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VST Ind.: FY15 ends on a dull note - Views on News from Equitymaster
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VST Ind.: FY15 ends on a dull note
Apr 27, 2015

VST Industries has declared its results for 4QFY15. The company has reported a 16% YoY rise in sales and a 8.9% YoY fall in profits. Here is our analysis of the results.

Performance summary
  • The company's topline grew by 16% YoY for 4QFY14. For FY15, the revenues increased by 6% YoY.
  • The operating margin contracted by 4.3% YoY due to higher raw material costs for the quarter. For FY15, the operating margin expanded by 1.3%.
  • Net profit grew slumped by 21.6% YoY 1.3% YoY rise in operating profit coupled with 74% fall in other income earned. For FY15, bottomline was up by 1.4%.
  • The company has declared a dividend of Rs 70 per share of face value of Rs 10 each, subject to shareholder's approval. At the current trading price, the dividend yield works out at 4%.

Consolidated financial performance
(Rs. m) 4QFY14 4QFY15 Change FY14 FY15 Change
Income 1,891 2,193 16.0% 7,892 8,362 6.0%
Expenditure 1,253 1,546 23.4% 5,711 5,940 4.0%
Operating profit (EBDITA) 638 646 1.3% 2181 2421 11.0%
EBDITA margin (%) 33.7% 29.5% -4.3% 27.6% 29.0% 1.3%
Other income 207 55 -73.5% 324 185 -42.9%
Interest (net) - -   - -  
Depreciation 71 91 27.6% 266 319 20.1%
Profit before tax 774 610 -21.1% 2,240 2,288 2.1%
Extraordinary inc/(exp) - -   - -  
Tax 255 204 -20.3% 738 766 3.7%
Profit after tax/(loss) 519 407 -21.6% 1,502 1,522 1.4%
Net profit margin (%) 27.4% 18.6% -8.9% 19.0% 18.2% -0.8%
No. of shares (m)         15.4  
Diluted earnings per share (Rs)*         99  
Price to earnings ratio (x)         17  
* trailing 12 month earning

What has driven performance in 4QFY15?
  • VST Industries posted a 16% YoY growth in revenues in March 2015 quarter.

    Cost break-up...
    (Rs m) 4QFY14 4QFY15 Change
    Raw materials 822 1,066 29.8%
    % sales 43.5% 48.6% 517.1
    Staff cost 185 201 9.1%
    % sales 9.8% 9.2% -57.6
    Other expenditure 247 279 13.0%
    % sales 13.0% 12.7% -33.1

  • The operating margin contracted by 4.3% YoY for the quarter due to a steep 30% jump in raw material costs. As a proportion of sales, raw material costs were up by 5.2% YoY to 58.6% for the quarter.

  • Net profits fell by 21.6% YoY on a 1.3% YoY increase in operating profit and 73.5% fall in other income.
What to expect?
VST Industries' sales in FY15 have been impacted by sharp increase in excise duty. Even in the Union Budget 2015-16, the excise duty in the micro (< 65 mm) segment has been raised by 25%. The company in the past has been able to pass on duty hikes. However continuous duty increases in the past four years is beginning to have an impact on the company's offtake. Resultantly the company's sales have registered growth in single digits in the past three years. Going ahead, the government intends to maintain a tough stance against cigarette smoking.

VST Industries stock after peaking over Rs 1900 in January 2015 has witnessed a steep correction. At a CMP of Rs 1670, the stock is trading at 16 times its FY17 earnings. The stock is expected to yield a compounded annual return of 7% based on FY17 target price of Rs 1920. VST's profitable cash operations have ensured that it has consistently generated an average dividend yield of 6% in the last nine years. Therefore assuming a minimum dividend yield of 4%, the total return works out to 11% over the next two years. We would therefore advise existing shareholders to continue holding the stock.

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