INTRODUCTION

TOBACCO IN INDIA

AN INTRODUCTORY NOTE

Tobacco is a principal cash crop of National importance. It has been

playing a prominent role in the development of Nation's Economy. Although the

cultivation of Tobacco is restricted to 0.3% of the total cultivated area, it provides

employment to large number of people on the one hand. On the other hand, it

makes significant contribution to National Exchequer by way of excise revenue

and foreign exchange earnings. Tobacco being a labor intensive crop provides

employment to more than 60 lacks people who are engaged in the farming curing,

refrying, packaging, grading, manufacturing distribution, export and retailing

activities. The bide industry which provides employment to around 44.00 lacks

essentially unskilled rural folks mostly women is also arresting the influx of rural

labor to urban centers.

Although there is nationwide anti-Tobacco campaign, the commercial

importance of Tobacco can never be underestimated due to the revenue earning

potentiality and employment generation capacity of the crop. Presently there is a

call for substitution of Tobacco with other crops, but the research findings show

that there is no economically viable alternative crop which is as remunerative as

Tobacco to the farmer. Table showing net return from Tobacco and next best

crop in some of the Tobacco growing state is detailed below:-

Differences in Net Returns from Tobacco and Next Best Crop

(Rupees per hectare)

StateCrop Giving Next

Best Returns (I)

Differences in Net Returns

Between Tobacco and (I)

Andhra Pradesh

(Northern Black Soils)Bengal gram 4405

Andhra Pradesh

(Southern Black Soils)Chilies 875

Karnataka Cotton 4500

Gujarat Pearl millet 2306

Bihar Maize+ Potato 2729

West Bengal Potato 5134

Tamil Nadu Groundnut 2825

Source: Central Tobacco Research Institute

Botanically, the Tobacco plant belongs to the family Solanacea and genus

Nicotine. The genus embraces over 60species of which two alone are

cultivated. India grows both the cultivated species, viz. Nicotine abacus and

Nicotine rustic the largest area is under Nicotine tobacco which is grown all

over the country where as Nicotine rustic is confined to North and North

Eastern States i.e. Uttar Pradesh, Bihar, West Bengal and Assam.

About 5 to 6 per cent of the total area under Tobacco is amounted for

Nicotine rustic varieties. The cultivation of Nicotine tobacco has country-

wise spread and this type also amounts for more than 80% of the exchange

earnings.

Specific types and varieties of Tobacco have been developed for use in

cigarette, bids, cigar, cheroot, hookah, chewing, snuff and hookah paste.

Rustic types are used in chewing and snuff whereas tobacco types are used

for all purposes.

Even though the cultivation of Tobacco is spread all over the country, the

commercial cultivation of Tobacco is concentrated in States like Andhra Pradesh,

Karnataka, Gujarat, Maharashtra, Bihar, Thamilnadu and West Bengal etc.

Cigarette Tobacco is mostly cultivated in Andhra and Karnataka, whereas bids

Tobacco is grown in Gujarat, Karnataka and Maharashtra. Cigar and Cheroot

Tobacco are also grown in Tamilnadu, Andhra Pradesh and West Bengal and

Chewing Tobacco is grown in Tamilnadu, Gujarat, Bihar, West Bengal and U.P.

Hookah Tobacco is grown in UP, and West Bengal.

The total area and production of Tobacco in India for the year 2007-08 were

463.5 thousand ha. And 646 million kgs, respectively.

The Indian tobacco industry

India is the second largest producer of tobacco in the world after China. It

produced 572 m kgs of tobacco in FY03. However, India holds a meager 0.7%

share of the US$ 30 bn global trade in tobacco, with cigarettes accounting for 85%

of the country's total tobacco exports.

Despite being the second largest producer, India is only the ninth largest exporter of

tobacco and tobacco products in the world. Out of the total tobacco produced in India, only one-

third is flue-cured tobacco suitable for cigarette manufacturing. Most of the tobacco produce is

suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which

have no demand outside the country. In India, three major cigarette players dominate the market,

primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the

market.

HISTORY OF TOBACCOI NINDIA

Tobacco was first brought to India by Portuguese merchants 400 years ago.

Although there were already some strains of locally-grown tobacco in India these

were outclassed by the new imported varieties from Brazil.

The trade boomed and tobacco quickly established itself as the most

important commodity passing through Goa in the 17th century.

Virtually every household in the Portuguese colony took up the new fashion of

smoking or chewing tobacco.

Later on the British introduced modern commercially-produced cigarettes.

