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VST Ind.: Margins sustained - Views on News from Equitymaster
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VST Ind.: Margins sustained
Nov 19, 2013

VST Industries has declared its results for 2QFY14. The company has reported a 19.6% YoY rise in sales and a 17.6% YoY increase in profits. Here is our analysis of the results.

Performance summary
  • Revenue increased by 19.8% YoY in 2QFY14. For 1HFY14, the topline grew by 17% YoY.
  • Due to higher raw material costs, operating margin reduced by a slight 0.4%. For 1HFY14, the operating margin narrowed down by 2.8% on account of a faster 25% escalation in input costs.
  • Profits grew by a relatively slower 17.6% YoY on an 18% rise in operating profit due to higher tax outgo. For 1HFY14, profits grew by a measly 2.5% as a result of decline in profits in 1QFY14.

Performance Snapshot
(Rs. m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Income 1,762 2,111 19.8% 3,314 3,879 17.0%
Expenditure 1,329 1,600 20.4% 2,446 2,970 21.4%
Operating profit (EBDITA) 433 511 18.0% 868 909 4.7%
EBDITA margin (%) 24.6% 24.2%   26.2% 23.4%  
Other income 25 32 29.1% 92 93 0.5%
Interest (net) - -   - -  
Depreciation 54 59 10.1% 107 117 9.2%
Profit before tax 405 485 19.7% 853 884 3.7%
Extraordinary inc/(exp) - -   - -  
Tax 129 160 24.3% 272 289 6.2%
Profit after tax/(loss) 276 325 17.6% 581 596 2.5%
Net profit margin (%) 15.7% 15.4%   17.5% 15.4%  
No. of shares (m)         15.4  
Diluted earnings per share (Rs)*         83  
Price to earnings ratio (x)         18  
* trailing 12 month earning

What has driven performance in 2QFY14?
  • VST Industries reported a robust 19.8% jump in topline in September 2013 quarter.

    Cost break-up...
    (Rs m) 2QFY13 2QFY14 Change
    Raw materials 906 1,099 21.3%
    % sales 51.4% 52.1% 64.3
    Staff cost 158 177 12.5%
    % sales 9.0% 8.4% -54.7
    Other expenditure 265 323 22.0%
    % sales 15.0% 15.3% 28.0

  • The company has been able to restrict the compression in operating margin to 0.4% backed by a 0.6% cut in employee costs that partially offset rise in raw material costs and other expenses (all as a proportion of sales).

  • The net profits increased by 17.6% on a 18% rise in operating profit. The tax rate rose to 33% from 31.8% in the year-ago quarter.
What to expect?

VST Industries has been able to limit its downfall in profitability in the September 2013 quarter.

At a price of Rs 1512, the stock is trading at 14 times its FY16 earnings. As the company may keep paying good dividends, original investors can keep holding on to the stock.

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