Pre­mium Play, Div­i­dends Make VST Smok­ing Hot

Than ITC and God­frey Phillips as co’s earn­ings growth is ex­pected to out­pace com­peti­tors’, its fi­nan­cial ra­tios are stronger and val­u­a­tions cheaper

The Economic Times - - Smart -

FMCG busi­ness, which is still loss mak­ing and it also has a cash guz­zling ho­tel busi­ness. In com­par­i­son, VST’s ad­di­tional cash flows will come as div­i­dends. It has a con­sis­tent track record of pay­ing more than 80% of net profit as div­i­dend. God­frey Phillips has sig­nif­i­cantly lower re­turn ra­tios and div­i­dend pay-out. Given its lower price points, VST would be the big­gest ben­e­fi­ciary once GST rolls in.

Cur­rently, VST’s stock trades at 18.6 times ex­pected FY18 earn­ings with 4.5% div­i­dend yield. Other FMCG com­pa­nies with sim­i­lar fi­nan­cials — over 20% earn­ings growth, 60% ROCE and 80% div­i­dend pay-out ra­tios — trade above 30 times.

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