ValuePickr Forum

VST Industries: Puff full of power?

VST Industries reported very good sales and net profit for Q3FY20 in my view. Recored quarterly sales and net profit for the company.
Net Sales (net of excise) increased by 11% as compared with Q3FY19 and Net profit increased by 29% as compared with Q3FY19.

Evern sequentially, the company reported growth on net profit.

Discl: My view may be biased due to holding in the company. Not SEBI registerd advisor. This is not an investment recommendation. Reader shall consult investment advisor before taking any investment decision.


Find enlcosed link providing details of shareholder return for VST Industries since IPO in 1975. Disclosure are already mentioned in the message.

Hey Dhiraj,

Wanted to know your opinion about how do you see recent tax increase on cigarettes in budget? Rakshit Ranjan of Marcellus was saying in a recent video that cigarette taxation is cyclical in nature. As government keep increases taxes significantly (>10% YoY) for few years, there is a drop in legal cigarette volume and hence potential revenue loss for government and so government relaxes it a bit (by not increasing tax or increasing modestly), and then the volume to legal market comes back. Do you agree with his opinion?
As you are a long term holder of the company, wanted to know your opinion about how do you see legal cigarette industry in long run. Total tobacco consumption volume does not seem to decrease even after steep hike in taxes and prices. Though legal cigarette has de-grown over long term.

Tobacco Consumption in India (Million Kgs./Percentage Share)

Year Legal Cigarettes Other Tobacco forms* Total*
1981 – 82 86(21%) 320(79%) 406(100%)
2017 – 18 52(9%) 544(91%) 596(100%)
Difference(%) -34(-40%) +224(+70%) +190(+47%)


As cigarette companies enjoy great pricing power and so even in the trend of declining volume, they can keep increasing price and hence can enjoy sustained profitability. How do you see price in-elasticity of cigarette products? At what price hike, you would consider the elasticity to start occurring?

I found This study interesting which takes into account, inflation and rising income level, to compare nominal price increase of cigarettes and affordability. They have shown that even though there have been nominal price increase, but if adjusted for inflation and rising income level, Cigarettes and Bidis have become more affordable since 2000. If this study is believed to be true, and legal cigarette volume is declining, then Bidi and illegal cigarette volume must have grown (due to more affordability and net increase in tobacco consumption).

Thinking hypothetically, Does it make for a case that if the rationality to really control tobacco consumption comes, and tax arbitrage between other tobacco products and legal cigarettes comes down, there might have a net shift from other form of tobacco consumption to cigarettes?

If we assume that intensity of taxes have affected recently to Ciggarette industry, at least VST industries appear to be escaped that. Find enclosed Moneylife 10 years Wealth creation study data. We find VST Industries being consistent candidate appearing with around 20% CAGR.

Except for first 4 studies of Moneylife, it appears in next 10 edition of decade wealth creation. On the thread I also shared Global trends showing Cigarette being among few cockroach surviving since Dianosour ages.

The key call one should take that future would be like past. This is big assumptions and may not be correct in very long term given the awareness and health issues. In fact, the health issue generated by Fast foods would be comparable (given the scale at which it gets consumed), if not more, then Cigarette in my opinion.

Having said, I would keep monitoring trend, sales growth, profitability and distribution. Considering the recent performance of ITC versus Godrey and VST industries, I find that small players have relatively performend better than Largest players. The reason I do not know. But if that trend continue, no competition from newer player, huge bargaining power with customer and regulatory pricing (taxes are passed on to customer). Despite volume growth decline over decade, the profitability has continue to grow. It may not be blockbuster but would be above average performer in my view. My view is right or wrong, would be known only after 10-15 years:grinning:

So please do your due dilgence before taking any investment decision
Discl: Same as in previous message


Are the allowed the lower corporate taxation benefit ?

I believe VST Industries shall also get benefit of new corporate income tax 25%+surcharge. The notification is applicable to all corporate.
Refer to Note 3 in Quarterly results for period ending 31 December 2019.


Thanks for the confirmation. I read it but I did not know section 115BAA for the revised taxation. Appreciate you help.