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VST Industries Ltd.

BSE: 509966 Sector: Consumer
NSE: VSTIND ISIN Code: INE710A01016
BSE 00:00 | 20 May 3200.55 -4.90
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3230.00

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3230.00

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NSE 00:00 | 20 May 3202.75 1.60
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3250.00

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OPEN 3230.00
PREVIOUS CLOSE 3205.45
VOLUME 440
52-Week high 3893.95
52-Week low 2786.00
P/E 15.43
Mkt Cap.(Rs cr) 4,942
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 3230.00
CLOSE 3205.45
VOLUME 440
52-Week high 3893.95
52-Week low 2786.00
P/E 15.43
Mkt Cap.(Rs cr) 4,942
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

VST Industries Ltd. (VSTIND) - Director Report

Company director report

#MDStart#

Management Discussion and Analysis for the Year Ended 31st March 2021

The Directors of your Company have pleasure in presenting before you the Annual Reporttogether with the Audited Statements of Accounts for the year ended 31st March2021.

FINANCIAL SUMMARY

( Rs.Lakhs)
2020-21 2019-20
Revenue from Operations 147289 137042
Profit after Tax 31079 30409
Balance available for Appropriation in Retained Earnings 78670 68774
Amount transferred to General Reserves 3000 3000
Dividend paid 15905 14670
Dividend Distribution Tax thereon - 3015
Balance in retained earnings 59765 48089
Key Ratios
Earnings per Share (C) 201.27 196.93
Dividend per Share (C) 103.00 95.00

Value creation during the decade has been Compounded Annual Growth Rate (CAGR) 8.1% inEarnings Per Share (EPS) and 4.7% in Dividend Per Share (DPS).

DIVIDEND AND TRANSFER TO GENERAL RESERVE

The Directors are pleased to recommend a dividend of Rs.114/- per equity shareof Rs.10/- each on the paid up equity share capital of the Company for consideration andapproval of Members at the ensuing Annual General Meeting (AGM). It is proposed to carryforward an amount of Rs.3000 Lakhs to General Reserve.

Pursuant to Regulation 43A of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 (hereinafter referred to as ‘ListingRegulations’) the Company adopted a Dividend Distribution Policy in terms of therequirement which is annexed to this report as Annexure C. The Policy is availableon the Company’s website at http://www.vsthyd. com/i/Dividend-Distribution-Policy.pdfand forms a part of this Report.

MATERIAL CHANGES AND COMMITMENTS

Except as disclosed elsewhere in the Report there have been no material changes andcommitments made between the end of the financial year of the Company and the date of thisReport. There has been no change in the nature of business of the Company during the year.

SHARE CAPITAL

The paid up Equity Share Capital as on 31st March 2021 was Rs.1544.19 Lakhs.The Company has neither issued shares with differential rights as to dividend voting orotherwise nor issued shares (including sweat equity shares) to the employees or Directorsof the Company under any Scheme.

No disclosure is required under Section 67(3)(c) of Companies Act 2013 in respect ofvoting rights not exercised directly by the employees of the Company as the provisions ofthe said Section are not applicable.

EMPLOYEE STOCK OPTION PLAN

During the year under review the VST Employee Stock Option Plan 2020 (‘VST-ESOP2020’) of the Company was approved. The ESOP Scheme is in compliance with the SEBI(Share Based Employee Benefits) Regulations 2014 (‘the SBEB Regulations’) asamended. Pursuant to the approval by the shareholders the Company can grant up to suchnumber of stock options convertible into equity shares not exceeding 770000 (Seven LakhSeventy Thousand) equity shares of the face value of Rs.10/- each fully paid-up or up to5% of the paid-up equity share capital of the Company whichever is higher to theeligible employees of the Company under the VST-ESOP 2020. Disclosures pertaining to theESOP Scheme pursuant to the SBEB Regulations are placed on the Company’s websitewww.vsthyd.com.

MANAGEMENT DISCUSSION & ANALYSIS REPORT _MD&A_

Based on feedback from Members on the Annual Report and Accounts this report includesMD&A as appropriate so that duplication and overlap between the Directors’ Reportand a separate MD&A is avoided and the entire material with Company’s state ofaffairs is provided in a composite and comprehensive document.

2020: BUSINESS UNUSUAL

The COVID-19 pandemic impacted the normalcy of life with disruptions in physicalmental and economic well-being of the people. To curb the pandemic in the initial stagesnationwide lockdowns were swiftly imposed by State Governments along with socialdistancing guidelines and protocol. However this mass lockdown posed challenges in thedemand and supply of goods and services and further impacted consumption and annualvolumes.

As the year progressed restrictions began to be slowly and steadily eased creatingscope for the business to pick-up. The supply side stability was restored in the month ofJune as the consumption capacity of the people began to rise. This progress brought in aray of optimism for the business through a gradual quarter on quarter recovery within theyear.

The extensive nationwide lockdowns greatly influenced economic activities and added onto the price pressure faced by the people caused by recurrent and steep taxation ledprices. A gradual shift was observed in consumer behaviour as they turned to moreaffordable and cheaper brands of illegal non duty paid cigarettes. Continued uncheckedgrowth of non-duty paid cigarettes continues to pose a serious threat to legal players.

