ICICI Direct's research report on VST Industries
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’ (Rs11/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.
We will wait for cues in 2021 budget and maintain our Hold with revised target price of Rs 4200/share (18x FY23E PE)