The VIP Industries stock is on a roller coaster ride for the last two years. The stock of the leading luggage maker rose more than five times since July 2016. If you would have invested Rs 1 lakh into the stock in July two years ago, the amount would have grown to more than Rs 5 lakh now.
On July 1, 2016, the stock price stood at Rs 115. Today, the stock hit its all-time high of 579 level post strong Q1 earnings translating to a rise of five times in two years.
The stock is also part of ace investor Rakesh Jhunjhunwala's portfolio who holds 5.21 million equity shares or 3.69% stake in VIP Industries as of June 30, 2018, the shareholding pattern data shows.
We find out why the stock has seen a sudden rise to its all time high level.
The firm reported strong earnings with June quarter being the strongest quarter in the history of the company.
Net profit rose 58.24% to Rs 59.85 crore in the June quarter compared to Rs 37.82 crore net profit for the quarter ended June 2017.
Revenue rose to Rs 517.81 crore in the last quarter compared to Rs 406.57 crore for the corresponding quarter of last fiscal.
Reacting to the stellar earnings performance, Equirus Securities raised the target price of the stock to Rs 432 (Rs 392 earlier ) with 'Add' rating till September 2019.
The brokerage raised FY19 expected sales/EBIDTA estimates by 1%/6% and FY20E estimates by 1%/5% to factor in the robust demand outlook. Despite rich valuations, volume growth momentum is likely to remain strong.
VIP is likely to record strong volume growth in the luggage space, and growth in brands like VIP would help safeguard gross margins to a certain extent. Besides, we feel the current scale of business would protect profitability during volatile times.
Ace investor Rakesh Jhunjhunwala holds 5.21 million equity shares or 3.69% stake in VIP Industries as of June 30, 2018, the shareholding pattern data shows. These shares valued at Rs 2.78 billion based on current market price.
Kotak Securities has given an accumulate rating to the stock. It said VIP has reported strong sales of Rs 5.18 bn (plus 42.8% QoQ and plus 29.5% YoY) net of all taxes. Management indicated that the domestic segment remains strong for the company. Reduction in GST rate from the peak of 28% to 18%, increase in air travel and Q1 Indian marriage season propelled the demand. Healthy realisations, strong demand and favourable product mix has helped the company with its strongest ever EBIDTA of Rs 91.1 crore with EBIDTA margin of 17.6 % ( plus 260 bps QoQ and plus 230 bps YoY).
We estimate the company to be a major beneficiary of increasing penetration of luggage bags and back-packs in the country, improving living standards leading to increased air and rail travel and also the desire for travellers to have branded luggage. We are increasing our earnings estimate to Rs 12.3 per share (from Rs 11) for FY19 and to Rs 14.2 per share (from 12.7) on the back of strong operational performance in Q1FY19, healthy volume growth and strong guidance. The stock has run by more than 30% since our last update, but still offers upside owing to its continued strong performance. We now recommend an ACCUMULATE for this high growth stock with an increased target price of Rs 570 (from Rs450) at 40x FY20E (increased from 35x).
VIP Industries is a holding company engaged in the manufacturing of hard luggages and soft luggages. The firm operates through two segments: Luggage, bags and accessories, and furniture. The company has manufacturing facilities at various locations across India. The company has a range of brands across luggage categories. The Company's brands include Carlton, VIP Bags, Skybags, Aristocrat, Alfa and Caprese.
The company's product range includes trolleys, rucksacks, backpacks, duffel bags, laptop bags, travel accessories, short haul essentials, soft uprights, vanity cases, hard suitcases, briefcases and uprights, among others. It has approximately 8000 retail outlets across India and with a network of over 1300 retailers across approximately 30 countries. The company's subsidiaries include VIP Industries Bangladesh Private Limited and Blow Plast Retail Limited. VIP Industries Bangladesh Private Limited manufactures and markets luggage and bags.
Written and edited by Aseem Thapliyal