VST Inds

Despite a higher excise duty outgo and cigarette volumes falling, with no price hike to offset the rise in raw material costs, the company did pretty well for itself in Q4FY16. Net sales rose 24% (YoY) at Rs.269 crore. Costs all across were up 29% and despite that, EBITDA saw a 14 rise at Rs.74 crore. Net profit for the quarter was at Rs.49 crore, up 19%. There was growth in Q4 but more muted when compared to Q3.

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 if prices are hikes, it might be able to maintain its margins.

The company ended FY16 with a flat net profit at Rs.153 crore v/s Rs.152 crore in FY15. EPS for the fiscal was at Rs.99.15; just a tad short of Rs.100 which we could see in FY17.