Expect Demand to reach 100% of the pre-covid level in FY23E – VIP Industries
Update on the Indian Equity Market:
On Thursday, Nifty closed lower at 17,304 (-0.1%) led by PSU BANK (-1.2%), PRIVATE BANK (-1.2%), and BANK (-1.1%) which were the top losers while the only gainers were OIL & GAS (+0.8%) and FMCG (+0.3%).
Among the Nifty50 constitutents, the top losers were ICICIBANK (-2.2%), AXISBANK (-2.0%), and ULTRACEMO (-1.9%) while TATACONSUM (+2.7%), HDFC (+1.9%), and ONGC (+1.7%) were the top gainers.
Edited excerpts of an interview with Mr. Dilip Piramal, Chairman of VIP Industries with Economic Times on 16th February 2022:
- The Company took a staggered 5% price hike in FY21 and is planning to take another 5% price hike in Mar/Apr 22.
- Hard luggage is the fastest-growing sector because it is slightly cheaper than the upper end of soft luggage.
- In hard luggage, there are two types – the polypropylene molded luggage and the Poly-Carbonate Acrylonitrile Butadiene Styrene and polypropylene is cheaper which is selling extremely well.
- In soft luggage, backpacks are one category that had the least growth because schools have not opened up fully. The school segment is very big for backpacks and hence the sales are low. However, uprises and full trolleys and the rest are doing comparatively well.
- 1st quarter of the year is usually the best for the company; however, they have missed these in the last 2 years in FY21 and FY20 due to the pandemic. The company is hopeful that 1QFY23E will be in full swing and the company should be back to the pre-Covid level.
Asset Multiplier Comments
- We believe that the 3QFY22 earnings were a decent performance despite omicron restrictions from VIP Industries. We expect a demand revival from 1QFY23E due to the pent-up travel demand, reopening old schools and colleges, reduction in COVID-19 restrictions for international travel.
- With demand green shoots visible, we expect VIP Industries to be a key beneficiary of the increased movement of leisure and business tourists both domestically and internationally. We are positive about the stock.
Consensus Estimate (Source: market screener website)
- The closing price of VIP Industries was ₹ 657 /- as of 17-February-2022. It traded at 109X/51x/ 37x the consensus EPS estimates of ₹ 6/ 13/ 18 for FY22E/FY23E/FY24E respectively.
- The consensus target price of ₹ 766 /- implies a P/E Multiple of 43x on FY24E EPS estimate of ₹ 18/-.
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