COMPANY PERFORMANCE

It has been a highly unusual business year given the COVID-19 surge and as a result ofthese challenges your Company witnessed a business disruption from April-May. With yourCompany being a pure tobacco player added challenges of demand forecasting particularlyin first half of the year presented itself due to uncertainty at trade and consumerlevels. Despite this your Company delivered growth in value share with minimal impact onmarket share on an annual basis. Your Company has ended the year showing good momentum andmarket share trajectory. These results could be achieved with the courage and resilienceshown by your Company’s employees in overcoming obstacles at multiple levels.

The result of this dedication is reflected through the delivery of a strong financialperformance by your Company. This success was driven by aggressive pricing (12% increasevs 7% for industry) superior performance of key trademarks such as Total and Charms andoperational efficiencies including supply chain initiatives.

Your Company would like to bring to your attention that in a remarkably short span offive years Total has emerged as the fifth largest brand in the industry. Total is theonly new trademark in the last 25 years to have achieved this distinction being afirst-of-its-kind largest capsule brand in the category with consumer spends of more thanRs.2000 Crores. Total has forced re-evaluation of heritage brands and has successfullymanaged to attract consumers from higher price points as well. Another variant of Totalwas successfully introduced last year with an indigenous flavor innovation. Total now ispresent in almost all major markets of the country and is only the second brand in thecategory to have such a wide presence and stature.

Your Company continues to invest in expanding its geographic footprint with itspresence in greater than 80% of the country including Delhi Karnataka Tamil Nadu andMaharashtra. This significant increase from 55% in 2014-15 has also been largely driven byTotal.

LEAF TOBACCO

Your Company’s leaf function has registered a strong performance with an elevationin quality of the products offered. By leveraging its expertise in all varieties oftobaccos your company procured high quality tobaccos for its own manufacturing in linewith the changing volumes. It continues its domestic sales in addition to exports in spiteof operational disturbances due to the pandemic.

Specific focus is directed toward the need to foster your Company’s development ofnew varieties and high nicotine tobaccos to meet the changing requirements of tobacco indomestic and international markets. These developments are set in motion to cater to theneeds of established customers while also attracting new customers year after year.

In the backdrop of changing climatic conditions where the farming community faceschallanges on cultivation your Company is paying attention to farmers’ interest tosustain the tobacco cultivation. It is satisfying to note that your Company’s farmerscontinue to grow tobacco with the lowest pesticide residue levels and low TSNAs (TobaccoSpecific Nitrosamines) that are well within international standards. This also resulted inthe development of backward regions in the leaf growing areas.

To further strengthen the commitment to Social and Economic upliftment ofCompanies’ tobacco growing areas your Company is continuing the sponsorship ofinitiatives like House Hold Toilets and Solar street lighting to ensure higher standard ofliving of the farmers and their families.

PRODUCTION AND PLANT MODERNISATION

Your Company has gained a competitive edge against other products in the market withthe introduction of innovative products from your Company’s end. This upgrade in theproducts have been well received by the consumers.

The focus at the plants continue to be extended toward enhancement of capitalefficiencies and cost optimisation.

RESEARCH & DEVELOPMENT ACTIVITY

To upscale the quality of products offered your Company laid emphasis on R&Dactivity. This focus encouraged the development of quality blends with innovative capsulefilter / flavor variants for new brands which have been well accepted by consumers in themarket place. The R&D lab of your Company received a "Certificate ofcontinuation" of ISO 17025:2017 from NABL Quality Council of India Government ofIndia for the year 2020-21.

HUMAN RESOURCE DEVELOPMENT

In March 2020 in response to the lockdown in India your Company transitioned into a‘work-from-home’ mode to ensure the safety of its employees. With communicationsturning 100% online your Company acted with agility to establish remote working systemsand adapted to flexible work arrangements within record time for smooth functioning of itsoperations.

Your Company’s priority towards the health and well-being of its employees can beseen clearly through their efficient initiatives. Further your Company considers peopleas a primary source of its competitiveness and utilises its ability to attract developand retain a diverse range of skilled people. Continuous efforts are spent to attracttalent throughout the year as per requirements.

To create a safe environment for its female employees your Company has constituted anInternal Complaints Committee as per the Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013 and the Rules framed there under.However no cases were filed during the year under the above Act.

As of 31st March 2021 your Company’s workforce was 780 employees with359 Management staff and 421 Workmen. The Long-Term Agreement was signed with thecompany’s recognised union for a period of 3.5 years commencing from 1stFebruary 2020.

ENVIRONMENT HEALTH & SAFETY _EHS_ AND COMMUNITY SERVICES

There is no doubt that the year 2020-21 has been a challenging period due to theCOVID-19 pandemic. During this time paramount importance was extended by your Company toassure the safety and wellbeing of its employees. Your Company aimed at ensuring businesscontinuity while simultaneously catering to employee safety needs by strictly implementingCOVID-19 protocols.

Your Company observed norms like social distancing working from home isolation andregular sanitisation to ensure everyone’s physical and psychological safety. Furtherprotective equipment and gears were made available sanitisers were distributed andinstalled and operations were managed with a rotating man power plan coupled withfrequent health check-ups.

In the light of the pandemic a series of initiatives towards employee health andwellbeing were taken up under the banner of "VST Cares". A major initiative offraming a COVID-19 medical policy was crafted to cover additional employee medical costsfor COVID-19 treatment over and above the existing medical insurance. Your Companyfacilitated the vaccination of our employees of 45 years and above along with theirspouses.

