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VST Industries: Higher costs impact bottomline - Views on News from Equitymaster
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VST Industries: Higher costs impact bottomline
Jan 13, 2010

Performance summary
  • Sales for the quarter were marginally lower than the corresponding period in FY09. The sales fell by 1% YoY during 3QFY10.
  • Operating income (EBITDA) fell by 17% YoY during the quarter due to increase in raw material and employee costs.
  • For the quarter net margin fell by 3.3% due to lowing operating profit and decrease in other income.
  • Net profit for 9mFY10 increased by 34% YoY on the back of higher sales and lower operating costs offset by higher tax expense.


(Rs. m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 1279 1,267 -0.9% 2,877 3,693 28.3%
Expenditure 957 1001 4.6% 2,342 2,907 24.1%
Operating profit (EBDITA) 322 266 -17.3% 535 786 46.8%
EBDITA margin (%) 25.2% 21.0%   18.6% 21.3%  
Other income 42 25 -40.4% 181 162 -10.2%
Interest (net) -1 -2   -0.9 -7.9  
Depreciation 40 45 12.7% 116 125 7.4%
Profit before tax 325 248 -23.7% 601 831 38.3%
Extraordinary inc/(exp) 0 0   0 0  
Tax 107 74 -30.6% 164 245 49.6%
Profit after tax/(loss) 218 174 -20.3% 437 586 34.1%
Net profit margin (%) 17.0% 13.7%   15.2% 15.9%  
No. of shares (m) 15.4 15.4   15.4 15.4  
Diluted earnings per share (Rs)*         49.7  
Price to earnings ratio (x)         10.6  
* trailing 12 month earning

What has driven performance in 3QFY10?
  • Sales for the company have fallen due to restriction in smoking areas and the graphic warning which has been introduced on the cigarette packs.

    Cost break-upů
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Raw materials 641 729 13.7% 1,373 2,059 50.0%
    % sales 50.1% 57.5%   47.7% 55.8%  
    Staff cost 114 129 12.9% 338 382 12.9%
    % sales 8.9% 10.2%   11.7% 10.3%  
    Other expenditure 202 143 -29.1% 631 466 -26.1%
    % sales 15.8% 11.3%   21.9% 12.6%  

  • Operating margins fell by 4.2% to 21% during the quarter. This was due to higher raw material (tobacco) costs and employee expense as a percentage of sale, offset by lower other expenditure. Raw material costs increased by 7.4% as a percentage of sale to stand at 57.5% while staff costs as a percentage of sales increased by 1.3% to stand at 10.2% during the quarter. Other expenditure during the quarter fell by 4.5% to stand at 11.3% as a percentage of sales. The fall in other expenditure is due to foreign exchange gain during the quarter. When adjusted for foreign exchange gain in 3QFY10 and loss in 3QFY09, the operating margins are lower by 9.3% to stand at 18.3%.

  • Net profit for 3QFY10 fell by 20.3% YoY. This fall comes on the back of lower operating income and lower other income. Net profit could have been lower but for lower tax expense during the quarter. Other income fell by 40.2% YoY during the quarter while tax expense was lower by 30.6% YoY. However, when adjusted for foreign exchange gain in 3QFY10, the net profit margin is seen to fall by 8.5% and net profits by 44% YoY.

What we expect?
At a price of Rs 525, the stock is trading 12 times our estimated FY11 earnings. We believe that the stock is not very overpriced at these levels and in light of its strong dividend yield and stable business model, continue to maintain our HOLD view.

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