Coronavirus impact likely from 1QFY21: Dilip Piramal Chairman, VIP Industries

Coronavirus impact likely from 1QFY21: Dilip Piramal Chairman, VIP Industries

Update on the Indian Equity Market:
On Thursday, Sensex ended up 152 pts lower and Nifty settled 45 pts lower at 12,080 level led by weekly expiry. Metal (+0.8%) and PSU Bank (+1%) were the top-performing sectors. NIFTY FMCG (-0.6%), NIFTY IT (-0.7%) and NIFTY Media (-0.6%) led the declining sectors. Among stocks, Cipla, Asian Paints, HUL and TCS were the top laggards, while gainers were INDUSIND Bank, Zee, SBI and Tata Steel.

Coronavirus impact likely from 1QFY21: Dilip Piramal Chairman, VIP Industries

Edited excerpts of an interview with Mr. Dilip Piramal, Chairman, VIP Industries; dated 19th February 2020:

Mr. Piramal said the Chinese companies’ accounts for 50% of its supplies.
Speaking about Coronavirus he said that this is an unprecedented situation and will have to see how this pans out. This will definitely have an impact on travel and on the general economy as China is a large supplier for most of the products in the world. But India is not so much part of the international economy as yet, so it could have some advantage.
The international travel is going to be affected on the whole as there will be some negative reaction.
China is a large part of VIP’s supply chain as VIP imports from China. The dependence on China is reducing gradually over the last few years.
Coronavirus is going to affect the whole luggage industry as it is dependent on China for finished goods, including the unorganised sector.
The factories in China have started after the Chinese New Year holidays with local workers last Monday, but that is still a small part of the overall employment.
Talking about the Supplies requirement from China, Mr. Piramal informed that 60% of the supplies for the Jun quarter are stocked up and there might be some delay, shortfall and may have to see some decline in revenues.
VIP’s supplies are now about 50% from China and the rest is sourced in India and Bangladesh.
When asked about the pricing scenario, Mr. Piramal commented that he doesn’t expect any price surge in the luggage industry but there will be some amount of firmness and decline in discounts and offers.
Mr. Piramal said that it is too early to comment on the sales growth to be expected in Jun quarter but they have stocked up and hopes that the stock levels go low and they don’t lose any sales.
Because of the downturn and loss of market share, the sales growth for 9MFY20 was less than 5%. The market share as of now stands at ~50%.
Consensus Estimate: (Source: market screener, website)

The closing price of VIP Industries was ₹ 450/- as of 20th February 2020. It traded at 34x/ 32x/ 26x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 13.4/14.4/17.7 respectively.
Consensus target price of ₹ 520/- implies a PE multiple of 29x on FY22E EPS of ₹ 17.7/-.

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