415 employees and 110 contract workmen have undergone EHS training mock drills werealso conducted for workers and management during the period to comply with theCompany’s EHS guidelines. Half-yearly and Annual EHS audits of the Company’soperations were carried out to ensure compliance of EHS requirements. ISO 14001:2015 &OHSAS 18001:2007 Recertification and Migration Audit from OHSAS 18001:2007 to new standardISO 45001:2018 implementation was held at Azamabad & Toopran premises by M/s. RinaIndia Pvt. Ltd. and received a continuation certificate for ISO 14001:2015 & ISO45001:2018 for both Azamabad & Toopran locations.

Your Company received "Commendation Certificate" for Safety Innovation Award2020 from Institute of Engineers New Delhi. Your Company received "Gold Rating"for IGBC Green factory building certification for Toopran factory from CII Hyderabad.

FINANCE

a. Profits

The Profit after Tax of your Company for the year is Rs.310.79 crores.

b. Treasury Operations

Your Company follows a SLR model (Safety Liquidity and Return) in deployment ofearmarked funds.

There are no significant changes (change of 25% or more as compared to the immediatelyprevious financial ratios of the Company including those listed out and specified underSchedule V (B)(1)(i) read with Regulation 34(3) and 53(f) of the Listing Regulations asamended.

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

The Company has not taken any loans or given guarantees or made investments in anyother Company covered and provided under Section 186 of the Companies Act 2013 during theyear.

RATING

The Credit Rating Information Services India Limited (CRISIL) has re-affirmed therating of your Company to "FAAA/ Stable" for Fixed Deposit Schemes"AA+/Stable" for Long Term Non-Convertible Debentures and "A1+" forNon-fund based liabilities (Letter of Credit and Bank Guarantee). Your Company has stoppedaccepting fresh deposits for the past several years.

UNCLAIMED DIVIDENDS

Pursuant to the provisions of Sections 124 and 125 of the Companies Act 2013 theCompany has transferred on due dates the unpaid or unclaimed dividends for the financialyear ended 31st March 2013 to the Investor Education and Protection Fund(IEPF) established by the Central Government.

Further as per the provisions of Investor Education and Protection Fund (Uploading ofInformation regarding unpaid and unclaimed amounts lying with Companies) Rules 2012 theCompany has uploaded the details of unpaid and unclaimed amounts lying with the Company ason 31st March 2020 on the website of the Company (www.vsthyd.com) and also onthe website of the Ministry of Corporate Affairs Government of India.

The details of the dividend due for transfer to IEPF as on 31st March 2021is given in the Report on Corporate Governance. The Company has completed the process ofcomplying with the provisions of Section 124(6) of the Companies Act 2013 read with theIEPF Authority (Accounting Audit Transfer and Refund) Rules 2016 and as amended by theSecond Amendment Rules of 2017 by transferring 8478 shares (61 shareholders) on 28thSeptember 2020.

UNCLAIMED SHARE CERTIFICATES

Your Company has communicated to the Members whose share certificates have beenreturned undelivered to the Company that these would be transferred to the UnclaimedSuspense Account if not claimed by them as required under Regulation 34(3) read withSchedule V[F] of the Listing Regulations as amended.

The status of unclaimed shares as on 31st March 2021 is given in the Reporton Corporate Governance.

CORPORATE GOVERNANCE

In terms of Regulation 34 of the Listing Regulations a Report on Corporate Governancealong with Compliance Certificate issued by the Statutory Auditors of the Company isannexed as "Annexure A" and forms part of this Report.

Your Company has taken adequate steps for strict compliance with the CorporateGovernance guidelines as amended from time to time.

MEETINGS

The Board and Committee Meetings are pre-scheduled and a tentative calendar of theMeetings finalised in consultation of the Directors are circulated to them in advance tofacilitate them to plan their schedule. However in case of special and urgent businessneeds the approval is obtained by way of circular resolution. During the year nine BoardMeetings and four Audit Committee Meetings were convened and held. The details of theMeetings including composition of Audit Committee are given in the Corporate GovernanceReport. During the year all the recommendations of the Audit Committee were accepted bythe Board.

INTERNAL CONTROL SYSTEMS

a) Your Company maintains an adequate and effective internal control systemcommensurate with the size and complexity. Your Company also has well documented StandardOperating Procedures (SOPs) for various processes which are periodically reviewed forchanges warranted due to business needs.

b) Your Company remains committed to improve effectiveness of internal financialcontrols and processes which would help in efficient conduct of its business operationsensure security to its assets and timely preparation of reliable financial information.

The policies and procedures laid out by your Company capture the control environmentprevalent in the organisation. Over a period of three years the business processes ofyour Company is reviewed through an internal audit process which reviews the systems on acontinuous basis. The objective being to identify potential risk areas and come up with acomprehensive risk mitigation plan.

The Audit Committee of your Board met four times during the year. Review of auditobservations covering the operations consideration of accounts on a quarterly basis andmonitoring the implementation of audit recommendations were some of the key areas whichwere dealt with by the Committee. The Statutory Auditors/Internal Auditors were invited toattend the Audit Committee Meetings and make presentations covering their observations onadequacy of internal financial controls and the steps required to bridge gaps if any.Chief Financial Officer is a permanent invitee to the Audit Committee and other executivesof the Company are invited to address respond or provide clarifications to relevantissues as and when required.

