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VST Ind.: Earnings continue to grow sharply - Views on News from Equitymaster

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VST Ind.: Earnings continue to grow sharply
Jan 18, 2012

VST Industries has declared its results for 3QFY12. The company has reported a 25.8% YoY growth in sales and a 45.6% YoY growth in profits. Here is our analysis of the results.

Performance summary
  • Sales for VST Industries grew by 25.8% YoY during 3QFY12. Other operating income fell short of expenses by Rs 29.4 m compared to Rs 12.2 m earned in the year-ago quarter. Thus the overall income during the quarter was up by a subdued 22.7% YoY. For the nine months ended December 2011 (9mFY12), sales were up by 15% YoY.
  • Operating margin expanded by 280 basis points (YoY) to 32.6% as a result of decline in raw material and staff costs (as a percentage of sales). The operating profitability for 9mFY12 surged to 32% from 23% earned in the year-ago quarter.
  • The net profit grew by 45.6% YoY as a result of higher operating income coupled with a three-fold jump in other income. For 9mFY12, the company's earnings surged by 55.3% YoY.


Financial Snapshot
(Rs. m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Income 1,387 1,701 22.7% 4262 4820 13.1%
Expenditure 973 1,146 17.7% 3281 3299 0.6%
Operating profit (EBDITA) 413 555 34.2% 981 1521 55.1%
EBDITA margin (%) 29.8% 32.6%   23.0% 31.6%  
Other income 18 54 208.5% 118 172 46.3%
Interest (net) (0) (3)   (4) (12)  
Depreciation 49 54 11.7% 142 154 -7.9%
Profit before tax 382 558 45.9% 960 1,550 61.5%
Extraordinary inc/(exp) - -   - -  
Tax 122 178 46.4% 279 493 76.6%
Profit after tax/(loss) 261 380 45.6% 681 1,058 55.3%
Net profit margin (%) 18.8% 22.3%   16.0% 21.9%  
No. of shares (m)         15.4  
Diluted earnings per share (Rs)*         86  
Price to earnings ratio (x)         14  
*On a trailing 12-months basis

What has driven performance in 3QFY12?
  • Sales for VST Ind grew by a robust 25.8%. Favorable taxation and increase in the cost of competing tobacco products such as pan masala and chewing tobacco aided the sales growth during the quarter.

    Cost break up...
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw materials 645 768 19.0% 2124.9 2144.9 0.9%
    % sales 46.5% 45.2%   49.9% 44.5%  
    Staff cost 141 147 4.5% 442.60 447.4 1.1%
    % sales 10.1% 8.6%   10.4% 9.3%  
    Other expenditure 187 231 23.3% 713.80 707.1 -0.9%
    % sales 13.5% 13.6%   16.7% 14.7%  

  • Operating margin increased by 280 basis points during 3QFY12 backed by a controlled rise in raw material and employee costs. As a proportion of sales, raw material costs were down by 130 basis points and staff costs declined by 150 basis points on a YoY basis.

  • Earnings grew by a steep 45.6% backed by 34% jump in operating income and a 209% surge in other income earned during the quarter on a YoY basis. The effective tax-to-PBIT ratio remained unchanged at 32% during the quarter.

What to expect?
At a price of Rs 1226, the stock is trading at 14 times its trailing twelve months earnings.

Robust sales and profitable operations have yielded a steep jump in company earnings. Net profit of 1.1 bn for the first nine months of FY12 has surpassed profit of the entire last year. We believe that the stock is not very overpriced at these levels and in light of its decent dividend yield and profitable business model, continue to maintain our HOLD view.

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