VIP Industries

17 Feb

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/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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08 Nov

Expect Revenues to go up due to easing travel restrictions – VIP Industries

Update on the Indian Equity Market:

On Monday, NIFTY closed at 18,068 (+0.9%) led by PSU BANK (+2.2%), CONSUMER DURABLES (+2.1%), and OIL&GAS (+1.8%). Those in red were PRIVATE BANK (-1.0%), PHARMA (-0.7%) and HEALTHCARE (-0.6%). Top gainers in NIFTY50 were TITAN (+4.5%), IOC (+4.5%), and BAJAJFINS (+4.2%). The top losers were INDUSIND BANK (-10.5%), DIVIS LAB (-5.2%), and M&M (-1.4%).

Excerpts of an interview with Mr. Dilip Piramal, Chairman, VIP Industries with CNBC-TV18 on 02nd November 2021:

  • The company had a sales budget of Rs 5000 mn in the 1QFY22. However, 1QFY22 performed poorly due to the second wave of the covid-19 pandemic but things improved in September due to the opening up of restrictions.
  • During the first 15 months of the pandemic, there were hardly any sales, hence the company did not import from China. In 1QFY21 company had more inventory than what they sold in FY20.
  • Supply has been disrupted very badly, till pre covid levels the company was dependant on China heavily. The Chinese supply has become very uncertain and expensive and hence the company is facing a lot of issues concerning supply in the market. It intends to reduce its dependence on China for raw materials.
  • There is a lot of turbulence in the market from the supply side due to higher freight costs and inflation, problems with imports of, both, raw materials and finished goods from China.
  • Freight costs have gone up, which affects the company significantly as luggage being a voluminous product, freight is a considerable cost.
  • Usually, the 3rd quarter is the best quarter for the company with the wedding and travel season in full swing. With the gradual opening up of economies and travel, the company expects good revenues going forward.
  • The company is positive and expects 3QFY22E will be better than the 3QFY21. The company expects revenue to be in the range of -10% to +10% from the 3QFY19 levels which is Rs 4,300mn.
  • The company hasn’t taken any price hikes as of now but they would be looking at taking price hikes very shortly. Revenues on an MoM basis should be better than in earlier months.
  • All the manufacturing of the hard luggage which accounts for 47% of the 2QFY22 revenue is done in India. Not too much manufacturing in India for soft luggage.
  • Mass and premium segment bags were affected since a majority of sales occurred in the malls and malls were badly affected in the pandemic.

Asset Multiplier Comments

  • The Ministry of Civil Aviation removed restrictions on domestic flight capacity and allowed to operate flights at full capacity. Luggage being the proxy to the travel and tourism industry we think VIP Industries is well placed to meet the increasing demand.
  • Looking at the capex plans of expanding the capacity of Bangladesh and Nashik plants, price hikes, margins delivery, and product launches we expect VIP Industries to perform well going ahead.

Consensus Estimate (Source: market screener website)  

  • The closing price of VIP Industries was ₹ 634/- as of 08-November-21. It traded at 111x/50x/37x the eps estimate of ₹ 5.7/12.6/17.1 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 646/- implies a Price/earnings multiple of 33x on FY24E EPS of ₹ 19.6/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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