Strong free cash flows; high dividend pay-out VST is generating ~| 300 crore (on an average) free cash flow every year from FY18 onwards. Despite, severe impact on volumes, it has been able to maintain similar profitability & continuation of strong free cash flows in FY21E. Moreover, it has consistently paid ~65% dividend in last five years (except 52% in current year due to uncertainty over pandemic). We believe pay-out would increase to 70% given company is holding more than |700 crore of cash & equivalent & doesn't have any capex requirement in future....

High priced brands contribution improves; volume dip concern The company took a price hike of 12% on 80% of its product portfolio (blended price hike of ~11%) in March, April 2020. Total' & Edition' (high priced brands) are contributing 45% to volume. We believe contribution of these brands would continue to increase given the company has been expanding its distribution in new states. The excise increase in Budget & pandemic had an adverse impact on cigarettes volumes in FY21. We believe work from home culture, health concerns would continue to impact volumes...

VST Industries reported resilient sales despite manufacturing, supply chain as well as retails selling points remaining closed for~40 days. Gross sales declined merely 4.4% but net of excise, sales were down 19.4%. Cigarette sales de-grew 4% to | 274.7 crore while tobacco sales fell 7% to | 40 crore. Cigarette volumes were down 39% (similar to ITC's decline of ~40%). The company took a blended price hike of 11% after the excise increase in Budget in February 2020. The new price points for Edition', Total' are | 11, | 7, respectively. More, importantly it curtailed trade promotions & schemes...

Double whammy of excise, lockdown to impact FY21 PAT Though the March quarter was largely unaffected by lockdown given prestocking by dealers, we believe Q1FY21 would be significantly impacted by 45 days production halt as well as shutdown of most retail shops in the country. We expect loss of sales during this period, which is likely to result in volume decline by 8% in FY21. Moreover, price increase due to the hike in excise duty in February 2020 would also lead to realisation growth to the tune of ~22% (including the mix change due to higher contribution from high priced cigarettes). This would help in more than absorbing the excise...

With a wide presence at the lower price points and strong distribution of 1 million retail outlets, VST's brand has been especially popular in West Bengal, Bihar, Uttar Pradesh, Andhra Pradesh and Telangana contributing ~60% of volumes. The company's fundamentals are driven by a strong capital structure, steady cash flow and consistent dividend payment. VST has a robust margin profile with its operating margin at 32.2% for FY19. With robust volume growth in 9MFY20 change in product mix towards high priced cigarettes, we maintain our BUY rating on the stock. We value the...

Stable tax environment helps robust volume growth The company witnessed volume growth of ~10% in 9MFY20 on account of a stable tax environment over the last two years post implementation of GST structure. In the last two years, VST has changed its product mix in favour of | 5-6 price point, which now accounts for 55% of the portfolio. Moreover, Edition brand at | 10/stick accounts for 5% of volumes. Also, the company has been gaining market share from the industry leader as reflected in its volume growth, which is over & above industry average volume growth of...

Dealer stocking in previous quarter leads to sales moderation The company witnessed 20% YoY volume growth in Q1FY20 on account of dealer stocking of a week of additional inventories before the Budget in anticipation of introduction of excise duty. As a result, volume growth moderated during the quarter with correction in inventory at the dealer level. In the last two years, the company has changed its product mix in favour of | 5-6 price point, which now accounts for 60% of the portfolio. Moreover, Edition' brand at | 10 /stick accounts for 5% of volumes. We maintain our...

Dealer stocking before Union Budget leads to increased sales With 20% volume growth during the quarter, the company posted one of the strongest quarters in the last five years. However, strong volumes have been led by dealer stocking of a week of additional inventories before the Budget in anticipation of introduction of excise duty. We believe Q2FY20 would witness moderation in volume growth with correction in inventory at the dealer level. In the last two years, the company has changed its product mix in favour of | 5-6 price point, which now accounts of 60% of the...

With stable taxation post July 2017, cigarette companies are seeing strong volume growth. VST's cigarettes volume growth has been ~8% in FY19. Moreover, ITC's selective price hike in 64, 69 mm categories has provided further manoeuvrability to VST to increase prices. Moreover, it is steadily increasing its product mix in favour of high priced | 6 & | 10 cigarettes. Currently, Edition' & Total' contribute 20% of volumes. We expect volume growth of 4% each in FY20E, FY21E, respectively, driven by a favourable product mix towards high priced cigarettes (69 mm & above category). We...

With stable taxation post July 2017, cigarette companies are seeing strong volume growth. VST's cigarettes volume growth has been ~8% in FY19. Moreover, ITC's selective price hike in 64, 69 mm categories has provided further manoeuvrability to VST to increase prices. Moreover, it is steadily increasing its product mix in favour of high priced | 6 & | 10 cigarettes. Currently, Edition' & Total' contribute 20% of volumes. We expect volume growth of 4% each in FY20E, FY21E, respectively, driven by a favourable product mix towards high priced cigarettes (69 mm & above category). We...

