VST Industries reported dismal set of numbers with ~13% decline in cigarette volumes given demand conditions still remained weak due to continue work from home culture. Moreover, the company faced stiff competitive pressure with peers increasing trade discounts & schemes. Gross revenues witnessed a growth of 3.3% led by 18% increase in cigarettes sales. The increase in sales was largely on account of price increase taken last year after the excise duty increase in budget & change in product mix. High priced cigarettes brands 'Total' (Rs. 7/stick) & 'Edition' (Rs. 11/stick) contributes 45% to volumes. Tobacco sales was down to Rs. 60 crore from Rs. 100 crore in corresponding quarter due to sluggish demand of Indian tobacco in export market. The company paid Rs. 93.5 crore excise duty as against Rs. 24.7 crore in corresponding quarter. Gross margins were higher by 674 bps mainly due to increase in cigarettes prices & change in product mix towards the high priced cigarettes. Operating profit dipped by 7.8% to Rs. 100 crore. Net profit witnessed de-growth of 9.5% to Rs. 73.7 crore.
Valuation & Outlook
The company has maintained its profitability despite severe volume challenges shows its ability to manoeuvre pricing & promotion to its advantage. However, we believe stable taxation is necessary for volume growth in future, which would determine revenue & earnings trajectory for the next few years. We will wait for cues in 2021 budget and maintain our Hold with revised target price of Rs. 4200/share (18x FY23E PE).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_VSTInds_Q3FY21.pdf
Shares of VST INDUSTRIES LTD. was last trading in BSE at Rs.3770 as compared to the previous close of Rs. 3726.05. The total number of shares traded during the day was 987 in over 318 trades.
The stock hit an intraday high of Rs. 3775 and intraday low of 3728.9. The net turnover during the day was Rs. 3705899.