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  • 02 Feb 2022
  • ICICIdirect Research

Strong revenue recovery for VIP as domestic travel pushes luggage.demand

VIPIND - 492 Change: -11.30 (-2.24 %)

News: On the back of improved travel and tourism scenario in India and improving domestic airline passenger traffic, VIP Industries continued to witness healthy recovery with sales reaching ~92% of pre-Covid levels in Q3FY22 (Q2FY22: 80%). On a favourable base, revenue grew 71% YoY to Rs.397.3 crore. Gross margins for the quarter improved 1050 bps YoY to 48.9% but continues to be below its pre-Covid levels (53-55%) on account of sharp inflation on China imports for both RM and finished goods. On the back of significant cost saving measures, the company reported healthy EBITDA margin of 14.4% with absolute EBITDA of Rs.57.2 crore (vs. Rs.8 crore in Q3FY21), highest EBITDA in the last eight quarters.

Views: Gradual reopening of economy and higher push towards domestic travel had perked up demand for luggage during Q3FY22. However, rising inflation on input cost and abnormal high levels of ocean freight continues to remain the major hindrance for the company going ahead. Company implemented close to ~ | 171 crore fixed cost savings in FY21 of which it believes ~50% is expected to be sustainable in FY22E. It is well placed on the liquidity position as it continues to be net cash positive. In a normalized scenario, VIP expects to source most of its soft luggage requirements from its Bangladesh facility, significantly reducing dependence on China going forward (for finished goods).

Impact: Positive