RISK MANAGEMENT

Your Company has constituted the Risk Management Committee as mandated by SEBI for top500 listed entities which was to be effective from 1st April 2019. TheCommittee comprises of Directors and Senior Management as its Members as prescribed underRegulation 21 of the Listing Regulations as amended. The Company Secretary is theSecretary of the Committee.

Your Company has always endeavored to bring together elements of best practices forrisk management in relation to existing and emerging risks faced by it at both strategicand operating level. The Company faces a variety of risks from external and internalsources. However the objective is to be aware of different kinds of risks affecting thebusiness. Rather than eliminating these risks the decision-making process at your Companyconsiders sensible risk taking and thereby proactive steps are taken to ensure thatbusiness is undertaken in an environment which encourages a reasonable amount of risktaking and enables the Company to leverage market opportunities effectively.

The Board is responsible for determining the nature and extent of the principal risksthat your Company is willing to take to achieve its strategic objectives and formaintaining sound risk management system. With the support of the Audit Committee itcarries out a review of the effectiveness of your Company’s risk management processcovering all material risks including strategic financial operational and alsocompliance levels.

Your Company has substantial operations all over the country and competes on the basisof brand appeal loyalty price value connotations and strong trade relationships. TheCompany’s position is influenced by the economic regulatory and political situationsboth nationally and at a state level and of the competitors. The principal risks impactingyour Company’s business and steps undertaken to mitigate them are as under:

(i) Regulatory restrictions could have an impact on long term revenue growth of theCompany.

The Company operates under increasingly stringent regulatory regime (COTPA guidelineson packaging and labeling advertising and promotion). This further gets complicated withadoption of differing regulatory regimes in different states and/or lack of consensus oninterpretation/application.

Such restrictive regulations which are subjected to interpretation could result in notonly penalties being imposed/loss of reputation but also impair the Company’sability to communicate with adult smokers and/or to meet consumer expectations throughnew/ innovative brand launches or geographic expansion.

The Company addresses this risk by engaging in continuous social dialogue withstakeholders and regulatory community through industry bodies. At the same time it workson developing strategies and capabilities to effectively launch competitive and consumeracceptable brands within the changing regulatory environment.

(ii) Taxation changes could have an impact on short-term revenue growth of the Company.

The Company’s business is subjected to GST excise and other cesses as may be madeapplicable which could require the Company to take up product prices and in absence ofsuch action impact its business. The impact increases when due to changes in economicsituation consumer’s disposal income reduces resulting in down-trading to cheapercigarettes including non-duty paid illicit cigarettes or alternative tobacco products.

Such risks are addressed by the company through:

(a) engagement with tax authorities at levels where appropriate;

(b) regular management review to build a well laddered brand portfolio across newsegments including new brand creation; and

(c) capability build-up through investments in distribution infrastructure to increasegeographical spread.

(iii) Regional disruptions could have an impact on short-term revenue growth of theCompany as well as reputation.

Regional disturbances through state level restriction on trade or through terrorism andpolitical violence including bandhs strikes have the potential to disrupt theCompany’s business operations. Such disruptions result in potential loss of assetsand increased costs due to more complex supply chain arrangements and/ or maintaininginefficient facilities.

The Company addresses this risk through developing secure multiple sourcing/delivery(supply chain) strategy and through Insurance cover and business continuity planning.

(iv) Counter party risk could have a potential impact on Company’s capital andprofitability.

The Company generates positive cash flows which are predominantly invested withfinancial institutions and mutual funds. Delay and/or default in settlement on maturity ofsuch investments could result in liquidity and financial loss to Company.

Such risks are mitigated through investment based on principle of Safety; Liquidity& Returns (SLR) and with institutions having strong short-term and long-term ratingsassigned by CRISIL.

(v) Data risks

The loss or misuse of sensitive information or its disclosure to outsiders includingcompetitors and trading partners could potentially have a significant adverse impact onthe Company’s business operations and/or give rise to legal liability. For thispurpose the Company has put in place information technology policies and procedures whichare reviewed regularly. Further information technology controls like data backupmechanism disaster recovery center authorisation verification etc. have also beenestablished.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

Your Company has formulated a Corporate Social Responsibility Policy with the objectiveto promote inclusive growth and equitable development of identified areas by contributingback to the society. Over the years your Company has been involved in various socialactivities focusing on Health & Sanitation like construction of toilets under SwachhGhar mission Environment sustainability and Education.

The Company has with the help of Gramalaya a non-profit organization constructedtoilets in individual homes (of farmers living) in and around Jogulamba-Gadwal district ofTelangana where your Company has its operations under the ‘Swachh Ghar’programme of your Company. In addition to construction of toilets the villages and thecommunities in the area are also sensitised regarding the importance of health &sanitation. Over 775 household toilets have already been constructed during the financialyear and your Company has plans to extend it further to other houses in the same area andthereafter extend it to other areas.

Your Company has taken up an initiative of supporting environment sustainability byinstalling 400 solar street lights in 8 villages/towns in Jogulamba- Gadwal districts ofTelangana.

In addition to the above your Company contributed Rs.100 Lakhs to Telangana StateDisaster Management Authority to undertake COVID-19 related activities.