Tobacco had already long been used in the Americas by the time European

settlers arrived and introduced the practice to Europe, where it became popular. At

high doses, tobacco can become hallucinogenic accordingly; Native Americans did not

always use the drug recreationally. Instead, it was often consumed as an entheogen;

among some tribes, this was done only by experienced shamans or medicine men

Eastern North American tribes would carry large amounts of tobacco in pouches as

a readily accepted trade item and would often smoke it in pipes, either in defined

ceremonies that were considered sacred, or to seal a bargain, and they would

smoke it at such occasions in all stages of life, even in childhood. It was believed

that tobacco was a gift from the Creator and that the exhaled tobacco smoke was

capable of carrying one's thoughts and prayers to heaven.

Apart from smoking, tobacco had a number of uses as medicine. As a pain

killer it was used for earache and toothache and occasionally as a poultice.

Smoking was said by the desert Indians to be a cure for colds, especially if the

tobacco was mixed with the leaves of the small Desert Sage, Salvia Dorrii, or the

root of Indian Balsam or Cough Root, Leptotaenia multifida, the addition of which

was thought to be particularly good for asthma and tuberculosis.

Origin of tobacco :

India is the third largest producer of tobacco in the world after China and USA.

Though it occupies a mere 0.25 per cent of the cropped area in the country, it

contributed Rs. 507 crores to the foreign exchange earnings and Rs. 3200 crores to

the exchequer by way of central excise during 1992-93. Further, it provides

employment to millions of people both directly and indirectly. Despite playing

such a vital role in the economy the industry faces many constraints for its

development. Increasing productivity, improving the quality, better marketing

practices of non Virginia tobacco and a more rational excise policy on cigarettes

would help the growth of the industry as well as meet the challenges of the future

. Tobacco has a long history from its usages in the early Americas. It became

increasingly popular with the arrival of the Europeans in which it was heavily

traded. Following the industrial revolution, cigarettes became popularized, which

fostered yet another unparalleled increase in growth. This remained so until the

scientific revelations in the mid-1990s.

India is the second largest producer of tobacco in the world after China. It

produced 572 m kegs of tobacco in FY03. However, India holds a meager 0.7%

share of the US$ 30 ban global trade in tobacco, with cigarettes accounting for

85% of the country's total tobacco exports.

Despite being the second largest producer, India is only the ninth largest

exporter of tobacco and tobacco products in the world. Out of the total tobacco

produced in India, only one-third is flue-cured tobacco suitable for cigarette

manufacturing. Most of the tobacco produce is suitable for the manufacture of

chewing tobacco, bidis and other cheap tobacco products, which have no demand

outside the country. In India, three major cigarette players dominate the market,

primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with

8% share of the market

Growth and popularization

Following the arrival of Europeans, tobacco became one of the primary products

fueling colonization, and also became a driving factor in the incorporation of African

slave labor.

The Spanish introduced tobacco to Europeans in about 1518, and by 1523,

Diego Columbus mentioned a tobacco merchant of Lisbon in his will, showing how

quickly the traffic had sprung up. Nicot, French ambassador in Lisbon, sent

samples to Paris in 1559. The French, Spanish, and Portuguese initially referred to

the plant as the "sacred herb" because of its valuable medicinal properties.

In 1571, A Spanish doctor named Nicolas Monardes wrote a book about the

history of medicinal plants of the new world. In this he claimed that tobacco could

cure 36 health problems. Sir Francis Drake is credited with taking the first "Virginia"

tobacco to Europe, referring to it as tobah as early as 1578.

The importation of tobacco into Europe was not without resistance and

controversy in the 17th century. Stuart King James I wrote a famous polemic titled A

Counterblaste to Tobacco in 1604, in which the king denounced tobacco use

as "custome lothsome to the eye, hatefull to the Nose, harmefull to the braine,

dangerous to the Lungs, and in the blacke stinking fume thereof, neerest

resembling the horrible Stigian smoke of the pit that is bottomelesse." In that same year,

an English statute was enacted that placed a heavy protective tariff on every pound of

tobacco brought into England.

In 1609, John Rolfe arrived at the Jamestown Settlement in Virginia, and is credited as

the first settler to have successfully raised tobacco (commonly referred to at that

time as "brown gold") for commercial use. The tobacco raised in Virginia at that

time, Nicotiana rustica did not suit European tastes, but Rolfe raised a more

popular variety, Nicotiana tabacum, from seeds brought with him from Bermuda

Tobacco was used as currency by the Virginia settlers for years, and Rolfe was able

to make his fortune in farming it for export at Varina Farms Plantation. When he left for

England with his wife, Pocahontas a daughter of Chief Powhatan, he had become wealthy.

