VIP Industries Q2 Review - Almost Out Of Pandemic Stress: Prabhudas Lilladher

Prabhudas Lilladher Report

VIP Industries Ltd.’s top-line was 15%/24% above our/street estimates signifying that demand recovery post 2nd wave is significantly better. In fact, top-line was only 20% lower than comparable pre-Covid quarter indicating VIP is almost out of pandemic stress.

We increase our EPS estimates by 4%/8% for FY23/FY24 respectively as plans to expand capacity at Bangladesh (Rs 150 - 200 million of capex) and Nashik is likely to reduce reliance on external outsourcing (manufacturing margin to accrue within the company). Post expansion, share of own manufacturing is likely to increase to 60% as compared to ~40% earlier. Further, with contribution of low cost destination Bangladesh expected to be at ~35 - 40% of own manufacturing share, gross margin is likely to get a fillip.

Consequently, we tweak our gross margin to 52.7%/53.2% for FY23/FY24 respectively.

Key prospects

• demand recovery from 2nd wave is sharp

• margin expansion is on the cards

• new product launches in mass/ category have been well received which should help arrest significant market share loss

However, near term pressure on gross margin due to raw material cost inflation remains a key risk to our call.

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