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VST Ind.: Sales decline on duty hike - Views on News from Equitymaster
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VST Ind.: Sales decline on duty hike
Nov 5, 2014

VST Industries has declared its results for 2QFY15. The company has reported a 3% YoY fall in sales and a 17% YoY increase in profits. Here is our analysis of the results.

Performance summary
  • For 2QFY14, the company's topline declined by 3%. The revenues increased by 8% during 1HFY15.
  • The operating margin expanded by 4.7% YoY backed by lower raw material costs and other expenses (both as a proportion of sales). For 1HFY15, the operating margin increased by 7.3%.
  • Net profit grew by a robust 16.9% on a 15.9% growth in operating profit coupled with surge in other income earned. For 1HFY15, net profits surged by 36%.

Performance Snapshot
(Rs. m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Income 2,111 2,047 -3.0% 3,879 4,188 8.0%
Expenditure 1,600 1,454 -9.1% 2,970 2,901 -2.3%
Operating profit (EBDITA) 511 593 15.9% 909 1287 41.6%
EBDITA margin (%) 24.2% 29.0% 4.7% 23.4% 30.7% 7.3%
Other income 32 58 77.8% 93 88 -5.0%
Interest (net) - -   - -  
Depreciation 59 78 32.2% 117 153 30.3%
Profit before tax 485 572 18.1% 884 1,222 38.2%
Extraordinary inc/(exp) - -   - -  
Tax 160 193 20.3% 289 411 42.2%
Profit after tax/(loss) 325 380 16.9% 596 812 36.3%
Net profit margin (%) 15.4% 18.5% 3.2% 15.4% 19.4% 4.0%
No. of shares (m)         15.4  
Diluted earnings per share (Rs)*         111  
Price to earnings ratio (x)         17  
* trailing 12 month earning

What has driven performance in 2QFY15?
  • VST Industries posted a 3% YoY fall in income in September 2015 quarter.

    Cost break-up...
    (Rs m) 2QFY14 2QFY15 Change
    Raw materials 1,099 962 -12.4%
    % sales 52.1% 47.0% -504.9
    Staff cost 177 187 5.6%
    % sales 8.4% 9.2% 74.8
    Other expenditure 323 305 -5.8%
    % sales 15.3% 14.9% -43.7

  • However operating profitability improved substantially on the back of savings in raw material costs and other expenses. As a proportion of sales, raw material costs fell by 5% during the quarter. The operating margin expanded by 4.7% during the quarter.

  • HNet profits grew by 16.9% YoY on a 15.9% growth in operating profit and 78% jump in other income earned during the quarter. The tax incidence increased to 33.7% in 2QFY15 from 33.1% in 2QFY14.
What to expect?

VST Industries sales in September 2014 quarter have been impacted by steep hike in excise duty particularly in the micro( < 65 mm ) and regular (65-70 mm) filter segments where it has a major presence. Going ahead, the government's strict stance against smoking is the major headwind for the company's topline growth.

At a price of Rs 1,847, the stock is trading at 17 times its FY17 earnings. We had recommended a BUY on the stock at current price or lower levels. But the stock price has recently run up quite a lot. Given the stable and the cash flow generation nature of the business and also taking into account a good dividend yield, we change our view from BUY to HOLD on the stock at present levels.

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