Hold V.I.P. Industries; target of Rs 240: Prabhudas Lilladher

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

We cut our sales estimates by 22% and now expect a loss of Rs1bn for FY21E as management commentary indicated that discretionary spending post-COVID is expected to be weak resulting in a prolonged demand slump. Further, as envisaged discounting is already evident and competitive intensity is likely to remain at elevated levels. While VIP has managed to cut cost by ~38%, fixed cost absorption will continue to remain a challenge given poor sales visibility. We expect gradual recovery in FY22E but have cut our PAT estimates by 14% odd as we incorporate interest outgo from the proposed borrowing program of Rs3bn which is lined up to meet liquidity/working capital needs. While entry into PPE is noteworthy the opportunity is short lived and contribution (sales expectation of Rs50mn odd per quarter) is insufficient to make any meaningful difference to the estimates. Since travel sector is worst hit by the ongoing pandemic 1) liquidity and 2) working capital & fixed cost management will remain dominant themes until green-shots on recovery are clearly evident.

Outlook

We thus maintain our HOLD rating on the stock with a revised TP of Rs240 (earlier255) by assigning a P/E multiple of 25x (no change) on our Sep22 EPS estimate of Rs9.6.

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