MIRA INFORM REPORT

Report Date :

22.08.2012

IDENTIFICATION DETAILS

Name :	VST INDUSTRIES LIMITED

Registered Office :	1-7-1063/1065, Azambad, Hyderabad – 500020, Andhra Pradesh

Country :	India

Financials (as on) :	31.03.2012

Date of Incorporation :	10.11.1930

Com. Reg. No.:	01-000576

Capital Investment / Paid-up Capital :	Rs. 154.419 Millions

CIN No.: [Company Identification No.]	L29150AP1930PLC000576

TAN No.: [Tax Deduction & Collection Account No.]	HYDV00023C

Legal Form :	A Public Limited Liability Company. The Company’s Shares are Listed on the Stock Exchange.

Line of Business :	Manufacturer and Marketer of Cigarettes.

No. of Employees :	931 (Approximately)

RATING & COMMENTS

MIRA’s Rating :

A (67)

RATING

STATUS

PROPOSED CREDIT LINE

56-70

Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums

Fairly Large

Maximum Credit Limit :	USD 11000000

Status :	Good

Payment Behaviour :	Regular

Litigation :	Clear

Comments :	Subject is an old and well established, reputed company having fine track. Financial position of the company appears to be sound. The company has recorded a better growth in its sales turnover and profitability during the year 2012. The share price of the company is overpriced in the market. Trade relations are reported to be praiseworthy. Business is active. Payments are reported to be regular and as per commitments. The company can be considered better for business dealings at usual trade terms and conditions.

NOTES :

Any query related to this report can be made on e-mail : infodept@mirainform.com while quoting report number, name and date.

ECGC Country Risk Classification List – June 30, 2012

Country Name

Previous Rating

(31.03.2012)

Current Rating

(30.06.2012)

India

Risk Category	ECGC Classification
Insignificant	A1
Low	A2
Moderate	B1
High	B2
Very High	C1
Restricted	C2
Off-credit	D

EXTERNAL AGENCY RATING

Rating Agency Name	CRISIL
Rating	AA+ [Non Convertible Debentures Programme]
Rating Explanation	Having high degree of safety regarding timely servicing of financial obligation it carry very low credit risk.
Date	October 2011

Rating Agency Name	CRISIL
Rating	A1+ [Letter of Credit and Bank Guarantee]
Rating Explanation	Having very strong degree of safety regarding timely payment of financial obligation it carry lowest credit risk.
Date	October 2011

RBI DEFAULTERS’ LIST STATUS

Subject’s name is not enlisted as a defaulter in the publicly available RBI Defaulters’ list.

EPF (Employee Provident Fund) DEFAULTERS’ LIST STATUS

Subject’s name is not enlisted as a defaulter in the publicly available EPF (Employee Provident Fund) Defaulters’ list as of 31-03-2012.

LOCATIONS

Registered Office :	1-7-1063/1065, Azambad, Hyderabad – 500020, Andhra Pradesh, India
Tel. No.:	91-40-27610460/ 27615161/ 27617531
Fax No.:	91-40-27615336
E-Mail :	saisankar@vstind.com
Website :	http://www.vsthyd.com

DIRECTORS

AS ON 31.03.2012

Name :	Mr. R.V.K.M. Suryarau
Designation :	Chairman

Name :	Mr. Raymond S. Noronha
Designation :	Managing Director

Name :	Mr. Devraj Lahiri (w.e.f. 1st August, 2011)
Designation :	Whole time Director

Name :	Mr. Peter G. Henriques
Designation :	Non-Executive Director

Name :	Mr. T. Lakshmanan
Designation :	Non-Executive Director

Name :	Mr. Milind A. Kharat
Designation :	Non-Executive Director

Name :	Mr. S. Thirumalai
Designation :	Non-Executive Director

KEY EXECUTIVES

Name :	Mr. N. Sai Sankar
Designation :	Deputy Managing Director and Secretary

MAJOR SHAREHOLDERS / SHAREHOLDING PATTERN

AS ON 30.06.2012

Category of Shareholder	Total No. of Shares	Total Shareholding as a % of total No. of Shares
(A) Shareholding of Promoter and Promoter Group
(1) Indian
(2) Foreign
Bodies Corporate	4,965,902	32.16
Sub Total	4,965,902	32.16
Total shareholding of Promoter and Promoter Group (A)	4,965,902	32.16
(B) Public Shareholding
(1) Institutions
Mutual Funds / UTI	1,595,315	10.33
Financial Institutions / Banks	15,720	0.10
Insurance Companies	691,763	4.48
Foreign Institutional Investors	604,686	3.92
Sub Total	2,907,484	18.83
(2) Non-Institutions
Bodies Corporate	4,981,265	32.26
Individuals
Individual shareholders holding nominal share capital up to Rs.0.100 Million	2,109,493	13.66
Individual shareholders holding nominal share capital in excess of Rs.0.100 Million	265,978	1.72
Any Others (Specify)	211,798	1.37
NRIs/OCBs	89,474	0.58
Custodian	119,532	0.77
Trusts	505	-
Clearing Members	2,262	0.01
Directors & their Relatives & Friends	25	-
Sub Total	7,568,534	49.01
Total Public shareholding (B)	10,476,018	67.84
Total (A)+(B)	15,441,920	100.00
(C) Shares held by Custodians and against which Depository Receipts have been issued	-	-
(1) Promoter and Promoter Group	-	-
(2) Public	-	-
Sub Total	-	-
Total (A)+(B)+(C)	15,441,920	-

BUSINESS DETAILS

Line of Business :

Manufacturer and Marketer of Cigarettes.