Returning to Jamestown, following Pocahontas' death in England, Rolfe continued

in his efforts to improve the quality of commercial tobacco, and, by 1620,

40,000 pounds (18,000 kg) pounds of tobacco were shipped to England. By the

time John Rolfe died in 1622, Jamestown was thriving as a producer of tobacco,

and its population had topped 4,000. Tobacco led to the importation of the colony's

first black slaves in 1619. In the year 1616, 2,500 pounds (1,100 kg) of tobacco were

produced in Jamestown, Virginia, quickly rising up to 119,000 pounds (54,000 kg) in

1620 Throughout the 17th and 18th centuries, tobacco continued to be the cash crop

of the Virginia Colony, as well as The Carolinas. Large tobacco warehouses filled the areas

near the wharves of new, thriving towns such as Dumfries on the Potomac, Richmond and

Manchester at the fall line (head of navigation) on the James, and Petersburg on the Appomattox.

A historian of the American South in the late 1860s reported on typical usage in

the region where it was grown:

The chewing of tobacco was well-nigh universal. This habit had been

widespread among the agricultural population of America both North and South

before the war. Soldiers had found the quid a solace in the field and continued to

revolve it in their mouths upon returning to their homes. Out of doors where his

life was principally led the chewer spat upon his lands without offence to other

men, and his homes and public buildings were supplied with spittoons. Brown and

yellow parabolas were projected to right and left toward these receivers, but very

often without the careful aim which made for clean living. Even the pews of

fashionable churches were likely to contain these familiar conveniences. The large

numbers of Southern men, and these were of the better class (officers in the

Confederate army and planters, worth $20,000 or more, and barred from general

amnesty) who presented themselves for the pardon of President Johnson, while

they sat awaiting his pleasure in the ante-room at the White House, covered its

floor with pools and rivulets of their spittle. An observant traveller in the South in

1865 said that in his belief seven-tenths of all persons above the age of twelve

years, both male and female, used tobacco in some form. Women could be seen at

the doors of their cabins in their bare feet, in their dirty one-piece cotton garments,

their chairs tipped back, smoking pipes made of corn cobs into which were fitted

reed stems or goose quills. Boys of eight or nine years of age and

Present situation of tobacco industry in India:

India is the third largest producer and eighth largest exporter of tobacco and

tobacco products in the world. Asia and America, together account for 75% of

world's production of tobacco. China, USA and India are the three leading tobacco-

producing nations in the world.

Cigarettes account for 85% of the country's total tobacco exports.

The (almost a century old, 1910) Indian Tobacco Company is the market

leader. Its wide range of invaluable brands includes Insignia, India Kings, Classic,

Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake.

These ITC Cigarettes in India have a huge sale ratio.

Other Tobacco Companies include GPI (Godfrey Phillips India) Kanhayya

Tobacco Company, M.R Tobacco, Sapna Enterprises and Sudarshan Tobacco.

Of the total amount of tobacco produced in the country, around 48% is in the

form of chewing tobacco, 38% as bidis, and only 14% as cigarettes.

The Tobacco Industry provides livelihoods to over six million farmers and

20 million industry workers and contributes over 70 billion rupees to government

earnings.

There are 14 cigarette manufacturing companies in India, located mainly in

Guntur and cities like, Chennai among others.

Tobacco is consumed in two ways, either by smoking or chewing. While smoking

the following tobacco products are consumed: Cigarette, Cigar, Bidi (Hand rolled,

leaf wrapped country cigarettes) and to chew the products are: Raw tobacco,

Supari (Arecanut), Gutkha, Pan Parag etc.. Due to diverse climatic conditions

every type of tobacco is grown in India. Almost 90% of area is accounted for by

Nicotine tobacem, and 10% by Nicotina Restica. Only one third of the tobacco

output in the country is Flue cured Virginia (FCV) variety, suitable for cigarette

manufacturing.

There are seven major categories of tobacco, Viz. Flue cured Virginia tobacco

(FCV), Burley, Oriental, Bark flue cured, Sun cured, Light flue cured cigar and

Dark Flue cured Virginia tobacco is mainly used for manufacture of cigarettes.

Light air cured tobacco is used in the manufacture of bidis. Unmanufactured

tobacco is also consumed in India, for chewing purpose.

Tobacco Industry in India contributes in a unique manner to several

important facets of the Indian Economy, covering revenue, export, employment,

and GDP growth. The Tobacco industry in India mainly covers manufacturing of

cigarette, bidi, cigar and cheroot, hookah, snuff and other chewing Tobacco

likezarda, gutkha and other pan masala. 

