This Rakesh Jhunjhunwala stock plunged 9% Monday morning: Should you buy?

While benchmark indices faced bloodbath in Monday’s opening session, majority of Rakesh Jhunjhunwala’s stock were also bleeding. However, the loss for big bull in today’s Dalal Street session, was massive in a consumer durable company - VIP Industries. At around 1047 hours, VIP was trading at Rs 456.95 per piece down by Rs 33.05 or 6.74% on BSE. However, in just few minutes of early session, VIP made Jhunjhunwala poorer by over 9% after touching an intraday low of Rs 445.60 per piece on the index. This decline is due to weak December 2018 quarter (Q3FY19). 

In Q3FY19, VIP posted a net profit of Rs 23.83 crore, registering a drop of 11.4% from Rs 26.89 crore a year ago same period. Meanwhile, EBITDA (operating profit) also plunged by 8.2% to Rs 37.81 crore in this quarter, as against Rs 41.17 crore seen in Q3FY18. With this, EBITDA margins was at 8.8% in Q3FY19. 

On the other hand, VIP’s revenue came in at Rs 430.09 crore, witnessing a rise of 27.2% from Rs 337.99 crore in the corresponding period of previous year. VIP has also declared dividend of Rs 1.20 per equity share of Rs 2 each for fiscal FY19. 

Coming back to Jhunjhunwala, he holds about 3.69% with 5,215,000 equity shares worth Rs 255.3 crore. VIP was the only company which gave Jhunjhunwala over 30% gains in 2018. However, the start of 2019 has saw price correction in VIP. 

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Should you buy? 

Interestingly, currently when VIP is trading at its lowest one should grab it as an opportunity as it is a money making stock. Karan Khanna and Amandeep Singh, Research Analysts at Ambit Capital said, “VIP continues to report strong revenue growth led by rising penetration of luggage in India and through market-share gain from other branded and unbranded players. Further, growth in backpacks and handbags segment is outpacing growth in luggage segement which is in line with our thesis.”

The duo added, “Despite currency volatility and rising procurement costs, 29% EPS CAGR over FY18-23 should be led by: 
24% revenue CAGR from rising contribution of backpacks/ handbags. EBITDA margin improving to 16.9% (vs 13.7%) led by captive production, premiumisation and operating leverage.

Hence, analysts at Ambit says, “TP of Rs 650 (marginally reduced from Rs 653 earlier) is built on high-teen revenue growth over the next decade as penetration and brand salience rise, implying 32.2x FY21 P/E”

If we take into Rs 653 target price and compare with intraday low, then VIP is set to rise by nearly 46% ahead.