Pursuant to the provisions of Section 135 and Schedule VII of the Companies Act 2013as amended by the Companies Amendment Act of 2019 & 2020 the Corporate SocialResponsibility (CSR) Committee of the Board of Directors was formed to recommend thepolicy on Corporate Social Responsibility and monitor its implementation. The compositionof the CSR Committee is given in the Annual Report on the CSR activities. The CSR policyand the projects approved by the Board are available on the Company’s website at :www.vsthyd.com/i/CSRPolicy.pdf.

The CSR Policy and the Annual Report on CSR activities is annexed herewith as "AnnexureB" and forms part of this Report.

BUSINESS RESPONSIBILITY REPORT

The Listing Regulations mandates inclusion of Business Responsibility Report (BRR) aspart of the Annual Report for top 500 listed entities based on market capitalisation. Incompliance with the Regulation the BRR is provided as part of this Annual Report.

RELATED PARTY TRANSACTIONS

The related party transactions entered into by the Company during the year are in itsordinary course of business and on arm’s length basis. There were no materiallysignificant related party transactions between your Company and the Directors PromotersKey Managerial Personnel and other designated persons which may have a potential conflictwith the interest of your Company at large. Prior approval for all the related partytransactions is obtained from the Audit Committee.

Form AOC-2 for disclosure of particulars of contracts/ arrangements entered into byyour Company with related parties is annexed herewith as "Annexure D" andforms part of this Report.

BOARD EVALUATION

Pursuant to the provisions of the Companies Act 2013 as amended and ListingRegulations the performance evaluation of the Board the committees of the Board andindividual Directors has been carried out. The manner in which the evaluation has beencarried out has been explained in the Corporate Governance Report.

The performance evaluation of the Chairman and the Non-independent Directors wascarried out by the Independent Directors. The Board of Directors expressed theirsatisfaction with the evaluation process.

REMUNERATION POLICY

Nomination and Remuneration Committee has formulated a policy relating to remunerationof directors key managerial personnel and other employees which has been revised andapproved by the Board. The Remuneration Policy and the criteria for determiningqualification position attributes and independence of a Director are stated in theCorporate Governance Report. The policy is also placed on the website of the Company andcan be viewed at http://www.vsthyd. com/documents/remuneration-policy.pdf.

MEETING OF INDEPENDENT DIRECTORS

The performance of the Non-Executive Director the Chairman and the Board as a whole isdone by the Independent Directors in their exclusive Meeting as per the policy formulatedby the Board in this regard. In addition the Independent Directors in such Meeting alsoreview their role functions and duties under the Companies Act 2013 and the flow ofinformation from the Management.

VIGIL MECHANISM

In terms of Section 177 of the Companies Act 2013 the Company has formulated aWhistle Blower Policy as a vigil mechanism to encourage all employees and Directors toreport any unethical behavior actual or suspected fraud or violation of theCompany’s ‘Code of Conduct and Ethics Policy’ which also provides foradequate safeguard against victimisation of person who use such mechanism and there is aprovision for direct access to the chairman of the Audit Committee inappropriate/exceptional cases. The details of the Whistle Blower Policy is given in theCorporate Governance Report and also posted on the Company’s website atwww.vsthyd.com/i/WhistleBlower Policy.pdf.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Directors retiring by rotation Mr. S. Thirumalai

Mr. S. Thirumalai (DIN:00011899) was reclassified as a Non-Executive Non-IndependentDirector of the Company in compliance with Section 152(6) read with Schedule IV of theCompanies Act 2013 as amended at a Meeting of the Board held on 26th July2019 whose office is subject to retirement by rotation.

Pursuant to Article 93 of the Articles of Association of your Company Mr. S.Thirumalai is liable to retire from the Board and being eligible offers himself forre-election. Your Board recommends his re-appointment.

Mr. Thirumalai (72 years) is a Fellow Member of Institute of Chartered Accountants ofIndia Institute of Company Secretaries of India Certified Associate of Indian Instituteof Bankers and also a law graduate. He has also attended the Advanced Management Programat Harvard Business School Boston USA. He has diversified experience of over fourdecades including a major portion in the tobacco sector and specialises in FinanceTaxation Legal and General Management. The Board feels that the vast and diversifiedexperience of Mr. Thirumalai will prove to be an asset to the Company. Mr. Thirumalai isnot a Director in any other Company in India. He is a Member of the Audit Committee CSRCommittee Stakeholders Relationship Committee Risk Management Committee and Nomination& Remuneration Committee. Mr. Thirumalai holds 25 shares in the Company and is notrelated to any other Director of the Company.

Directors’ Resignation/Appointment Mr. Devraj Lahiri

Mr. Devraj Lahiri (DIN:03588071) resigned as Director and Managing Director of yourCompany at the Board Meeting held on 10th June 2020 and was relieved effectivefrom the close of business hours of 9th December 2020 after serving the noticeperiod in accordance with the Articles of Association of the Company. The Board ofDirectors place on record their deep appreciation of the contribution made to your Companyby Mr. Devraj Lahiri during his tenure as a Director and Managing Director.

Mr. Aditya Deb Gooptu

The Board of Directors of your Company at their Meeting held on 27th October2020 on the recommendation of Nomination

& Remuneration Committee appointed Mr.Aditya Deb Gooptu (DIN: 07849104) as anAdditional Director and Managing Director & CEO of the Company with effect from 1stDecember 2020 which is subject to the approval of the Members at the ensuing AnnualGeneral Meeting. He shall also be a Key Managerial personnel under Section 203 of theCompanies Act 2013.

