You are here » Home » Companies » Company Overview » VST Industries Ltd

VST Industries Ltd.

BSE: 509966 Sector: Consumer
NSE: VSTIND ISIN Code: INE710A01016
BSE 00:00 | 07 Aug 3489.90 -9.85
(-0.28%)
OPEN

3512.45

HIGH

3606.00

LOW

3470.00

NSE 00:00 | 07 Aug 3491.60 -9.30
(-0.27%)
OPEN

3500.00

HIGH

3511.95

LOW

3470.00

OPEN 3512.45
PREVIOUS CLOSE 3499.75
VOLUME 1379
52-Week high 4856.45
52-Week low 2550.00
P/E 17.72
Mkt Cap.(Rs cr) 5,388
Buy Price 3480.00
Buy Qty 10.00
Sell Price 3600.00
Sell Qty 10.00
OPEN 3512.45
CLOSE 3499.75
VOLUME 1379
52-Week high 4856.45
52-Week low 2550.00
P/E 17.72
Mkt Cap.(Rs cr) 5,388
Buy Price 3480.00
Buy Qty 10.00
Sell Price 3600.00
Sell Qty 10.00

VST Industries Ltd. (VSTIND) - Director Report

Company director report

FOR THE YEAR ENDED 31ST MARCH 2020

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 March 2020.

Financial Summary (Rs Lakhs)

2019-20 2018-19
Revenue from Operations 141778 122301
Profit after Tax 30409 22684
Retained earnings brought forward from previous year 38365 32358
Balance available for Appropriation 68774 55042
Amount transferred to General Reserves 3000 2250
Dividend paid 14670 11967
Corporate Dividend Tax thereon 3015 2460
Balance in retained earnings 48089 38365
KEY RATIOS
Earnings per Share (`) 196.93 146.90
Dividend per Share (`) 95.00 77.50

Value creation during the decade has been Compounded Annual Growth Rate (CAGR) 12.3%in Earnings Per Share (EPS) and 7.8% in Dividend Per Share (DPS).

DIVIDEND AND TRANSFER TO GENERAL RESERVE

The Directors are pleased to recommend a dividend of `103/- per equity share of `10/-each on the paid up equity share capital of the Company for consideration and approval ofMembers at the ensuing Annual General Meeting (AGM). It is proposed to carry forward anamount of `3000 lakhs to General Reserve.

Pursuant to Regulation 43A of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 (hereinafter referred to as Listing Regulations) theCompany adopted a Dividend Distribution Policy in terms of the requirement which isannexed to this report as Annexure C. The Policy

is available on the Company's website athttp://www.vsthyd.com/i/Dividend-Distribution-Policy.pdf and 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 2020 was Rs 1544.19 lakhs. TheCompany 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.

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' Report anda separate MD&A is avoided and the entire material with Company's state of affairs isprovided in a composite and comprehensive document.

INDUSTRY STRUCTURE & DEVELOPMENT

In 2019-20 legal cigarette industry volumes were largely stable. However the industrycontinues to face taxation challenges. Industry witnessed another round of tax increase inthe Union Budget presented in February 2020.

Non duty-paid cigarettes have benefited from the large price distortion arising fromexponential tax hikes in the recent past adversely affecting legal players and governmentrevenues. Also harsher regulations such as selling restrictions and ban on sale of loosesticks in key large states continue to pose challenges.

COMPANY PERFORMANCE

In 2019-20 your Company recorded another year of impressive performance withsignificant growth in both volume and value terms. Performance of key trademarks andincreased geographic footprint have helped your Company to further bolster its marketposition. Your Company's new age brands especially ‘Total' have contributedsignificantly in increasing the overall volume base in existing and new markets. Heritagetrademarks such as Red Charms and Red Special continue to deliver a strong performance intheir respective geographies.

Your Company remains focused on developing and nurturing a vibrant brand portfoliobasis strong consumer insights appealing to various socioeconomic strata acrossgeographies. Your Company continues to further strengthen its position through continuedinvestments in distribution infrastructure and robust trade relationships.

The manufacturing operations of the Company had to be suspended between the later partof March 2020 and the second week of May 2020 due to the lockdown directives issued bythe State Government and were partially resumed with restricted capacity and manpower incompliance with the applicable guidelines.

