Buy VST Industries; target of Rs 1931: ICICIDirect

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26 Aug, 2025 12:21

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ICICIDirect's research report on VST Industries
VST Industries reported a healthy set of Q3FY16 numbers, which were above our estimates on all fronts. Net sales grew 10.1% YoY to Rs  216.3 crore (I-direct estimate: Rs  198.2 crore) Cigarette volumes for Q3FY16 declined ~2-3%. The company did not take any price hikes during Q3FY16. For 9MFY16, volume de-growth was ~3-4%. Tobacco exports were at ~Rs  60 crore. Revenue contribution from the 64 mm category remained at 65-68% EBITDA margins improved 532 bps to 30% (I-direct estimate: 27.3%) led by benign RM cost & lower overheads. PAT increased 35.4% to Rs  41.1 crore (I-direct estimate: Rs  33 crore) as higher EBITDA more than offset the effect of higher excise outgo (up 23% to ~Rs  292 crore)

Though the steep increase in excise duty for <65 mm cigarettes would keep volume under check in FY16E, FY17E & FY18E (3% decline in volumes), we believe VST Industries has shown some resilience in terms of volume decline. We believe the company is gradually reining in the rate of de-growth in cigarette volumes as it witnessed relatively lower volume decline of ~3-4% in terms of cigarette sticks in 9MFY16. We expect earnings to gradually improve at 9.3% CAGR in FY15-18E. We value the stock at 15x FY18E EPS of Rs  128.7 and arrive at a target price of Rs  1931/share with a BUY recommendation on the stock.

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