Rating Rationale
May 14, 2025 | Mumbai
VST Industries Limited
Ratings reaffirmed at 'Crisil AA+/Stable/Crisil A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.85 Crore
Short Term RatingCrisil A1+ (Reaffirmed)
 
Fixed DepositsCrisil AA+/Stable (Reaffirmed)
Rs.15 Crore Non Convertible DebenturesCrisil AA+/Stable (Reaffirmed)
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AA+/Stable' rating on the non-convertible debentures (NCDs) and fixed deposit programme of VST Industries Ltd (VST) and has reaffirmed its ‘Crisil A1+’ rating on the short-term bank facility of the company.

 

The ratings continue to reflect the strong financial risk profile and established market position of VST. These strengths are partially offset by its small market share, regional concentration in revenue, moderation in operating profitability and susceptibility to regulatory changes in the tobacco industry.

 

Revenues (net of excise) for fiscal 2025 remained flat at Rs 1398 crores as against Rs 1402 crores in fiscal 2024 driven by higher demand for unmanufactured tobacco amid global tobacco shortage. Cigarette sales have degrown (64% of overall revenues) owing to decline in demand for low priced cigarettes (below Rs 10). Operating margins moderated to 20.0% in fiscal 2025 from 24.9%in fiscal 2024 mainly due to higher share of low margin tobacco segment and increased tobacco crop prices.

 

Over the near term, Crisil Ratings expects the operating margins are expected to remain at 20-21% due to elevated tobacco prices while the revenues are expected to grow at 4-5% driven by unmanufactured tobacco sales. The financial risk profile will remains strong, driven by the company’s debt-free status and superior liquidity.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of VST.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong financial risk profile: The financial risk profile is healthy, supported by strong capital structure (debt-free status since 2003), steady cash accrual and superior liquidity. Healthy portfolio of investments (mainly in debt mutual funds) and cash and bank balance of  Rs 549 crore as on March 31, 2025, support liquidity.

 

  • Established market position with reputed brands: VST is an established player in the cigarette industry with over eight decades of operations. The company is the third-largest player in the domestic market with significant presence in West Bengal, Andhra Pradesh, Telangana, Bihar and Uttar Pradesh. It has a vast portfolio of reputed brands such as Charminar, Charms, Special, Moments and Total in the 64 millimetre (mm) and 69 mm segments. It has entered the 84 mm segment with its brand, Editions and TotalStrong brand loyalty and adequate pricing power will continue to support the business risk profile over the medium term. The company has launched Editions Trio to drive its cigarette sales in high value category.

 

Weaknesses:

  • Small market share and regional concentration in revenue: Though the company is the third-largest player in the domestic cigarette market, in terms of volume, it has a market share of around 7%. Operations have been concentrated in south and east India though the company has improved its market reach in Uttar Pradesh and Delhi. To gain additional market share and widen its geographical presence, VST has entered markets such as Gujarat, Maharashtra and Karnataka.

 

  • Moderation in operating profitability: The operating profitability of VST has moderated to 20% in fiscal 2025, from 25.3% in the previous year due to increased share of low-margin unmanufactured tobacco to 30-35% of overall revenues in fiscal 2025, up from 18-20% fiscal 2022.               This, combined with rising tobacco costs and limited pricing power in the low-value cigarette market, has pressured profitability. As a result, operating margins have moderated to around 20% in FY25, down from 24.5% in the previous year. However, with launch of new brand, the company is focusing on growth of cigarette business to improve profitability.

 

  • Susceptibility to regulatory changes: The cigarette industry remains highly vulnerable to changes in government policies and regulations. An elevated tax structure on one hand and curbs on promotion, consumption and packaging of cigarettes on the other hand constrain growth.

Liquidity: Strong

Liquid investments, including cash and equivalent, stood at Rs 549 crore as on March 31, 2025. Cash accrual and liquid investments will remain adequate over the medium term. Modest capital expenditure (capex) of Rs 180-200 crore over the next fiscal and absence of debt further aids liquidity.

 

ESG profile

Crisil Ratings believes the environment, social and governance (ESG) profile of VST supports its already strong credit risk profile.

