SECTOR: CONSUMER
VST Industries Ltd
STOCK INFO.
BLOOMBERG
BSE Sensex :16451.47
S&P CNX :4955.80
VST@IN
REUTERS CODE
19 January2012
Initiating Coverage
(Rs CRORES)
Accumulate
Rs1230
VSTI.BO
Y/E MARCH
FY11A
FY12E
FY13E
Recommend to ACCUMULATE VST Industries with 1 Year
price target of
Rs
1600 at 16.2xFY13E EPS.
INVESTMENT ARGUMENT:
Net sales
EBITDA
RPAT
BV/Share (Rs)
Adj. EPS (Rs)
EPS growth (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
ROE (%)
RoCE (%)
KEY FINANCIALS
Shares Outstanding (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
578
160
95
171
58
47
21
7
12
3.7
35
56
711
225
138
185
90
54
14
7
8
5.3
50
75
765
250
152
196
99
10
13
6
7
6.1
52
77
1.5
1899
420
19%
17%
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
STOCK DATA
52-W High/Low Range (Rs)
Major Shareholders (as of Sep 2011)
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rs cr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
1483/570
32
15
53
27268
3.41
6/17/107
13/6/95
Maximum Buy Price :
Rs
Rs1300
* Second largest player in Indian cigarette market by sales
* Shift from non-filter to filter cigarette improved realization
* Strong growth in leaf tobacco exports
Second Largest Player :
VST Industries is the second largest player
in Indian Cigarette industry by sales. ITC has a market share of ~78%
while VST Ind. and Godfrey Phillips account for ~8% each. Balance
is made up by imports, unorganised sector & smaller players. VST
has positioned itself as the lowest cost filter cigarette provider with
market presence in south, south central, UP, north-east states.
Shift from non-filtered to filtered stands complete:
GoI increased
excise on non - filter segment, which forced non - filter players to shift
to filter segment.VST shifted its product portfolio in favour of filter
cigarettes (95% of total volume) and grew volumes and price at CAGR
of 8% and 12% respectively since 2009 vs flat volumes for ITC. Steep
increase in excise duties on cigarette over the years has impacted
volume growth but net realization of large players have continued to
move up, which compensated for flat volumes over the last 5 years
for the industry as a whole.
Increased traction in premium products will be margin accretive:
The industry growth is faster in premium segment vs mass & mid
segment. VST's premium brands witnessed volume growth of 30%+
in FY11 and now account for 33% of its volume resulting in higher
realization besides giving phillip to volumes.
Exports present a promising opportunity:
VST exports leaf
tobacco from India and accounts for 26% of its sales. During 2005-10
peiod, tobacco export from India has shown CAGR of 30%.VST's
export has also trebled in last 4 years to
Rs150
Cr. It presents a promising
opportunity and will be a good earnings driver.
Valuations and View:
VST is quoting at a P/E of 13.7x /12.5x on
FY12E/FY13E EPS. Its return ratios are ~50% with unleveraged
Balance Sheet and ~5% dividend yield. There are upside risks to our
conservative volume growth estimates of 2% in FY13E, which we
have estimated due to expectation of excise duty hikes in budget. In
the case of moderate or no hike volume growth may surprise positively.
Recommend
ACCUMULATE
on VST Industries with a 1 Year target
price of
Rs1600
(16xFY13E EPS, discount of 30% to ITC's valuations)
Rakesh Tarway
(rakesh.tarway@motilaloswal.com);Tel:+912230896679
Amit Bhadang
(amitbhadang@motilaloswal.com);Tel:+912230896768