On account of the global Covid-19 outbreak, we have seen Government of India announcing a lockdown across the country for 40 days in two phases till May 3, 2020. With this second phase of lockdown announced from April 15, 2020, sales loss for VST industries would be to the tune of 30-45 days. With shutting down of manufacturing facilities in the lockdown period, we believe this would negatively impact Q1FY21E numbers due to unavailability of cigarettes and as a result, consumers being unable to consume it.
OutlookThe company’s fundamentals are driven by a strong capital structure, steady cash flow and consistent dividend payment. VST has a robust margin profile with its operating margin at 32.2% for FY19. With robust volume growth in 9MFY20 change in product mix towards high priced cigarettes, we maintain our BUY rating on the stock. We value the stock at 19x FY22E earnings to arrive at a target price of Rs 4,000/share.
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