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Hold V.I.P. Industries; target of Rs 472: Prabhudas Lilladher

February 13
22:25 2020

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

We cut our EPS estimates by 5%/7% for FY21E/FY22E and downgrade the stock from BUY to HOLD as 1) VIP has ceded market share due to rising competitive intensity 2) growth concerns can aggravate further if there is an extended factory shut down in China due to Coronavirus mayhem as only 60% of the requirements for 1QFY21 (strongest quarter) are currently hedged by placing advance orders and 3) extended slowdown in discretionary spending amid weak environment has structurally de-railed the growth momentum. Despite near term growth headwinds, margin performance has been commendable (Gross margin/Ind-AS adjusted EBITDA margin expanded by 560bps/290bps respectively) due to superior product mix, stable rupee and benign raw material prices. While we believe the long term story of premiumisation remains intact valuations at 35x FY21E may appear pricey given emanating growth challenges.

Outlook

We thus downgrade the stock to HOLD (earlier BUY) and revise our TP to Rs472 (Rs501 earlier) effectively valuing it at 32x Sep21 EPS estimates.

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