Mr. Aditya Deb Gooptu aged 49 years holds a Bachelors degree in Engineering fromJadavpur University and a PG Diploma in Management from IIM Ahmedabad. He has alsoattended the Advanced Management Program at the Harvard Business School. He has about 24years of experience in handling consumer products marketing & sales and generalmanagement. He has spent over 17 years (2003-2020) in Godfrey Phillips India as ExecutiveVice President & Business Head - Cigarettes before joining the Company.

Prior to that he was Category Head for imported Brands & Scotches for South Asia inPernod Ricard India. Mr. Gooptu brings with him functional experience across marketing andsales & distribution with all-round experience of innovation R&D sales process& sales IT manufacturing regulatory & corporate affairs legal commercial &procurement business process digital transformation management. Mr. Gooptu does not holdany shares in the Company and is not related to any other Director of the Company.

A suitable Resolution is being put up for your approval.

INDEPENDENT DIRECTORS

At the Annual General Meeting of the Company held on 28th August 2019 theMembers have approved the appointment of Ms. Rama Bijapurkar Mr.Sudip Bandyopadhyay andMr. Rajiv Gulati as Independent Directors of the Company in accordance with Section 149 ofthe Companies Act 2013 with effect from 1st April 2019 1st June2019 and 26th July 2019 respectively to hold the office for a term of fiveconsecutive years from their respective dates.

All the Independent Directors have given a declaration in terms of Section 149(6) ofthe Companies Act 2013 as amended and Regulation 25 of the Listing Regulations as amendedfor the financial year ended 31st March 2021 that they meet the criteria ofindependence. They also declared that they are not aware of any circumstance or situationwhich exist or may be reasonably anticipated that could impair or impact their ability todischarge their duties as an Independent Director with an objective independent judgmentand without any external influence. The Board carried out an assessment of thedeclarations and took the same on record.

None of the Independent Directors are related to any other director of the Company.

KEY MANAGERIAL PERSONNEL

The Managing Director & CEO Mr. Aditya Deb Gooptu the Chief Financial Officer Mr.Anish Gupta and the Company Secretary Mr. Phani K. Mangipudi are the Key ManagerialPersonnel as per the provisions of the Companies Act 2013.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to Section 134(5) of the Companies Act 2013 your Directors confirm that:

1. in the preparation of the annual accounts the applicable accounting standards havebeen followed along with proper explanation relating to material departures if any;

2. appropriate accounting policies have been selected and applied consistently.Judgement and estimates which are reasonable and prudent have been made so as to give atrue and fair view of the state of affairs of your Company as on 31st March2021 and of the statement of profit and loss and cash flow of your Company for the periodended 31st March 2021;

3. proper and sufficient care has been taken for the maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act 2013 for safeguarding theassets of your Company and for preventing and detecting fraud and other irregularities;

4. the annual accounts have been prepared on a going concern basis;

5. proper internal financial controls have been laid down to be followed by yourCompany and such internal financial controls are adequate and were operating effectively;and

6. proper systems to ensure compliance with the provisions of all applicable laws havebeen devised and such systems were adequate and operating effectively.

CRITERIA FOR SELECTION AND APPOINTMENT OF DIRECTORS

The Nomination and Remuneration Committee is responsible for identifying screening andrecommending to the Board a candidate for appointment as Director. Based on therecommendation of the Committee the Board identifies the candidate for the position ofDirector. While identifying the candidate inter alia the following are taken intoconsideration :

• Qualification experience and expertise;

• Skills abilities and personal contribution;

• Commitment to spare time to attend Board/Committee and other Meetings as may benecessary;

• Diversity of perspectives brought to the existing Board;

• Existing composition of the Board.

The qualification of the candidate is scrutinised by the Committee consideringeducational degree college/ institution professional qualification if any etc. Inaddition there is also a criteria regarding minimum work experience and the positiveattributes such as leadership quality level of maturity management capabilitiesstrategic vision problem solving abilities etc. on which the candidate is judiciallyscrutinised.

In case of an internal candidate the senior management employee is also evaluated onthe above criteria before being recommended for promotion as a Director. While consideringre-appointment of the Directors their performance evaluation report is considered.

In case of Independent Director the independence integrity expertise experience andinterest pecuniary or otherwise as per the statutory provisions are also assessed beforeappointment.

SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS

There are no significant or material orders passed by the Regulators Courts orTribunals which impact the going concern status of the Company and its future operations.However Members’ attention is drawn to the following:

TAXATION

i. Luxury Tax

The then Government of Andhra Pradesh introduced a levy of luxury tax on cigarettes andits virus was challenged before the then High Court of Andhra Pradesh and before theSupreme Court which was struck down. The Commercial Tax department claimed that duringpendency of the matter before the courts between 1999-2005 your Company had collectedluxury tax amounting to C34.86 crores but not paid to the Government. Your Company deniedcollecting luxury tax and the litigation on the same is now pending before the appellateauthority of the department and the High Court of Telangana.

ii. Entry Tax

Entry Tax levy by the States of West Bengal Jharkhand and Assam has been challengedbefore the respective State High Courts by your Company basis the directions of theHon’ble Supreme Court. Demand of interest on entry tax was challenged before the HighCourt of Allahabad and is pending adjudication.

iii. Excise a. Wrapping Materials

The Excise department has issued show cause notices demanding payment of duty ofRs.4.51 crores on the ground that Gay Wrappers (printed paper used for wrapping cigarettepackets) had been manufactured and consumed by your

Company without payment of duty during the period April 1996 to July 2015. Demand forthe period till March 2002 has been adjudicated and the CESTAT decided in favour of yourCompany. Department preferred an appeal before the Supreme Court which is pending. Demandsfor period after March 2002 till July 2015 are yet to be adjudicated by the originalauthority.

b. Tobacco Refuse

Your Company has received show cause notices demanding recovery of duty on cut tobaccoused in the manufacture of tobacco refuse since January 2005 till June 2017 amounting toRs.14.52 crores.

