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

com

VST Industries Ltd

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

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 marketing of tobacco and related products in India and abroad. VILs products include cigarettes, raw tobacco, cut tobacco and other articles of paper and paper board.

Key Financial Indicators

Revenue (Rs mn) EBITDA ma rgins (%) PAT (Rs mn) PAT ma rgins (%) Gea ring (x) EPS (Rs /s ha re) PE (x) P/BV (x) RoCE (%) RoE (%) EV/EBITDA (x)
n.m.: Not meaningful

KEY HIGHLIGHTS
Established market presence with reputed brands VIL has an established presence in the cigarette industry with brands such as Charminar, Charms, Special and Moments under its belt. The company is the third largest player in the cigarette market, with a volume market share of ~7%. VIL has significant market presence in Chhattisgarh, Andhra Pradesh, West Bengal and the Northeastern states. It has a strong network for sourcing tobacco, which it sources from Andhra Pradesh, Indias largest tobacco producing state, and Mysore. VILs sourcing capabilities help the company partially offset short-term fluctuations in the market price of tobacco. South accounts for half the companys revenue 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 the years, VIL has expanded its presence in new territories such as Uttar Pradesh, Madya Pradesh and West Bengal.

Mar-08 3,413.3 25.1 584.8 17.1 37.9 8.1 2.1 41.7 26.9 5.5

Mar-09 3,741.1 22.8 619.2 16.6 40.1 5.7 1.5 45.5 26.6 4.0

Mar-10 4,752.7 18.2 620.1 13.0 40.2 16.0 4.1 33.8 25.8 11.4

Shareholding (As on December 31, 2010)

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% FII 1%

Stock Performances vis--vis market

Returns (%) YTD VSTIND NIFTY
Note: 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.

1-m 6 5

3-m 4 -6

12-m 31 7
(index) 160 140 120 100 80 60 40 20 0

Promoter 32%

22 4

Indexed price chart

('000) 90 80 70 60 50 40 30 20 10 0 Nov-10 Apr-10 Dec-10 Aug-10 Sep-10 Oct-10 May-10 Feb-11 NIFTY Jun-10 Jul-10 Jan-11

Mar-10

Volumes (RHS)

VSTIND

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. VILs 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 companys revenues in FY10.

COMPETITIVE POSITION
Peer Comparison

Revenue (Rs mn) EBITDA ma rgins (%) PAT (Rs mn) PAT ma rgins (%) Gea ring (x) EPS (Rs /s ha re) PE (x) P/BV (x) RoCE (%) RoE (%) EV/EBITDA (x)
n.m: Not meaningful

VST Industries Golden Tobacco Godfrey Phillips Ltd Ltd. (India) Ltd Mar-10 Mar-10 Mar-10 4,752.7 916.8 14,237.7 18.2 -24.0 13.0 620.1 -117.1 1,147.8 13.0 -12.8 8.1 3.2 0.2 40.2 -10.4 110.4 16.0 n.m 18.0 4.1 22.1 3.1 33.8 n.m 23.2 25.8 n.m 18.1 11.4 n.m 11.6

ITC Ltd. Mar-10 197,097.1 33.2 42,170.2 21.4 11.0 15.1 4.5 42.2 30.1 9.6 Key Financial Indicators Units Revenue Rs mi ll ion Rs mi ll ion Per cent Per cent Per cent Times Per cent Per cent EBITDA ma rgins Per cent PAT PAT ma rgins EBITDA growth PAT growth Gea ring RoCE RoE

FINANCIAL PROFILE
Strong growth in top line, EBITDA margin drops 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 grew 7% and 44%, respectively, year-on-year. Cigarette sales volumes stood at 7.5 bn in FY10, up 4.5% from 7.1 bn in FY09. Sales volume of raw tobacco increased to 11.9 bn from 9.8 bn in FY09. Realisations were also higher in FY10. EBITDA margin dropped ~460 basis points to 18.2% in FY10, mainly on account of steep increase in tobacco prices and increase in proportion of revenues from raw tobacco. Net profit in FY10 remained similar to that of FY09.

Mar-08
3,413.3 25.1 584.8 17.1 2.1 -5.2 5.8 0.0 41.7 26.9

Mar-09
3,741.1 22.8 619.2 16.6 9.6 -0.6 5.9 0.0 45.5 26.6

Mar-10
4,752.7 18.2 620.1 13.0 27.0 1.5 0.1 0.0 33.8 25.8

Revenue growth Per cent

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.

