VST cigarette volume reach pre-Covid levelsVSTIND - 3200 Change: 47.05 (1.49 %)
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.