Cigarette industry in India is essentially capital intensive in nature. The

growth of cigarette industry both in domestic and international market represents

a big revenue opportunity for the economy. But the burden of Tobacco tax has

increasingly shifted to cigarette with the removal of duty on raw Tobacco since

1979, resulting in discriminatory rates of duty compared to other Tobacco

products. 

India's share in world cigarette production has remained at around 1.7%

whereas India's exports of around 2.8 billion sticks of cigarette per year amounts

for less than 1% of the world export of cigarette.

Introduction of tobacco industry in AP :

Thankfully, the commitment of Andhra Pradesh state-capital’s Medical and Health

Officer Ms Jaya Kumari to enforce smoke-free policies and that of Union Health

and Family Welfare Minister Dr Anbumani Ramadoss is indeed unprecedented.

Smoking in public places will be banned from 2 October 2008 in compliance

with the rulings of The Cigarettes and Other Tobacco Products (Prohibition of

Advertisement and Regulation of Trade and Commerce, Production Supply and

Distribution) Act, 2003.

However a recent walk around in city of nawabs - Hyderabad - makes me

wonder if the city is geared to enforce this public health policy. Walking around A

bids - one of the most happening streets in Hyderabad, one can clearly see tobacco

retail shops within 100 meters of educational institutions, people were smoking on

the banks of the Hussain Sagar Lake in Hyderabad when I went for morning walk,

the auto-rickshaw driver was smoking, and to top it all, while having dinner at a

restaurant, the waiter approached me if I will like to have a hookah!

The Bombay Municipal Corporation (BMC) in compliance with court

orders, are coming down heavily on hookah parlours to enforce smoke-free air

policies. Hyderabad Metropolitan Development Authority (HMDA) has something

to learn here!

Also while walking around in Golconda fort, I found quite a few instances

where people were having a puff - however the city’s Medical and Health officer

Ms Jaya Kumari says smoking will be banned from 2 October in monuments as

well. With less than two weeks left to enforce the ban, I am wondering how this

rapid transformation will be implemented?

The repeated delay, at times weakening, and postponing the implementation

of public health policies in India, particularly the provisions of the Cigarettes and

Other Tobacco Products Act, 2003, mustn’t occur again. With two weeks to go

before India enforces ban on smoking in public places from 2 October 2008, and

few more weeks to go before mandatory pictorial warnings on tobacco products

from 30 November 2008 get enforced, it is high time to prepare ourselves to

contribute effectively in the implementation of these health policies

At the launch of the 3rd edition of the “Global Tobacco Treaty Action Guide

2008: Protecting against Tobacco Industry Interference” in Hyderabad on

Saturday, 20 September 2008, it is clear that the tobacco giants have disqualified

themselves from participating in the development of public health policy.

Worldwide release of the Global Tobacco Treaty Action Guide is a centerpiece of

this year’s 9th International Week of Resistance (IWR) to Tobacco Transnationals

(22-28 September 2008).

The Global Tobacco Treaty Action Guide 2008 is produced by Corporate

Accountability International [which is in official relations with the World Health

Organization (WHO)], along with the Network for Accountability of Tobacco

Transnationals (NATT).

For years the tobacco industry has operated with the express intention of

subverting public health policies. If the tobacco giants were truly serious about

saving lives, they would back off and let governments swiftly, fully implement the

public health policies, including the national health policies and also the

Framework Convention on Tobacco Control (FCTC) – the first global corporate

accountability and public health treaty. India, along with more than 150 countries,

has ratified the global tobacco treaty (FCTC). The WHO estimates that broad

implementation of the treaty could save 200 million lives by 2050.

In July 2007, at the second implementation and enforcement meeting on the

FCTC, parties took the courageous step of initiating the development of guidelines

on the implementation of Article 5.3 of the FCTC. These guidelines will help

governments anticipate and thwart attempts by the vested commercial interests of

the tobacco industry to undermine the implementation of the tobacco control

policies.

Tobacco kills 5.4 million people around the world each year. Tobacco is a

risk factor in six of the eight leading causes of death worldwide. The death toll is

projected to rise to eight million a year by 2030, with 80 percent of those deaths

occurring in developing countries. If current trends are not reversed, tobacco will

claim one billion lives this century.

History of Tobacco Regulation IN AP:

The big question is how the Federal government plans to proceed. Six tobacco bills

are now pending in Congress. One of these bills would give the Federal Trade

Commission authority to set maximum permissible limits on tar and nicotine.

Another would establish a graduated cigarette tax based on tar content.

The FTC is presently carrying on negotiations with the industry to come up

with a "clear and conspicuous" health warning for its print advertising. It is

expected that the industry, " which has been working closely with the FTC 'will'

take some 'voluntary' labeling action" (Where Cigarette Makers Spend, 1971: 57).

