VIP Industries Ltd - Q2FY21 Result Update - YES Securities

Normalization still far away; focus remains on inventory liquidation, cost cuts and survival

- Valuation & View - Despite a strong recovery in multiple discretionary categories, the impact on luggage has been more severe despite some recovery in air travel due to the high channel inventory. With things looking up in the festive season, hopes are building up that inventory can get liquidated and a gradual recovery in air travel might drive a normalization in primary sales a year from now, and till then it would be all about cutting costs wherever possible. With not too many positive triggers in the near-term, VIP remains quite low in the pecking order among consumer discretionary stocks.

- Result highlights - 75.1% revenue degrowth with an EBITDA loss of 221 mn due to 1460 bps slip in GMs due to higher mix of Indian vs Bangladesh manufactured products. Margins were better sequentially due to 50% drop in employee expenses and 66% decline in other expenses. 88% higher other income helped to reduce PAT loss to 354 mn vs 329 mn profit last year.

- Current scenario - Luggage industry remains one of the worst affected sector with operations severely impacted. 3Q is showing good pick up with demand expected to revise upward in festive season. Some pent up demand to be seen due to marriages and travel sector picking up.

- Recovery (compared to last year's revenues) - 7% of revenues in 1Q has gone up to 25% of revenues in 2Q

- VIP Bangladesh - Started producing face masks and selling 20-30 mn masks. Covering 10 mn of overheads due to these sales. Started luggage manufacturing in 3Q in a small manner. Revenues - 182 mn with PAT loss of 24 mn. Need to start manufacturing ladies handbags.

- E-Commerce - Growth in e-commerce has been 40% and has moved from 7% of sales to 27% of sales. Expected to remain between 20-25% of sales. VIP is working to build its own capabilities by hiring senior industry professionals and will continue to work with Amazon & Flipkart. E-commerce has the potential to be a large business for lower-end products.

- Fixed overheads - INR 240 mn vs 400 mn per month last year.

- Cost efficiencies - Working to find more cost inefficiencies to further reduce overheads which should reflect in 3Q. INR 1.8 bn cost savings expected this year with 50% being sustainable going forward.

- Debt - INR 2.04 bn but company remains net debt free. Plan to borrow INR 3 bn to keep liquidity buffer for tough times.

- Discounts - Large amount of discounts are being given in industry in a bid to liquidate stocks.

- EBOS - Closed down 100 non-profitable outlets.

- Insurance claim - May need another quarter to get a better picture on the claim settlement due to COVID related disruptions.

- Outlook - Expect company to be back to pre-COVID levels in 4-6 quarters.

Shares of V.I.P.INDUSTRIES LTD. was last trading in BSE at Rs.301.95 as compared to the previous close of Rs. 295.05. The total number of shares traded during the day was 35764 in over 1744 trades.

The stock hit an intraday high of Rs. 303.7 and intraday low of 295. The net turnover during the day was Rs. 10748849.

Source : Equity Bulls

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