Hold VST Industries; target of Rs 3900: ICICI Direct

ICICI Direct's research report on VST Industries

Revenue (net of GST) for the quarter declined 2.3% YoY to Rs 272.6 crore, below our estimate of Rs 308.3 crore. Our estimates suggest volume growth of ~5% in the cigarettes business. The company has been witnessing 8-9% volume growth in FY19. We believe this volume growth momentum would continue with stable taxation and moderate price hikes. Operating profit increased 2% in Q4FY19E. Gross margins expanded 137 bps while employee costs reduced by 126 bps. However, a 139 bps contraction in other overheads to sales restricted operating margin improvement to 124 bps. Net profit for the quarter increased 9.7% YoY to Rs 53 crore.

Outlook

The company has a robust margin profile with its operating margin at 32.3% for FY19. However, with tepid volume growth this growth, we revise our recommendation on the stock to HOLD with a revised target price of Rs 3,900/share.