PL Stock Report: V.I.P. Industries (VIP IN) - Q1FY24 Result Update - Growth challenge emerges - Downgrade to 'Accumulate'
V.I.P. Industries (VIP IN) - Jinesh Joshi - Research Analyst, Prabhudas Lilladher Pvt Ltd
Rating: ACCUMULATE | CMP: Rs598 | TP: Rs707
Q1FY24 Result Update - Growth challenge emerges
Quick Pointers:
♦ EBITDA margin falters to 12.7% amid 59.4% YoY rise in A&P spends to Rs510mn.
♦ Share of institutional channel down to 6% due to absence of one large order.
We cut our FY24E/FY25E EPS estimates by 19%/12% and downgrade the stock to accumulate as we re-align our indirect cost assumptions in light of weak 1QFY24 performance. Further, we also trim our GM projections by 50bps as product mix is likely to remain inferior (Aristocrat’s share at 40% in 1QFY24 versus 35% in 1QFY23) amid quest for growth. Though weakening demand construct should be seen in the light of lower number of wedding days in 1Q and absence of institutional order, we believe rising competitive intensity (A&P spends up 59.4% YoY versus top-line growth of 7.7% YoY) is likely to result in growth challenges. Further, decision to delay capex of Rs2bn indicates growth revival may take some time. In light of these factors, we cut our target multiple to 38x (41x earlier) and expect sales/EBITDA CAGR of 10%/17% over FY23-FY25E. We downgrade to ‘Accumulate’ from ‘Buy’ with revised TP of Rs707 (earlier Rs866) and would turn constructive on the stock after visible greenshoots on growth.
Revenue increased 7.7% YoY: Top-line increased 7.7% YoY to Rs6,361mn (PLe of Rs6,379mn). Adjusting for large institutional order in base, top-line was up by 12% YoY. Backpacks/handbags contributed 15%/4% to the top-line.
GM at 49.5%: Gross profit increased 6.7% YoY to Rs3,147mn (PLe of Rs3,285mn) with margin of 49.5% (PLe of 51.5%) in comparison to margin of 49.9%/57.9% in 1QFY23/4QFY23. Lower GM on QoQ basis was a result of hampered production at Bangladesh facility and unfavorable brand and channel mix.
EBITDA margin falters to 12.7%: EBITDA decreased 21.5% YoY to Rs806mn (PLe of Rs1,148mn) with a margin of 12.7% (PLe 18.0%). EBITDA margin was below our estimates due to higher than expected other expenses of Rs1,678mn (PLe Rs1,467mn) led by higher A&P spends.
PAT at Rs578mn: PAT decreased 16.4% YoY to Rs578mn (PLe of Rs712mn) with a margin of 9.1% (PLe 11.2%). Adjusting for the claim of Rs258mn pertaining to a fire at regional warehouse in Ghaziabad, PAT stood at Rs320mn.
Con-call highlights: 1) GM was down sequentially due to hampered production at Bangladesh facility and unfavorable brand and channel mix. 2) GM/EBITDA margin is expected to be in the range of 52-53%/16-17% respectively for FY24E. 3) Revenue contribution from new designs is 30%-35% every year. 4) Revenue growth was 12% after excluding a large one-time institutional order for Haj pilgrimage in 1QFY23. 5) In 1QFY24, VIP expanded its presence in 70 towns. Target is to reach additional 250 towns by year-end, resulting in a presence amongst 1500+ towns. 6) A&P spends stood at Rs510mn in 1QFY24 (Rs320mn in 1QFY23). 7) Capex of Rs2bn to be postponed by 1-2 quarters given weak demand environment. 8) Channels that have represented negative growth during the quarter viz; CSD, institutional and exports form ~30% of top-line.