Hold V.I.P. Industries; target of Rs 454: Prabhudas Lilladher

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

We cut our FY25E/FY26E EPS estimates by 43%/6% as we re-align our GM assumptions given SL liquidation exercise is underway. VIP had ~Rs3bn of slow-moving SL inventory as of FY24 and has managed to liquidate Rs800mn in 1QFY25 via discounting, resulting in margin erosion. We believe full liquidation will take 1-2 quarters, and accordingly, GM is likely to remain under pressure in near term. In addition, warehousing, freight and interest cost will also remain elevated until the liquidation exercise is complete. Apart from margin headwinds, growth challenges are likely to aggravate given the increasing prevalence of D2C brands and rising competitive intensity, especially in the mass segment.

Outlook

We expect sales CAGR of 8.5% over the next 2 years with EBITDA margin of 10.7%/15.2% in FY25E/FY26E. Retain HOLD on the stock with a TP of Rs454 (earlier Rs529) as we cut our target multiple to 30x (earlier 33x) given rising concerns on growth and margin recovery.

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