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VST Ind: Margins remain hurt on low sales
Jan 28, 2013

VST Industries has declared its results for 3QFY13. The company has reported a 1.2% YoY growth in sales and a 12% YoY fall in profits. Here is our analysis of the results.

Performance summary
  • Topline grew by 1.7% for the quarter ended December 2012. For 9mFY13, revenues were up by 4%.
  • Operating profitability fell by 400 basis points due to escalation in raw material costs. The margin was down by the same magnitude during 9mFY13.
  • Net profit fell by 12% YoY due to lower operating profit and other income earned during the quarter. For 9mFY13, the company's earnings were down by 14%.

Financial performance snapshot
(Rs. m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Income 1,734 1,764 1.7% 4886 5078 3.9%
Expenditure 1,180 1,270 7.7% 3365 3716 10.4%
Operating profit (EBDITA) 555 494 -10.9% 1521 1362 -10.4%
EBDITA margin (%) 32.0% 28.0%   31.1% 26.8%  
Other income 57 52 -9.6% 183 144 -21.6%
Interest (net) - -   - -  
Depreciation 54 60 10.1% 154 167 -7.8%
Profit before tax 558 486 -12.9% 1,550 1,339 -13.6%
Extraordinary inc/(exp) - -   - -  
Tax 178 152 -14.6% 493 424 -13.9%
Profit after tax/(loss) 380 334 -12.0% 1,058 915 -13.5%
Net profit margin (%) 21.9% 18.9%   21.7% 18.0%  
No. of shares (m)         15.4  
Diluted earnings per share (Rs)*         83  
Price to earnings ratio (x)         22  
* trailing 12 month earning

What has driven performance in 3QFY13?
  • VST Ind continued to grow at a muted pace, registering a mere 1.7% rise in sales.

    Cost break-up...
    (Rs m) 3QFY12 3QFY13 Change
    Raw materials 768 877 14.1%
    % sales 44.3% 49.7% 541.89
    Staff cost 147 151 2.7%
    % sales 8.5% 8.5% 7.90
    Other expenditure 265 242 -8.4%
    % sales 15.3% 13.7% -152.01

  • Rising raw material costs coupled with sluggish growth in topline continued to adversely impact the company's operating performance. The raw material-to-sales ratio rose by 540 basis points to 49.7%. This was partially offset by a 152 basis points fall in the other expenses to sales ratio. Consequently, the operating margin contracted by 400 basis points to 28%.

  • With a 11% fall in operating profit and 10% lower other income, net profits declined by 12% for the quarter.

What to expect?

At a price of Rs 1801, the stock is trading at 22 times its trailing twelve months earnings.

VST Industries is present in the low priced segment of the cigarette market. Since the start of FY13, the company's sales have been lacklustre. During 9mFY13, its sales have grown by a mere 3.9%. However, steep escalation in tobacco prices has led to sliding profitability and fall in earnings. Being a small player with a restricted presence and limited pricing power, VAT rate hikes by states will continue to adversely impact company's earnings in future. However, the company may keep paying out good dividends and hence, original investors can keep holding on to the stock.

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