GENERAL INFORMATION

No. of Employees :	931 (Approximately)

Bankers :	Andhra Bank, Hyderabad, Andhra Pradesh, India State Bank of India, Hyderabad, Andhra Pradesh, India Bank of India, Hyderabad, Andhra Pradesh, India


Banking Relations :	--

Auditors :
Name :	Lovelock and Lewes Chartered Accountants
Address :	Hyderabad - 500 034, Andhra Pradesh, India

Company having significant influence :	British American Tobacco Group

CAPITAL STRUCTURE

AS ON 31.03.2012

Authorised Capital :

No. of Shares	Type	Value	Amount

5,00,00,000	Ordinary Shares	Rs.10/- each	Rs.500.000 Millions
50,00,000	Cumulative Redeemable Preference Shares	Rs.100/- each	Rs.500.000 Millions

	Total		Rs.1000.000 Millions

Issued, Subscribed & Paid-up Capital :

No. of Shares	Type	Value	Amount

1,54,41,920	Ordinary Shares	Rs.10/- each	Rs.154.419 Millions

THERE WAS NO MOVEMENT IN NUMBER OF ORDINARY SHARES DURING THE YEAR.

DETAILS OF SHAREHOLDERS HOLDING MORE THAN 5% OF ORDINARY SHARES:

Name of the Shareholders	No. Millions	% holding	No. Millions	% holding
Bright Star Investments Private Limited	4.007	25.95	4.007	25.95
ITC Limited	0.173	1.12	1.112	7.20
The Raleigh Investment Company Limited	3.620	23.45	3.620	23.45
Tobacco Manufacturers (India) Limited	1.279	8.28	1.279	8.28

FINANCIAL DATA

[all figures are in Rupees Millions]

ABRIDGED BALANCE SHEET

SOURCES OF FUNDS		31.03.2012	31.03.2011	31.03.2010
SHAREHOLDERS FUNDS
1] Share Capital		154.419	154.419	154.419
2] Share Application Money		0.000	0.000	0.000
3] Reserves & Surplus		2747.502	2489.974	2319.383
4] (Accumulated Losses)		0.000	0.000	0.000
NETWORTH		2901.921	2644.393	2473.802
LOAN FUNDS
1] Secured Loans		0.000	0.000	0.000
2] Unsecured Loans		0.000	0.000	0.000
TOTAL BORROWING		0.000	0.000	0.000
DEFERRED TAX LIABILITIES		0.000	0.000	0.000

TOTAL		2901.921	2644.393	2473.802

APPLICATION OF FUNDS

FIXED ASSETS [Net Block]		1634.066	1524.208	1325.920
Capital work-in-progress		1.243	0.664	68.079

INVESTMENT		2237.403	1709.923	1903.082
DEFERREX TAX ASSETS		115.347	138.820	125.292

CURRENT ASSETS, LOANS & ADVANCES
	Inventories	2382.509	2355.697	1790.755
	Sundry Debtors	126.211	127.662	145.095
	Cash & Bank Balances	359.745	289.617	63.704
	Other Current Assets	15.725	9.593	1.611
	Loans & Advances	244.575	231.394	145.510
Total Current Assets		3128.765	3013.963	2146.675
Less : CURRENT LIABILITIES & PROVISIONS
	Sundry Creditors	470.279	319.909	1613.295
	Other Current Liabilities	2573.071	2612.629	941.752
	Provisions	1171.553	810.647	540.199
Total Current Liabilities		4214.903	3743.185	3095.246
Net Current Assets		(1086.138)	(729.222)	(948.571)

MISCELLANEOUS EXPENSES		0.000	0.000	0.000

TOTAL		2901.921	2644.393	2473.802

PROFIT & LOSS ACCOUNT

	PARTICULARS		31.03.2012	31.03.2011	31.03.2010
	SALES
		Income	6801.276	5784.322	4721.641
		Other Income	300.218	202.142	332.581
		TOTAL (A)	7101.494	5986.464	5054.222

Less	EXPENSES
		Cost of Material Consumed	3047.342	2902.442
		Changes in Inventories of Finished Goods and Work-in-progress	34.446	(49.021)	3896.058
		Employee Benefit Expenses	619.538	605.970
		Other Expenses	1045.321	930.326
		TOTAL (B)	4746.647	4389.717	3896.058

Less	PROFIT BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (A-B) (C)		2354.847	1596.747	1158.164

