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VST Industries Ltd.

BSE: 509966 Sector: Consumer
NSE: VSTIND ISIN Code: INE710A01016
BSE LIVE 15:28 | 18 Dec 3265.00 99.10
(3.13%)
OPEN

3267.00

HIGH

3267.00

LOW

3264.95

NSE 15:29 | 18 Dec 3240.75 -7.25
(-0.22%)
OPEN

3215.60

HIGH

3249.95

LOW

3215.55

OPEN 3267.00
PREVIOUS CLOSE 3165.90
VOLUME 7
52-Week high 3774.00
52-Week low 2190.05
P/E 30.53
Mkt Cap.(Rs cr) 5,041
Buy Price 3225.00
Buy Qty 15.00
Sell Price 3265.00
Sell Qty 12.00
OPEN 3267.00
CLOSE 3165.90
VOLUME 7
52-Week high 3774.00
52-Week low 2190.05
P/E 30.53
Mkt Cap.(Rs cr) 5,041
Buy Price 3225.00
Buy Qty 15.00
Sell Price 3265.00
Sell Qty 12.00

VST Industries Ltd. (VSTIND) - Chairman Speech

Company chairman speech

1996 VST INDUSTRIES LIMITED CHAIRMAN'S SPEECH Company Operations Cigarettes This has been a difficult year for our main business, namely, cigarettes. Although, your Company has increased its market share from 15.2% to 16% in a highly competitive market, the growth has been primarily in the micro segment, where margins are necessarily lower. Concerted efforts have resulted in the Charminar trademark regaining its all India franchise after a number of years and I am happy to say that both the regular size plain version and the Charminar Special Mild Filter, are stable. The gold pack recently introduced for the latter brand has been well received and we have plans to extend its distribution. Charms Mini Kings has stabilised, following two price increases. In anticipation of market trends, mild and menthol versions have been launched, but so far, with limited success. A plain, micro version of Charms recently introduced, is proving popular. All brands are receiving full advertising and promotional support. and in urban markets modern illuminated signages are attracting the consumers attention. We have successfully extended our distribution network into areas where we are not well represented, but this is an uphill battle against entrenched competition. Overall, the outlook for our core business for the next few years is positive. We have invested in our brands through advertising and product enhancements; we are doing so with greater intensity th is year, and we expect significant returns over the next few years. We must recognise that brand enhancement is expensive and takes time and as a consequence, margins in the current year will be under some pressure. The main reason for the drop in profitability has been the severe incidence of state taxation, particularly in West Bengal, Orissa and Bihar, which are important markets for your Company's products. In the light of competitive pressure, we have been unable o pass on the burden of these taxes to the consumer. As stated in the Directors' Report, the total outgoing on this account was Rs. 13.35 crores as against Rs. 4.59 crores last year. The Supreme Court has upheld the right of States to impose Entry Taxes, while the constitutional validity of Luxury Taxes is pending before it. Our efforts have been directed towards building awareness of the tremendous economic potential this segment offers both within this country and also to the world at large, by production of and value addition to quality cigarette tobaccos. Besides our own representations to the Central and State Governments, we have been taking an active part in the activities of the Tobacco Institute of India, which is the representative body of the industry, in such matters. Our efforts have been directed towards building awareness of the tremendous economic potential this segment offers both within this country and also to the world at large, by production of and value addition to quality cigarette tobaccos. New Governments have been installed at the Centre and the States, and we will know in the weeks and months to come, the results of our efforts. It would be pertinent to mention here that the Tax Reforms Committee, had addressed itself to the Tobacco Sector of making the tax system simple and broad based. Specific Duty Structure as applied to cigarettes, has made single point collection more efficient resulting in exponential growth in revenues and eliminating disputes; it has also encouraged quality upgradation and spawned competitiveness within the sector. Leaf Tobacco The tobacco exports of your Company have shown an increase of 58% from Rs.4.67 crores in 1994-95 to Rs.7.40 crores in 1995-96. Your Company has placed emphasis on improvement of farmer productivity and leaf quality and has taken steps to rejuvenate tobacco crop benefiting about 25,000 farmers in the Telangana and Rayalaseema regions. The Tobacco Institute of India successfully hosted the annual conference of the International Tobacco, Growers' Association, at Bangalore, where twelve principal tobacco growing countries were represented. In his inaugural address, the Hon'ble Prime Minister, Mr. H.D. Deve Gowda, who was then the Chief Minister of Karnataka, gave recognition to the contributions of the tobacco growers and called for support to this segment, so that it could play a major role in the economy of the country. The tobacco exports of your Company have shown an increase of 58% from Rs.4.67 crores in 1994-95 o Rs.7.40 crores in 1995-96. Afforestation and the Trees for Life Programme continue as part of your Company's Environmental Development Programme. Members will recollect that in order to relieve the cigarette business of the pressure to generate increasing levels of profit and to enhance