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  • 01 Aug 2022
  • ICICIdirect Research

VST INDUSTRIES POSTS Q1FY23 NUMBERS

VSTIND - 326 Change: 2.10 (0.65 %)

News: VST Industries witnessed a growth of 9.3% to Rs 301 crore (net of excise) on the back of strong recovery in cigarettes business. Cigarette sales has grown at 10.5% to Rs352.4 crore during the quarter aided by 9% YoY volume growth. The company is focussing on investing behind brands through marketing spends at the point of sale rather than giving excessive trade promotions. Gross margins expanded by 483 bps mainly on account of reduction in trade discounts. Some of the raw material costs like paperboard, prices of filter have gone up sharply however the company is looking for alternate sourcing for these raw materials. Led by expansion in gross margins & reduction in employee spends, operating profit grew by 22.8% to Rs112.9 crore. Operating margins expanded by 413 bps to 37.5%. Net profit grew by 23.7% to Rs87.1 crore led by higher operating profit.

Views: VST Industries have lost market share in FY22 given the market leader has been aggressive in its promotion activity with trade channels however the company has a long term strategy of increasing its brand proposition rather than giving high trade discounts. It has been focusing on high priced brands like ‘Total’ & ‘Edition’ to grow the sales through product mix improvement. With the same strategy, it has expanded ‘Total’ brand in King size segment. Considering the taxation on cigarettes have been stable since last five years, the category is likely to witness mid-single digit volume growth in medium term. With the focus on high priced brand, the company would be able to further enhance its cigarettes realisation, which is likely to improve margins. However, we are still cautious about sustainable long term volume growth of the category & increasing competitive activity by market leader.

Impact: Neutral.