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Research
Buy VST Industries - In line with expectations.. - ICICIdirect
Posted On : 2012-04-20 10:48:07( TIMEZONE : IST )
VST Industries' Q4FY12 results were in line with our expectations. The company reported net sales of Rs. 195.6 crore (I-direct estimate: Rs. 188.8 crore) and growth of 24.3% YoY against Rs. 157.4 crore in Q4FY11. EBITDA margins improved ~400 bps YoY from 27.9% in Q4FY11 to 32% in Q4FY12 on the back of lower employee and manufacturing expenses. Higher revenues and margins led VST's earnings to jump ~36% YoY from Rs. 26.9 crore to Rs. 36.7 crore (I-direct estimate: Rs. 36.7 crore).
Full year performance
VST's sales for FY12 stood at Rs. 680.1 crore, up 17.6%, against Rs. 578.4 crore in FY11. The company's cigarette sales volume in FY12 increased ~12% to ~9200 million sticks from 8162 million sticks in FY11. With a softening of raw material (RM) prices (un-manufactured tobacco) in FY12, the company's RM cost to sales ratio dipped ~400 bps to 45.3%. Also, further rationalisation in employee cost (10.5% in FY11 to 9.1% in FY12) and other manufacturing expenses (16.5% in FY11 to 15.4% in FY12) helped the company to improve its EBITDA margins significantly from 23.6% in FY11 to 33.2% in FY12. Hence, net profits jumped 49.4% YoY in FY12 to Rs. 142.5 crore. VST has declared an annual dividend of Rs. 65/share for FY12, thereby increasing the company's yield to 3.3% as at CMP.
Valuation
At the CMP, the stock is trading at 3.7x and 3.3x its FY13E and FY14E sales/share of Rs. 521.2 and Rs. 596.2, respectively. With the company's volume growth being robust at ~12% YoY, margins witnessing significant improvement and a higher dividend/share, we believe the company's earnings and return ratios would continue to rise until FY14E. Going ahead, the stock would also command further premium in trading multiple as it is currently trading at a significant discount to its peers (ITC is trading at 5.6x FY14E sales/share of Rs. 43). Hence, we have valued the stock at 3.6x its FY14E sales/share of Rs. 596.2 and arrived at a target price of Rs. 2146.
