Shares of VIP Industries have jumped 33% year-to-date (YTD) against a 2.5% fall in the benchmark Sensex. Despite a strong rise, the stock is expected to rise more thanks to its strong fundamentals and favourable technical indicators.
The stock hit its 52-week high of ₹774.50 on March 31, 2022, and a 52-week low of ₹492.85 on October 5, 2021. From its 52-week high, the stock is down 8% while from its 52-week low, it is up 45%.
Brokerage firm Prabhudas Lilladher expects a 43% upside in the stock. The brokerage firm has maintained a buy call on the stock with a revised target price of ₹1,020, valuing the stock at 45 times September 2024 earnings per share (EPS).
Prabhudas Lilladher said it hosted VIP Industries for a roadshow wherein management highlighted plans to (1) scale brand Caprese by 5 times, (2) increase exports share to 15%, and (3) double the number of EBOs to nearly 1,000 over the next three years.
The upstream transformational journey continues with plans to further backwards integrate into the manufacturing of trolleys, wheels and locks (forms about 35-50% of the cost).
"We believe the benefits of owning the value chain (share of in-house manufacturing to be at near 75-80% in FY23E) will start reflecting soon, as input cost pressure has started stabilizing," said Prabhudas Lilladher.
The brokerage firm highlighted that on the demand front, the outlook continues to remain robust and VIP is on track to achieve ₹2000 crore in top-line with an EBITDA margin of nearly 18-19% in FY23E. It has increased its FY23E and FY24E EPS estimates by 1% and 5% and introduced an FY25E EPS of ₹25.
"Amid the emergence of new twin levers (handbags and exports), we expect sales and PAT CAGR of 15% and 26% over FY23-25E," said Prabhudas Lilladher.
Exports and international business hold a strong potential, as post-pandemic, most countries are looking to the de-risk supply chain from China, said the brokerage firm.
"Leveraging on this opportunity, management is targeting 15% revenue contribution from exports in the next three years (nearly 6% contribution in Q1FY23) with a view to expanding its geographical reach. Additionally, VIP is also evaluating white label B2B exports for certain large retailers in international markets," said Prabhudas Lilladher.
The gross margins of VIP Industries have been under pressure over the last few quarters due to a persistent rise in raw materials and freight costs. However, Prabhudas Lilladher highlighted that the key raw materials like PP, PC, and nylon have declined by near 20% odd on a sequential basis. Similarly, freight cost is also down by more than 75% from peak levels.
The brokerage firm expects a gross margin of 53.2% in FY24E and 53.7% in FY25E, as the full benefits of owning the manufacturing value chain will start getting reflected over the next few months.
Technical indicators are also favouring the stock and analysts recommend buying the stock.
Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers pointed out that the stock has been making higher highs and higher lows for the last couple of months on the weekly chart.
Volume is also picking up on a weekly basis which is complementing its up move, said Patel. Weekly RSI (relative strength index) is above 60 along with MACD making bullish cross near zero line which further confirms upside in counter.
"One can buy in small tranches at the current levels and buy another tranche at around ₹675 levels (if again tested). The upside is expected till ₹810 and support is seen around ₹650," said Patel.
According to a MintGenie poll, an average of 8 analysts have a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.