The industry feels the pressure; one member explains: "We are resigned to

it. Over-all.... the industry mood is much more relaxed-now that we have this first

big year behind us" (Where Cigarette Makers Spend, 1971: 57).

The public is clamoring for government action; a 1970 College Poll'.

Surveying-youths 18 and older on more than 100 campuses reveal that 96%

believe that smoking is dangerous to one's health (College Poll, 1971).

Further, a 1969 study on teenage (13- to 18-yearolds) smoking attitudes,

motivation and habits indicates "deep teenage dissatisfaction with cigarette

smoking, considerable knowledge of its ill effects, but a very exaggerated estimate

of the acceptance of smoking by the adult world" (Lieberman Research, 1969: 1-

20). And, a 1970 nationwide survey of teenagers revealed: "72% of non-smokers

identified physicians as the one group that could persuade them not to start

smoking and 42% of those who smoked said their physician's advice would

influence them to stop" (Doctors, 1970: 24).

Critics of the industry claim: "The controversy about smoking and health

continues largely because of the energy, time and money spent by the tobacco

industry in keeping this controversy alive" (College Poll, 1971).

Origin:

The Tobacco Board, Ministry of Commerce & Industry, Government of

India in collaboration with Gitam Institute of Foreign Trade (GIFT),

Visakhapatnam is organizing a two-day Seminar on "Export Promotion Strategies

for Tobacco" on 3rd and 4th September, 2001 at Guntur. The objectives of the

Seminar are: to make a product-wise and market-wise review of the world trade in

manufactured and unmanufactured tobacco; to evolve region-wise export

promotion strategies in the post-WTO regime; to examine the technological

developments that help improve the quality of tobacco in the country; to assess the

consumer preferences for tobacco and tobacco products and to study the trends in

processing and packaging; to study the potential for product and market

development by identifying new uses for tobacco and new products for export to

the new markets; and to draw an action plan for doubling the exports of tobacco by

the end of 2005.

Progressive and experienced farmers from Andhra Pradesh and Karnataka

domestic manufacturers, international merchants, leading exporters, eminent

scientists from CTRI and ILTD Research Department, officials from the Ministry

of Commerce, State governments of Andhra Pradesh and Karnataka, prominent

persons associated with tobacco, officials from Tobacco Board and senior faculty

from GIFT will be participating in this Seminar. About 100 participants will be

taking part in the Seminar, which is to be inaugurated by Shri R. Gopalan, Joint

Secretary, Ministry of Commerce and Industry. The Indian tobacco industry is

passing through a critical phase. Although cultivation of tobacco has shifted from

black soils to light soils during mid 60’s the productivity levels have not reached

the international standards. Wherever the hectare production was the highest as in

the case of 2500 kgs. per hectare in NLS region, this achievement remains

confined only to a select few progressive farmers. This situation calls for an urgent

need to spread the culture with a view to achieving the higher yields in all the soil

regions. Improvement of quality will result in better demand and resultant better

prices for the farmers. Most of India’s tobacco is grown in Andhra Pradesh and

Karnataka for domestic consumption besides exports. Andhra Pradesh having

45,000 FCV (Fine Cured Virginia) tobacco farmers is the largest producer of

tobacco in the country, contributing more than eighty per cent of the total FCV

tobacco production.

GROWTH :

Virginia Tobacco auctions that concluded this week fetched a record Rs 1,401 crore for

farmers in Andhra Pradesh and for the first time in the history of the crop the average

price crossed the $2 a kg barrier.

“This has been a ‘watershed year’ in farm prices, export volumes, and foreign exchange

earnings in the Indian Tobacco industry,” said Mr J. Suresh Babu, Chairman of the

Tobacco Board. He said the total earnings on the auction floors in the State rose to Rs

1,401 crore this season, with average price shooting up from Rs 47.47 a kg last season to

Rs 84.73 and the highest bid touching Rs 140 a kg. There was a marginal decrease in the

total quantum auctioned on the platforms from 171.9 million kg last year to 165 million

kg this year. However, Indian tobacco, which is internationally seen as an inferior quality

filer tobacco, could establish that it was not so; the export volumes grew by 12 per cent

and in terms of value there was a growth of 42 per cent.

Electronic auctioning

The introduction of electronic auctioning system at Jangareddyguem auction platform

was yet another milestone this season, he added. Dr Y. Sivaji, President of the AP

Tobacco Growers’ Association, expressed happiness over the record prices. He,

however, cautioned farmers that enthused by the prices they should not plant excess crop

next season. “In fact, there is a huge demand for Indian tobacco in the international

market and next season the average price should go up to $3 a kg as in Brazil. It has been

proved conclusively that Indian tobacco is not inferior to any other tobacco in the

world,” he said

VST (Vazir Sultan Tobacco Industries):

Introduction

VST is involved in the manufacturing and marketing of cigarettes. It is the

second largest cigarette-maker in India with 12 brands in its portfolio company.

