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Centrum Broking Report
VST Industries Ltd.'s June quarter posted better than estimated performance, with lower than expected revenue decline of 19.4%, benefitting from negligible supply of local contraband cigarettes.
Further, gross margin expanded 612 basis points led by roll back of trade discounts and cigarette price increases (10-11%), in-spite of approximately 6% inflation in leaf tobacco prices.
Nonetheless, Ebitda was partially affected by negative operating leverage and 13% increase in employee cost reflecting margin to 40.4% (up 263 basis points).
Given slowing market condition, we expect sharp down-trading towards deluxe sized filter tipped (DSFT) segment which could unfold big opportunity for VST Industries as its major portfolio is skewed towards Rs 5/6/7 price points, contributing 90% to its revenues, could lead to further market share gains.
Moreover, we believe a better show by VST Industries in the cigarette segment reflects very positively on management change
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