Rakesh Jhunjhunwala gives thumbs-up to VIP Industries, buys 1.30% extra stake; should you buy this luggage maker?

Dalal Street king Rakesh Jhunjhunwala had a very busy March, 2019 quarter (Q4FY19). He made quite a few big moves even as he reduced his holding in some favorite stocks. However, it was surprising that, Jhunjhunwala actually increased his holding in India's largest luggage maker, VIP Industries. The ace investor who has held VIP shares since 2015 had not made no buying or selling moves since June, 2016. Hence, this would be first time in less than three years, where Jhunjhunwala has increased his holding in VIP indicating his faith in the stock. This comes in the wake of VIP shares having corrected since the start of 2019 year. The stock which was trading at Rs 515 level on January 01, 2019, has clocked a low under the Rs 400-mark in February and is now trading at over Rs 470-level. On Thursday, the share price of VIP was trading at Rs 473.45 per piece down by 0.39% on Sensex at around 1426 hours. However, the company has touched an intraday high-low mark of Rs 487 per piece  and Rs 466.05 per piece respectively. 

Rakesh Jhunjhunwala has bought into 4 stocks - Firstsource Solutions, Lupin, VIP Industries and DHFL. However, it is VIP Industries where Jhunjhunwala has bought the biggest stake. He increased his holding by another 1.30% in Q4FY19. Now his stake in VIP stands at 4.99% with 7,048,650 equity shares which are worth Rs 331.7 crore currently,  as per TrendLyne.com data. 

But the real question, despite the shares correcting over the past few months, is it really worth adding VIP in your kitty. 

Analysts at Prabhudas Lilladher said, “We initiate coverage on VIP Industries Ltd (VIP) with a BUY rating given market leadership (~50% revenue share) in the organized luggage industry, well-diversified product portfolio (six brands and multiple SKUs exceeding 1,500) and solid brand salience (brand-ex is ~5-7% of sales).”

They added, “Strong distribution network (~11,000 touch points), GST implementation (narrowed pricing gap with unorganized players resulting in up-trading) and entry into the under penetrated ladies hand bags and backpack market is likely to drive sales/PAT at a CAGR of 23.7%/25.1% over FY18-21E. While headwinds from currency & crude volatility prevail, product premiumisation (rising share of Caprese and Carlton) and increase in production from captive facilities at Bangladesh will aid in 40bps EBITDA margin expansion over FY18-21E.”

Hence, analysts here said, “We expect premium valuations (32.7x FY20E and 25.3x FY21E) to sustain given strong growth prospects, debt free BS, high return ratios (RoE/RoCE of 25.6%/36.9% in FY18; to expand by 230bps/310bps over FY18-21E), and healthy dividend pay-out (average 41% over last 5 years). Initiate with a BUY and TP of Rs579.”

If we take into consideration current price level and target set, then VIP is set to rise by over 22% ahead. Thereby, as an investor one can actually add VIP shares in their pocket. Jhunjhunwala who held VIP shares since December 2015, has reaped commendable fruits from the company’s gain. VIP which traded near Rs 90 in the beginning of December 2015, has touched an all time high of Rs 645.05 last year. That would be a whopping 617% gain in less than four year’s time. This also indicates it potential to rise ahead.