Rating Rationale
May 17, 2019 | Mumbai
VST Industries Limited
Ratings Reaffirmed 
 
Rating Action
Total Bank Loan Facilities Rated Rs.60 Crore
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.15 Crore Non Convertible Debentures CRISIL AA+/Stable (Reaffirmed)
Fixed Deposits  FAAA/Stable (Reaffirmed) 
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA+/FAAA/Stable/CRISIL A1+' ratings on the non-convertible debentures, fixed deposit programme and short-term bank facility of VST Industries Limited (VST).
 
The ratings continue to reflect VST's strong financial risk profile and established market position. These strengths are partially offset by the small market share, regional concentration in revenue, and susceptibility to regulatory changes in the tobacco industry.

Key Rating Drivers & Detailed Description
Strengths
* Strong financial risk profile

Financial risk profile is driven by a strong capital structure (debt-free status since 2003), steady cash accrual, and adequate liquidity. Healthy portfolio of investments (mainly in debt mutual funds) and cash of Rs 573 crore (includes around Rs 200 crore as Goods and Services Tax [GST] payable) as on March 31, 2019, supports liquidity. Operating margin was healthy at 32% for fiscal 2019.

* Established market position with reputed brands
Backed by over eight decades of presence, VST is an established player in the cigarette industry. It is the third largest player in the Indian cigarette market, with significant presence in West Bengal, Andhra Pradesh, Telangana, Bihar, and Uttar Pradesh. The company has a portfolio of reputed brands such as Charminar, Charms, Special, Moments, Total and Editions in the 64 millimetre (mm) and 69 mm segments. It has also entered the 84 mm segment with its brand, Editions. Strong brand loyalty and adequate pricing power will continue to support the business risk profile in the medium term.

Weaknesses
* Small market share and regional concentration in revenue

Though VST is the third-largest player in the Indian cigarette market, it has a small market share of over 9% in terms of volume. Operations remain concentrated in southern and eastern India, despite significant increase in market reach in northern states such as Uttar Pradesh. To improve its market share and increase geographical diversity, VST has also entered into new geographies such as Punjab and Central India.

* Susceptibility to adverse changes in regulations
The cigarette industry continues to be highly vulnerable to change in government policies and regulations. On one hand, the industry faces a high tax structure, and on the other hand, there are limitations on promotion, consumption, and packaging of cigarettes, constraining overall growth.
Liquidity

Liquidity is likely to remain adequate over the medium term. Cash accrual is expected at over Rs 80 crore each in fiscals 2020 and 2021, and cash and cash equivalents were around Rs 573 crore (includes around Rs 200 crore as GST payable) as on March 31, 2019. The company has zero debt and no major capex plan.

Outlook: Stable

CRISIL believes VST will sustain its credit risk profile, driven by a strong financial risk profile and stable business position.

Upside scenarios
* Sustained and material improvement in market share and networth, along with stable operating margin and continued strong financial risk profile

Downside scenarios
* Weakening of financial risk profile because of diversification into unrelated businesses, involving significant capital expenditure (capex)
* Significant weakening

About the Company

VST is an associate of British American Tobacco Plc (rated 'BBB+/Stable/A-2' by S&P Global), which holds a 32.2% stake in VST. The company is mainly engaged in manufacturing and marketing of cigarettes, and trading of unmanufactured tobacco.

Key Financial Indicators
As on / for the period ended March 31, Units 2019 2018
Operating income Rs crore 1099 1031
Profit after tax (PAT) Rs crore 227 182
PAT margin % 20.6 17.6
Adjusted debt/adjusted networth Times NA NA
Interest coverage Times NA NA

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. 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 Cr) Rating Assigned with Outlook
NA Letter of credit & Bank Guarantee NA NA NA 60 CRISIL A1+
NA Fixed Deposits NA NA NA 0 FAAA/Stable
NA Non-Convertible Debentures* NA NA NA 15 CRISIL AA+/Stable
*Yet to be issued
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD  0.00  FAAA/Stable      17-05-18  FAAA/Stable  30-05-17  FAAA/Stable  25-05-16  FAAA/Stable  FAAA/Stable 
Non Convertible Debentures  LT  0.00
17-05-19 
CRISIL AA+/Stable      17-05-18  CRISIL AA+/Stable  30-05-17  CRISIL AA+/Stable  25-05-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
Non Fund-based Bank Facilities  LT/ST  60.00  CRISIL A1+      17-05-18  CRISIL A1+  30-05-17  CRISIL A1+  25-05-16  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Letter of credit & Bank Guarantee 60 CRISIL A1+ Letter of credit & Bank Guarantee 60 CRISIL A1+
Total 60 -- Total 60 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fast Moving Consumer Goods Industry
Criteria for notching down standalone ratings of companies based on support extended to parent
Mapping global scale ratings onto CRISIL scale

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com


Gautam Shahi
Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
gautam.shahi@crisil.com


Digvijay Rathore
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3256
Digvijay.Rathore@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL