Buy VIP Industries; target of Rs 463: Prabhudas Lilladher

Prabhudas Lilladher's research report on VIP Industries

We upgrade VIP to a “BUY” (earlier “HOLD”) with a TP of Rs463 given early signs of improvement in cost structure. VIP’s performance was a mixed bag with revenue miss of 9%. However, operating performance was better than our estimate with EBITDA margin of 5.7% (PLe 2.8%) as other expenses were at a 7-quarter low of Rs1.5bn (down 18.3% YoY). Warehousing & freight cost is undergoing a downward reset given liquidation of slow-moving SL inventory worth Rs2.2bn in 9MFY25. Once SL liquidation exercise is over in a quarter or two, capacity utilization at Bangladesh unit will also rise aiding profitability. In addition, SL liquidation will result in easing working capital requirements and consequently the debt burden (Rs870mn of debt repayment is already done in 9MFY25). As cost re-alignment is now in an auto-pilot mode given warehousing, freight and interest cost is linked to inventory liquidation, margin expansion is expected to follow once top-line growth resumes.

Outlook

We expect sales CAGR of 12% over the next 2-years with EBITDA margin of 5.6%/15.6%/15.7% in FY25E/FY26E/FY27E. We broadly maintain our estimates and upgrade to “BUY” with a TP of Rs463 (30x FY27E EPS; no change in target multiple).

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