VIP Industries Q3FY18: Strong volume growth continues with preference shift to organized players - upgrade to ADD

Equirus | Jan. 31, 2018, 3:51 p.m.

VIP Industries’ (VIP) 3QFY18 revenues grew 12% yoy to ~Rs 3.4bn, in line with EE, while volume growth was strong at 18%. EBIDTA jumped 57% yoy to Rs 412mn, coming in sharply above EE, whereas EBIDTA margins expanded 349bps to 12.2% (+210bps vs. EE) on robust gross margins. The key highlight of the quarter was strong volume growth post GST implementation. While CNY appreciation and crude price rally would weigh on margins, we think the recent price hikes should partly mitigate this impact and help sustain margins. We raise our FY18E sales/EBIDTA estimates by 0%/7% to factor in the 3QFY18 beat. Despite rich valuations, volume growth momentum is likely to remain strong. Hence, we UPGRADE our rating on the stock to ADD (from REDUCE) with a Mar’19 TP of Rs 392 (Rs 278 earlier) set at a 38x TTM EPS of Rs 10.3.

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