Less	FINANCIAL EXPENSES (D)		0.000	0.000	0.000

	PROFIT BEFORE TAX, DEPRECIATION AND AMORTISATION (C-D) (E)		2354.847	1596.747	1158.164

Less/ Add	DEPRECIATION/ AMORTISATION (F)		248.266	244.165	178.651

	PROFIT BEFORE TAX AND EXCEPTIONAL ITEM		2106.581	1352.582	979.513

	EXCEPTIONAL ITEM		0.000	0.000	(124.100)

	PROFIT BEFORE TAX (E-F) (G)		2106.581	1352.582	855.413

Less	TAX (I)		681.495	402.477	234.906

	PROFIT AFTER TAX (G-I) (J)		1425.086	950.105	620.507

Add	PREVIOUS YEARS’ BALANCE BROUGHT FORWARD				820.048

Less	APPROPRIATIONS		NA	NA
		Transfer to General Reserve			62.500
		Dividend			540.199
	BALANCE CARRIED TO THE B/S		NA	NA	837.856

	EARNINGS IN FOREIGN CURRENCY
		FOB Value of Exports	1557.495	1504.029	1549.866
	TOTAL EARNINGS		1557.495	1504.029	1549.866

	IMPORTS
		Raw Materials	84.590	85.672	45.040
		Stores & Spares	5.885	5.970	10.826
		Capital Goods	261.312	242.029	201.592
	TOTAL IMPORTS		351.787	333.671	257.458

	Earnings Per Share (Rs.)		92.29	61.53	40.18

QUARTERLY RESULTS

PARTICULARS			30.06.2012
Type			1^st Quarter
Net Sales			1552.300
Total Expenditure			1117.500
PBIDT (Excl OI)			434.800
Other Income			66.900
Operating Profit			501.700
Interest			0.000
PBDT			501.700
Depreciation			53.600
Profit Before Tax			448.100
Tax			143.000
Profit After Tax			305.100
Net Profit			305.100

KEY RATIOS

PARTICULARS		31.03.2012	31.03.2011	31.03.2010
PAT / Total Income	(%)	20.07	15.87	12.28

Net Profit Margin (PBT/Sales)	(%)	30.97	23.38	18.12

Return on Total Assets (PBT/Total Assets}	(%)	44.23	29.80	24.63

Return on Investment (ROI) (PBT/Networth)		0.73	0.51	0.35

Debt Equity Ratio (Total Liability/Networth)		1.45	1.42	1.25

Current Ratio (Current Asset/Current Liability)		0.74	0.81	0.70

LOCAL AGENCY FURTHER INFORMATION

Sr. No.	Check List by Info Agents	Available in Report (Yes / No)
1]	Year of Establishment	Yes
2]	Locality of the firm	Yes
3]	Constitutions of the firm	Yes
4]	Premises details	No
5]	Type of Business	Yes
6]	Line of Business	Yes
7]	Promoter's background	No
8]	No. of employees	Yes
9]	Name of person contacted	No
10]	Designation of contact person	No
11]	Turnover of firm for last three years	Yes
12]	Profitability for last three years	Yes
13]	Reasons for variation <> 20%	--
14]	Estimation for coming financial year	No
15]	Capital in the business	Yes
16]	Details of sister concerns	Yes
17]	Major suppliers	No
18]	Major customers	No
19]	Payments terms	No
20]	Export / Import details (if applicable)	No
21]	Market information	--
22]	Litigations that the firm / promoter involved in	--
23]	Banking Details	Yes
24]	Banking facility details	No
25]	Conduct of the banking account	--
26]	Buyer visit details	--
27]	Financials, if provided	Yes
28]	Incorporation details, if applicable	Yes
29]	Last accounts filed at ROC	Yes
30]	Major Shareholders, if available	No
31]	PAN of Proprietor/Partner/Director, if available	No
32]	Date of Birth of Proprietor/Partner/Director, if available	No
33]	Voter ID No of Proprietor/Partner/Director, if available	No
34]	External Agency Rating, if available	Yes

INDUSTRY STRUCTURE AND DEVELOPMENT:

The Union Budget presented in February 2011, did not propose any changes in the excise rates, which was a welcome relief for the industry and the Company. The industry as a result had a marginal growth in volumes of around 4%; however, the Company was able to beat the general industry trend and grow volumes by 12% when compared to same period last year.

Financial year 2011-12 was one of the best years in terms of volume growth. Filter volumes now cover virtually 98% of the Company's volume. The increase in VAT rates across states continued with more states increasing the VAT rates during the current financial year. Two key states e.g. West Bengal and Andhra Pradesh, where the Company has sizeable presence, increased VAT rates to 20% each. This will impact margins and profitability both in the current year and in the future.

During the financial year 2011-12, increase in VAT rates were affected in 17 states ranging from 0.75% to 11.5%. Stable tobacco prices and higher foreign exchange volatility were the other highlights for the current financial year.

INDUSTRY ISSUES:

Change in graphic health warning which was to be made effective 1^st November, 2010 was deferred to the financial year 2011-12 as the law was amended to make it compulsory for cigarette companies to change graphic health warnings every twenty-four months instead of every twelve months. The new graphic health warnings have

come into effect from 1st December, 2011.