brand equity by sustained product improvements, we adopted the strategy three years ago of two other streams of businesses, namely, Financial Services and High Value Horticulture. Financial Services Because of depressed conditions in the stock market, prevailing till a few weeks ago, the dividend received from investment subsidiaries dropped from Rs.348 lakhs to Rs. 100 lakhs, this year. There was also severe erosion in the investments that had been made. In the circumstances, your Board considered it desirable to disinvest its holding in VST Investments Limited. A substantial proportion namely 59%, has been achieved against a share backed deal, with guaranteed buyback, and there is an agreement to dispose of the balance of the shares for cash at par during the current year. There will thus be a progressive reduction in the interest burden from now on and with the probable uptum in the stock market, it is anticipated that your Company would recoup its investments by the end of the next financial year. This will restore your Company's debt/equity ratio, interest cover and liquidity to nearer the earlier levels. Meanwhile, we will continue, as in the past, to be present in the financial market for the best returns on temporary surplus funds. The Tobacco Institute of India successfully hosted he annual conference of the International Tobacco Growers Association Bangalore where twelve principal tobacco growing countries were represented. In his inaugural address the Hon'ble Prime Minister Mr. H.D. Deve Gowda who was then the Chief Minister of Karnataka gave recognition to the contributions of the tobacco growers and called for support to this segment so that it could play a major role in the economy of the country. There has also been a substantial reduction in the investment in the 1964 Scheme of Units of the Unit Trust of India from 13.37 to 2.29 million units. The decision to disinvest was a consequence both of the reduced attractiveness of the Scheme with the progressive withdrawal of the tax incentives available earlier and also the reversal of provisions for excise liabilities amounting to Rs.3.05 crores, because of favourable judgments pronounced by the Supreme Court. While on this subject, the issue relating to post manufacturing expenses is in the process of finalisation and adequate provisions exist for any possible liability on this account. Meanwhile, the State Government has raised a demand in respect of State Government has raised a demand in respect of Sales Tax payable on the use of Corrugated Fibreboard Cases for the bulk packing of cigarette cartons, for three years from the year commencing 1st April, 1989, amounting to Rs. 2.36 crores. The Andhra Pradesh High Court, in response to an appeal lodged by your Company, has stayed the demand and remanded the case back to the authorities for disposal. We have been advised that we have a strong case. Your Company's diversification into processed value added Horticultural products is well on its way to making its mark in the world markets with a whole range of high quality, high value products. High Value Horticultural Products Your Company's diversification into processed value added Horticultural products is well on its way to making its mark in the world markets with a whole range of high quality, high value products. VST Natural Products Limited (VST-NPL). promoted by your Company, has established its processing plant at Venkatapur village in the Medak District of Andhra Pradesh, at an estimated cost of Rs. 34 crores. Other than the oleoresin line, which is in the process of installation, the plant is today fully operational and meets the strictest international food processing standards, including the norms of the United States Food Drugs Administration. Ms. Maureen Byrne, European Editor of the Food Engineering International journal, who was present at the inauguration of the plant in March this year, describes the plant as "a triumph of modern technology" in an article in the June, 1996 issue. This highly sophisticated plant processes right up to the point where the product is bottled and labelled. The jars are then packed in corrugated fibreboard containers, palletised and loaded into containers. The installed capacity of the plant is two million packs per annum. VST-NPL are in the process of obtaining ISO 9002 certification, which is considered essential for exports. VST's goodwill among its 35,000 farming community in Andhra Pradesh has given your Company an edge very few in India can match. Just to give you an idea about the size of the markets we are talking about, just one product - acidified vegetables - has an annual market of US$ 1.5 billion, that is over Rs 5,000 crores! Of this, gherkins constitute 85% and VST-NPL's products have been readily accepted in the USA. An agreement has been signed with Dean Foods for exports in bulk and as well as in retail jars, to their formula and specifications. Close liaison with Dean Foods will also ensure that FDA Regulations are fully met. Trial shipments in bulk and in retail packs have also commenced to reputed importers in Canada, Germany and Holland. A small and growing domestic market, namely, fast food chains, is also being supplied. Our priorities have been to help farmers assimilate the latest and fully proven agricultural practices and use these inputs for optimising yield and quality. I have spoken to you earlier about the extension work that we have done with farmers with improved seed varieties