Moving forward COVID-19 pandemic poses significant demand and supply challenges. YourCompany is closely monitoring developments across markets to effectively respond topotential disruptions and minimize impact. In all its initiatives safety of employeesremains your Company's foremost priority.

LEAF TOBACCO

Your Company's leaf function has registered a strong performance by procuring qualitytobaccos for own manufacturing in line with the increasing volumes. By leveraging itsexpertise in all varieties of tobaccos it continues its domestic sales in addition toexports.

The focus is on own development of new varieties and high nicotine tobaccos in view ofthe changing requirements of tobacco in domestic and in the international market withestablished customers.

In the backdrop of changing climatic conditions wherein farming community is unable torealize their investment in agriculture your Company continues to focus on farmers'interest to sustain the tobacco cultivation. This also has helped to develop backwardregions in the leaf growing areas.

It is satisfying to note that your Company's farmers continue to grow tobacco with thelowest pesticide residue levels and low TSNAs (Tobacco Specific Nitrosamines) that arewell within international standards.

As part of commitment to social and economic upliftment of the Companies' tobaccogrowing areas your Company is continuing the sponsorship of the initiatives like household toilets and solar street lighting with an aim to ensure higher standard of living ofthe farmers and their families.

PRODUCTION AND PLANT MODERNISATION

Your Company continues to give competitive edge to its products in the market place byoffering innovative products to consumers which have been well received. The focus at theplants has been to enhance capital efficiencies and cost optimization.

RESEARCH & DEVELOPMENT ACTIVITY

Your Company continued to focus on R&D activity by way of developing qualityblends with innovative filter variants for new brands which have been well accepted byconsumers in the market place.

The R&D lab of your Company received a "Certificate of continuation" ofISO 17025:2005 from NABL Quality Council of India Government of India for the year2019-20.

HUMAN RESOURCE DEVELOPMENT

Your Company recognizes people as the primary source of its competitiveness andcontinues its focus to attract and retain the best talent in an increasingly competitivemarket place. Our endeavor is to give utmost importance for people development initiativesthereby unleashing their potential and fulfill their aspirations. The year 2019-20 hasbeen quite significant for Human Resources where several initiatives were taken forward. Aseries of innovative talent development initiatives like web enabled learning managementdevelopment programs and capability building initiatives through development centers weretaken up. The belief that 'great performance culture creates great organizations' has beenat the core of the Company's approach to its people. Focused efforts are put in thisregard to empower individuals realize their potential.

Your Company continuously works on its engagement strategy initiatives at multiplelevels to motivate & engage the employees. This is reflected in the positive employeeengagement score which is at par with the best in class score in the Industry.

As on 31st March 2020 your Company's work force was 807 employees with 357Management staff and 450 Workmen.

Your Company has constituted an Internal Complaints Committee as per the SexualHarassment of Women at Workplace (Prevention Prohibition and Redressal) Act 2013 and theRules framed there under. No cases were filed during the year under the above Act.

ENVIRONMENT HEALTH & SAFETY (EHS) AND COMMUNITY SERVICES

448 employees and 105 contract workmen have undergone EHS training and 492 employeesand 108 Contract workmen have undergone fire fighting training. Mock drills were alsoconducted for workers and management during the period to comply with the Company's EHSguidelines.

Half-yearly and Annual EHS audits of the Company's operations were carried out toensure compliance of EHS requirements. ISO 14001:2015 & OHSAS 18001:2007 surveillanceaudit was held at Azamabad & Toopran premises by M/s. Rina India Pvt. Ltd. andreceived a continuation certificate for ISO 14001:2015 & OHSAS 18001:2007 for bothAzamabad & Toopran locations.

Your Company received "Green Factory Building Certification with Gold rating"for Toopran factory from CII-Indian Green Building Council Hyderabad.

Bio-Medical Waste Authorization was received for the Toopran factory from TelanganaState Pollution Control Board (TSPCB) for a period of 5 years - 2019 to 2024.

