GICS Industry: Tobacco l Sub Industry: Tobacco l Website: www.vsthyd.

com

VST Industries Ltd

Key Stock Indicators

NSE Ticker: VSTIND CMP (as on 11 Mar 2011—Rs/share): 642.9 Shares outstanding (mn): 15.4
Bloomberg Ticker: VST: IN 52-week range up to 11 Mar 2011 (Rs) (H/L): 683.50/475.00 Free Float (%): 67.8
Face value / Share: 10.0 Market Cap as on 11 Mar 2011 (Rs mn): 9,928 Average daily volumes (12 months): 4,931
Div. Yield (%): 4.6 Enterprise Value as on 11 Mar 2011 (Rs mn): 9,864 Beta (2 year): 0.7
Div. Yield (%): 0.0

Incorporated in 1930, VST Industries Limited (VIL) is an affiliate of British American Tobacco (BAT),
UK, which holds 32.2% stake in the company. The company is engaged in manufacturing and Key Financial Indicators
marketing of tobacco and related products in India and abroad. VIL’s products include cigarettes, Mar-08 Mar-09 Mar-10
raw tobacco, cut tobacco and other articles of paper and paper board.
Revenue (Rs mn) 3,413.3 3,741.1 4,752.7
KEY HIGHLIGHTS EBITDA ma rgins (%) 25.1 22.8 18.2
PAT (Rs mn) 584.8 619.2 620.1
Established market presence with reputed brands
PAT ma rgins (%) 17.1 16.6 13.0
VIL has an established presence in the cigarette industry with brands such as “Charminar”, Gea ring (x) - - -
”Charms”, “Special” and “Moments” under its belt. The company is the third largest player in the EPS (Rs /s ha re) 37.9 40.1 40.2
cigarette market, with a volume market share of ~7%. VIL has significant market presence in PE (x) 8.1 5.7 16.0
Chhattisgarh, Andhra Pradesh, West Bengal and the Northeastern states. It has a strong network
for sourcing tobacco, which it sources from Andhra Pradesh, India’s largest tobacco producing
P/BV (x) 2.1 1.5 4.1
state, and Mysore. VIL’s sourcing capabilities help the company partially offset short-term RoCE (%) 41.7 45.5 33.8
fluctuations in the market price of tobacco. RoE (%) 26.9 26.6 25.8
EV/EBITDA (x) 5.5 4.0 11.4
South accounts for half the company’s revenue
n.m.: Not meaningful
VIL has a relatively low geographic spread: The company has negligible presence in the northern
and western region of India, and generates nearly 50% of its sales from the southern markets. Over Shareholding (As on December 31, 2010)
the years, VIL has expanded its presence in new territories such as Uttar Pradesh, Madya Pradesh
and West Bengal. Others
55%

KEY RISKS
• Intense competition in the filtered cigarette category
• Changes in government policies and regulation
• Volatility in foreign exchange rates, as exports accounted for ~14% of revenue in FY10
DII
12%
Stock Performances vis-à-vis market
FII
Returns (%)
1% Promoter
YTD 1-m 3-m 12-m 32%
VSTIND 22 6 4 31 Indexed price chart
NIFTY 4 5 -6 7
(index) ('000)
160 90
Note:
140 80
1) YTD returns are since April 1, 2010 to Mar 11, 2011.
2) 1-m, 3-m and 12-m returns are up to Mar 11, 2011. 120 70
60
100
50
80
40
60
30
40 20
20 10
0 0
Apr-10

Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10

Feb-11
Mar-10

May-10

Jan-11

Volumes (RHS) VSTIND NIFTY

CRISIL COMPANY REPORT | 1

 VST Industries Ltd
BACKGROUND

VIL is engaged in the manufacturing and selling of tobacco and related products in India and abroad. British American Tobacco Plc, one of the largest cigarette
manufacturers in the world, holds 32.2% stake in VIL. The company is based at Azambad, Andhra Pradesh. It is the third-largest cigarette maker in India. It offers cigarettes
under the brands “Charms”, “Moments”, and “Charminar”. It also provides tobacco leaf, cut and raw tobacco and articles of paper or paper board. VIL’s products are
targeted at the lower-end of the market and have dominance in the small-sized micro segment. The company has entered into long-term tie-ups with potential customers
for oriental tobacco development and marketing, which has now attained commercial production levels. Exports accounted for ~14% of the company’s revenues in FY10.

