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VST Ind.: Huge jump in margins - Views on News from Equitymaster

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VST Ind.: Huge jump in margins
Apr 23, 2014

VST Industries has declared its results for 4QFY14. The company has reported a 18% YoY rise in sales and a 49% YoY increase in profits. Here is our analysis of the results.

Performance summary
  • The company posted a 17.5% YoY growth in revenues in 4QFY14. For FY14, the topline increased by 18%.
  • The operating margin increased by 6.3% YoY backed by savings in input costs, and other expenses,. For FY14, the operating margin expanded by a mere 0.7% due to high raw material costs.
  • Profits surged by 49% YoY on a 45% jump in operating profits coupled with a steep 75% rise in other income earned. For FY14, net profits were up by 19%.
  • The company has declared a dividend of Rs 70 per equity share of face value of Rs 10 each for FY14. This translates into a dividend yield of 3.7%.

(Rs. m) 4QFY13 4QFY14 Change FY13 FY14 Change
Income 1,609 1,891 17.5% 6,687 7,892 18.0%
Expenditure 1,168 1,253 7.3% 4,884 5,711 16.9%
Operating profit (EBDITA) 441 638 44.7% 1803 2181 21.0%
EBDITA margin (%) 27.4% 33.7% 6.3% 27.0% 27.6% 0.7%
Other income 119 207 74.7% 263 324 23.6%
Interest (net) - -   - -  
Depreciation 58 71 22.8% 225 266 18.1%
Profit before tax 502 774 54.3% 1,841 2,240 21.7%
Extraordinary inc/(exp) - -   - -  
Tax 154 255 65.5% 578 738 27.7%
Profit after tax/(loss) 347 519 49.4% 1,263 1,502 18.9%
Net profit margin (%) 21.6% 27.4% 5.8% 18.9% 19.0% 0.1%
No. of shares (m)         15.4  
Diluted earnings per share (Rs)*         97  
Price to earnings ratio (x)         20  

What has driven performance in 4QFY14?
  • VST Industries posted a 17.5% YoY increase in income in March 2014 quarter.

    Cost break-up...
    (Rs m) 4QFY13 4QFY14 Change
    Raw materials 759 822 8.3%
    % sales 47.2% 43.5% -372.7
    Staff cost 156 185 18.6%
    % sales 9.7% 9.8% 8.5
    Other expenditure 253 247 -2.5%
    % sales 15.7% 13.0% -268.7

  • The company has reported a sharp jump in profitability on the back of savings in raw material costs and other expenses. As a proportion of sales, raw material costs and other expenses declined by 3.7% and 2.5%, respectively during the quarter. Resultantly, operating margin has expanded by 6.3% YoY.

  • Despite a steep jump in tax outgo, the company has managed to post a 49% jump in net profits mainly on account of higher other income earned during the quarter. The tax incidence has risen to 33% in 4QFY14 as compared to 30.7% in 4QFY13.
What to expect?
On the back of a robust revival in profitability in 4QFY14, the company has been able to keep its margins in-tact in FY14.

At a price of Rs 1897, the stock is trading at 15 times its FY16 earnings. We have recently revised upwards the target price of the stock from Rs 1950 to Rs 2200 as the company may continue paying robust dividends. Therefore original investors can keep holding on to the stock.

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Jul 18, 2018 12:17 PM

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