ICICI Direct's research report on VST Industries
Revenue (net of GST) for the quarter increased 22.9% YoY to Rs 315.4 crore, above our estimate of Rs 303.1 crore. Cigarette sales increased 25% to Rs 245 crore led by 8% volume growth and a change in product mix. Contribution of higher priced cigarettes to volumes has increased from 20% to ~27% during the quarter. The company has not taken any material price increase during the quarter. Tobacco sales increased 16.6% to Rs 70 crore in Q3FY19. The sales volume contribution of 64 mm category was 40% whereas 69 mm category contributed 55%. The company has ‘Edition’ brand in King Size category, which contributed 5% to volumesOperating profit increased 8% in Q3FY19E. Gross margins contracted 500 bps but 40 bps & 60 bps savings in employee cost to sales & other overheads expenditure to sales, respectively, led to a 400 bps decline in EBITDA margins. The company saw an increase in cost of all major imported raw material like filter rods, cigarettes paper largely due to currency depreciation. Leaf tobacco prices also saw an up-tick, which may impact operating margins, going forward. Net profit for the quarter, thus, jumped 11.4% YoY to Rs 55.4 crore.
Outlook
With strong volume growth and a better product mix, we expect healthy growth in both revenues & earnings during FY18-21E. Considering more than 60% dividend payout, dividend yield for VST is 3-4%. We reiterate
BUY on the stock with a target price of Rs 4000/share.
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