VIP Industries - Q3 FY21 Result and Concall Update - YES Securities

Green shoots emerging but revenue and margin normalization still 5-6 quarters away

- View - VIP Industries reduced the extent of losses, but that was on the back of aggressive cost cutting as revenue recovery remains muted at 56%. While the company has done a good job of bringing down inventory and managing cash flows, sharp rise in input costs and high competitive intensity can lead to further delays in revenue and EBITDA normalization, which in any case is expected in 1QFY23. With Bangladesh production back on track, should see gradual improvement in gross margins which should be offset by increase in costs. Stock can underperform in the near term given current valuations at 33x FY23E earnings, which are at risk of some downgrades.

- Result highlights - Revenue recovered to 56% of last year's levels (125% qoq growth), with gross margins at 41% (vs 53% yoy and 42% qoq) due to higher discounts and high mix of production from India vs Bangladesh. Employee cost reduction of 46% and 51% yoy helped generate positive EBITDA with 8% margin (vs 16% yoy and -16% qoq); Net loss at 7cr vs 35cr qoq and profit of Rs 34cr yoy.

- Other highlights - Production has started in full swing in 3Q with Rs 27cr revenue and 1cr loss; working capital has improved by 105cr to 274cr vs 379cr yoy and with PBT loss of 97 crs in 9M, have been able to maintain flattish net cash of 71cr at Dec-end.

- Outlook - Expect 4Q to see some more recovery, pleased with demand uptick which has set platform for a much better FY22; reopening of schools, pick-up in travel and a good marriage season should drive demand.

- Margin outlook - Margins will remain for next few quarters with normalization expected only in FY23; RM prices have risen sharply by 60-70% which should come down soon, will take pricing action depending on competitive intensity; will try and maintain gross margins in 45-50% range for FY22.

Shares of V.I.P.INDUSTRIES LTD. was last trading in BSE at Rs.355.75 as compared to the previous close of Rs. 356.1. The total number of shares traded during the day was 10926 in over 332 trades.

The stock hit an intraday high of Rs. 359.2 and intraday low of 352.5. The net turnover during the day was Rs. 3879400.

Source : Equity Bulls

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