Buy VIP Industries; target of Rs 225: Edelweiss

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Edelweiss' research report on VIP Industries

VIP Industries’ (VIP) Q1FY18 revenue, at INR 4.0bn, moved up 9% YoY and EBITDA at INR613mn (up 22.5% YoY) surpassed estimates by 12%, despite GST related de-stocking (June CSD sales were subdued). Revenue growth was entirely driven by domestic business and volumes. Gross and EBITDA margins spurted by 90bps and 170bps YoY, respectively, led by INR appreciation, cost controls and improved product mix.

Outlook

We expect GST to be a short term dampener. But, VIP is well positioned with rising penetration of branded luggage leading to revenue CAGR of 14% and sustained margin expansion leading to 26% earnings CAGR and RoCE expansion by 613bps over FY17- 19E. Hence, we raise our target multiple to 25x FY19E. At CMP, the stock trades at 19.8x FY19E EPS. Maintain ‘BUY’ with a revised target price of INR 225.

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