VST Inds

Despite a higher excise duty outgo and cigarette volumes falling 2% during the quarter, with no price hike to offset the rise in raw material costs, the company did pretty well for itself in Q3FY16. Net sales rose 105 (YoY) at Rs.216 crore. Apart from raw material cost, other expenses were reined in and cost to net sales ratio came in lower at 74% v/s 80% (YoY). EBITDA saw a 33% rise at Rs.65 crore. Tax out go rose sharply by 47%. Net profit for the quarter was at Rs.41 crore, up 37%.

This is the third largest cigarette making company in India, next to ITC and Godfrey Philips. This company was founded way back in 1930 as Vazir Sultan Tobacco. It is an affiliate of British American Tobacco (BAT), UK, one of the largest cigarette manufacturers in the world, and holds 32.16% stake. It operates mainly in the lower-end category of the industry, with brands like Charms, Charminar, Moments and Special Extra Filter. It also exports leaf tobacco to cigarettes manufacturers across the globe. The company has been debt-free since FY05 and has been able to finance all the growth through internal accruals.

The recent Budget saw once again a hike in excise duty by 25% for cigarettes of length not exceeding 65 mm and by 15% for those of other lengths. This is sure to put some cap on the volumes but prices are hikes, it might be able to maintain its margins.