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VST Ind.: Lower raw material boosts bottomline - Views on News from Equitymaster
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VST Ind.: Lower raw material boosts bottomline
Jan 13, 2011

VST Industries has announced its 3QFY11 results. The company has reported a 9% YoY growth in sales and a 50% growth in profits. Here is our analysis of the results.

Performance summary
  • Sales for VST Industries grew by 9% YoY during 3QFY11.
  • Operating income (EBITDA) grew by 55.4% YoY as a result of sharp decline in raw material costs (as a percentage of sales).
  • The net profits grew by 50% YoY as a result of higher operating income partly offset by increase in effective tax rate.
  • Bottomline for 9mFY11 grew by 16.2% YoY while the net profit margin increased by 0.2% to 16.1%. This increase comes on the back of high operating income partly offset by fall in other income.

(Rs. m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 1,267  1,380 9.0% 3,693 4,232 14.6%
Expenditure 1,001 967 -3.4% 2,907 3,246 11.6%
Operating profit (EBDITA) 266 414 55.4% 786 987 25.6%
EBDITA margin (%) 21.0% 30.0%   21.3% 23.3%  
Other income 25 17 -30.1% 162 112 -31.2%
Interest (net) (2) (0)   (8) (4)
Depreciation 45 49 7.3% 125 142 13.7%
Profit before tax 248 382 54.4% 831 960 15.5%
Extraordinary inc/(exp) - -   - -
Tax 74 122 64.3% 245 279 13.9%
Profit after tax/(loss) 174 261 50.2% 586 681 16.2%
Net profit margin (%) 13.7% 18.9% 15.9% 16.1%  
No. of shares (m) 15.4 15.4   15.4 15.4  
Diluted earnings per share (Rs)*       46.3  
Price to earnings ratio (x)         13.8  
* trailing 12 month earning

What has driven performance in 3QFY11?
  • Sales for the company grew as a result of robust demand for cigarettes and price hikes.

    Cost break-up...
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Raw materials 729 645 -11.4% 2,059 2,125 3.2%
    % sales 57.5% 46.8% 55.8% 50.2%
    Staff cost 129 141 8.9%    382    443 16.0%
    % sales 10.2% 10.2% 10.3% 10.5%
    Other expenditure 143 181 26.3%    466    679 45.6%
    % sales 11.3% 13.1% 12.6% 16.0%

  • Operating margin grew by 9% during the quarter. This growth was due to a sharp decline of 10.7% (as a percentage of sales) in raw material costs. However, other expenditure increased by 1.8% (as a percentage of sales) to stand at 13.1% of sales. Staff costs remained flat during the quarter.

  • The net profit margin of the company grew by 5.2% to stand at 18.9% of sales. The growth in net profits has been slower than operating income as a result of fall of 30% YoY in other income and increase of 2% in effective tax rate. Effective tax rate stood at 31.8% for the quarter.

What we expect?
At a price of Rs 640, the stock is trading 14.4 times our estimated FY11 earnings. We believe that the stock is not very overpriced at these levels and in light of its decent dividend yield and stable business model, continue to maintain our HOLD view.

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