Apart from legacy taxation issues, the industry had to address fewer legal cases.

SEGMENT WISE PERFORMANCE:

The Company considers tobacco and related products as the primary segment for reporting. Geographical segments considered for disclosure mainly consist of sales within India and sales outside India. The entire activity pertaining to sales outside India is carried out from India.

The Company's brands were stable during 2011-12, with most brands gaining volumes. The Company's filter brands performed well with all key brands showing gains over the previous year. Brands like special extra filter, moments and charms virginia filter were the key contributors to the growth in volume.

The growth in volume of most of the brands has to be viewed in contrast to steep increases in VAT in different states during the year including the key states where the Company operates.

The Company continued its strategic thrust of launching new brands in value for- money segments in markets which provide opportunities as these continue to help grow the volumes.

MARKET SCENARIO:

During the year the cigarette volumes stood at 762 mns up by 12% when compared to 2010-11. The value realisations were higher at Rs. 14350.000 Millions, up by 16.4% when compared to Rs. 12300.000 Millions during the previous year.

Competition has intensified with many brands now available at different price points where the Company's brands are present. This is apart from the Company's brands having to face the non-duty paid cigarettes which are available across markets in India.

LEAF TOBACCO:

The Company has recorded leaf export turnover of Rs. 1540.000 Millions, in the year 2011-12, despite glut in the international market and volatility in exchange rate. The situation which was similar last year did not show any improvement and in fact it worse nedduring the current financial year. Latest statistics reveal that Indian tobacco exports are lower when compared to same period last year.

The focus on developing niche varieties of tobacco continued. Besides help develop the backward regions, it has

also helped in improving the Company's profitability. The oriental project continues with improved agronomic practices.

It is gratifying to learn that the company's farmers continue to grow tobacco with lowest pesticide residue levels and low TSNAs (Tobacco Specific Nitrosamaines) that are well within international standards.

The Company's leaf tobacco function continues to be certified by Registro Italiano Navale, Genova, Italy for SA8000 reflecting Company's resolve to follow best international practices in its operations.

The Company is committed to encourage education to children in the tobacco growing areas by way of creating infrastructure for school buildings and spreading awareness in the villages to curb child labour.

PRODUCTION AND PLANT MODERNISATION:

In pursuance of ongoing modernization plan of Primary and Secondary Manufacturing Departments to improve productivity and quality, contemporary technology has been put in place.

During the year, a total of 147 technicians (116 Mechanical and 31 Electrical) have been trained by reputed training institute and Original Equipment Manufacturers as part of skills upgradation.

ENTERPRISE RESOURCE PLANNING (ERP):

The Company was able to successfully manage the entire ERP system by developing an in-house team. All routine business issues as well as improvements in existing systems have been undertaken by the team. This team interacts with managers of the operating teams and works continuously to help improve the overall business processes. The Company has also developed adequate skills to manage issues arising out of facilities management and networking which are the other limbs of the IT infrastructure.

DIRECTORS

Directors retiring by rotation In accordance with Article 93 of the Articles of Association of the Company, Mr. Peter G. Henriques and Mr. Milind A. Kharat retire from the Board and being eligible; offer themselves, for re election. The Board recommends their re-appointment.

MR. PETER G. HENRIQUES

Mr. Peter G. Henriques was appointed at the Annual General Meeting held on 16th July, 2010. He is now due to retire by rotation at the forthcoming Annual General Meeting and being eligible, offers himself for re-appointment. Mr. Henriques holds Bachelor of Arts degrees in History and International Relations from Syracuse University in New York, and a Master's degree in International Affairs from Columbia University in New York City.

Mr. Henriques has been in the tobacco industry for 20 years and is currently positioned in B.A.T. Marketing (Singapore) Representative Office, Vietnam. Mr. Henriques neither holds any shares in the Company nor is related to any other Director of the Company.

MR. MILIND A. KHARAT

Mr. Milind A. Kharat was appointed at the Annual General Meeting held on 16th July, 2009. He is now due to retire by rotation at the forthcoming Annual General Meeting and being eligible, offers himself for re-appointment.

Mr. Kharat is a Post Graduate in Economics, a Bachelor of Law and a Fellow of Insurance Institute of India (FIII). He has rich experience of more than three decades in the General Insurance Industry. He was the Chief Metropolitan Magistrate appointed by Government of Maharashtra. He made significant contributions for revision of Fiji's Insurance Act, 1998. He served as an Executive Member on the National Road Safety Council of Fiji representing insurance industry. He is an Executive Member of Foreign Non- Life Insurance Association of Japan. He is a Director of United India Insurance Company Limited and also the Chairman cum Managing Director of

Agriculture Insurance Company of India Limited.

Mr. Kharat neither holds any shares in the Company nor is related to any other Director of the Company.

