BUY VIP Industries; Target Of Rs 350 As Company Prioritises Long-Term Health Over Near-Term Profits: Kotak Neo Research

VIP Industries has a 'BUY' rating from Kotak Neo Research with a target price of Rs 350, implying a valuation of 2.0x FY28E price-to-sales. At the current market price of Rs 300, the target indicates further upside.

The company continues to face weak operating conditions, with subdued demand, inventory liquidation, intense competition and a management transition weighing on performance. Kotak Neo Research said VIP Industries is focusing on strengthening its long-term financial position rather than protecting near-term quarterly profits, resulting in what it described as a “clean-up” quarter.

Revenue rose 3% year-on-year to Rs 578.4 crore in Q1FY27, helped by a pickup across general trade, modern trade and retail channels. The stronger volumes, however, came with higher discounting, while the company remained loss-making at the EBITDA level amid competitive pressure and lower realisations.

The quarter marked VIP Industries' return to revenue growth after seven consecutive quarters of decline. The improvement was supported by new product launches, with more than 80 new SKUs introduced during the quarter accounting for around 50% of volumes.

Gross and EBITDA margins remained under pressure. Lower realisations due to the brand and channel mix, liquidation of upright inventory at reduced margins and increased competition affected gross margins. Lower profits from Bangladesh, where capacity utilisation declined, also weighed on profitability.

The company optimised its network inventory during the quarter and reversed an earlier inventory provision of Rs 12.3 crore.

Management has outlined a 12-month plan to regain lost market share, with premiumisation, portfolio diversification, new launches and higher spending on digital marketing forming key parts of the strategy. The company also plans to expand its consumer franchise model and improve operational efficiency across its businesses.

VIP Industries Q1 FY27 Results Snapshot

On a consolidated basis, VIP Industries' net sales rose 3% year-on-year and 32.6% quarter-on-quarter to Rs 578.4 crore. Gross profit stood at Rs 239.7 crore, down 5.2% from a year earlier but up 47.5% sequentially. Gross margin stood at 41.4%.

EBITDA came in at a loss of Rs 11.2 crore, compared with a loss of Rs 82.1 crore in Q1FY26. The company reported a net loss of Rs 53.6 crore for the June quarter, narrowing from a loss of Rs 128.7 crore in the preceding March quarter.

VIP Industries Strategy And Growth Outlook

VIP Industries plans to continue its strategic reset over the next two years. The company intends to shift soft luggage sourcing and manufacturing entirely to Bangladesh and India from China, while also reducing rental costs at company-run stores and shutting loss-making outlets.

The plan also includes greater focus on digital marketing and e-commerce, supply-chain rationalisation and efforts to reduce inventory and debt. Kotak Neo Research expects these measures, along with higher advertising and promotional spending, new product launches, store rationalisation and a turnaround at the Bangladesh plant, to help the company regain market share and deliver growth ahead of the industry over time.

Competition remains a key risk. Safari Industries has gained market share in the value and hard-luggage segments, while international brands continue to dominate the premium category. Execution is another key monitorable, as the benefits from turnaround measures and cost restructuring may take time to feed through to the bottom line.

At the time of writing, shares of VIP Industries were trading at around Rs 300, with the stock down nearly 35% over the past year despite a modest gain over the past month.

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