Research Report: Analysis of VST Industries

Company: VST Industries
NSE Symbol: VSTIND | BSE Code: 509966 | ISIN: INE710A01016 | Sector: Cigarettes/Tobacco

VST Industries is one of those rare gems which probably very few people have heard of. The Company is involved in manufacture & sale of cigarettes and unmanufactured tobacco. It is more than 80 years old and started out as Vazir Sultan Tobacco Company Limited in 1930. The Company has its Registered Office at Azamabad, Hyderabad. (1)

As per NDTV Profit: “The major brands of the company include Charminar, Charminar Special Filter, Charms Mini Kings and Charms Virginia Filter, XL Filter and Shaan. Its products are targeted at the lower end of the market and have dominance in the small–sized (less than 60 mm) micro segment. it is also in the business of selling non–manufactured and cut tobacco. The company entered into long–term tie–ups with potential customers for oriental tobacco development and marketing, which has now attained commercial production levels and established a market with premium customers for air cured Burley exports.” (3)

Financial Performance of VST Industries

  • The market-cap of VST Industries is around Rs 3500 Crore.
  • The Company is virtually debt free and has maintained a healthy dividend payout of 71%.
  • The average 10 year Return on equity of the company is an astounding 35%.
  • The Altman Z Score of VST Industries is above 6, which indicates low probability of bankruptcy.
  • VST Industries’s Piotroski score is a decent 5.00.
  • The company has maintained a dividend yield around 3%.
  • Peer companies are ITC and Godfrey Phillips.

Ref: (2)

Analysis of VST Industries

I have taken monthly share prices of VST Industries from Jan 2001 to August 2016, and calculated the rolling 1-Year, 3-Years, 5-Years and 10-Year returns to get a good grasp on the historical performance of VST Industries, and I am presenting my findings below.

1 Year Rolling Returns of VST Industries

Research Report Analysis of VST Industries - 1 Year Returns

  • Average 1 year rolling return is a high 27%. However standard deviation is a massive 48%, which indicates a huge variability.
  • If we were to assume that the returns are normally distributed, then we can conclude the following.
    • There is a 68% probability that returns could be between -21% and 76% in any 1 year period which is not at all helpful.
    • There is a 95% probability that returns could be between -69% and 124% in any 1 year period.

Conclusion: In other words anything can happen in a 1 year period. There is absolutely no predictability.

3 Years Rolling Returns of VST Industries

Research Report Analysis of VST Industries - 3 Year Returns

  • Average 3 year rolling return is still a high 24%, which is slightly lower than 1 year returns. However standard deviation has now come down from 48% to 25% which is still a high number.
  • If we were to assume that the returns are normally distributed, then we can conclude the following.
    • There is a 68% probability that returns could have been between -1% and 49% in any 3 year period.
    • There is a 95% probability that returns could have been between -26% and 74% in any 3 year period.

Conclusion: While variability has definitely come down, the spread of possible returns cannot be used to make meaningful assessments or forecasts.

5 Years Rolling Returns of VST Industries

Research Report Analysis of VST Industries - 5 Year Returns

  • Average 5 year rolling return is a solid 24%, same as 3 years average rolling. However standard deviation has now come down further to a very manageable 12%.
  • If we were to assume that the returns are normally distributed, then we can conclude the following.
  • A person who invests in VST Industries can say with 68% certainty that he would at least make 11% CAGR in any 5 year period and could make as much as a superb 36% CAGR – which implies that investment goes up 5x!
  • There is a 95% probability that returns could be between -1% and 48% in any 5 year period.

10 Years Rolling Returns of VST Industries

Research Report Analysis of VST Industries - 10 Year Returns

  • Average 10 year rolling return is a superb 23%, slightly lower than 5 years average rolling returns. However standard deviation has now come down further to 6%, which is a great number.
  • If we were to assume that the returns are normally distributed, then we can conclude the following.
    • There is a 68% probability that returns could be between 17% and 28% in any 10 year period, which is very good indeed.
    • In any 10 year rolling period, there is a 95% percent chance that the lowest returns would be 11% with a high of 34%, which is a fantastic statistic!

What this means is that if you had invested in VST Industries and held it for 10 years, you could with 95% probability at least get returns of 11% which is higher than a Fixed deposit. On the plus side, you could have made as high as 34%, which means that your investment would have grown by a massive 18x!

Conclusion

For such a fantastic performing company, one would expect a high PE and hundreds of research reports. However being a tobacco company in the midst of greedy central governments and an inept Finance Ministry (both in earlier UPA and present NDA government), the PE remains muted and the stock trades at 20 PE generally. Moreover, the dividend income from the stock over any 5 to 10 year would have been fantastic, and added at least 3% to the long term CAGR. High capital appreciation and high dividends, 80 year old VST Industries has been a winner over the last 15 years.

Sources

(1) VST Industries: About Us
(2) https://www.screener.in/company/VSTIND/
(3) VST Industries Ltd.

You may also like

A Few Last Words

Before making any investment decision, please contact your financial adviser.

I have provided this article for educational purpose only. Moreover I am extremely biased person and may or may not have a stake in the company mentioned.

I hope you found this article on Research Report: Analysis of VST Industries useful. If you have something to add please leave a comment in the post. Please feel free to contact me.

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

2 thoughts on “Research Report: Analysis of VST Industries

Leave a Reply to Subhodeep Mukhopadhyay Cancel reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>