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  • Apr 15, 2010 - VST Industries: Extraordinary items impact profits

VST Industries: Extraordinary items impact profits
Apr 15, 2010

VST Industries has announced its FY10 results. The company has reported a 24% YoY and 0.4% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • VST Industries registered higher sales for the year than that of FY09. The sales grew by 24% YoY.
  • Operating income (EBITDA) increased by a robust 34% on the back of lower other expenditure and lower staff costs as a percentage of sales. The growth could have higher but for higher raw material costs.
  • However, for the year the company turned a flat net profit growth as a result of an extraordinary expense.
  • The company has declared a dividend of Rs 30 per equity share of the company.


(Rs. m) FY09 FY10 Change
Net sales         3,831          4,750 24.0%
Expenditure         3,140          3,823 21.8%
Operating profit (EBDITA)             691             927 34.1%
EBDITA margin (%) 18.0% 19.5%  
Other income             194             219 12.7%
Interest (net)             (10)              (13)  
Depreciation             158             179 13.0%
Profit before tax             737             980 32.8%
Extraordinary inc/(exp)             126            (124)  
Tax             245             235 -4.2%
Profit after tax/(loss)             618             621 0.4%
Net profit margin (%) 16.1% 13.1%
No. of shares (m) 15.4 15.4  
Diluted earnings per share (Rs)*                 40  
Price to earnings ratio (x)                 14  
* trailing 12 month earning

What has driven performance in FY10?
  • Sales for the company increased on the back of higher demand for cigarettes and increase in realisations.

    Cost break-up…
    (Rs m) FY09 FY10 Change
    Raw materials 1,809  2,619 44.7%
    % sales 47.2% 55.1%
    Staff cost 489 571 16.9%
    % sales 12.8% 12.0%
    Other expenditure 841 633 -24.7%
    % sales 22.0% 13.3%

  • Operating margin improved by 1.5% during the year. This improvement is due to fall in other expenditure and lower staff costs as a percentage of sales. While other expenditure fell by 25% YoY, staff costs as a percentage of sales fell by 0.8%. The reason for fall in other expenditure is a gain in foreign exchange of Rs 72.6 m versus a loss of Rs 156.1 m during the previous year. However, higher tobacco prices capped the increase in operating profits. Raw material costs increase by 45% during the year.

  • The net profit margin of the company fell by 3% during the year as a result of an extraordinary expense due to VRS for employees. When adjusted for extraordinary items, which includes the foreign currency gains, the net profit margin of the company improved by 2.8% while the net profits grew by 3.7% YoY. The net profit of the company when adjusted for extraordinary items is a result of higher sales growth than the operating costs as well as lower tax expense.

What we expect?
At a price of Rs 558, the stock is trading 12.5 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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