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VST Industries: A strong year - Views on News from Equitymaster

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VST Industries: A strong year
Apr 18, 2011

VST Industries has announced its FY11 results. The company reported a 21.2% YoY increase in sales and a 53.1% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Sales for VST Industries grew by 21.2% YoY during FY11.
  • Operating income (EBITDA) grew by 54% YoY as a result of sharp decline in cost of raw material and staff costs (both as a percentage of sales).
  • Net profits grew by an impressive 53.1% as a result of higher operating income partly offset by increase in effective tax rates.
  • The company declared a dividend of Rs 45 per share.


(Rs m) FY10 FY11 Change
Net sales 4823 5846 21.2%
Expenditure 3897 4420 13.4%
Operating profit (EBDITA) 926 1426 54.0%
EBDITA margin (%) 19.2% 24.4%
Other income 220 161 -26.6%
Interest (net) -13 -10 -22.2%
Depreciation 179 244 36.7%
Profit before tax 980 1353 38.1%
Extraordinary inc/(exp) -124 0
Tax 235 403 71.3%
Profit after tax/(loss) 621 950 53.1%
Net profit margin (%) 12.9% 16.3%  
No. of shares (m) 15.4 15.4  
Diluted earnings per share (Rs)*   61.7  
Price to earnings ratio (x)   13.5  
* trailing 12 month earning

What has driven performance in FY11?
  • Net sales of the company grew on the back of robust demand for cigarettes and price hikes.

    Cost break up
    (Rs m) FY10 FY11 Change
    Raw materials 2619 2853 9.0%
    % sales 54.3% 48.8%
    Staff cost 571 609 6.5%
    % sales 11.8% 10.4%
    Other expenditure 707 958 35.5%
    % sales 14.7% 16.4%  

  • Operating margin grew by 5.2%. This was due to a sharp decline of 5.5% in raw material costs. Staff costs also fell by 1.4% aiding operating margin growth. Operating margin could have been higher but for an increase of 1.7% in other expenditure (all as a percentage of sales)

  • Net profit margin of VST Industries grew by 3.4%. This performance came on the back of growth in operating income and absence of a onetime extraordinary expenditure partly offset by higher effective tax rate. Effective tax rate increased from 23% to 29.7%. When adjusted for extraordinary expenditure, net profit grew by 27.6% YoY.

What to expect?
At a price of 830, the stock is trading at 13.5 times its trailing twelve month's earnings. We believe the stock is not very overpriced at these levels in light of its strong dividend payout and stable business model. For this reason, we continue to maintain our HOLD view on the stock.

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