is expected to rise to 60% (40% currently) post capacity expansion.

Outlook

We maintain positive bias on VIP and retain BUY as we increase our TP to Rs 726 (Rs621 earlier).

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