 

The tobacco sector has a high environmental impact because of its raw material sourcing strategies and waste-intensive processes. It also has a high social impact owing to health hazards associated with the use of tobacco, including smoking addiction and underage consumption, as well as risk of government intervention by way of restriction on sales, regulation of marketing practices and higher tax.

 

The company’s strong focus on addressing some of these ESG risks supports its already strong credit risk profile.

 

Key ESG highlights:

-          VST aims to 50% renewable energy in overall energy mix by fiscal 2030

-          The company aims to operate 100% of its fleet (owned and third-party) on electric vehicles by 2030, as part of its Roadmap 2030 targets.

-      Going forward, it plans to provide inclusiveness training to management staff to promote a work environment free from discrimination, sexual harassment and undue biases in compensation, training and employee benefits.

-          Its governance structure is characterised by half of its Board comprising independent directors, split in chairman and CEO positions and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. Crisil Ratings believe that VST’s commitment to ESG will play a key role in enhancing stakeholder confidence, given high shareholding by foreign portfolio investors.

Outlook: Stable

Crisil Ratings believes VST will sustain its credit risk profile driven by strong financial risk profile and stable business risk profile.

Rating sensitivity factors

Upward factors:

  • Sustained and material improvement in market share to over 25%
  • Significant improvement in networth, along with stable operating margin and sustenance of strong financial risk profile

 

Downward factors:

  • Substantial decline in market share to below 7%
  • Weakening of business risk profile due to decline in operating profitability.
  • Weakening of the financial risk profile because of diversification into unrelated businesses, involving significant capex or considerable decline in cash and liquid investments.
  • Any adverse regulatory change in the cigarette industry

About the Company

Based in Hyderabad, VST manufactures and markets cigarettes and trades in unmanufactured tobacco. The company is an associate of British American Tobacco Plc (rated 'BBB+/Negative/A-2' by S&P Global Ratings), which holds 32.2% stake.

Key Financial Indicators

As on/for the period ended March 31

Units

2025^

2024

Operating income

Rs crore

1398

1403

Profit after tax (PAT)

Rs crore

290

302

PAT margin

%

20.8

21.5

Adjusted debt/adjusted networth

Times

NA

NA

Interest coverage

Times

NA

NA

 ^Basis provisional financials

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
Crisil Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Complexity Levels Rating Outstanding with Outlook
NA Non Convertible Debentures# NA NA NA 15.00 Simple Crisil AA+/Stable
NA Working Capital Facility& NA NA NA 85.00 NA Crisil A1+
NA Fixed deposits NA NA NA 0 Simple Crisil AA+/Stable

# -Yet to be issued
& - Interchangeble with non fund based limits

Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST 85.0 Crisil A1+   -- 14-05-24 Crisil A1+ 16-05-23 Crisil A1+   -- --
Non-Fund Based Facilities ST   --   --   --   -- 21-06-22 Crisil A1+ Crisil A1+
      --   --   --   -- 17-05-22 Crisil A1+ --
      --   --   --   -- 28-03-22 Crisil A1+ --
Fixed Deposits LT 0.0 Crisil AA+/Stable   -- 14-05-24 Crisil AA+/Stable 16-05-23 Crisil AA+/Stable 21-06-22 Crisil AA+/Stable F AAA/Stable
      --   --   --   -- 17-05-22 F AAA/Stable --
      --   --   --   -- 28-03-22 F AAA/Stable --
Non Convertible Debentures LT 15.0 Crisil AA+/Stable   -- 14-05-24 Crisil AA+/Stable 16-05-23 Crisil AA+/Stable 21-06-22 Crisil AA+/Stable Crisil AA+/Stable
      --   --   --   -- 17-05-22 Crisil AA+/Stable --
      --   --   --   -- 28-03-22 Crisil AA+/Stable --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Working Capital Facility& 20 Standard Chartered Bank Crisil A1+
Working Capital Facility& 20 ICICI Bank Limited Crisil A1+
Working Capital Facility& 20 HDFC Bank Limited Crisil A1+
Working Capital Facility& 25 Standard Chartered Bank Crisil A1+
& - Interchangeble with non fund based limits
Criteria Details
Links to related criteria
Basics of Ratings (including default recognition, assessing information adequacy)
Criteria for manufacturing, trading and corporate services sector (including approach for financial ratios)

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