VST Industries zooms 27% in 2 days on Damani's stake buy; market bets on solid RoE

In the past one month, the stock of VST Industries has gained 26 percent

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26 Aug, 2025 12:21

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VST Industries’ share jumped more than 6 percent to hit a 52-week high of Rs 4,328 in the morning trade on January 3, extending the previous day’s 20 percent gains after ace investor Radhakishan Damani bought 2.22 lakh shares in the tobacco company, taking his stake to over 30 percent.

But is that the only reason working in the favour of the stock? Strong dividend yield, inexpensive valuations and solid return on equity (RoE) versus peers are the reasons driving the gain.

VST Industries has been providing a good dividend yield of 3.6 percent against 2.7 percent for ITC and 2.04 percent for Godfrey Phillips, data shows.

On the RoE front, too, VST Industries gave 32 percent returns compared with ITC's 25 percent and 15 percent of Godfrey Phillips over three years.

Valuation-wise, VST Industries is trading at 15 times (x) price-to-earnings multiple for FY25 earnings against 26x forward PE of ITC's FY25 earnings and the sector's mean of 18x PE multiple.

VST Industries manufactures and markets cigarettes and also trades in unmanufactured tobacco. The company has two cigarette-making facilities in Hyderabad and has five major brands —Total, Charms, Moment, Special, and Edition —with a direct distribution reach of over 1.1 million outlets.

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Cigarette volumes to recover; VST Industries to gain

Though cigarette volumes though have grown at a slower pace in the past quarters, analysts believe the average Indian consumption would still favour pure tobacco players like VST Industries.

Cigarette volumes that were hit during the Covid pandemic due to lower demand should stabilise this fiscal (FY24), analysts at CRISIL Ratings said.

"Cigarette sales volume is poised to rise 7-9 percent this fiscal, driven by rising occupancy at offices and stable tax regime. The stability in the tax regime and regulations on tobacco consumption will be key monitorables," they said.

Though ITC stands tall in cigarette volumes compared to other peers, VST Industries is a pure play on the tobacco theme. “After ITC, this cigarette maker has produced strong cash flows in the recent quarters," said Ambareesh Baliga, an independent market analyst.

Deepak Jasani, head of retail research at HDFC Securities, said the cigarette industry would post mid-single-digit growth despite the sluggish demand in the past few quarters.

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Debt-free, strong liquidity profile

The company's strong financial risk profile and established market position will play a major role in supporting growth.

The company's liquid investments, including cash and equivalent, exceeded Rs 597 crore on March 31, 2023. "Modest capex of Rs 150 crore over the next two fiscals and absence of debt will further bolster liquidity," analysts at CRISIL Ratings said.

In FY23, VST Industries revenue increased by 10 percent on-year to Rs 1,292 crore, driven by higher demand for unmanufactured tobacco amid global shortage.

Operating margin, however, moderated to 29.6 percent on-year, led by a higher share of low-margin unmanufactured tobacco and increased raw material and packaging costs.

Analysts predict expect VST Industries to sustain revenue growth over the medium term, with the operating margin steady at 30-32 percent.

"The financial risk profile will remain strong, driven by the company’s debt-free status and superior liquidity," CRISIL Ratings added.

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