COMPETITIVE POSITION

Peer Comparison
VST Industries Golden Tobacco Godfrey Phillips
Ltd Ltd. (India) Ltd ITC Ltd.
Mar-10 Mar-10 Mar-10 Mar-10
Revenue (Rs mn) 4,752.7 916.8 14,237.7 197,097.1
EBITDA ma rgins (%) 18.2 -24.0 13.0 33.2
PAT (Rs mn) 620.1 -117.1 1,147.8 42,170.2
PAT ma rgins (%) 13.0 -12.8 8.1 21.4
Gea ring (x) - 3.2 0.2 -
EPS (Rs /s ha re) 40.2 -10.4 110.4 11.0
PE (x) 16.0 n.m 18.0 15.1
P/BV (x) 4.1 22.1 3.1 4.5
RoCE (%) 33.8 n.m 23.2 42.2
RoE (%) 25.8 n.m 18.1 30.1
EV/EBITDA (x) 11.4 n.m 11.6 9.6
n.m: Not meaningful

FINANCIAL PROFILE Key Financial Indicators

Strong growth in top line, EBITDA margin drops Units Mar-08 Mar-09 Mar-10
Revenue Rs mi ll ion 3,413.3 3,741.1 4,752.7
VIL registered top line growth of ~27% in revenues from its core operations. This
growth was largely driven by increase in sales of cigarettes and raw tobacco, which EBITDA ma rgins Per cent 25.1 22.8 18.2
grew 7% and 44%, respectively, year-on-year. PAT Rs mi ll ion 584.8 619.2 620.1
Cigarette sales volumes stood at 7.5 bn in FY10, up 4.5% from 7.1 bn in FY09. Sales PAT ma rgins Per cent 17.1 16.6 13.0
volume of raw tobacco increased to 11.9 bn from 9.8 bn in FY09. Realisations were Revenue growth Per cent 2.1 9.6 27.0
also higher in FY10.
EBITDA growth Per cent -5.2 -0.6 1.5
EBITDA margin dropped ~460 basis points to 18.2% in FY10, mainly on account of PAT growth Per cent 5.8 5.9 0.1
steep increase in tobacco prices and increase in proportion of revenues from raw
tobacco. Net profit in FY10 remained similar to that of FY09. Gea ring Times 0.0 0.0 0.0
RoCE Per cent 41.7 45.5 33.8
RoE Per cent 26.9 26.6 25.8

INDUSTRY PROFILE

Cigarettes

The organised segment of the cigarette manufacturing industry constitutes around 90 per cent of the overall industry, with the remainder made up of contraband and grey
market goods. Cigarettes account for only 14 per cent of total tobacco consumption in India as compared to an average over 80 per cent globally.

Cigarette sales for organised players in value terms increased to Rs 203 billion in 2009-10 from Rs 173 billion in 2008-09, owing largely to an 8-10 per cent price hike given
an increase in excise duties. The ban on smoking in public places, which has been in effect since October 2008, and the ruling that cigarettes have to carry a pictorial
warning along with the statutory health warning, has not affected sales and has not had any major impact on the industry. In addition, the government has deferred its
decision for cigarette manufacturers to carry more graphic warning pictures by one year in reaction to the shutdown of factories by major manufacturers upon
announcement of the decision. The domestic cigarette industry continues to be vulnerable to government policies, with regard to excise duties and imposition of multiple
taxes (luxury and entry tax). As part of the Union Budget 2010-11, excise duties for cigarettes were further increased. Moreover, the regulatory impact of the Tobacco Act
in terms of restrictions on advertising and distribution of cigarettes hampers the industry's brand-building capabilities. However, increases in the excise duty do not affect
the profitability of cigarette companies, as the rise in prices is usually passed on to consumers.

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VST Industries Ltd
ANNUAL RESULTS

Income Statement Balance sheet

(Rs million ) Mar-08 Mar-09 Mar-10 (Rs million ) Mar-08 Mar-09 Mar-10
Net Sales 3,396.5 3,716.6 4,712.3 Equity share capital 154.4 154.4 154.4
Operating Income 3,413.3 3,741.1 4,752.7 Reserves and surplus 2,132.2 2,211.8 2,294.0
Tangible net worth 2,286.6 2,366.3 2,448.4
EBITDA 857.5 852.0 865.0 Deferred tax liablity:|asset| -89.6 -82.3 -125.3
EBITDA Margin 25.1 22.8 18.2 Long-term debt 9.6 4.9 0.0
Short-term-debt 5.0 4.8 0.0
Depreciation 138.1 159.1 179.5 Total debt 14.7 9.6 0.0
Interest 7.8 157.4 -72.4 Current liabilities 1,869.0 2,040.3 2,555.1
Other Income 150.9 203.4 188.8 Total provisions 361.3 542.0 540.2
Total liabilities 4,442.0 4,875.9 5,418.4
PBT 863.5 866.8 853.6 Gross block 2,246.3 2,433.6 2,666.6
PAT 584.8 619.2 620.1 Net fixed assets 1,170.3 1,264.4 1,352.3
Investments 2,232.9 1,940.6 1,914.0
PAT Margin 17.1 16.6 13.0 Current assets 1,038.7 1,670.9 2,152.1
Receivables 43.2 48.9 145.1
No. of shares (Mn No.) 15.4 15.4 15.4 Inventories 761.0 1,342.6 1,790.8
Cash 46.4 137.1 63.8
Earnings per share (EPS) 37.9 40.1 40.2 Total assets 4,441.9 4,875.9 5,418.4

