Target: ₹774

CMP: ₹608.10

VIP Industries Q1-FY23 results were stronger than our forecasts. Its net sales increased by about 2x to ₹590 crore on account of strong wedding season and reopening of schools and colleges. Despite gross margin falling by 101 basis points (bps) year-on-year to 49.9 per cent, its EBITDA margin expanded 1,112 bps to 17.4 per cent. EBITDA jumped about 7x year-on-year on a lower base to ₹102.9 crore. It reported adjusted net profit of ₹54.1 crore in Q1-FY23 compared to ₹2.5 crore in Q1-FY22. We raise our FY23/FY24 sales estimates by 5 per cent each. Our FY23/FY24 EBITDA forecasts stand revised upwards by 6 per cent/11 per cent. We continue to value the stock at a PER of 42x FY24 EPS to derive the target price. Given the industry tailwinds, we maintain our BUY rating on the stock.

VIP aims to focus on premium and mass segments which will enable to reap benefits of increase in sales growth backed by recovery in demand. Despite sharp rise in prices of key inputs, its gross margin fell only 101 bps year-on-year to 50 per cent in Q1-FY23 and the company aims to increase it to 55 per cent in the coming quarters. Looking ahead, its EBITDA margin is likely to improve further as its sales improve over FY23-24 and contribution from captive operations at Bangladesh plant increases.

We remain structurally positive on the growth prospects of the luggage industry. With strong top-line growth in Q1-FY23, we believe further improvements should follow — especially in the handbags and school bags segments. Captive operations in Bangladesh give VIP a strong advantage on the raw material front compared to its peers. Also, its leadership in the luggage industry and brand positioning remains unmatched. Hence, we have a positive view on the stock.