FINANCE a. Profits

The Profit after Tax of your Company for the year is Rs 304.09 crores. During the yearthe Company had a strong growth momentum in Profit before Tax by 19.8% in turn leading toa growth of Profit after Tax by 34.1% on account of reduction in corporate tax rateannounced by the Government of India. 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 tothe immediately previous financial year) in the key financial ratios of the Companyincluding those listed out and specified under Schedule V (B)(1)(i) read with Regulation34(3) and 53(f) of the Listing Regulations as amended. There has been a positive changeto the Return on Net worth by about 13 percentage points as compared to the previous yearprimarily due to improved performance of the Company and efficient utilization of theshareholder resources.

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 2012 to the Investor Education and Protection Fund (IEPF)established by the Central Government.

Further as per the provisions of the Investor Education and Protection Fund (Uploadingof Information regarding unpaid and unclaimed amounts lying with Companies) Rules 2012the Company has uploaded the details of unpaid and unclaimed amounts lying with theCompany as on 31st March 2019 on the website of the Company

(www.vsthyd.com) and also on the website of the Ministry of Corporate AffairsGovernment of India. The details of the dividend due for transfer to IEPF as on 31stMarch 2020 is given in the Report on Corporate Governance. The Company has completed theprocess of complying with the provisions of Section 124(6) of the Companies Act 2013 readwith the IEPF Authority (Accounting Audit Transfer and Refund) Rules 2016 and asamended by the Second Amendment Rules of 2017 by transferring 23392 shares (100shareholders) on 9th September 2019.

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 (hereinafter referred as ‘ListingRegulations') as amended. The status of unclaimed shares as on 31st March 2020 is givenin the Report on 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 finalized 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 five 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 improveeffectiveness of internal financial controls and processes which would help in efficientconduct of its business operations ensure security to its assets and timely preparationof reliable financial information.

The policies and procedures laid out by your Company capture the control environmentprevalent in the organization. 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 a comprehensive riskmitigation plan. The Audit Committee of your Board met four times during the year. Reviewof audit observations covering the operations consideration of accounts on a quarterlybasis and monitoring the implementation of audit recommendations were some of the keyareas which were dealt with by the Committee. The Statutory Auditors/ Internal Auditorswere invited to attend the Audit Committee Meetings and make presentations covering theirobservations on adequacy of internal financial controls and the steps required to bridgegaps if any. The Chief Financial Officer is a permanent invitee to the Audit Committeeand other executives of the Company are invited to address respond or provideclarifications to relevant issues 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. The Committeecomprises of Directors and Senior Management as its Members as prescribed under Regulation21 of the Listing Regulations as amended. The Company Secretary is the Secretary of theCommittee.

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 Company considers sensible risk taking andthereby proactive steps are taken to ensure that business is undertaken in an environmentwhich encourages a reasonable amount of risk taking and enables the Company to leveragemarket opportunities effectively. The Board is responsible for determining the nature andextent of the principal risks that your Company is willing to take to achieve itsstrategic objectives and for maintaining sound risk management system. With the support ofthe Audit Committee it carries out a review of the effectiveness of your Company's riskmanagement process covering all material risks including strategic financial operationaland also compliance 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 situations bothnationally and at a state level and of the competitors. The principal risks impacting yourCompany'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's ability tocommunicate with adult smokers and/or to meet consumer expectations through new/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 cigarettes or alternative tobacco products. Such risksare addressed by the company through: (a) engagement with tax authorities at levels whereappropriate; (b) regular management review to build a well laddered brand portfolio acrossnew segments including new brand creation; and (c) capability buildup through investmentsin distribution infrastructure to increase geographical 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 the Company'sbusiness operations. Such disruptions result in potential loss of assets and increasedcosts due to more complex supply chain arrangements and/or maintaining inefficientfacilities.

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 aremitigated through investment based on principle of Safety; Liquidity & Returns (SLR)and with institutions having strong short-term and long-term ratings assigned 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 this purposethe Company has put in place information technology policies and procedures which arereviewed regularly. Further information technology controls like data back-up mechanismdisaster recovery center authorization verification etc. have also been established.