DIRECTORS APPOINTMENT

MR. DEVRAJ LAHIRI

Mr. Devraj Lahiri has been appointed as Director and Whole time Director of the Company with effect from 1^st August, 2011, at the Board Meeting held on 14th July, 2011, to hold office for a period of five years with effect from 1st August, 2011 to 31st July, 2016 (both days inclusive). Mr. Devraj Lahiri is a Commerce graduate from Calcutta University and Masters in Business Administration from Indian Institute of Social Welfare and Business Management, Kolkata. He joined the Company in 2001 and has made significant contributions during his association with the Company. He is a member of the Committee of Directors and Shareholders Grievance Committee of the Company.

Mr. Devraj Lahiri neither holds any shares in the Company nor is related to any other Director of the Company.

MR. RAYMOND S. NORONHA

Mr. Raymond S. Noronha was appointed as Managing Director on the Board of your Company with effect from 1st November, 1998 and is due to retire on 2nd September, 2012. The Board of Directors at its meeting held on 17th April, 2012 recommended for the approval of the Members, the appointment of Mr. Raymond S. Noronha as a Non- Executive Director of the Company with effect from 3rd September, 2012. Appropriate resolution seeking the approval to the appointment is appearing in the Notice convening the 81st Annual General Meeting of your

Company.

Mr. Noronha is a B.A. (Hons.) from St. Stephen's College, Delhi and attended the Wharton Advanced Management Program (1995) at Philadelphia, USA. He has had over 36 years of varied experience in the cigarette business both international and domestic and has held several top level positions for over a decade. He is also a director on the board of the Tobacco Institute of India.

Mr. Noronha neither holds any shares in the Company nor is related to any other Director of the Company.

TAXATION

I. INCOME TAX

A. FINANCIAL SERVICES BUSINESS

It may be recalled that the Company had diversified into Financial Services Business and Foods Business in the early nineties. Subsequently in the year 1998-99, the Company incurred a total loss of Rs. 386.700 Millions in the financial services business of which Rs. 297.000 Millions was claimed as loss under the head 'Income from Business' and Rs. 89.700 Millions was claimed as a capital loss under the provisions of the Income Tax Act.

The Income Tax Appellate Tribunal allowed the entire amount of Rs. 386.700 Millions as a capital loss. It may be noted that the department had treated the entire loss as a 'Speculation Loss.' The Company has filed an appeal before the Hon'ble High Court of Andhra Pradesh which has been admitted. The matter is yet to be heard. Further in connection with its divestment from the Foods Business in the financial year 1999-00, the Company had incurred a total loss of Rs. 536.800 Millions, of which Rs. 441.800 Millions was claimed as a loss under the head 'Income from Business' and Rs. 95.000 Millions was claimed as a capital loss under the provisions of the Income Tax Act. The Income Tax Department has disallowed the entire amount excepting Rs. 57.000 Millions which was allowed as a capital loss. The Commissioner of Income Tax (Appeals) further allowed Rs. 112.400 Millions out of the balance amount of Rs. 479.800 Millions, on appeal before him and the same was upheld by the Income Tax Appellate Tribunal. Your Company has preferred an appeal against the above order and the matter is now before the Hon'ble High Court of Andhra Pradesh.

Consequent to the above orders, the Income Tax Department had issued consequential orders under Section 154 of the Income Tax Act demanding Rs. 288.600 Millions (revised) which was paid by the Company.

B. NORTH EAST

You would recall that pursuant to the withdrawal of exemption notification for manufacture of cigarettes in the North Eastern region in terms of Supreme Court judgement of 19th September, 2005, the Company had paid an amount of Rs. 312.000 Millions towards principal and provided an amount of Rs. 126.900 Millions towards interest.

In the income tax return filed by the Company for the relevant year, this amount was considered as an allowable expenditure in the assessment for the year 2006-07. However, subsequently the Income Tax department has sent a demand notice seeking payment of Rs. 193.000 Millions being tax payable along with interest which was paid by the Company. The Company will contest the same.

C. SUBSIDIARY COMPANY

During the financial year 1998-99, the Company's erstwhile subsidiary had received financial assets worth of Rs.120.000 Millions against a future liability of Rs. 520.000 Millions. This was settled on 31^st March, 1999 for an immediate payment of Rs. 125.000 Millions. The settlement was not accepted during the assessment proceedings and accordingly disallowed by the Income Tax authorities. On appeal before the Commissioner of Income Tax (Appeals), the matter was held in favour of the Company's subsidiary. However, the Income Tax Tribunal while holding the matter against the Company's subsidiary held that the ratification of the said settlement agreement by the Board did not relate to 31st March, 1999 and consequently the liability to pay Rs. 125.000 Millions did not arise in the financial year 1998-99 and therefore not allowable as a deduction for the year. The tax liability on this is Rs. 42.000 Millions apart from interest.

The Company's subsidiary preferred an appeal against the above order before the Hon'ble High Court of Andhra Pradesh, which a judgement in the Company's favour. A Caveat has however been filed by the Company in Supreme Court by way of abundant caution.

