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VST Ind.: Higher demand boosts topline - Views on News from Equitymaster
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VST Ind.: Higher demand boosts topline
Oct 15, 2010

VST Industries has announced its 2QFY11 results. The company has reported a 35% YoY growth in sales and a 40% growth in profits. Here is our analysis of the results.

Performance summary
  • Sales for VST Industries grew by 35.1% YoY during 2QFY11.
  • Operating income (EBITDA) grew by 57.5% YoY as a result of sharp decline in other expenditure (as a percentage of sales).
  • The net profits grew by 40% YoY as a result of higher operating income partly offset by increase in effective tax rate.
  • Bottomline for 1HFY11 grew by 1.9% YoY while the net profit margin fell by 2.3% to 14.7%. This fall comes on the back of lower operating income as well as fall in other income.


(Rs. m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 1,164 1,573 35.1% 2,426 2,852 17.6%
Expenditure 929 1,202 29.4% 1,906 2,279 19.5%
Operating profit (EBDITA) 236 371 57.5% 519 573 10.3%
EBDITA margin (%) 20.2% 23.6%   21.4% 20.1%  
Other income 43 24 -44.8% 137 94 -31.4%
Interest (net) (3) (0)   (6) (4)  
Depreciation 41 47 16.5% 79 93 17.4%
Profit before tax 241 348 44.1% 583 578 -1.0%
Extraordinary inc/(exp) - -   - -  
Tax 70 108 54.2% 171 157 -7.9%
Profit after tax/(loss) 172 240 40.0% 413 420 1.9%
Net profit margin (%) 14.7% 15.3%   17.0% 14.7%  
No. of shares (m) 15.4 15.4   15.4 15.4  
Diluted earnings per share (Rs)*         40.7  
Price to earnings ratio (x) 29.0% 31.0%     14.7  
* trailing 12 month earning

What has driven performance in 2QFY11?
  • Sales for the company grew as a result of robust demand for cigarettes and price hikes.

    Cost break-up...
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Raw materials 629 849 34.9% 1,331 1,480 11.2%
    % sales 54.1% 54.0%   54.9% 51.9%  
    Staff cost 124 158 27.4% 252 302 19.7%
    % sales 10.6% 10.0%   10.4% 10.6%  
    Other expenditure 176 196 11.4% 323 497 53.8%
    % sales 15.1% 12.4%   13.3% 17.4%  

  • Operating margin grew by 3.4% during the quarter. This growth was due to a sharp decline of 2.6% (as a percentage of sales) in other expenditure. Staff costs also fell by 0.6% to stand at 10% of sales. Raw material costs remained flat during the quarter.

  • The net profit margin of the company grew by 0.6% to stand at 15.3% of sales. The growth in net profits has been slower than operating income as a result of fall of 45% YoY in other income and increase of 2% in effective tax rate. Effective tax rate stood at 31% for the quarter.

What to expect?
At a price of Rs 599, the stock is trading 13.5 times our estimated FY11 earnings. 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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