Some of the major brands of the company are Charminar, Charminar Special

Filter, Charms Mini Kings and Charms Virginia Filter. Its products are targeted at

the lower-end of the market and have dominance in the small sized micro segment.

The company is dependent on ITC for the supply of tobacco. Though the major

chunk of revenue comes from sale of cigarettes, it is also in the business of selling

unmanufactured and cut tobacco.

In order to establish its presence in unrepresented geographies, the company

has last year launched a new brand, 'XL Filter' in large parts of Tamil Nadu and the

hill states of the North East. In 2005, the company also launched another new

brand, 'Shaan', which has garnered 4% share in the micro segment

Financial particulars of VST:

The company is a debt free company with almost 200 Crs in cash and

investments. The company has been consistently been profitable with net margins

increasing from 5-6% to almost 15% now. The Return on capital is consistently

above 25%+ and excluding the low yielding investment, the company enjoys very

high return on tangible capital.

At 58Cr net profit and 200Cr cash on the books, the company can be

conservatively valued at 1100-1200 Cr (at 15 times PE of Free cash flow) which is

at 50% discount to the current market cap. The company can grow at a 4-5% top

line via new product introductions and price increases.

Dividend data of VST:

Dividend proposed by the Directors, pending approval at the

General Meeting, is provided for in the books of account.

Report card

PE ratio 20.61 21/11/08

EPS (Rs) 8.28 Mar, 08

Sales (Rs crore) 3,862.67 Sep, 08

Face Value (Rs) 1

Net profit margin (%) 16.94 Mar, 99

Last bonus 1:2 17/06/05

Last dividend (%) 350 23/05/08

Return on average equity 28.76 Mar, 99

Comparison with ITC ltd:

ITC is the largest player, but it has several businesses and hence it is

difficult to compare the financials. However a segment based analysis shows that

ITC has around 17% post tax margins and around 110% return on capital. In

comparison VST has a 15% net margin and more than 100% return on capital. ITC

is currently commanding a PE of 20

Strengths of VST:

The company has strong competitive advantage due to the nature of the

product for which users have a very high brand preference. Competition is limited

to ITC and the unorganized sector at the low end. As a result the company has a

strong free cash flow and high return on capital.

ITC (Indian Tobacco Company):

Introduction

ITC Ltd. the country's leading player in cigarettes and cigarette leaf tobacco,

has submitted a set of comprehensive recommendations to the Government seeking

reforms in the legal framework pertaining to the domestic tobacco industry and

stressed on the need for an effective enforcement.

The tobacco major is of the view that loopholes in the existing regulatory

framework and lack of effective enforcement have led to a flourishing trade in

smuggled cigarettes.

The contraband trade was estimated to be causing a national loss of over Rs.1,000

crore per annum on a conservative basis.

ITC cautioned the Government that the contraband trade was estimated to be

growing at a rate of more than 20 per cent per year. It has also submitted to the

Government that one-third of the total world trade in cigarettes was contraband in

nature.

The tobacco major is of the view that the smuggling of cigarettes, which

appears to be highly organized, is being provided an opportunity through lifting of

quantitative restrictions on the import of cigarettes into the country.

According to ITC officials, "the regulatory framework in respect of tobacco

products needs to be pragmatic and equitable, such that the regulation of tobacco

consumption is orderly and progressive, securing maximization of economic

contribution even in a shrinking basket of tobacco consumption."

The Cigarettes & Other Tobacco Products Bill - 2001, the intent of which

was to regulate promotion of all tobacco products, in its current form would result

in more stringent regulations on cigarettes as compared to any other tobacco

product, the company opined.

ITC Company Dividend track record:

Year Month Dividend (%)

2008 May 350

2007 May 310

2006 May 265

2005 May 310

2004 May 200

2003 May 150

2002 May 135

2001 Apr 100

2000 May 75

Financial data of Dividend particulars of ITC

Income Statement

As on( Months ) 31-Mar-08(12) 31-Mar-07(12) 31-Mar-06(12)

