VIP Ind scales down growth guidance in FY13

Stock will remain under pressure

VIP Industries' stocks faced severe selling pressure throughout today’s trading session and finally closed with a 6.7% loss in its value after the company reported discouraging performance in March 2012 quarter thanks to loss of business from Civil Services department (the company’s largest customer forming around 20% of sales) and the rupee depreciation.

The management has scaled down their growth guidance for FY13. From 17-20% earlier, now the company expects to grow 15% in FY13  due to impact of price hike on volumes, less visibility from CSD, subdued demand in international market and strong competitive pressures.

After 5% in FY12, the company has planned for a price hike of 5-10% in the current fiscal but the timing and extent will depend on the competitior’s action. Neverthless, the company is confident to retain its market leadership (57% market share) as soft luggage (two-third of overall revenues) is growing at a robust rate of 30% (faster than hard luggage) with underling volume growth of 20%.

Margins will continue to remain under pressure due to less business expected from high-margin CSD, possibility of rupee going to 57-58, full tax rate and focus on modern trade, which is a more expensive channel.

While profit before tax of Rs 95 crore in FY12 would be maintained in FY13 for the core business, launch of ladies handbags will eat away Rs 10 crore (expected loss). In short, the company is likely to face headwinds in terms of margins but no so much on the topline. The current quarter will continue to disappoint as marriage season has not been strong this year (not many muhurats) and rupee depreciation was not there at all in same quarter last year.

At 16 times FY13 estimated earnings, the stock is not trading cheap and hence may face selling pressure.