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' program ofyour Company. In addition to construction of toilets the villages and the communities inthe area are also sensitized about the importance of health & sanitation. Over 970household toilets have already been constructed during the financial year and your Companyhas plans to extend it further to other houses in the same area and thereafter extend itto other areas. Your Company has taken up an initiative of supporting environmentsustainability by installing 300 solar street lights in 30 villages/towns inJogulamba-Gadwal and Wanaparthy districts of Telangana. In the field of Education yourCompany has under the project Gyandeep supported for the supply of 2361 nos. of desk cumbenches to 60 Government schools situated in Jogulamba-Gadwal Adilabad Medak and Jangaondistricts of Telangana.

Your Company has also partnered with M/s. Akshaya Patra foundation to serve mid-daymeals to over 5000 children covering over 129 schools present in and around Hyderabad.

Pursuant to the provisions of Section 135 and Schedule VII of the Companies Act 2013the Corporate Social Responsibility (CSR) Committee of the Board of Directors was formedto recommend the policy on Corporate Social Responsibility and monitor its implementation.The composition of the CSR Committee is given in the Annual Report on the CSR activities.The CSR policy is 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"Annexure B" 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 capitalization. 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 ofparticulars of contracts/arrangements entered into by your Company with related partiesis annexed herewith as "Annexure D" and forms 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 approved by theBoard. The Remuneration Policy and the criteria for determining qualification positionattributes and independence of a Director are stated in the Corporate Governance Report.The policy is also placed on the website of the Company and can be viewed athttp://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 Board and the Independent Directors in their exclusive Meeting as per thepolicy formulated by the Board in this regard. In addition the Independent Directors insuch Meeting also review their role functions and duties under the Companies Act 2013and the flow of information 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 the Company's‘Code of Conduct and Ethics Policy' which also provides for adequate safeguardagainst victimization of person who use such mechanism and there is a provision for directaccess to the chairman of the Audit Committee in appropriate/exceptional cases. Thedetails of the Whistle Blower Policy is given in the Corporate Governance Report and alsoposted on the Company's website at: www.vsthyd.com/ i/WhistleBlower Policy.pdf.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Directors retiring by rotation Mr. Naresh Kumar Sethi

Mr. Naresh Kumar Sethi [DIN:08296486] a nominee of the Raleigh Investment CompanyLimited a British American Tobacco group Company was appointed as a Director of theCompany with effect from 14th December 2018 whose office is subject to retirement byrotation. His appointment was approved by the Members at the Annual General Meeting heldon 28th August 2019. Pursuant to Article 93 of the Articles of Association of yourCompany Mr. Naresh Kumar Sethi is liable to retire from the Board and being eligibleoffers himself for re-election. Your Board recommends his reappointment.

Mr. Naresh Kumar Sethi is not a Director in any other Company in India. He is a Memberin CSR Committee Stakeholders Relationship Committee Risk Management Committee and theNomination & Remuneration Committee. Mr. Naresh Kumar Sethi does not hold any sharesin the Company and is not related to any other Director of the Company.

Independent Directors Ms. Rama Bijapurkar

At the Annual General Meeting of the Company held on 28th August 2019 the Membershave approved the appointment of Ms. Rama Bijapurkar as an Independent Director of theCompany in accordance with Section 149 of the Companies Act 2013 with effect from 1stApril 2019 to hold the office for a term of five consecutive years.

Mr. Sudip Bandyopadhyay

At the Annual General Meeting of the Company held on 28th August 2019 the Membershave approved the appointment of Mr. Sudip Bandyopadhyay as an Independent Director of theCompany in accordance with Section 149 of the Companies Act 2013 with effect from 1stJune 2019 to hold office for a term of five consecutive years.

Mr. Rajiv Gulati

At the Annual General Meeting of the Company held on 28th August 2019 the Membershave approved the appointment of Mr. Rajiv Gulati as an Independent Director of theCompany in accordance with Section 149 of the Companies Act 2013 with effect from 26thJuly 2019 to hold office for a term of five consecutive years.

Also the term of Ms. Mubeen Rafat an Independent Director of the Company who wasappointed for a period of 5 years from 12th August 2014 has come to an end during theyear. The Board of Directors placed on record their appreciation for the contributionsmade by Ms. Mubeen Rafat to your Company during her tenure as an Independent Director.