Profit / Loss A/C Rs mn %OI Rs mn %OI Rs mn

Net Sales 139207.60 97.48 122988.90 99.16 97863.40

Operating Income (OI) 142804.50 100.00 124027.40 100.00 99109.30

OPBDIT 45351.00 31.76 40801.50 32.90 34491.80

OPBDT 45275.10 31.70 40730.20 32.84 34337.50

OPBT 40890.50 28.63 37101.00 29.91 31014.10

Non-Operating Income 4827.20 3.38 2166.00 1.75 1677.80

Extraordinary/Prior Period -722.20 -0.51 -1481.70 -1.19 63.10

Tax 13794.50 9.66 10785.60 8.70 10401.50

Profit after tax(PAT) 31201.00 21.85 26999.70 21.77 22353.50

Cash Profit 35585.60 24.92 30628.90 24.70 25676.90

Dividend-Equity 13190.10 9.24 11662.90 9.40 9951.20

Share Statistics

As on 31-Mar-08 31-Mar-07 31-Mar-06

EPS (Rs.) 8.28 7.18 5.95

CFPS (Rs.) 9.44 8.14 6.84

Book Value (Rs.) 31.57 27.34 23.84

DPS (Rs.) 3.50 3.10 2.65

ITC Holds Corp announced cash Dividend is $0.29 per share paid on march

17 ,2008

GOLDFLAKE CIGARETTE COMPANY:

Introduction

Gold Flake is a widely-sold cigarette brand in India and Pakistan. It is sold in various

varieties, including Gold Flake Kings (84mm), Gold Flake Lights, Gold Flake

Filter (filter tipped) and Gold Flake (plain). It is a well-positioned brand in India.

This brand is owned, manufactured and marketed by ITC Limited, the leading cigarette

maker in India

Co- brands

The cigarette market in India has 4 players: ITC, a British American Tobacco

(BAT) affiliate, the largest cigarette manufacturer with 66% of the market share,

Godfrey Phillips India (GPI), a Phillip Morris affiliate, and Vazir Sultan Tobacco (VST), a BAT

affiliate, each with 13% of the total market share, and Golden Tobacco Company (GTC)

with 8% of the market share. There are lots of popular brands in the Indian market.

They are divided into 3 segments which are super premium, premium, and bingo

segments. Few of the brands in these categories are:- Super premium - Wills

Insignia Premium- Wills Classic/Milds Wills Navy Cut, Wills Silk Cut, Gold

Flake/Lights, four square Bingo - Bristol, Red and White

Sub brands

Goldflake is widely sold brand in India and is marketed in three varieties.

Goldflake Filter King Size (84mm) Goldflake kings is the largest selling brand of

cigarettes in India in above 80 mm category, but lags behind wills navy cut across

categories. It has a mild flavour . A pack of 10 costs about INR 40. Goldflake

Filter King Size Lights (84mm) Goldflake lights are milder than goldflake and

contains comparatively less nicotine. Goldflake Filter (small) Goldflake Filter

(small) has the strongest flavour amongst the three brands. It also contains

considerably larger amounts of tar and nicotine. A pack of 10 costs about 28 Indian

rupees. Goldflake Plain (fetterless) The very original Goldflake is simply known as

Gold Plain or Plain in southern markets. It is the strongest of all.

Origin of the name

Goldflake was neither a brand nor a process of manufacturing cigarettes.

The word "goldflake" refers to cigarettes made using 'bright rich golden tobacco'.

Brands other than wills gold flake are Bacons' Gold Flake, Hignett's Golden Flaked

Honey Dew, Salmon and Gulckstein's Gold Flake. One pack of 10 cigarettes cost

accordingly: Gold Flake (plain, filter, regular size) Rs.28, Gold Flake Kings,

Lights MRP is Rs.40. Packs of 20 can cost up to Rs.80.

Market today

The brand was still positioned as a premium cigarette. However, the target

consumer had changed. Gold Flake now targeted the adult as well as the youth

smokers. It extended beyond the SEC A category to the SEC B as well. The

product did not boast any USP. It still differentiated itself on the purity and quality

of its experience. The comparison with gold stayed, but the target audience the

brand was reaching out to, was supposedly larger. The brand stood for a

celebratory attitude. “Celebrate the feeling” was the new message. This was simply

an extension of the previous message “For the gracious people”

Dividend Information of FCC

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH,

2004

Schedule For the year ended For the year ended

31st March, 2004 31st March, 2003

(Rs.) (Rs.) (Rs.) (Rs.)

I. INCOME

Interest Income 5,43,781 1,53,83,373

Dividend Income 1,27,38,858, 56,25,000

Other Income 6 1,36,067 17,03,923

1,34,18,706 2,27,12,296

II. EXPENDITURE

Salaries and Wages 54,000 4,500

Operating and Establishment Expenses 7 1,54,291 65,562

GTC (Golden Tobacco Company):

THE Rs 400-crore Golden Tobacco Co (GTC) belonging to the Dalmia

group is rejuvenating its heritage brand of cigarettes, Panama, with a focus on the

bingo (smaller) plain segment of the market, pitting itself against the various bidi

brands.

