One of the effective methods for assessing whether a stock is undervalued or overvalued is by analysing key metrics such as the Price-to-Earnings (P/E) ratio and the industry P/E average.
The P/E ratio or Price-to-Earnings ratio compares the current share price to the earnings per share (EPS) of a company, serving as a widely recognized indicator for determining the value of a stock.
When a company’s P/E ratio is significantly higher than the industry average, it may indicate that the stock is overvalued, as investors are paying a premium for its earnings.
Conversely, a substantially lower P/E ratio relative to the industry average could indicate that the stock is undervalued, potentially signalling a buying opportunity.
Following is the stock held by Vijay Kedia with a PE greater than the market price:
VIP Industries Limited has a P/E ratio of 13,490, compared to the industry P/E ratio of 6,324, indicating that the stock is trading at a higher price or in other words, the stock is overvalued.
Stock Performance:
With a market capitalisation of Rs. 7,974.6 crores, the shares of this luggage manufacturing company surged by 8.5 percent to hit an intraday high at Rs. 567.75 on BSE, and moved up by 7.8 percent to close in the green at Rs. 563.85 on Friday.
The stock has delivered negative returns of nearly 14.3 percent of returns in one year, as well as around 7.6 percent returns year-to-date. In contrast, in the last six months, the stock has given positive returns of about 2.8 percent.
Shareholding Pattern:
As per the June 2024 shareholding pattern, the Promoters hold a 51.75 percent stake in the company, Foreign Institutional Investors (FII) hold a 7.32 percent stake, while Retail Investors and Domestic Institutional Investors (DII) hold a 27.18 percent and 13.76 percent stake in VIP Industries, respectively.
In the month of September, one of the prominent investors, Mr. Vijay Kedia via Kedia Securities Private Limited bought around 7.25 lakh equity shares, or equivalent to 0.51 percent stake, in the luggage manufacturing company via a bulk deal on NSE, at an average price of Rs. 545.97.
Financials:
The company reported a marginal increase in the revenue from operations, experiencing a year-on-year rise of nearly 0.44 percent, growing from Rs. 636.2 crores in Q1 FY24 to Rs. 639 crores in Q1 FY25.
However, during the same period, the company’s net profit decreased from Rs. 57.8 crores to Rs. 4.04 crores, representing a decline of around 93 percent YoY.
In terms of return ratios, VIP Industries has reported a return on equity (ROE) of 5.25 percent, and a return on capital employed (ROCE) of 8.48 percent. Additionally, the company’s debt-to-equity ratio stands at 1.3.
Management Guidance:
The management of VIP Industries has set a target for double-digit revenue growth and 15 percent EBITDA margins for FY25, with expectations for profitability to improve in the latter half of the fiscal year.
Moreover, the company anticipates a recovery in sales starting from Q3 FY25, particularly due to a resurgence in wedding season demand.
Additionally, the company projects gross margins to rebound to approximately 50 percent by the end of FY25, aiming for 55 percent by FY26.
Furthermore, VIP Industries gained a 2 percent market share in Q1 FY25 and anticipates another 2 percent gain in the current quarter, projecting an increase from 36 percent to 40 percent by December 2024.
About the company:
Established in 1968, V.I.P. Industries Limited is India’s largest luggage manufacturer and the second-largest globally, specialising in a wide range of travel products including suitcases, backpacks, and handbags.
Written by Shivani Singh
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