CRISIL COMPANY REPORT | 2

VST Industries Ltd

ANNUAL RESULTS
Income Statement (Rs million ) Net Sales Operating Income EBITDA EBITDA Margin Depreciation Interest Other Income PBT PAT PAT Margin No. of shares (Mn No.) Earnings per share (EPS) Cash flow (Rs million ) Pre-tax profit Total tax paid Depreciation Change in working capital Cash flow from operating activities Capital Expenditure Investments and others Balance sheet (Rs million ) Equity share capital Reserves and surplus Tangible net worth Deferred tax liablity:|asset| Long-term debt Short-term-debt Total debt Current liabilities Total provisions Total liabilities Gross block Net fixed assets Investments Current assets Receivables Inventories Cash Total assets Ratio Mar-08 862.5 -260.8 138.1 100.1 839.9 -388.9 -391.2 Mar-09 738.9 -240.3 159.1 -189.6 468.1 -250.6 292.3 Mar-10 946.6 -276.5 179.5 -41.5 808.1 -265.1 26.6 Revenue growth (%) EBITDA growth(%) PAT growth(%) EBITDA margins(%) Tax rate (%) PAT margins (%) Dividend payout (%) Dividend per share (Rs) BV (Rs) Return on Equity (%) Return on capital employed (%) Gearing (x) Interest coverage (x) Debt/EBITDA (x) Asset turnover (x) Current ratio (x) Gross current assets (days) Mar-08 2.1 -5.2 5.8 25.1 30.2 17.1 52.8 20.0 148.1 26.9 41.7 0.0 109.8 0.0 1.7 1.4 105 Mar-09 9.6 -0.6 5.9 22.8 27.7 16.6 74.8 30.0 153.2 26.6 45.5 0.0 5.4 0.0 1.6 1.3 161 Mar-10 27.0 1.5 0.1 18.2 32.2 13.0 74.7 30.0 158.6 25.8 33.8 0.0 0.0 0.0 1.9 1.3 163 Mar-08 3,396.5 3,413.3 857.5 25.1 138.1 7.8 150.9 863.5 584.8 17.1 15.4 37.9 Mar-09 3,716.6 3,741.1 852.0 22.8 159.1 157.4 203.4 866.8 619.2 16.6 15.4 40.1 Mar-10 4,712.3 4,752.7 865.0 18.2 179.5 -72.4 188.8 853.6 620.1 13.0 15.4 40.2 Mar-08 154.4 2,132.2 2,286.6 -89.6 9.6 5.0 14.7 1,869.0 361.3 4,442.0 2,246.3 1,170.3 2,232.9 1,038.7 43.2 761.0 46.4 4,441.9 Mar-09 154.4 2,211.8 2,366.3 -82.3 4.9 4.8 9.6 2,040.3 542.0 4,875.9 2,433.6 1,264.4 1,940.6 1,670.9 48.9 1,342.6 137.1 4,875.9 Mar-10 154.4 2,294.0 2,448.4 -125.3 0.0 0.0 0.0 2,555.1 540.2 5,418.4 2,666.6 1,352.3 1,914.0 2,152.1 145.1 1,790.8 63.8 5,418.4

Cash flow from investing activities Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries)

-780.1 0.0 2.3 -361.3 1.0

41.7 0.0 -5.0 -542.0 127.9

-238.5 0.0 -9.6 -540.2 -93.1

Cash flow from financing activities Change in cash position Opening cash Closing cash
n.m : Not meaningful;

-358.0 -298.2 344.7 46.4

-419.1 90.7 46.4 137.1

-642.9 -73.3 137.1 63.8

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

CRISIL COMPANY REPORT | 3

VST Industries Ltd

FOCUS CHARTS & TABLES
Rs mn 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Jun-08 Mar-08

Quarterly sales & y-o-y growth

Dec-08

Dec-09

Mar-08

Mar-09

Dec-08

Dec-09

Mar-09

Sales

Sales growth y-o-y (RHS)

Mar-10

Dec-10

Sep-08

Sep-09

Sep-10

Jun-09

Jun-10

Net Profit

Net profit growth y-o-y (RHS)

Rs/share 18 16 14 12 10 8 6 4 2 0 Dec-08

EPS

Per cent 35 30 25 20 15 10 5 0

Movement in operating and net margins

Dec-08

Dec-09

Mar-10

Dec-10 Dec-10 Sep-10

Sep-08

Sep-09

Sep-08

Sep-09

Jun-08

Jun-09

Mar-08

Mar-09

Dec-09

Mar-08

Mar-09

Mar-10

Dec-10

Sep-08

Sep-09

Sep-10

Jun-08

Jun-09

Jun-10

OPM

Mar-10

Shareholding Pattern (Per cent) Mar 2010 Jun 2010 Promoter 32.2 32.2 FII DII 9.5 9.4 Others 58.3 58.4

Sep 2010 32.2 0.0 10.4 57.4

Dec 2010 32.2 0.5 12.5 54.9

Board of Directors Director Name Rao Venkata Kumara Mahipati Surya Rau (M r.) Raymond Stephen Noronha (M r.) Sai Sankar Nanduri (Mr.) Milind Anna Kharat (Mr.) Lakshmanan Theivarayan (M r.) Peter Garneau Henriques (M r.) Sampathkumaran Thirumalai (Mr.)

Designation Chairman Managing Director Dy.M anaging Director Nominee Director Non-Executive Director Nominee Director-British American Tobacco Group, Non-Executive Director Non-Executive Director

Additional Disclosure This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer This report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose. CRISIL is not responsible for any errors and especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this report. For information please contact 'Client Servicing' at +91-22-33423561, or via e-mail: clientservicing@crisil.com.

CRISIL COMPANY REPORT | 4

Jun-10

NPM

Sep-10

Jun-08

Jun-09

Jun-10

Per cent 120 100 80 60 40 20 0 -20 -40

Rs mn 300 250 200 150 100 50 0

Quarterly PAT & y-o-y growth

Per cent 150 100 50 0 -50 -100