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http://content.icicidirect.com/mailimages/ICICIdirect_VSTIndustries_InitiatingCoverage.pdf
W e l l p l a c e d a t l o w p r i c e p o i n t …
VST Industries is one of the foremost cigarette manufacturers in India with
a presence in low priced brands like ‘Charms’, ‘Charminar’ and ‘Moments’.
We believe, with VST’s dominance in low priced cigarettes market, it is
well poised to benefit from increasing per capita income and shift in
demand from other cheaper tobacco products to cigarettes. We expect
revenue and earnings to grow at a CAGR of 16.7% and 27.6%,
respectively, during FY11-14E. Further, with increasing dividend/share
(from | 45/share in FY11 to | 95/share in FY14E), return ratios would
improve, going forward. We are initiating coverage on the stock with a
BUY rating.
Consolidating presence in lower end cigarettes
VST Industries (VST) is one of the major companies in the low priced
cigarettes category with major brands like Charms, Charminar and
Moments. With ~88% of revenues contributed by cigarettes, the
company’s revenue has grown at a CAGR of 17.8% from | 725 crore to
| 1396.5 crore during FY07-11 led by growth at 16.1% CAGR in cigarettes
and 36.2% CAGR in exports of leaf tobacco. We expect VST to register
growth at 16.7% CAGR in revenue backed by growth at 13.8% CAGR in
cigarettes and 26% CAGR from tobacco exports during FY11-14E.
Moderate excise hike to benefit VST the most
VST had a significant presence (55% of total volume) in non filter
cigarettes (plains & micros) until FY08. However, after 2008 Budget the
company changed its products mix from ~45% filter cigarettes in FY08 to
~96% in FY11. In the last four years, there has been a moderate excise
duty increase in cigarettes and the government has restricted other forms
of tobacco either by duty hikes or change in packaging or pictorial
warnings. We believe this would shift tobacco consumption from other
forms to cigarettes and result in higher volume growth across the industry.
Valuations
We have valued the stock on basis of ‘price to sales’ multiple and arrived
at target price of | 1829/share. At the current price of | 1450, the stock is
trading at a price to sales multiple of 2.8x its FY13E sales per share of |
521 and 2.4x its FY14E sales per share of | 596. Historically, the stock has
traded at a price to sales multiple between 0.5x and 2.5x its sales per
share. However, we believe the stock would trade at a premium to its
historic multiples due to higher growth in FY12-14, increasing dividend
payout and attractive return ratios. We are valuing the stock 3x its price to
sales multiple with the target price of | 1829/ share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_VSTIndustries_InitiatingCoverage.pdf
W e l l p l a c e d a t l o w p r i c e p o i n t …
VST Industries is one of the foremost cigarette manufacturers in India with
a presence in low priced brands like ‘Charms’, ‘Charminar’ and ‘Moments’.
We believe, with VST’s dominance in low priced cigarettes market, it is
well poised to benefit from increasing per capita income and shift in
demand from other cheaper tobacco products to cigarettes. We expect
revenue and earnings to grow at a CAGR of 16.7% and 27.6%,
respectively, during FY11-14E. Further, with increasing dividend/share
(from | 45/share in FY11 to | 95/share in FY14E), return ratios would
improve, going forward. We are initiating coverage on the stock with a
BUY rating.
Consolidating presence in lower end cigarettes
VST Industries (VST) is one of the major companies in the low priced
cigarettes category with major brands like Charms, Charminar and
Moments. With ~88% of revenues contributed by cigarettes, the
company’s revenue has grown at a CAGR of 17.8% from | 725 crore to
| 1396.5 crore during FY07-11 led by growth at 16.1% CAGR in cigarettes
and 36.2% CAGR in exports of leaf tobacco. We expect VST to register
growth at 16.7% CAGR in revenue backed by growth at 13.8% CAGR in
cigarettes and 26% CAGR from tobacco exports during FY11-14E.
Moderate excise hike to benefit VST the most
VST had a significant presence (55% of total volume) in non filter
cigarettes (plains & micros) until FY08. However, after 2008 Budget the
company changed its products mix from ~45% filter cigarettes in FY08 to
~96% in FY11. In the last four years, there has been a moderate excise
duty increase in cigarettes and the government has restricted other forms
of tobacco either by duty hikes or change in packaging or pictorial
warnings. We believe this would shift tobacco consumption from other
forms to cigarettes and result in higher volume growth across the industry.
Valuations
We have valued the stock on basis of ‘price to sales’ multiple and arrived
at target price of | 1829/share. At the current price of | 1450, the stock is
trading at a price to sales multiple of 2.8x its FY13E sales per share of |
521 and 2.4x its FY14E sales per share of | 596. Historically, the stock has
traded at a price to sales multiple between 0.5x and 2.5x its sales per
share. However, we believe the stock would trade at a premium to its
historic multiples due to higher growth in FY12-14, increasing dividend
payout and attractive return ratios. We are valuing the stock 3x its price to
sales multiple with the target price of | 1829/ share.
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