II. LUXURY TAX

As mentioned in last year's Report, a Contempt Petition has been filed in the Hon'ble Supreme Court by the Commercial Tax Officer, on behalf of the Government of Andhra Pradesh against the Managing Director of the Company alleging contempt of the Hon'ble Supreme Court's judgement dated 20th January, 2005 which had set aside levy of Luxury Tax. The Department has alleged that your Company has failed to pay an amount of Rs. 348.600 Millions being the Luxury Tax collected from customers by the Company after passing of the interim order dated 1st June, 1999 but not paid to the State Government of Andhra Pradesh which is in violation of the said judgement dated 20th January, 2005. An amount of Rs. 298.100 Millions has also been claimed as interest thereon @ 24% per annum. The Company and the Managing Director have both filed separate counter affidavits strenuously denying that there has been any contempt on their part of the said judgement of the Hon'ble Supreme Court. The contempt case charges against the Managing Director of the Company were dismissed by Hon'ble Supreme Court. As far as the case against the Company is concerned, there have been no further developments during the year, though the case was listed a couple of times. The case is likely to be posted for final hearing in July, 2012.

III. ENTRY TAX

As mentioned in last year's Report, several High Courts in the country including those of Andhra Pradesh, Kerala, Tamilnadu and Assam have struck down the levy of Entry Tax on the ground that it is violative of Article 301 and not saved under Article 304(b) of the Constitution, as it is not compensatory in the manner required in terms of the Supreme Court judgement in the case of M/s. Jindal Stainless Limited. Thereafter, several states such as Uttar Pradesh, Bihar and Haryana have attempted to reintroduce Entry Tax by amending the original Acts, sparking a fresh round of legal challenges in the High Courts. Most of the appeals filed by the various states, and individual companies have been clubbed together.

The Hon'ble Supreme Court by its Order dated 18th December, 2008 in the batch of cases headed by Jai Prakash Associates vs the State of MP has referred a number of vital questions on levy of Entry Tax, to the Constitutional Bench in terms of Article 145(3) of the Constitution which are still pending adjudication. The Hon'ble High Court of Allahabad has passed a judgement upholding the constitutional validity of Entry Taxin Uttar Pradesh with retrospective effect, against which your Company filed an affidavit in the Supreme Court. In terms of the interim orders of the Supreme Court, your Company had to pay `6.15 crore as deposit pending disposal of the batch of appeals. The case has now been referred to the Supreme Court along with other cases.

IV. EXCISE

A. WRAPPING MATERIALS

As mentioned in last year's Report, the Customs, Excise and Service Tax Appellate Tribunal, Bangalore by its Order dated 8th October, 2004 had allowed the Company's appeal and set aside the demand of the Excise Department for an amount of Rs. 36.200 Millions (including penalty and interest @ 24%) on the ground that Gay Wrappers (printed paper used for wrapping cigarette packets) had been manufactured and consumed by the Company without payment of duty during the period April 1996 to March 2002. An appeal against the said Order has been filed by the Excise Department and is presently pending in the Hon'ble Supreme Court. In the meantime, the Hon'ble Supreme Court by its Order dated 27th November, 2008 has remanded various other similar appeals pertaining to other manufacturers back to their respective Tribunals for re-adjudication in the light of individual facts of each case. Notices for subsequent periods have also been received by the Company which have been kept pending awaiting the decision of the Hon'ble Supreme Court.

B. CIGARETTE MANUFACTURE IN NORTH EASTERN STATES

As mentioned in last year's Report, the Excise Department had demanded a sum of Rs. 58.500 Millions from two of the Company's former contract manufacturers, by way of interest on the principal amount of Rs. 312.000 Millions repaid to the Excise Department, consequent upon the judgement of the Hon'ble Supreme Court dated 19^th September, 2005. The two contract manufacturers had filed Writ Petitions challenging the said demands in the Hon'ble Guwahati High Court and obtained Interim Orders staying partial recovery until final disposal. Against the said Interim Order, the Department had filed appeals in the Hon'ble Supreme Court. By its Order dated 15th April, 2009 the Hon'ble Supreme Court has requested the Hon'ble High Court to dispose off the Writ Petitions within a period of two months from the date of communication of theOrder. A Single Member Bench disallowed the writ petitions and upheld levy of interest. Against the judgement, the contract manufacturers filed appeals before the Division Bench, which passed interim orders staying the judgement of the Single Bench. Final hearing has been completed and the appeals were reserved for judgement. The matter was again listed for hearing on 27th March, 2012 for further final hearing and adjourned to the last week of April 2012.

C. TOBACCO REFUSE

The Company has received show cause notices demanding recovery of duty on cut tobacco used in the manufacture of tobacco refuse together with interest and penalty from January 2005 to November 2009.

The Company has now received a demand for Rs. 102.200 Millions being excise duty and penalty for the period up to 30th November, 2009. Interest is payable separately till the date of payment. The Company's appeal before CESAT was heard favourably and a stay with complete waiver of pre deposit has been granted in the interim as prayed for by the Company. The Company continues to receive show cause notices for subsequent periods.

V. SERVICE TAX

The Company has received show cause notices from the Excise Department seeking to deny CENVAT credit availed on service tax paid by various service providers on the ground that the same are not in relation to the manufacture of final products. They are pending adjudication at various levels. Total amount involved is approximately Rs. 39.000 Millions with equivalent penalty and interest thereon.

THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND DISTRIBUTION) ACT, 2003 (COTPA)

i. Some of the provisions of COTPA have come into force with effect from 1st May, 2004. These include ban on advertising in print and visual media, ban on outdoor advertising, regulation of in-store advertising, prohibition of sale of cigarettes to persons below the age of 18 years.

ii. The tobacco industry has been told to print the prescribed graphic health warnings on all its product packing. The Cigarettes and Other Tobacco Products (Packaging and Labelling) Rules, 2006 (COTPR) had originally prescribed pictorial warnings along with health messages and sign of skull and cross bones. However, due to vociferous objections from various sections of the industry and public, a Committee of a Group of Ministers (GoM) was constituted to relook at the warnings. Based on their recommendations, a new set of labelling requirements has been prescribed under the COTP Rules which were published on 16^th March, 2008. However, these have again been modified based on representations made. The revised implementation date as originally envisaged from 30^th November, 2008 has been deferred and the pictorial warnings fully came into effect from 31^st May, 2009 and were further revised with effect from 1^st December, 2011.

iii. In the meantime, some Tobacco manufacturers had challenged various provisions of COTPA and Rules made there under in different High Courts across the country. The Union Government filed Transfer Petitions in the Hon'ble Supreme Court seeking to transfer 31 pending Writ Petitions from various High Courts to the Hon'ble Supreme Court. On 18^th November, 2008 all the Transfer Petitions were allowed and the Writ Petitions have thus been moved to the Hon'ble Supreme Court, for final adjudication.

iv. The Company had also filed a Writ Petition in the Hon'ble High Court of Andhra Pradesh challenging COTPR and the Amendment Rules 2008, on the grounds inter alia that they are ultra vires of COTPA and therefore the Notifications issued there under (including those seeking implementation of graphic health warnings) should be quashed. The said Writ Petition was admitted on17th October, 2008 but no interim orders were passed by the Hon'ble Court.

v. A ban on smoking in public places as envisaged under COTPA, came into effect on 2nd October, 2008, under which smoking has been banned in virtually all public places including courts, public buildings, restaurants, bars, cinema halls etc. A batch of writ petitions challenging this was filed in the Hon'ble Delhi High Court and transferred to the Hon'ble Supreme Court, which came up for admission on 29th September, 2008. While the Hon'ble Supreme Court admitted the Transfer Petitions it declined to grant interim relief prayed for by the petitioners seeking to postpone implementation of the ban on smoking in public places.

AMALGAMATION OF VST DISTRIBUTION, STORAGE AND LEASING COMPANY PRIVATE LIMITED (DSL) WITH THE COMPANY

Pursuant to the scheme of amalgamation of erstwhile wholly owned subsidiary, DSL with the Company, the assets and liabilities of the erstwhile DSL were transferred to and vested in the Company with effect from 1st April, 2010. The amalgamation was accounted for under the 'pooling of interest' method prescribed by the Accounting Standard on amalgamation during the year ended 31st March, 2011.

CONTINGENT LIABILITIES:

Claims against the Company not acknowledged as debts Rs. 318.808 Millions (2011 – Rs. 390.777 Millions). These comprise -

(i) Tax demands disputed by the Company relating to disallowances/additions of fiscal benefits, pending before various judicial forums, aggregating to Rs. 317.471 Millions (2011 – Rs. 389.440 Millions).

(ii) Other matters relating to labour cases, etc. aggregating to Rs. 1.337 Millions (2011 – Rs. 1.337 Millions).

FIXED ASSETS:

TANGIBLE ASSETS:

· Land

· Buildings Freehold

· Leasehold Property

· Plant and Equipments

· Furniture and Fixtures

· Motor Vehicle

· Office Equipment

INTANGIBLE ASSETS:

· Goodwill and Trade Marks

· Computer Software

· Time Share Rights

UNAUDITED FINANCIAL RESULTS FOR THE QUARTER ENDED 30^TH JUNE, 2012

Rs. in Millions

Sr. No.	PARTICULAR	Quarter Ended
		30.06.2012 (Unaudited)
1.	Income from Operations
	(a) Gross Sales / Income from Operations	4149.400
	(b) Less: Excise Duty	2610.500
	(c) Net Sales / Income from Operations	1538.900
	(d) Other Operating Income	13.400
	Total Income from Operations (net)	1552.300

2.	Expenditure
	(a) Cost of Materials Consumed	675.200
	(b) Changes in Inventories of Finished goods and Work-in -progress	(11.200)
	(c) Employee Benefits expense	170.200
	(d) Depreciation, Amortization and Impairment expense	53.600
	e) Other Expenses	283.300
	f) Total	1171.100

