June 23, 2020
VST Industries , first recommended on June 23, 2020 at a price of INR 3,075 and below because of its extreme focus on cigarette business, focus on volume play and strong cash flows. The stock has already given a dividend of INR 103/share. At today’s close of INR 3,422/share, the company is already up 11% excluding dividends. Hold on, will want to accumulate at every price dip!! May also start to accumulate more, as numbers start to improve!!
Nov 4, 2021
Recommended again, start of the new Samvat!!
Maker of Charms cigarettes, this Hyderabad company is a goldmine!! It has been in the tobacco business for 90+ years. Without any debt, the company churns out ~ INR 300 crores of cash annually. Over a 10-year period, the company’s net profit has grown at a CAGR of 13% p.a. and its market cap has grown at a CAGR of 18% p.a. Net Profit margins have tripled over the last 5 years, from ~7% in FY17 to ~21% in FY21. By the way, these are not one-offs!!
Unfolding Multi-brand: From what was a single brand, viz. Charms – the company has started to create additional brands in its kitty. Over the last 5 years, they created and grew their brand, viz. Total, becoming one of the most successful brands in the industry in the last 35 years. Annual consumer spends on Total of more than INR 2,000 crs is a testimony to brand’s growing stature. (Shareholders of ITC, including myself know how difficult it is to create brands around FMCG/Cigarette)
Partners/Relationships: Company’s distribution and penetration has strengthened over the years. The number of wholesale dealers and direct retail outlet coverage has had a 23% and 41% growth respectively in the last 5 years.
Risks/Challenges: The cigarette industry has continuously faced regulatory, taxation, and illicit trade challenges.
Management: Mr. Radhakishan Damani, promoter of $DMART holds 25.95% stake in the company via his firm, Bright Star Investments Pvt. Ltd. Interestingly, he increased his stake by more than 1% in the company in his personal capacity in the Sept, 2021 quarter.
While the investment community at large is now focused on Environmental, Social & Governance (‘ESG’) Theme, with some of the cigarette companies, including VST not receiving interest at a fund- level; however, the ace investor and business, Mr. Damani remains unfazed and continues to accumulate this cash generating machine !!
Valuation: At INR 3,250 per share on 3rd November, 2021, the entire company is available for INR 5,030 crores, which translates to 16x trailing earnings.
Time period: Please note that I have been a holder of this stock for the last 2 years and would continue to hold on for a long period of time!! Long period could be more than 10+ years unless circumstances change!
Nov 28, 2021
Recommended again, the company has ~800 crs invested in MFs. Thus, the entire company is available for INR 4,130 crs as of today excluding cash, translating to 13.2x trailing earnings!
The stock offers a very lucrative entry point, wherein the upside looks at least a CAGR 12% p.a. on a very conservative basis for the next 5 years, even without any re-rating of its current multiple.
I have been accumulating in the current fall and will continue to increase if the price falls further.
Please note that I have invested more than 5% of my investible surplus in this stock and may increase it to around between 8% – 10%, and hence could have biased views!!
I may change my stance or position and may not be in a position to apprise you accordingly!!
Disclaimer: Please note that I am not a Registered SEBI Analyst. Request you to consult a financial advisor or do your own research before investing.