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 2020 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 Mr. Devraj Lahiri the Chief Financial Officer Mr. Anish Guptaand the Company Secretary Mr. Phani K. Mangipudi are the Key Managerial Personnel as perthe 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 have beenfollowed along with proper explanation relating to material departures if any; 2.appropriate accounting policies have been selected and applied consistently. Judgement andestimates which are reasonable and prudent have been made so as to give a true and fairview of the state of affairs of your Company as on 31st March 2020 and of the statementof profit and loss and cash flow of your Company for the period ended 31st March 2020;

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 internalfinancial controls have been laid down to be followed by your Company and such internalfinancial controls are adequate and were operating effectively; and 6. proper systems toensure compliance with the provisions of all applicable laws have been devised and suchsystems were adequate and operating effectively.

Criteria for selection and appointment of Directors

The Nomination and Remuneration Committee is responsible for identifying screeningrecommending 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 scrutinized 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 judiciallyscrutinized. In case of an internal candidate the senior management employee is alsoevaluated on the above criteria before being recommended for promotion as a Director.While considering reappointment of the Directors their performance evaluation report isconsidered.

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 Government of AP introduced levy of luxury tax on cigarettes and its virus waschallenged before the High Court of AP and before Supreme Court which was struck down. TheCommercial Tax department claimed that during pendency of the matter before the courtsbetween 1999-2005 your Company had collected luxury tax amounting to Rs 34.86 crores butnot paid to the Government. Your Company denied collecting luxury tax and the litigationon the same is now pending before the appellate authority of the Department and the HighCourt of Telangana.

ii. Entry Tax

Entry Tax levy by the States of Bihar West Bengal Jharkhand and Assam has beenchallenged before the respective State High Courts by your Company basis the directionsof the Hon'ble Supreme Court. Demand of interest on entry tax was challenged before theHigh Court of Allahabad and is pending adjudication.

iii. Excise

a. Wrapping Materials

The Excise department has issued show cause notices demanding payment of duty of Rs4.51 crores on the ground that Gay Wrappers (printed paper used for wrapping cigarettepackets) were manufactured and consumed by your Company without payment of duty during theperiod April 1996 to July 2015. Demand for the period till March 2002 has been adjudicatedand the CESTAT decided in favour of your Company. Department preferred an appeal beforethe Supreme Court which is pending. Demands for period after March 2002 till July 2015are yet to be adjudicated by the original authority.

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 to`14.52 crores. Demand for the period till October 2013 has been adjudicated and theCESTAT decided in favour of your Company. Department preferred an appeal before SupremeCourt which is pending. Demands for period after October 2013 till June 2017 are yet tobe adjudicated by 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) PIL filed in the Andhra Pradesh High Court (now Telangana High Court) against theCentral Government and the cigarette manufacturers including your Company seeking strictimplementation of Cigarettes and Other Tobacco Products (Prohibition of Advertisement AndRegulation of Trade and Commerce Production Supply and Distribution) Act 2003 (COTPAct) and applicable Rules has been dismissed as infructuous. Similarly another PIL filedbefore the High Court of Bombay seeking directions to prohibit insurance companies frominvesting in cigarette companies has been dismissed.

ii) Your Company has been impleaded in the petition filed in the Supreme Court by anNGO called ‘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 and saleof all forms of tobacco within the territory of India. This is being contested.

iii) Petitions have also been filed in other courts such as High Court of MadhyaPradesh - Jabalpur National Green Tribunal Delhi seeking ban on sale of cigarettes andbefore High Court of Madhya Pradesh-Indore Bench seeking directions to mention tar andnicotine content 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 REGULATIONOF TRADE AND COMMERCE PRODUCTION 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 2009 werefurther revised and the pictorial warning covering 85% of the front and back side of thepackets was implemented w.e.f. 1st April 2016 and is being duly complied with by yourCompany.

ii. Your Company had also filed a writ petition in the Hon'ble High Court of AndhraPradesh challenging The Cigarettes and Other Tobacco Products (Packaging & Labelling)Rules 2006 and the Amendment Rules 2008 on the grounds inter alia that they are ultravires of COTPA and therefore the notifications issued there under (including those seekingimplementation of graphic health warnings) should be quashed. The said writ petition hasbeen admitted but no interim orders were passed by the Hon'ble Court.

