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VST Industries : The profitability kicker - Views on News from Equitymaster
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VST Industries : The profitability kicker
Jul 16, 2009

Performance summary
  • Standalone topline of the company grows by a robust 78.7% YoY, presumably on the back of higher sales of filtered cigarettes.
  • Operating profits jumps more than four times, enabling EBITDA margins to increase by 12.7% during the quarter.
  • Bottomline grows by 152.2% despite higher taxes and fall in other income during the quarter.

Standalone financial snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 706 1,261 78.7%
Expenditure 637 978 53.5%
Operating profit (EBDITA) 69 284 311.8%
EBDITA margin (%) 9.8% 22.5%
Other income 101 94 -6.6%
Interest (net) 1 (29)
Depreciation 41 39 -4.2%
Profit before tax 128 368 187.1%
Extraordinary inc/(exp) - -
Tax 22 101 352.5%
Profit after tax/(loss) 106 267 152.2%
Net profit margin (%) 15.0% 21.2%
No. of shares (m) 15.4 15.4
Diluted earnings per share (Rs)* 50.6
Price to earnings ratio (x)** 6.7
(* annualised, ** on trailing twelve months earnings)

What has driven performance in FY10?
  • VST Industries grew its topline by a robust 78.7% YoY during the quarter. This growth could be owed to increased proportion of filtered cigarettes in the portfolio. In fact, as per the annual report, filtered cigarettes accounts for around 92% of the total sales volumes. The company launched its Charminar brand in filter format last fiscal which is enabling the company to garner substantial volumes. Also, other brands like ‘Moments’ and ‘Charms Virginia’ have been able to grow volumes in newer markets of south and north in the country. VST Industries has also established a significant presence in special tobaccos like sun, air and fire cured tobaccos for niche markets. This enabled the company to grow its exports. Thus, it can be presumed that the stellar growth achieved by the company is likely to have come in due to increased filtered cigarettes sales coupled with special tobacco exports.

  • On the operating side, the company put in a stellar performance by growing the operating profits by 311.8% YoY. This was on account of significant cut down on operating costs, mainly staff costs and other expenditure that stood lower (as % sales) during the quarter. However, raw material costs have increased significantly mainly on account of higher tobacco prices during the quarter. It may be noted that the company accounts for forex gains and losses in the other expenditure. The company booked a forex gain of Rs 30.3 m during the quarter as against a loss of Rs 38.3 m in the corresponding period last year. This enabled it to lower the other expenditure. Operating margins stood at 22.5% in 1QFY10 as compared to 9.8% in 1QFY09.

    Cost table
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 309 701 126.9%
    % sales 43.8% 55.6%  
    Staff cost 120 129 7.5%
    % sales 16.9% 10.2%  
    Other expenditure 208 148 -29.0%
    % sales 29.5% 11.7%  

  • Net profits grew by 152.2% YoY, lower than the operating profits. This was mainly on account of fall in other income and higher taxes during the quarter. However, the lower depreciation charges and negative interest charges had a favorable impact on the net profits.

What to expect?
At current price of Rs 368, the stock is trading at a multiple of 6.7x its expected FY11 earnings per share. We continue to remain positive on the stock and will come out with a revised target price shortly.

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Feb 23, 2018 (Close)


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