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- 21 Jan 2022
- ICICIdirect Research
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VST CIGARETTE VOLUME REACH PRE-COVID LEVELS
VSTIND - 327 Change: 0.20 (0.06 %)News: VST Industries' results were ahead of our estimates on revenue front but in line with estimates on earnings front. VST witnessed 14.5% revenue growth during the quarter with strong volume growth. We believe trade discounts have been re-stored during the quarter, which led to inventory re-stocking. Moreover, softening of container prices also resulted in pick up in tobacco exports sales. We believe cigarette volume growth is closer to 10% (based on our assessment of increase in excise duty). Gross margins have been contracted by 180 bps mainly on account of higher trade discounts & offers. Employee spends were down by 147 bps (% to sales) & overhead spend were up by 130 bps. Operating profit increased by 9.1% to Rs.109.1 crore. Operating profit margins contracted by 164 bps similar to the contraction in gross margins. Net profit grew by 12.2% to Rs.82.7 crore
Views: The cigarette category was adversely impacted by disruptions in last two years. However, stable taxation & normalisation of out of home activity resulted in cigarette volume recovering back to the pre-Covid levels. The long term trend in cigarette volume & tobacco sales have been dismal with excessing taxation, global trend towards e-cigarettes & other regulatory controls. We believe volume growth in the segment would be low single digit with stable taxation. We remain cautious on growth prospects however valuation multiples are extremely attractive.
Impact: Neutral