VST Ind.: Poor sales clip earnings in FY13 - Views on News from Equitymaster

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VST Ind.: Poor sales clip earnings in FY13

Apr 22, 2013

VST Industries has declared its results for 4QFY13. The company has reported an 18% YoY fall in sales and a 5.4% YoY decline in profits. Here is our analysis of the results.

Performance summary
  • Revenues declined by 18% for March 2013 quarter. For FY13, revenues were down by a mere 2.3%.
  • Operating margin contracted by 200 basis points on account of higher other expenditure and staff costs both as a proportion of sales. For FY13, escalation in raw material costs pulled down operating profitability by 360 basis points.
  • Net profits fell by a slower 5.4% aided by steep fall in depreciation and tax charges coupled with higher other income earned during the quarter. During FY13, earnings were down by 11.4%. The company has recommended a dividend of Rs 62.5 per equity share of Rs 10 each for FY13. At current price, the dividend yield of the stock works out to 4.2%.

Performance Snapshot
(Rs. m) 4QFY12 4QFY13 Change FY12 FY13 Change
Income 1,959 1,609 -17.9% 6,844 6,687 -2.3%
Expenditure 1,382 1,168 -15.5% 4,747 4,884 2.9%
Operating profit (EBDITA) 577 441 -23.6% 2098 1803 -14.0%
EBDITA margin (%) 29.4% 27.4%   30.6% 27.0%  
Other income 74 119 60.8% 257 263 2.1%
Interest (net) - -   - -  
Depreciation 94 58 -38.5% 248 225 10.4%
Profit before tax 556 502 -9.8% 2,107 1,841 -12.6%
Extraordinary inc/(exp) - -   - -  
Tax 189 154 -18.4% 682 578 -15.2%
Profit after tax/(loss) 367 347 -5.4% 1,425 1,263 -11.4%
Net profit margin (%) 18.8% 21.6%   20.8% 18.9%  
No. of shares (m)         15.4  
Diluted earnings per share (Rs)*         82  
Price to earnings ratio (x)         18  
* trailing 12 month earning

What has driven performance in 4QFY13?
  • After a tepid performance in the previous quarters, revenues of VST Ind. fell by 18% in 4QFY13.

  • Cost break-up...
    (Rs m) 4QFY12 4QFY13 Change
    Raw materials 937 759 -19.0%
    % sales 47.8% 47.2% -64.0
    Staff cost 172 156 -9.6%
    % sales 8.8% 9.7% 88.7
    Other expenditure 273 253 -7.3%
    % sales 13.9% 15.7% 179.2

  • The company's operating performance was adversely impacted as staff costs and other expenditure fell at a much slower pace compared to revenues. The ratio of other expenses to sales rose to 15.7% from 13.9% in the year-ago quarter. Resultantly, the company's operating margin reduced by 200 basis points to 27.4% during the quarter.
  • At the net level, the company has been able to limit downfall in its earnings to 5.4% aided by a sharper decline in depreciation charges and tax outgo. Even, other income earned during the quarter was 61% higher YoY that has buffered the downfall in earnings.

What to expect?

At a price of Rs 1490, the stock is trading at 18 times its trailing twelve months earnings.

VST Industries has been struggling to grow its topline in the wake of structural rise in taxation in the form of VAT rates and excise duty. For the full year, the company reported a 2% fall in revenues. Being a small player with limited pricing power, VST Ind. saw a 190 basis points slide in its net margin due to steep escalation in raw material cost to sales ratio. Even in Union Budget 2013, the government has enhanced excise duty by 18% which is expected to further impact the company's sales and earnings going ahead. However, the company may keep paying out good dividends and hence, original investors can keep holding on to the stock.

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Jun 17, 2021 (Close)


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