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What should investors do? VST industries’ share price has underperformed the market with mere 7% return in the last five years (from | 3061 in April 2018 to | 3276 in April 2023).

                   • We remain cautious on cigarettes volume growth prospect; the company is losing market share given its limited presence in higher price cigarettes

Target Price and Valuation: We maintain our HOLD rating with a revised target price of | 3300 valuing the business at 13x FY25 earnings.

Key triggers for future price performance:

                  • VST saw flat cigarette volume growth in FY23 with market share loss mainly due to limited presence in high-priced cigarettes (| 10 price point and above). VST has brand ‘Edition’ at | 11 price point, which only contributes 5% to sales. It has onlyrecently launched the variant of ‘Total’ at | 10/stick

                 • Duties & taxes on cigarettes to remain stable given high prevalence of illicit & contraband cigarettes. Moreover, crackdown on illicit & contrabands recently helped the cigarette industry gain volumes

                 • Dividend pay-out is expected to remain at ~70% in future as well. We estimate dividend per share of | 175 & |190 in FY24E & FY25E, respectively, which translates to dividend yield of ~5%

Alternate Stock Idea: We like TCPL in our FMCG coverage.

              • Strong innovation & premiumisation strategy in salt, tea, Sampaan & Soulful in the Indian market expected to drive sales & margins

              • We value the stock at |980 with BUY rating

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