Prabhudas Lilladher's research report on V.I.P. Industries
VIP's top-line increased 9.0% YoY to Rs5,642mn (PLe of Rs6,317mn) amid slowdown in discretionary spends. Diversified channel mix (except for general trade growth in all other channels was robust) and strong growth from brand VIP (repositioning done in April) has helped the company tackle slowdown concerns better. Nonetheless, given the current situation, we cut our sales estimates by 8%/13% for FY20E/21E. Despite subdued top-line growth, gross margin expanded 10bps YoY to 50.4% and Ind-AS adjusted EBITDA margin expanded 60bps YoY to 19.2% due to 1) lag effect of price hike taken in March 2) only partial liquidation of high cost inventory sitting on books 3) launch of new products with better margin profile 4) superior product mix (sales of high margin brand VIP has increased) and 5) better negotiations with Chinese vendors. Given most of the margin levers are structural in nature, we marginally increase our pre-Ind AS EBITDA margin assumptions by 30bps/20bps for FY20E/21E respectively.
Outlook
We continue to remain positive on VIP as structural story remains intact and value the stock at 33x FY21E EPS with a TP of Rs488 (earlier Rs564).
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