Buy V.I.P. Industries; target of Rs 564: Prabhudas Lilladher

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

VIP's top-line increased 20.0% YoY to Rs4,350 mn (PLe of Rs4,420mn) due to strong growth from mass brand Aristocrat and premium brand Caprese (albeit on a low base) further aided by backpacks (category growing in excess of 30%). However, gross margins declined 710bps YoY to 47.5% (PLe of 46.6%) due to 1) adverse product mix, 2) increase in import duty by 5% and 3) rupee depreciation by 10%. Although margin pressure was evident in the quarter, product premiumisation (rising share of Caprese and Carlton & repositioning of brand VIP), strategy to take calibrated price hikes and increase in production from captive facilities at Bangladesh will aid in 130bps EBITDA margin expansion over FY19-21E. We remain positive on VIP given market leadership (~50% revenue share) in the organized luggage industry, well-diversified product portfolio (six brands and multiple SKUs exceeding 1,500) and solid brand salience (brand-ex is ~5-7% of sales).

Outlook

We value the stock at 33x FY21E EPS in light of strong growth prospects (sales/PAT to grow at a CAGR of 21.8%/29.0% over FY19-21E) and the size of opportunity pie (transition towards organized market) VIP has at its disposal post GST. Maintain BUY with a TP of Rs564 (earlier Rs579).

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