VST Ind.: Falling costs boosts bottom line - Views on News from Equitymaster

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VST Ind.: Falling costs boosts bottom line

Jul 15, 2011

VST Industries has declared its results for first quarter financial year 2011-2012 (1QFY12). The company has reported a 15.8% YoY growth in sales and an 89.9% YoY growth in profits. Here is our analysis of the results.

Performance summary
  • Sales for VST Industries grew by 16% YoY during 1QFY12.
  • Operating income (EBITDA) grew by an impressive 144% YoY as a result of sharp decline in costs under all heads (as a percentage of sales).
  • The net profits grew by a robust 90% YoY as a result of higher operating income partly offset by increase in effective tax rate.

(Rs.m) 1QFY11 1QFY12 Change
Net sales 1,271 1,472 15.8%
Expenditure 1,069 978 -8.5%
Operating profit (EBDITA) 203 494 143.7%
EBDITA margin (%) 15.9% 33.6%  
Other income 69 48 -30.3%
Interest (net) (4) (5)  
Depreciation 46 50 9.4%
Profit before tax 230 498 116.6%
Extraordinary inc/(exp) - -  
Tax 50 155 213.9%
Profit after tax/(loss) 180 342 89.9%
Net profit margin (%) 14.2% 23.2%  
No. of shares (m) 15.4 15.4  
Diluted earnings per share (Rs)*   72.0  
Price to earnings ratio (x)   15.8  
* trailing 12 month earning

What has driven performance in 1QFY12?
  • Sales for the company grew as a result of robust demand for cigarettes and price hikes.

    Cost break-up...
    (Rs m) 1QFY11 1QFY12 Change
    Raw materials 631 616 -2.3%
    % sales 49.6% 41.8%  
    Staff cost 144 155 7.2%
    % sales 11.4% 10.5%  
    Other expenditure 294 208 -29.3%
    % sales 23.1% 14.1%  

  • Operating margin grew by 17.6% during the year. This growth was due to a decline of 5.5% YoY in raw material costs and 29.3% YoY in other expenditure. Staff costs grew by 7.2% YoY which is slower than top line growth and helped support operating margin.

  • The net profit margin of the company grew by 9.1% to stand at 23.2% of sales. The growth in net profits has been slower than operating income as a result of fall of 30.3% YoY in other income and increase of 9.7% in effective tax rate. Effective tax rate stood at 31.2% for the quarter.

What we expect?
At a price of Rs 1135, the stock is trading 15.8 times its trailing twelve months earning. We believe that the stock is not very overpriced at these levels and in light of its decent dividend yield and stable business model, continue to maintain our HOLD view.

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Dec 13, 2019 (Close)


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