Considering the cigarette market has been stagnant, the company has

decided to focus on the bingo segment, hoping to get converts from bidis and

thereby help grow the cigarette category.

ITC, its main competitor, has not been able to tackle this particular segment,

focusing more on the premium end of the filter category with its various brands

such as Wills, Classic and Gold Flake.

Speaking to Business Line, a company official said, "We have made

improvements in both the packs and the blends, and there is a new campaign being

developed by Mudra for the Panama brand."

Some of the pack changes include introducing a flip top instead of the shell-

and-slide technology used earlier. Besides, the gold has given way to a white and

red pack. The almost 50-year-old brand of Panama exists both as a filter and plain

variant and is a market leader in the small bingo segment pegged at Rs 4 for a pack

of 10 sticks, on par with bidis, a category which is almost 10-12 times larger than

the cigarettes market.

According to the company, the Panama filter brand is a market leader in

Jammu & Kashmir with a share of almost 90 per cent and has a significant volume

share in States such as UP, Kerala and Madhya Pradesh. But in the small plain

bingo segment, Panama overtakes ITC, which has brands such as Hero and

Scissors in the same segment.

Highlighting certain facts about the category, an industry observer says,

"Cigarette brands are region-specific and have a loyal base of consumers compared

to other categories

GTC, with its bingo Panama brand, is now entering new territories such as

Maharashtra and Bihar, where the company has still not made inroads. GTC has a

host of region-specific cigarette brands such as Chancellor, Style, Flair and

Esquire. In the past, it also tried to launch a woman-specific brand, Ms, but the

product was premature for the Indian market.

Mudra Advertising, which has been appointed to revive Panama, has already

devised a new baseline (Live on your own strength) and initiated certain below-

the-line activities in its biggest market, Kerala, in an attempt to build imagery

around its new positioning and baseline. For instance, an arm wrestling

competition branded `Panama Dum Champion' in Kerala to build the image of

power and strength. Besides, mobile vans were circulated to hold events for on-

the-spot arm wrestling matches across the State.

Dividend information of GTC

Report card

PE ratio 8.80 14/11/08

EPS (Rs) 107.90 Mar, 08

Sales (Rs crore) 271.33 Sep, 08

Face Value (Rs) 10

Net profit margin (%) 9.43 Mar, 99

Last bonus 1:1 30/09/93

Last dividend (%) 250 30/06/08

Return on average equity 29.53 Mar, 99

(GPI) Godfrey Phillips India

The success of Godfrey Phillips India is the result of the Company’s

commitment to innovations, enhanced operational efficiencies and adoption of

internationally acclaimed business processes. Driven to excel, innovate and

win, we intend to emerge as one of the most respected Company in the

tobacco industry.

As the second largest player in the Indian cigarette industry, our annual

turnover exceeds INR 1800 crores (approx. US $369.6 million). We own some of

the most popular cigarette brands in the country like Four Square,

Red and White, Jaisalmer, Cavanders and Tipper. Over the years we have also

set our own benchmarks in innovation with revolutionary brands like Stellar,

the first slim cigarette and I-gen, the first euro norm cigarette in India.

Our products are distributed over an extensive India wide network of more

than 500 distributors and 800,000 retail outlets. With the Corporate Office in

Delhi, the Company has offices all across India in over 8 locations.

Godfrey Phillips India has two major stakeholders, one of India's leading

industrial houses - the K. K. Modi Group and one of the world's largest tobacco

companies, Philip Morris. The Company also enjoys a strong backing of over

12,000 shareholders.

If the success of a Company is judged by the satisfaction level of its

employees, then the economic stability of a Company is judged by the satisfaction

and belief levels of its shareholders.

It is their belief and faith in the system, their passion about the organization

that inspires the Company to sail through difficult period and face challenges.

Godfrey Phillips India as a Company is dedicated to the interests of all those who

have invested their faith in it.

Dividend Information of GPI:

Godfrey Phillips India Ltd has informed that the Board of Directors of the

Company at its meeting held on June 28, 2008, inter alia, has recommended

payment of dividend of 250% i.e. Rs 25/- per share for the financial year ended

March 31, 2008, subject to declaration thereof by the shareholders at the

forthcoming Annual General Meeting.

Dividend

Year Month Dividend (%)

2008 Jun 250

2007 Jun 250

2006 Jun 225

2005 Jul 220

2004 Aug 190

2003 Aug 170

2002 Aug -

2001 Aug 160

2000 Apr -

1999 Aug 120

1998 Oct 10