Prabhudas Lilladher's research report on V.I.P. Industries
VIP posted strong recovery with top-line breaching the pre-pandemic base by 4.7% with a satisfactory GM of 49.9% (PLe of 50.2%) despite persistent RM cost inflation. However, EBITDA margin of 17.4% was lower than our estimate due to unfavorable FX impact (Rs87mn) and higher A&P spends (5.4% of sales). While our GM assumptions are broadly intact at 51.7%/53.2% for FY23/FY24 respectively, EPS estimates have been revised upwards by ~4-5% due to re-alignment in tax forecast. We believe upstream transformation with reduced reliance on China (~11% of sales in 1QFY23) is a structural shift that can emerge as a key margin lever and surprise positively once RM inflation stabilizes. Opportunity from exports (~5% of sales in 1QFY23) can also turn out to be sizeable as most countries are looking to de-risk their supply chain from China post-pandemic. In addition, focus on the mass/value segment (contribution has increased from 25% in 1QFY20 to 35% in 1QFY23) with a string of new launches will help VIP compete better with Safari. Overall, while demand momentum is strong; volatility in FX, freight and RM poses near term risks.
Outlook
We retain BUY on the stock with a revised TP of Rs857 (45x FY24E EPS; no change) and expect sales/EBITDA CAGR 29%/73% over FY22-FY24E.
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