Buy VIP Industries; target of Rs 295: Edelweiss
Edelweiss is bullish on VIP Industries has recommended buy rating on the stock with a target price of Rs 295 in its research report dated September 20, 2017.
September 22, 2017 / 11:42 AM IST
Edelweiss' research report on VIP Industries
We met Mr. Dilip Piramal, MD, VIP Industries (VIP) to gain insight about the company’s strategies. Management sounded optimistic on the sales growth (~15%), driven by strong travel industry (particularly air travel) and low penetration of branded luggage (20-25%), having regained share from peer Samsonite in past 2 years. While margins may be under pressure in near term due to higher tax rate under GST (28% versus 18% earlier) and cost pressures in China, VIP’s dominant position will allow passing these on (effected 6% price hike in June). Further, rising share of manufacturing with doubling of capacity in Bangladesh subsidiary (20% PAT margin) will support margins. With uptick in discretionary spending, ~50% market share in underpenetrated luggage market with a portfolio of brands, and shifting focus towards manufacturing versus trading, we upgrade our FY19E earnings by 5% and P/E to 30x (24x earlier), at 10% discount to higher band. We expect VIP to post 15% sales and 29% PAT CAGR over FY17-19 with strong 808bps RoCE expansion to 41%. Maintain ‘BUY’ with a revised target price of INR295 (INR225 earlier).
With strong drivers (air traffic growth, improving market share) and shifting focus towards manufacturing from trading, we raise our FY19E earnings by 5% and P/E to 30x. Maintain ‘BUY’. At CMP, the stock is trading at 25.2x FY19E EPS.
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