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    Jhunjhunwala's VIP bet is down 50% since Feb highs, yet it has no takers

    Synopsis

    With no demand improvement likely in September quarter and some clarity expected only in December quarter, analysts say a 'buy' call on the VIP Industries stock is unwarranted. They expect the stock to keep struggling around its current level.

    Jhunjhunwala-2---BCCL
    Ace investor Rakesh Jhunjhunwala held 1.62 per cent stake in the company as of June 30.
    NEW DELHI: A halt to business and leisure travel, a dull marriage season and idle inventories lying with dealers in what could have been the busiest season for a luggage maker have turned billionaire investor Rakesh Jhunjhunwala's VIP bet unrewarding this year.

    And there is little hope the stock would look up in the near future.

    With no demand improvement likely in September quarter and some clarity expected only in December quarter, analysts say a 'buy' call on the VIP Industries stock is unwarranted. They expect the stock to keep struggling around its current level.

    An increase in domestic air traffic, mall openings and footfalls would be proxies for future demand revival for the company and the stock, they say.

    The stock has recovered 39 per cent from its March low, but is still down 49 per cent from its February 12 high of Rs 519. Analysts have a 12-month price targets of Rs 250-280. At Friday's close of Rs 260, this suggests limited upside.

    VIP reported a 93 per cent drop in consolidated June quarter net sales at Rs 40.3 crore against Rs 564 crore reported for the year-ago period. The firm reported a Rs 51 crore loss for the quarter against a Rs 35 crore profit in the year-ago period.

    IDBI Capital, which finds VIP's June quarter results significantly weaker than expectations, values the stock at a PE of 26 times FY22 EPS.

    "Given the recent runup in share price, we downgrade the stock to ‘hold’ from ‘buy’,” it said, and reduced its price target to Rs 255 from Rs 275 earlier.

    Chairman Dilip Piramal said April-June is historically the company's largest revenue-generating quarter, but due to the pandemic the luggage maker could do just 10 per cent of the sales it had done last year.

    “What's comforting is that,” Piramal told ETNOW. “The company has a strong balance sheet and has no debt (on a net basis). We have made adequate provisions. We have lined up credit limits, which will last us a year if required. At the moment, there is hardly any activity. I cannot give you any figure and the second quarter is also going to be quite slow. But we hope things will pick up in the last two quarters of the year," he said.

    The company management says the current inventory level should suffice for the year. It says there has been no issue on the supply side, but demand remains poor.

    Ace investor Rakesh Jhunjhunwala held 1.62 per cent stake in the company as of June 30. His wife Rekha Jhunjhunwala’s held another 3.69 per cent. The duo did not make any change to their holdings during the quarter. The value of their holdings as of Friday stood at Rs 200 crore.

    "While it is difficult to time the recovery, with robust sourcing capability from low-cost Bangladesh and recurring nature of fixed overheads reduction, we believe the operating leverage will be high when recovery comes in,” Edelweiss said, recommending a ‘hold’ rating on the stock. Edelweiss sees the stock at Rs 248, which is at a discount to Friday's closing of Rs 260.

    The company management expects September quarter demand to be at a similar level as June quarter. It expects a pickup in December quarter on hopes that public would by then be able to acclimatize with the virus and there will be no further need to fresh lockdown.

    Kotak Securities said there is a strong correlation between the growth in travel and tour industry and demand for luggage bags. The equivalent to a loss of three months of global travel in 2020 would directly hurt the airline industry, cruise ships and hotel industry and would indirectly hurt the luggage industry, it said.

    It would at least take one year for the tourism sector to return to normal levels, once the outbreak is under control, the brokerage said.

    The marriage season brings in 30 per cent of demand for luggage bags and postponement of weddings has impacted the peak quarter for the company.

    "Apart from the tragic human consequences of the Covid-19 epidemic, there is a lot of economic uncertainty. We cut our EPS estimates by 16 per cent in FY21 and 8.3 per cent for FY22 and feel there is a risk to our FY21 and FY22 estimates," Kotak said, as set its prices target for the stock at Rs 280.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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