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VST Industries - Q1FY21 Result Update - ICICI Securities

Posted On: 2020-08-04 09:31:12

VST Industries reported resilient sales despite manufacturing, supply chain as well as retails selling points remaining closed for~40 days. Gross sales declined merely 4.4% but net of excise, sales were down 19.4%. Cigarette sales de-grew 4% to Rs. 274.7 crore while tobacco sales fell 7% to Rs. 40 crore. Cigarette volumes were down 39% (similar to ITC's decline of ~40%). The company took a blended price hike of 11% after the excise increase in Budget in February 2020. The new price points for 'Edition', 'Total' are Rs. 11, Rs. 7, respectively. More, importantly it curtailed trade promotions & schemes (18-20% of MRP) in Q1 as biggest focal point stayed improving supply by expanding manufacturing & distribution in second half of Q1. July continues to remain disrupted with many localised lockdowns. VST is gradually increasing promotions with competitive intensity rising in Q2. Operating profit was down 13.2% to Rs. 99.3 crore. Operating margins expanded 264 bps to 40.4% with gross margin expansion of 612 bps (due to withdrawal of promotions) & 343 bps (percentage to sales) rise in employee spends. Net profit saw flat growth at Rs. 75.7 crore with reduction in corporate tax rate.

Valuation & Outlook

VST has a wide presence at lower price point cigarettes. With continuous increase in taxes & duties, the consumer market now has been largely concentrated at 64 & 69 mm cigarettes. Moreover, gap between ITC & VST's (at lower end) prices led to market share gains for the latter. The possibility of curbs on illicit cigarettes due to supply disruptions could also help drive volume growth for the company. We retain our positive stance valuing it at 20x FY22 PE with target price of Rs. 4,450/share and BUY recommendation.

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Shares of VST INDUSTRIES LTD. was last trading in BSE at Rs.3487.4 as compared to the previous close of Rs. 3238.25. The total number of shares traded during the day was 6790 in over 2186 trades.

The stock hit an intraday high of Rs. 3594.95 and intraday low of 3301. The net turnover during the day was Rs. 23662353.

Source: Equity Bulls

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