Prabhudas Lilladher Recommends Buy This Multibagger Midcap Stock, Claims 42% Upside

A leading brokerage firm Prabhudas Lilladher has assigned a 'buy' tag on the stock of VIP Industries Limited with a target price of Rs 1,009 apiece. The brokerage with the estimated target price claims a potential upside of 42% if you buy the stock at the current market price. VIP is a mid-cap Tourism & Travel sector company. It is a leading manufacturer and retailer of luggage, backpacks and handbags and an established leader in the organised luggage market in India. It has a market capitalisation of Rs 10,108.03 crore.

Stock Outlook & Performance

 The current market price of VIP's stock on BSE is Rs713.90 apiece, down 1.28% from its previous close. Its 52-week high is Rs 774.50 and its 52-week low is Rs 506 on BSE, respectively. In long-term investment tenure, the stock has performed well, delivered multibagger returns.
 
 The stock has given 9.86% positive returns in the last 3 months, however, in the last 1 week it has given 2.37% negative returns. It has given 22.04% positive returns in the last 1 year. Over the last 3 years, it gave 66.97% positive returns, whereas, in the last 5 years, it gave 106.15% multibagger returns. 
 

Key Highlights

Capacity expansion on track: VIP had outlined capex plan of Rs1bn for FY23E and the expansion plan is on track. Out of Rs1bn, roughly Rs0.6bn/Rs0.4bn is earmarked for HL/SL capacity expansion. Post expansion, HL capacity is likely to rise from ~5 lacs units per month to ~7 lacs units per month, while SL capacity is likely to rise from ~7 lacs units per month to ~10 lacs units per month. Rising share of own manufacturing is likely to structurally elevate GM profile of VIP, as it will eliminate freight cost and reduce currency volatility. 

Margins in 2HFY23E likely to be better: Gross margin in 2HFY23E is likely to be better, given decline in RM prices and liquidation of high cost inventory in 1HFY23. Exit gross margin/EBITDA margin is expected to be at 52%/20% respectively in 4QFY23E. 

Caprese to be a Rs5bn brand in 3 years: Brand Caprese is expected to be a Rs5bn brand in next 3 years. A new business head has been hired and products with high price points (Manish Malhotra collection) have also been launched, while Tara Sutaria has been roped in as brand ambassador. Nonetheless, given the fragmented nature of the handbags market that is characterized by stiff competition, we are conservative and build in a 30% CAGR in revenues over FY23E-FY25E. 

EBOs to double in 3 years: EBO count is expected reach 500 mark by end of FY23E, with plans of doubling the same over next 3 years. Most of the new EBOs will be opened on franchise route. 

China dominance to end in luggage manufacturing: Subsidy given to Chinese luggage players has been withdrawn and the dragon nation is now moving towards manufacturing of other value-added products beyond luggage. This presents opportunity for other countries including India to capture export demand share of China. 

Other Key Highlights

• PP:PC mix is 50:50. 
• White label B2B export opportunity is on a hold currently, while backward integration into trolley manufacturing has started in a small way. 
• A&P spends to remain in the range of 5-5.5%. 

Outlook & valuation

Prabhudas Lilladher while commenting on the valuation of the stock, said, "We keep our estimates unchanged and remain positive on long term prospects of VIP given 1) steady improvement in market share (~400 bps gain in last 1 year) 2) reduced reliance on China & rising self-sufficiency in own manufacturing (~70-75% contribution expected in FY23E) and 3) emergence of new twin levers viz; handbags and exports. We expect sales/PAT CAGR of 15%/27% over FY23E-FY25E and retain ‘BUY' with a TP of Rs1,009 (45x Sep-24E EPS; no change in target multiple)." 

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.