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 warning on bothsides of the pack occupying 85% of space. The 85% health warning came into effect from 1stApril 2016. Your Company also filed a Writ Petition before the High Court bench atDharwad against the implementation of 85% health warning. The Hon'ble Supreme Court onhearing a PIL filed by Health for Millions constituted a Bench before the Karnataka HighCourt to hear all the matters relating to graphical health warning.

The Writ Petitions filed by TII and your Company were heard before the Bangalore Benchand it was held on 15th December 2017 that the amendment made to the Packaging Rulesimposing 85% graphic health warning is ultra vires the Constitution. Against the saidJudgment an appeal was filed by the Ministry of Health before the Supreme Court. A stayhas been granted on the said judgement and is pending before the Supreme Court.

REAL ESTATE

The Government of Andhra Pradesh had filed a land grabbing case against your Company in1991 in relation to a piece and parcel of vacant land which has been under possession andoccupation by your Company for over four decades. By its judgment dated 28th July 2010the Special Court had held that your Company is not a land grabber but had given the StateGovernment the right to initiate proceedings to recover possession of the land at somefuture date. Against this part of the judgement your Company filed a writ petition beforethe then Hon'ble High Court of Andhra Pradesh to expunge that part of the Order givingsuch liberty to the Department despite the fact that your Company has already beendeclared not to be a land grabber. The writ petition is still pending. The StateGovernment has also filed a writ petition in the Hon'ble High Court of Andhra Pradeshseeking to set aside the said judgment of the Land Grabbing Court. An interim Order waspassed restraining your Company from changing the status of the land or creating any thirdparty interest therein. Your Company is taking all the necessary steps for speedy disposalof 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 Court passed ajudgment stating that your Company is not a land grabber. After 7 years the Government ofTelangana filed an appeal before the Hon'ble High Court of Telangana and Andhra Pradeshseeking a direction from the court that the nature of the land not to be altered and nothird party interest to be created. Your Company filed a counter and vacate stayapplication seeking permission to construct on the said land. Judgment was pronounced onthe vacate stay petition allowing your Company to construct but with certain conditions.The State Government preferred an appeal before the Supreme Court which was dismissed.

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"Annexure E" and forms part of this Report. The statement containing particularsof employees 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 inspection bythe Members at the Registered Office of the Company during business hours on working daysof 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) Rules 2014 an extract of Annual Return in Form MGT-9 isannexed as "Annexure F" and forms part of this Report.

A duly certified and filed copy of the annual return for the financial year 2019-20will be made available on the website of the Company at www.vsthyd.com after the ensuingAnnual General Meeting.

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. BS R & Associates LLP Chartered Accountants were appointed as the Statutory Auditorsof the Company to hold office from the conclusion of the 85th AGM to the conclusion of the90th AGM. This was subject to the ratification at every AGM during the aforementioned termof their appointment. However the requirement of annual ratification has been dispensedwith under the Companies (Amendment) Act 2017 which has been notified on 7th May 2018.The Report given by the Auditors on the financial statements of the Company is part of theAnnual Report. There has been no qualification reservation or adverse remark in theirReport. During the year under review the Auditors have not reported any matter underSection 143(12) of the Companies Act 2013 and hence no detail is required to bedisclosed under Section 134(3)(ca) of the Companies Act 2013.

Secretarial Auditor

Pursuant to the provisions of Section 204 of the Companies Act 2013 and Rule 9 of theCompanies (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 2019-20. The Secretarial Audit Report is annexed herewith as "AnnexureG" 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 H" 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 2020 your Company does not have any deposits for the purpose of its businesshence details 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 ofutilization of such funds does not arise.

DEBENTURE TRUSTEES

Your Company does not have any debentures and as a result creation of debenturetrustees does not arise.

THE FUTURE

Despite adverse market conditions your Company is well placed to exploit opportunitiesthrough innovative new brand launches coupled with expansion of operational areas.

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 21st day of May 2020
Azamabad Hyderabad - 500 020.