Revenue (net of GST) for the quarter increased 22.9% YoY to | 315.4 crore, above our estimate of | 303.1 crore. Cigarette sales increased 25% to | 245 crore led by 8% volume growth and a change in product mix. Contribution of higher priced cigarettes to volumes has increased from 20% to ~27% during the quarter. The company has not taken any material price increase during the quarter. Tobacco sales increased 16.6% to | 70 crore in Q3FY19 The sales volume contribution of 64 mm category was 40% whereas...

ICICI Securities Ltd | Retail Equity Research Revenue (net of excise duty and GST) increased 32% YoY to | 290.2 crore. Volumes increased in excess of 10% aided by the low base in Q2FY18 & stable taxation on cigarettes in the last year. Base quarter was muted with 1% decline in cigarette volume after steep GST increase in July 2017. This, coupled with a change in product mix towards premium priced cigarettes, has aided topline. In Q2FY19E, 64 mm category contributed 40% of volumes whereas 69 mm & King...

ICICI Securities Ltd | Retail Equity Research VST Industries reported strong revenue growth of 25.5% to | 263.1 crore on a YoY basis with the cigarettes and tobacco segment contributing | 227.6 and | 35 crore to revenues. Cigarette volumes grew ~8-9% during the quarter. The contribution of 64 mm & 69 mm and above category cigarettes to the topline was in the ratio of 45:55,...

ICICI Securities Ltd | Retail Equity Research VST Industries reported strong revenue growth of 26.5% to | 279.1 crore on a comparable basis with cigarettes and tobacco segments contributing | 209.6 crore and | 90 crore to revenues, respectively. Cigarette volumes were flat during the quarter and for FY18. The contribution of 64 mm and 69 mm category cigarettes to the topline was in the ratio of 50:50. Premium brands Total and Edition contributed 20% to overall volumes...

ICICI Securities Ltd | Retail Equity Research VST industries reported a revenue growth of 2.1% to | 238.7 crore on a comparable basis with cigarettes and toabacco segment contributing | 196.7 and |60 crore to the revenues. Cigarettes volumes witnessed a growth of ~2% during the quarter however remained flat for 9mFY18. The contribution of 64 mm category cigarettes was 50% compared to 57% in the corresponding quarter. The premium brands Total & Edition' contributes 20% to the volume....

VST Industries reported strong numbers on operating & profitability fronts. Net revenue (net of excise duty for historical quarters and estimates) for the quarter declined marginally by 1.3% YoY to | 219.7 crore due to pressure on volume, against our estimate of | 256.4 crore. Revenue from unmanufactured tobacco remained flat on YoY basis at | 54 crores. Cigarette volumes were down ~1% for H1FY18; < 64 mm cigarettes contributed 54% to the revenue and rest was > 64 mm (Total contributed 15% and Edition less than 5%)...

Subdued Quarterly Earnings: VST Industries Limited has registered moderation in its earnings wherein Q1FY18 revenue of Rs.5622 Mn slumped by 4.2% on YoY basis and 1.0% on QoQ basis.

Gross revenue for the quarter declined 4.1% YoY to | 561.9 crore, inline with our estimate of | 572.4 crore. The company reported 6.0% YoY decline in cigarette volumes ahead of GST implementation. Unmanufactured tobacco sales declined 45.9% YoY to | 46.0 crore (base quarter revenue included one-time order) Due to a volume decline, the excise duty for the quarter increased only 4.4% YoY. Led by lower revenue, EBITDA witnessed a decline of 2.4% YoY to | 65.3 crore, broadly in line with our estimate of | 67.3 crore. Thus, EBITDA margin came in at 11.6%, marginal expansion of 22 bps (I-direct estimate: 11.7%, in Ind-As)...

ICICI Securities Ltd | Retail Equity Research In the review meeting of the GST Council on tax rates, the council has raised the specific cess on cigarettes in all categories below 75 mm. The product mix for VST is currently at 50:50 for below 65 mm: above 65 mm category. We believe this would increase the blended tax incidence per stick from | 2.3 to | 2.9. We believe this increase in tax incidence would compel the company to undertake ~20% price hike to pass on the complete burden to consumers. Due to this sharp increase in the tax...

VST industries would be the bigger beneficiary of the change in the indirect tax structure. With the abolition of excise duty and additional excise duty, net tax incidence for VST industries would come down by 8.3% and to comply with the anti profiteering clause, the company would require taking price cut by 6.0%. State VAT has been replaced by GST and cess would replace specific excise duty. Though, the absolute tax rate on cigarettes has remained same but with the elimination of Tax on Tax' has reduced the tax liabilities for cigarettes companies. We have...