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
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.