History: The Vazir Sultan Tobacco Company Limited was incorporated on 10th November,1930 under the Hyderabad Companies Act No. IV of 1320 Fasli and now governed under the Companies Act, 1956. The name of the Company was subsequently changed to VST Industries Limited on 30th April, 1983.
Business: VST Industries is engaged production of cigarettes and tobacco. It ranks third in the Indian tobacco industry and competes with the likes of ITC and Godfrey Phillips. The Company's cigarette brands include "Charminar Specials, "Shah-I-Deccan", "Charms Virginia Filter Kings," "Vazir", "Qila" and "Ambassador." VST Industries sells its products in India and abroad.
Shareholding Pattern: As on 31 March 2011, the promoters hold 32.16% of VST while public shareholding (excluding Institutional investments) was 55.37%.Out of 55.37%, bodies corporate hold 38.27% of VST.
Institutions hold 12.47% of VST. Mutual Funds/UTI, FI/Banks, Insurance Companies and FII hold 5.62%, 0.10%, 6.17% and 0.57% respectively in this category.
VST has a fantastic track record of consistent high dividend. Not only the dividend is consistent but the dividend payout (%) is also increasing year after year. Very few companies have replicated it’s superior long-term track record.
The company has unfailingly paid handsome dividends but these tempting dividends do not outweigh business concerns, if any. Just because a company pays hefty dividends it does not guarantee it will continue to do so.One should analyze whether the growth of dividends is in accordance with the company's financial growth.
Analyzing VST:
On a Y-o-Y comparison,the sales have surged 23% from 4750.10 million to 5845.70 million.The net profit has also jumped 53% on a yearly basis.The company quotes at a EPS of 61.53 as on FY end 10-11 vis-a-vis 40.18 as on FY end 09-10.
Furthermore, on exploring the performance from FY06 to FY10,company has consistently posted decent numbers on an annualized basis.
Since FY06, the net sales have grown ~11% CAGR till 2010 on back of increasing volumes while net profits have grown by ~10% during the same period.
VST has maintained a ROE greater than 23% since last 5 years though the margins have played a dampener primarily due to excise hikes and cost of tobacco leaves (key raw material). But it didn’t pass along the price hikes on the customer for maintaining the market share.
If we take into account the YTD returns till 27 May,2011, the company has outperformed it's industy peers by a huge gap.VST has posted 43.33% return in comparion to ITC's8.62%, Godfrey Phillip's -7.61% and Golden Tobbaco's -20.76% in the similar time frame.The company has posted mammoth returns in a short span,considering the performance of key benchmarks for the same tenure.
Recapitulating the positives, the stock has been a consistent performer if we go by the company financials. It enjoys a brand-loyalty and the promoters also have vast experience and expertise in this industry.
References:
1) http://www.finalaya.com
2) http://www.bseindia.com
3) www.vsthyd.com
4) http://economictimes.indiatimes.com/
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