Cash flow Ratio

(Rs million ) Mar-08 Mar-09 Mar-10 Mar-08 Mar-09 Mar-10
Pre-tax profit 862.5 738.9 946.6 Revenue growth (%) 2.1 9.6 27.0
Total tax paid -260.8 -240.3 -276.5 EBITDA growth(%) -5.2 -0.6 1.5
Depreciation 138.1 159.1 179.5 PAT growth(%) 5.8 5.9 0.1
Change in working capital 100.1 -189.6 -41.5
EBITDA margins(%) 25.1 22.8 18.2
Cash flow from operating activities 839.9 468.1 808.1 Tax rate (%) 30.2 27.7 32.2
Capital Expenditure -388.9 -250.6 -265.1 PAT margins (%) 17.1 16.6 13.0
Investments and others -391.2 292.3 26.6
Dividend payout (%) 52.8 74.8 74.7
Dividend per share (Rs) 20.0 30.0 30.0
Cash flow from investing activities -780.1 41.7 -238.5 BV (Rs) 148.1 153.2 158.6
Equity raised/(repaid) 0.0 0.0 0.0 Return on Equity (%) 26.9 26.6 25.8
Debt raised/(repaid) 2.3 -5.0 -9.6 Return on capital employed (%) 41.7 45.5 33.8
Dividend (incl. tax) -361.3 -542.0 -540.2
Others (incl extraordinaries) 1.0 127.9 -93.1 Gearing (x) 0.0 0.0 0.0
Interest coverage (x) 109.8 5.4 0.0
Debt/EBITDA (x) 0.0 0.0 0.0
Cash flow from financing activities -358.0 -419.1 -642.9
Change in cash position -298.2 90.7 -73.3 Asset turnover (x) 1.7 1.6 1.9
Opening cash 344.7 46.4 137.1 Current ratio (x) 1.4 1.3 1.3
Closing cash 46.4 137.1 63.8 Gross current assets (days) 105 161 163
n.m : Not meaningful;

QUARTERLY RESULTS

Profit and loss account

(Rs million) Dec-10 % of Rev Dec-09 % of Rev Sep-10 % of Rev Dec-10 % of Rev Dec-09 % of Rev
No of Months 3 3 3 9 9
Revenue 1,397.8 100.0 1,291.9 100.0 1,597.3 100.0 4,343.7 100.0 3,854.8 100.0
EBITDA 431.0 30.8 291.1 22.5 395.2 24.7 1,098.1 25.3 947.8 24.6
Interes t (0.1) (0.0) (1.9) (0.1) - - (3.8) (0.1) (7.9) (0.2)
Depreci a tion 48.7 3.5 45.4 3.5 47.3 3.0 141.9 3.3 124.8 3.2
PBT 382.4 27.4 247.6 19.2 347.9 21.8 960.0 22.1 830.9 21.6
PAT 260.8 18.7 173.6 13.4 240.1 15.0 681.1 15.7 586.1 15.2

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VST Industries Ltd
FOCUS CHARTS & TABLES

Rs mn Quarterly sales & y-o-y growth Per cent Rs mn Quarterly PAT & y-o-y growth Per cent
1,800 120 300 150
1,600 100 250 100
1,400 80
1,200 200
60 50
1,000 150
40
800 0
20 100
600
400 0 50 -50
200 -20
0 -100
0 -40

Jun-08

Sep-08

Dec-08

Jun-09

Sep-09

Dec-09

Jun-10

Sep-10

Dec-10
Mar-08

Mar-09

Mar-10
Jun-08
Sep-08
Dec-08

Jun-09
Sep-09
Dec-09

Jun-10
Sep-10
Dec-10
Mar-08

Mar-09

Mar-10
Sales Sales growth y-o-y (RHS) Net Profit Net profit growth y-o-y (RHS)

Rs/share EPS Per cent Movement in operating and net margins

18 35
16 30
14 25
12
20
10
15
8
6 10
4 5
2 0 Jun-08

Sep-08

Dec-08

Jun-09

Sep-09

Dec-09

Jun-10

Sep-10

Dec-10
Mar-08

Mar-09

Mar-10
0
Jun-08

Sep-08

Dec-08

Jun-09

Sep-09

Dec-09

Jun-10

Sep-10

Dec-10
Mar-08

Mar-09

Mar-10

OPM NPM

Shareholding Pattern (Per cent) Board of Directors

Mar 2010 Jun 2010 Sep 2010 Dec 2010 Director Name Designation
Promoter 32.2 32.2 32.2 32.2 Rao Venkata Kumara Mahipati Surya Rau Chairman
FII - - 0.0 0.5 (Mr.)
DII 9.5 9.4 10.4 12.5 Raymond Stephen Noronha (Mr.) Managing Director
Others 58.3 58.4 57.4 54.9 Sai Sankar Nanduri (Mr.) Dy.Managing Director
Milind Anna Kharat (Mr.) Nominee Director
Lakshmanan Theivarayan (Mr.) Non-Executive Director
Peter Garneau Henriques (Mr.) Nominee Director-British American Tobacco
Group, Non-Executive Director
Sampathkumaran Thirumalai (Mr.) Non-Executive Director

Additional Disclosure
This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT).
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CRISIL COMPANY REPORT | 4