VIP Industries Stock Ends Near Two-Month High Despite Q2 Loss

Shares of VIP Industries Ltd. rose the most in two months as the luggage maker’s efforts to cut costs and hopes of a quicker-than-expected recovery of lifestyle and travel industry enthused investors.

This is despite two straight quarters of losses by the company. VIP Industries suffered a net loss of Rs 36 crore in the July-September period compared with a net profit of Rs 33 crore a year earlier. Analysts had pegged the loss at Rs 46.75 crore.

The company’s revenue fell 75% year-on-year to Rs 102 crore but beat the consensus estimate of Rs 90 crore.

Operating loss for the quarter stood at Rs 22.2 crore against an operating profit of Rs 67 crore a year ago. Analysts had pegged the operating loss at Rs 36.1 crore.

Cost-Cutting Measures

VIP Industries plans to cut costs worth Rs 180 crore in the ongoing financial year. Its overall expenses fell 41% year-on-year during the reported quarter. Employee costs were down 49%, while other expenses fell 66% over the year earlier.

The luggage maker, in its post-earnings conference call, said 50% of these cost-cutting measures are likely to sustain even after normalcy in sales is restored. The company also plans to move machinery in its Haridwar plant to Nashik, and dispose of the building and land at Haridwar.

No Diversification

VIP Industries, in its conference call, also said it has no plans to diversify into a new business. Instead, it will focus on manufacturing handbags in Bangladesh.

“The agenda to diversify into unrelated business has been put on hold, which gives us additional comfort,” Jinesh Joshi, research analyst at Prabhudas Lilladher, said in a post earnings note.

Besides, VIP Industries—along with all tourism and lifestyle-related stocks—received a boost from the progress on a potential Covid-19 vaccine, developed by Pfizer Inc. and BioNTech SE. “We now expect the travel and tourism industry to revive slowly in FY22,” IDBI Capital said in a note.

Most analysts, too, are bullish on VIP Industries.

Prabhudas Lilladher raised its earnings per share estimates by 15.6% and 15.5% for FY22 and FY23, respectively, even as it expects the company’s losses to widen in the ongoing fiscal.

Of the 10 analysts tracking VIP Industries, seven have a ’buy’ rating, two recommend a ’hold’ and Kotak PCG Retail Research suggests a ’sell’.

Shares ended 6% higher - the most in two months to Rs 307.75. This was the fifth straight day of gains for the stock - its longest wining streak in three months.