Demand for the period till October 2013 has been adjudicated and the CESTAT decided infavour of your Company. Department preferred an appeal before Supreme Court which ispending. Demands for period after October 2013 till June 2017 are yet to be adjudicatedby the original authority.

c. Service Tax

Your Company has received show cause notices from the Excise Department seeking to denyCENVAT credit availed on various input services on the ground that the same are not inrelation to the manufacture of final products. Upon adjudication credit on most of theservices was allowed in favor of your Company. Some of them have been disputed. Since2005 the matters are pending before various adjudicating authorities and before theCESTAT and are being effectively contested.

PUBLIC INTEREST LITIGATION _PIL_

i) Your Company has been impleaded in the petition filed in the Supreme Court by an NGOcalled ‘Centre for Transforming India’ against the Union of India along withother cigarette manufacturers Tobacco Institute of India Bidi Manufacturers and BidiManufacturers’ Association seeking prohibition/ban of the manufacture storage andsale of all forms of tobacco within the territory of India. This is being contested.

ii) Petitions have also been filed in other courts such as High Court of Madhya Pradesh- Jabalpur National Green Tribunal Delhi seeking ban on sale of cigarettes and beforeHigh Court of Madhya Pradesh - Indore Bench seeking directions to mention tar and nicotinecontent on cigarette packs by the manufacturers.

All of the above are being effectively contested by your Company.

FINANCIAL SERVICES BUSINESS

The Company petition filed by the Official Liquidator before the High Court of AndhraPradesh (now Telangana High Court) seeking directions against some of the Ex-Directors ofITC Agro Tech Finance and Investments Limited (ITCATF) the Company in liquidation intowhich one of the subsidiaries of your Company viz. VST Investments Limited wasamalgamated and its related matters are still pending final adjudication.

THE CIGARETTES AND OTHER

TOBACCO PRODUCTS _PROHIBITION OF ADVERTISEMENT AND REGULATION OF TRADE AND COMMERCEPRODUCTION SUPPLY AND DISTRIBUTION_ ACT 2003 _COTPA_

i. In view of the provisions of COTPA various restrictions such as ban on advertisingin print visual media and outdoors regulation of in-store advertising prohibition ofsale of cigarettes to persons below the age of 18 years etc. have been in force. Printingof pictorial warnings on cigarette packets came into effect from 31st May 2009were further revised and the pictorial warning covering 85% of the front and back side ofthe packets was implemented w.e.f. 1st April 2016 and is being duly compliedwith by your Company.

ii. Your Company also filed a writ petition in the Hon’ble High Court of AndhraPradesh (now Telangana High Court) challenging The Cigarettes and Other Tobacco Products(Packaging & Labelling) Rules 2006 and the Amendment Rules 2008 on the grounds interalia that they are ultra vires of COTPA and therefore the notifications issued there under(including those seeking implementation of graphic health warnings) should be quashed. Thesaid writ petition has been admitted but no interim orders were passed by the Hon’bleCourt.

iii. Before the High Court of Karnataka a Writ Petition was filed by Tobacco Instituteof India (TII) on behalf of your Company and other manufacturers against the proposednotification dated 15th October 2014 by Health Ministry to print health warningon both sides of the pack occupying 85% of space. The 85% health warning came into effectfrom 1st April 2016. Your Company also filed a Writ Petition before the HighCourt bench at Dharwad against the implementation of 85% health warning. The

Hon’ble Supreme Court on hearing a PIL filed by Health for Millions constituted aBench before the Karnataka High Court to hear all the matters relating to graphical healthwarning. The Writ Petitions filed by TII and your Company were heard before the BangaloreBench and it was held on 15th December 2017 that the amendment made to thePackaging Rules imposing 85% graphic health warning is ultra vires the Constitution.Against the said Judgment an appeal was filed by the Ministry of Health before theSupreme Court. A stay has been granted on the said judgement and is pending before theSupreme Court.

REAL ESTATE

The then Government of Andhra Pradesh had filed a land grabbing case against yourCompany in 1991 in relation to a piece and parcel of vacant land which has been underpossession and occupation by your Company for over four decades. By its judgment dated 28thJuly 2010 the Special Court had held that your Company is not a land grabber but hadgiven the State Government the right to initiate proceedings to recover possession of theland at some future date. Against this part of the judgement your Company filed a writpetition before the then Hon’ble High Court of Andhra Pradesh to expunge that part ofthe Order giving such liberty to the Department despite the fact that your Company hasalready been declared not to be a land grabber. The writ petition is still pending. TheState Government has also filed a writ petition in the Hon’ble High Court of AndhraPradesh seeking to set aside the said judgment of the Land Grabbing Court. An interimOrder was passed restraining your Company from changing the status of the land or creatingany third party interest therein. Your Company is taking all the necessary steps forspeedy disposal of the above writ petitions which are pending before the Court.