and correct agronomic practices. On this critical front, VST's goodwill among its 35,000 farming community in Andhra Pradesh has given your Company an edge, very few in India can match. Taking full advantage of this relationship, VST-NPL has initiated training programmes aimed at these farmers to grow products that. meet international quality standards. Our priorities have been to help farmers assimilate the latest and fully proven agricultural practices and use these inputs for optimising yields and quality. To reinforce this further, I am happy to inform you that we have reached an agreement with the University of Wisconsin for continued research in respect of both seeds and agronomic practices. This will supplement the work already done in collaboration with High Value Horticulture p.l.c., of the United Kingdom, who have also given us know-how in respect of baby corn, sweet green peppers, cabbage and beetroot, all of which have good export prospects as pickled products. In the matter of paprika we have followed a similar strategy, in establishing seed varieties, correct agronomic practices and extension work with farmers. Over the last two years, your Company has been exporting small quantities of dried paprika to Israel and making contact with importers in the US and Europe. We have also been investigating the availability of turmeric and chillies possessing the right attributes, in the local market. Experts from Galil Engineering of Israel are expected shortly for the erection of the oleoresin plant. Once it is on stream, we will have a second line of high quality products, meeting the critical international specifications of residual solvent, available for export. Another lucrative line, which the plant is capable of processing is dried herbs and dehydrated onions, and our field work is ready for entering this related business, which will help in reducing seasonal imbalances in plant loading. Here again, we are in touch with some of the leading importers abroad. What all this will mean to your Company is that with access to the fully trained resource we will be playing a critical role in bringing India on par with the world's food production and processing standards. As a matter of fact, your Company with VST-NPL, are in a unique position of being the only group in India to have, built up considerable expertise in critical areas of both seed and processing technologies. This strategic advantage, when combined with lower costs gives us a tremendous leverage in marketing these products anywhere in the world. With access to the fully trained resource, we will be playing a critical role in bringing India on par with the world's food production and processing standards. Available market intelligence would indicate that the export demand for paprika powder and oleoresin is buoyant, and together with the acceptance of our pickled products by customers abroad mentioned earlier, there should be a tenfold increase in our exports of these high value horticultural products this year as mentioned in the Directors' Report to you. Foreign Exchange For the last two years, your Company has been a net user of foreign exchange. In the year under review, there have been two extraordinary items. We imported capital goods valued at Rs.9.27 crores. which have been given on lease to VST-NPI. and we have remitted Rs.2.51 crores as interest for the Euro Loan taken in 1994-95. There are no immediate prospects of improvement in cigarette and cut tobacco exports as trading conditions in the CIS countries continue to be unsatisfactory. However, with the prospects of the growth of exports of non- traditional exports and some buoyancy in unmanufactured tobacco exports anticipated this year, we will again revert to the happier position of being net earners of foreign exchange. Ms. Maureen Byrne, European Editor of the Food Engineering International journal, who was present at the inauguration of the plant in March this year, describes the plant as "A TRIUMPH OF MODERN TECHNOLOGY" in an article in the June, 1996 issue. General In earlier years, I have mentioned to you the efforts we have been making to make the factory floor a safe place in which to work. Your Company has been awarded the Gold Safety Award for the second year in succession. Departmental safety audits and safety promotion activities are ongoing and have generated considerable enthusiasm amongst the employees. In this, as in other training and development activities, we have had the guidance and advice of British-American Tobacco Company (BATCo.), besides the advantage of exposure of our managers to best practices in other territories where BATCo. operates. Your Company has been awarded the Gold Safety Award for the second year in succession. For example, we have been able to benchmark ourselves against international standards in setting up an internal audit system, with professional staff to audit independently, compliance with systems and procedures in the organisation, based on risk assessment. This is apart from the statutory audit carried out by the external Auditors. As part of the best practices in corporate governance, the Board Committee on Audit comprises of non- executive directors, with a non-executive chairman. Recently the Committee has redefined its role which has been widened and provides independent access to the external Auditor to confer with the Committee, free of any influence from the executive management. Place : Hyderabad, Dated : 12th July, 1996.