VST Industries Q4 Review - Muted Demand, Elevated Packing & Raw Material Prices Cut Margin: Centrum Broking

Centrum Broking Report

VST Industries Ltd. Q4 FY24 print was above our estimates; on a weak base revenues/Ebitda/profit after tax grew at 24.4%/ 17.8%/28.4% and higher leaf tobacco exports (30% revenue contribution Versus 15% in FY23).

Despite weak Q4 FY23 (-11%), cigarette volumes remained flat YoY due to muted rural demand and weaker RSFT portfolio, yet leaf tobacco exports grew 30%.

Higher prices of leaf tobacco and packaging (filter rod) resulted cut in gross margins to 48.2% 458 basis points YoY. With higher employee/other expenses at 13.5%/6.3% Ebitda margins cut to 25.6% (-142 bp). VST Industries saw elevated raw material/packing material prices in Q4 as well, yet it expects some relief through rationalizing cost structure.

VST Industries expects gradual recovery in demand to be led by,

1. focus on core markets - Uttar pradesh/West Bengal/Bihar/Andhra Pradesh/Telangana (~65% of sales) to improve volumes,

2. launched Demislim Edition-Trio priced at Rs 10 in the RSFT segment,

3. expects rural markets to bounce back, and

4. stable taxation.

With better than expected FY24 we tweaked earnings and downgrade to 'Add' with a revised discounted cash flow-based target price Rs 4,280 implying 16.0 times FY26E earning per share.

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