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VST Ind.: Robust sales but margins hit
Feb 17, 2014

VST Industries has declared its results for 3QFY14. The company has reported a 20.5% YoY rise in sales and a 16% YoY increase in profits. Here is our analysis of the results.

Performance summary
  • The company reported a 20.3% YoY in revenues in 3QFY14. For 9mFY14, revenues grew by 18.2%.
  • Backed by savings in input costs, wages and other expenses, operating margin expanded by 1.9% YoY. However for 9mFY14, the operating margin reduced by 1.1% YoY due to high raw material costs.
  • Profits grew by a relatively slower 15.9% YoY on a 28.4% YoY rise in operating profit due to higher depreciation and tax outgo. For 9mFY14, net profits were up by a mere 7.4% YoY.

Performance Snapshot
(Rs. m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Income 1,764 2,122 20.3% 5,078 6,001 18.2%
Expenditure 1,270 1,488 17.2% 3,716 4,458 20.0%
Operating profit (EBDITA) 494 634 28.4% 1362 1543 13.3%
EBDITA margin (%) 28.0% 29.9% 1.9% 26.8% 25.7% -1.1%
Other income 52 25 -52.7% 144 117 -18.6%
Interest (net) - -   - -
Depreciation 60 78 29.4% 167 195 16.5%
Profit before tax 486 581 19.6% 1,339 1,466 9.5%
Extraordinary inc/(exp) - -   - -  
Tax 152 194 27.9% 424 483 14.0%
Profit after tax/(loss) 334 387 15.9% 915 983 7.4%
Net profit margin (%) 18.9% 18.2% -0.7% 18.0% 16.4% -1.6%
No. of shares (m)         15.4  
Diluted earnings per share (Rs)*         86  
Price to earnings ratio (x)         19  
* trailing 12 month earning

What has driven growth in 3QFY14?
  • VST Industries clocked a robust 20.3% jump in topline in December 2013 quarter.

    Cost break-up...
    (Rs m) 3QFY13 3QFY14 Change
    Raw materials 877 1,038 18.3%
    % sales 49.7% 48.9% -80.6
    Staff cost 151 173 14.5%
    % sales 8.5% 8.1% -41.1
    Other expenditure 242 277 14.5%
    % sales 13.7% 13.1% -66.8

  • Higher revenues coupled with savings in operating expenses as a proportion of sales have led to a 1.9% YoY increase in operating margin. During the quarter, raw material cost to sales ratio dropped by 0.8% YoY whereas other expense to sales ratio declined by 0.7%. Even staff costs in proportion to sales fell by 0.4%.

  • However at the net level, the profit margin reduced by 0.7% YoY due to a faster rise in depreciation and tax outgo. The tax incidence has risen to 33.4% in 3QFY14 as compared to 31.3% in 3QFY13. Even a 53% fall in other income earned contributed to lower profitability for the quarter.
What to expect?
VST Industries has been registering robust growth in revenues but its margins have been impacted by higher raw material costs.

At a price of Rs 1600, the stock is trading at 13 times its FY16 earnings. As the company may keep paying good dividends, original investors can keep holding on to the stock.

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