Hold V.I.P. Industries; target of Rs 689: Prabhudas Lilladher

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

We cut our EPS estimates by 21%/7%/2% for FY24E/FY25E/FY26E and downgrade the stock to a HOLD as we re-align our indirect cost assumptions in light of weak performance in 2QFY24 which was marred by 1) higher A&P spends of Rs560mn 2) additional outgo of Rs150mn pertaining to freight & warehousing and 3) one-time expense of Rs60mn relating to a payment made to BCG to fast track growth in e-com channel. Nonetheless, GM improvement to 55.5% was noteworthy but we believe sustainability can prove to be a challenge given rising crude prices. VIP has been facing considerable growth challenges over the last 2 quarters (top-line growth of 7.0% YoY in 1HFY24) and it remains to be seen whether a change of guard at top-level can bring an end to concerns surrounding erosion in market share.

Outlook

We expect sales/EBITDA CAGR of 10%/15% over FY23-FY26E and downgrade the stock to a HOLD with a TP of Rs689 (earlier Rs721) valuing it at 38x Sep-25 EPS (no change in target multiple).