One more case of land grabbing was filed by the then Government of Andhra Pradeshagainst your Company in the year 1989 on a piece of land along with building called‘Lal-e-Zar’ before the Special Court. In the year 2010 the Special Courtpassed a judgment stating that your Company is not a land grabber. After 7 years theGovernment of Telangana filed an appeal before the Hon’ble High Court of Telanganaand Andhra Pradesh seeking a direction from the court that the nature of the land is notto be altered and no third party interest to be created. Your Company filed a counter andvacate stay application seeking permission to construct on the said land. Judgment waspronounced on the vacate stay petition allowing your Company to construct but with certainconditions. The State Government preferred an appeal before the Supreme Court which wasdismissed.

PARTICULARS OF EMPLOYEES

The information required pursuant to Section 197 of the Companies Act 2013 read withRule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 as amended in respect of employees of the Company are annexed herewith as "AnnexureE" and forms part of this Report. The statement containing particulars ofemployees as required under Section 197 of the Act read with Rule 5(2) of Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 is provided in aseparate annexure forming part of this Report. However in terms of Section 136 of theAct the Report and Accounts are being sent to the Members and others entitled theretoexcluding the information on employees’ particulars which is available for inspectionby the Members at the Registered Office of the Company during business hours on workingdays of the Company up to the date of the ensuing AGM. In case any Member is interested inobtaining a copy thereof such Member may write to the Company Secretary of the Company.

The Nomination and Remuneration Committee of the Company has affirmed that theremuneration is as per the Remuneration Policy of the Company.

Your Directors take this opportunity to record their deep appreciation of thecontinuous support and contribution from all employees of your Company.

ANNUAL RETURN

As required under Section 92(3) of Companies Act 2013 and Rule 12(1) of Companies(Management and Administration) Amendment Rules 2020 Annual Return is available on theCompany’s website at https://www.vsthyd.com/documents/ annual-return-31-3-2021.pdf

AUDITORS

Statutory Auditors

In compliance with the provisions of Sections 139 and 141 of the Companies Act 2013 asamended and Companies (Audit and Audit Rules) 2014 including any statutorymodification(s) re-enactments and amendments thereof for the time being in force M/s.BSR & Associates LLP Chartered Accountants were re-appointed as the StatutoryAuditors of the Company to hold office for a second term of five years from the conclusionof the 90th AGM to the conclusion of the 95th AGM. The Report givenby the Auditors on the financial statements of the Company is part of the Annual Report.There has been no qualification reservation or adverse remark in their Report. During theyear under review the Auditors have not reported any fraud under Section 143(12) of theCompanies Act 2013 and hence no detail is required to be disclosed under Section134(3)(ca) of the Companies Act 2013.

Secretarial Auditor

Pursuant to the provisions of Section 204 of the Companies Act 2013 and Rule 9 ofCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 the Companyappointed M/s. Tumuluru and Company Firm as Secretarial Auditor of the Company for thefinancial year 2020-21. The Secretarial Audit Report is annexed herewith as "AnnexureF" and forms part of this Annual Report.

There are no qualifications reservations or adverse remarks in the Secretarial AuditReport.

COMPLIANCE WITH SECRETARIAL STANDARDS

Your Company has complied with applicable Secretarial standards i.e. on Meetings ofthe Board of Directors [SS-1] and on General Meetings [SS-2] issued by The Institute ofCompany Secretaries of India (ICSI) and approved by the Central Government under Section118(10) of the Companies Act 2013.

COST ACCOUNTS AND RECORDS

The maintenance of cost accounts and records as specified by the Central Governmentunder Section 148(1) of the Companies Act 2013 is not required by the Company.

CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO

Information in accordance with clause (m) of sub-section (3) of Section 134 of theCompanies Act 2013 read with Rule 8 of Companies (Accounts) Rules 2014 is given in the"Annexure G" forming part of this Report.

SUBSIDIARY/ASSOCIATES/JOINT VENTURES

Addition or cessation of subsidiaries associates or joint ventures is not applicableto the Company as the Company does not have any subsidiary company associates and jointventures.

DEPOSITS

Your Company has stopped accepting fresh deposits for several years now. As on 31stMarch 2021 your Company does not have any deposits for the purpose of its business hencedetails of deposits is not applicable.

UTILISATION OF FUNDS

Your Company has not raised any funds during the year through preferential allotment orQualified Institutional Placement as a result question of providing details ofutilisation of such funds does not arise.

DEBENTURE TRUSTEES

Your Company does not have any debentures and as a result the requirement to appointdebenture trustees does not arise.

WAY FORWARD

Despite COVID related uncertainties in near term your Company is committed to nurturea vibrant brand portfolio and grow volumes market share geographic footprint throughincreased investments in generating superior consumer insights brand and productinnovation quality and a fully integrated digital infrastructure.

ACKNOWLEDGEMENTS

The Directors are grateful to all valuable stakeholders of the Company viz. customersshareholders dealers vendors banks and other business associates for their excellentsupport rendered during the year. The Directors also acknowledge the unstinted commitmentand valued contribution of all employees of the Company.

On behalf of the Board

NARESH KUMAR SETHI

Chairman

DIN : 08296486

Dated this 27th day of April 2021

Azamabad Hyderabad - 500 020

#MDEnd#

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