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VST Ind.: Margins continue to fall - Views on News from Equitymaster
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VST Ind.: Margins continue to fall
Sep 4, 2013

VST Industries has declared its results for 1QFY14. The company has reported a 14% YoY rise in sales and a 11% YoY decline in profits. Here is our analysis of the results.

Performance summary
  • Topline grew by 13.9% in June 2013 quarter.
  • Operating margin shrunk by 5.5% to 22.5% due to steep jump in raw material costs.
  • Erosion in profits continued with the bottomline registering a 11% decline on a 8.6% fall in operating profit and 10.2% lower other income earned.

Performance Snapshot
(Rs. m) 1QFY13 1QFY14 Change
Income 1,552 1,768 13.9%
Expenditure 1,118 1,370 22.6%
Operating profit (EBDITA) 435 398 -8.6%
EBDITA margin (%) 28.0% 22.5%  
Other income 67 60 -10.2%
Interest (net) - -  
Depreciation 54 58 8.4%
Profit before tax 448 400 -10.8%
Extraordinary inc/(exp) - -  
Tax 143 129 -10.1%
Profit after tax/(loss) 305 271 -11.1%
Net profit margin (%) 19.7% 15.3%  
No. of shares (m)   15.4  
Diluted earnings per share (Rs)*   80  
Price to earnings ratio (x)   18  
* trailing 12 month earning

What has driven performance in 1QFY14?
  • VST Industries reported a robust 13.9% jump in topline in June 2013 quarter after a sharp decline in the previous quarter

    Cost break-up
    (Rs m) 1QFY13 1QFY14 Change
    Raw materials 664 869 30.8%
    % sales 42.8% 49.1% 635.1
    Staff cost 170 165 -3.3%
    % sales 11.0% 9.3% -165.4
    Other expenditure 283 337 19.0%
    % sales 18.3% 19.1% 82.3

  • However, the company's operating performance continued to worsen on account of steep escalation in raw material costs. The raw material to sales ratio jumped up to 49.1% in June 2013 quarter from 42.8% in the year-ago quarter. Even a 1.7% drop in staff costs to sales ratio was in-adequate. As a result, the operating margin contracted by 5.5% for the quarter.

  • At the net level, profits fell by 11% on a 8.6% decline in operating profit. Even the other income earned during the quarter was down by 10.2% for the quarter.

What to expect?
At a price of Rs 1425, the stock is trading at 18 times its trailing twelve months earnings.

VST Industries has not been able to stem declining profitability. Being a small player with low pricing power, the company was unable to pass on hike in tax rates. Resultantly, its raw material cost has been rising faster than its sales. Therefore its margins have fallen drastically. However, the company may keep paying out good dividends and hence, original investors can keep holding on to the stock.

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Feb 21, 2018 03:35 PM


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