12 Aug , 2021 By : Kanchan Joshi
Luggage manufacturer VIP Industries shares surged 20% to Rs463 per share on the BSE in Thursday's deals after the company swung to profit in June quarter. The baggage maker reported a consolidated net profit of Rs2.53 crore as compared to a loss of Rs51 crore in the same quarter last year. VIP's revenue also jumped to Rs220.58 crore as against Rs58 crore year-on-year (YoY).
Many brokerages are positive on the stock and have a Buy rating post VIP Industries' Q1 results. Prabhudas Lilladher has upgraded VIP to a BUY (earlier under review) and increased its FY22/FY23 EPS (earnings per share) estimates by 44%/5% respectively as demand recovery post 2nd wave is significantly better than its original anticipation (sequential top-line decline of just 15.1% in 1QFY22 despite lockdown-like restrictions).
Bigger surprise was gross margin expansion to 50.9% (almost similar to pre-COVID levels) resulting in significant earnings upgrade for FY22, the brokerage said. Gross margin improved on account of better product mix, lower discounts and price increase.
Nonetheless, as Q1 performance is noteworthy both on margin and demand recovery front, Prabhudas said it further draws comfort from the fact that around 1/3rd of the planned new product launches will be from value/mass category where demand is expected to be strong in near to medium term evading concerns on significant market share loss.
The company's management expects strong revival in demand led by vaccination and recovery to be faster than first wave. Shift in sourcing from China to low-cost Bangladesh and India is leading to improved margin. Hence, management expects this gross margin to sustain.
''We believe VIP is well placed led by opening up of the economy with strong pent-up demand and upgrade to ‘BUY’ from ‘HOLD’ with revised target price of Rs486 ( Rs366 earlier),'' Edelweiss said in a note.
On positive surprise on the gross margin front, another brokerage Ambit Capital said that despite near-term headwinds, it remains structurally bullish on the long growth runway for organised luggage players given GST-led tailwinds amid change in perception from ‘commodity’ to a ‘brand’. It has a target price of Rs550 ( Rs520 earlier) on VIP Industries. ''Given better-than-expected gross margins, we significantly upgrade our FY22 profitability estimates albeit on a lower base,'' it said.
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