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This Stock Has Many 'Buy' Recommendations Even During Covid 19

Roshni Agarwal

Even as the stock is from the space that gains traction when the travel industry witnesses voluminous growth and the FY21 EPS for the stock has been cut by 50%, several of the brokerages have given a buy call on this luggage maker? Any guesses now! Yes we are talking about VIP Industries.

Even ace investor Rakesh Jhunjhunwala has upped his stake in the counter in the March ended quarter.

Here is why the counter is a buy despite the current uncertain fate of the travel industry which slowly is seeing essential travel:

Company's plans in the wake of Covid 19:

Going forward amid such chaos, the company is considering cutting cost on rentals in malls and also cut its ad spend. Further with currently 55% of the sourcing of raw material from Bangladesh, it plans to shift entirely to that destination.
And a pick up in demand for backpacks is anticipated as early as September as schools begin to reopen.

Q4 Result:

In the quarter ended March, the luggage manufacturer reported a 28.4% decline in consolidated sales at Rs. 311.30. Profit declined by a huge 72.2% to just Rs. 9.5 crore. EBITDA margin also stood at 10.2% from 9.1% year-on-year.

How covid 19 impacted the luggage maker?

Marriage and travel is where the demand for luggage emerges and as most malls remain closed there is a significant impact during the June quarter which accounts for most revenue for the firm. In a general sense, marriages and the June quarter contribute to nearly 60% of the company's revenue.

In the April-May period, the company during the general shutting of the business witnessed just 5% sales.

Why 'Buy' call on VIP Industries?

As per IDBI Capital, in a normal course after two successive weak years, the company sees good performance due to accumulated demand. And going beyond FY21, a good demand and recovery is anticipated in FY22.

For FY22, the company anticipates sales and EBITDA at 35% and 52%, respectively. And with a upside potential of 25% seen in the stock, the target price is set at Rs. 275.

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