3.	Profit From Operations before Other Income, Interest and Exceptional Items (1-2)	381.200

4.	Other Income	66.900

5.	Profit Before Interest and Exceptional Items (3+4)	448.100

6.	Interest	--

7.	Profit After Interest but before Exceptional Items (5-6)	448.100

8.	Exceptional Items	--

9.	Profit from Ordinary Activities before Tax (7+8)	448.100

10.	Tax Expense	143.000

11.	Net Profit from Ordinary Activities after Tax (9-10)	305.100

12.	Extraordinary Item (net of expense)	--

13.	Net Profit for the period (11-12)	305.100

14.	Paid-up Equity Share Capital (Face Value of Rs.10/- Each)	154.400

15.	Reserves Excluding Revaluation Reserve	--

16.	Basic and Diluted Earnings Per Share (EPS) (Rs.)-Not Annualised
	a) Basic and diluted EPS before extraordinary items	19.76
	b) Basic and diluted EPS after extraordinary items	19.76

17.	Public Shareholding
	-Number of Shares	10476018
	- Percentage of Shareholding	67.84

18.	Promoters and Promoter Group Shareholding
	a) Pledged/Encumbered
	- Number of Shares	Nil
	- Percentage of Shares (as a % of the Total Shareholding of promoter and promoter group)	Nil
	- Percentage of Shares (as a % of the Total Share Capital of the Company)	Nil

	b) Non Encumbered
	- Number of Shares	4965902
	- Percentage of Shares (as a % of the Total Shareholding of Promoter and Promoter Group)	100%
	- Percentage of Shares (as a % of the Total Share Capital of the Company)	32.16

INVESTOR COMPLAINTS	Quarter Ended 30.06.2012
Pending at the beginning of the quarter	--
Received during the quarter	31
Disposed of during the quarter	31
Remaining unresolved at the end of the quarter	--

NOTES:

1. As the Company’s business activity falls within a single primary business segment viz. "Tobacco and related products", the disclosure requirements of Accounting Standard 17 "Segment Reporting" as notified under Section 211 (3C) of the Companies Act, 1956, are not applicable.

2. Effective 1st April, 2012, the Company has adopted Accounting Standard (AS) 30, "Financial Instruments-Recognition and Measurement" issued by The Institute of Chartered Accountants of India to the extent the adoption does not contradict with existing Accounting Standards and other authoritative pronouncements of the Company Law and other regulatory requirements. Accordingly, change in fair value of derivative financial instruments (comprising of foreign currency forward contracts) that are designated as effective cash flow hedges, is recognized directly in the shareholders' fund and is reclassified in the statement of profit and loss upon occurance of the hedged transaction. Had the Company not adopted the principles of hedge accounting set out in AS 30, Profit from ordinary activities before tax for the quarter ended 30^th June, 2012 would have been lower by Rs. 28.800 Millions.

3. To facilitate comparison, figures of the previous period have been re-arranged, where necessary.

4. Limited Review of Financial Results as per Clause 41 of Listing Agreement with the Stock Exchanges has been carried out by the Statutory Auditors for the quarter ended 30th June, 2012.

5. The above mentioned results were reviewed by the Audit Committee on 11th July, 2012 and approved by the Board of Directors at their meeting held on 12^th July, 2012.

CMT REPORT (Corruption, Money Laundering & Terrorism]

The Public Notice information has been collected from various sources including but not limited to: The Courts, India Prisons Service, Interpol, etc.

1] INFORMATION ON DESIGNATED PARTY

No records exist designating subject or any of its beneficial owners, controlling shareholders or senior officers as terrorist or terrorist organization or whom notice had been received that all financial transactions involving their assets have been blocked or convicted, found guilty or against whom a judgement or order had been entered in a proceedings for violating money-laundering, anti-corruption or bribery or international economic or anti-terrorism sanction laws or whose assets were seized, blocked, frozen or ordered forfeited for violation of money laundering or international anti-terrorism laws.

2] Court Declaration :

No records exist to suggest that subject is or was the subject of any formal or informal allegations, prosecutions or other official proceeding for making any prohibited payments or other improper payments to government officials for engaging in prohibited transactions or with designated parties.

3] Asset Declaration :

No records exist to suggest that the property or assets of the subject are derived from criminal conduct or a prohibited transaction.

4] Record on Financial Crime :

Charges or conviction registered against subject: None

5] Records on Violation of Anti-Corruption Laws :

Charges or investigation registered against subject: None

6] Records on Int’l Anti-Money Laundering Laws/Standards :

Charges or investigation registered against subject: None

7] Criminal Records

No available information exist that suggest that subject or any of its principals have been formally charged or convicted by a competent governmental authority for any financial crime or under any formal investigation by a competent government authority for any violation of anti-corruption laws or international anti-money laundering laws or standard.

8] Affiliation with Government :

No record exists to suggest that any director or indirect owners, controlling shareholders, director, officer or employee of the company is a government official or a family member or close business associate of a Government official.

9] Compensation Package :

Our market survey revealed that the amount of compensation sought by the subject is fair and reasonable and comparable to compensation paid to others for similar services.

10] Press Report :

No press reports / filings exists on the subject.

CORPORATE GOVERNANCE

MIRA INFORM as part of its Due Diligence do provide comments on Corporate Governance to identify management and governance. These factors often have been predictive and in some cases have created vulnerabilities to credit deterioration.

Our Governance Assessment focuses principally on the interactions between a company’s management, its Board of Directors, Shareholders and other financial stakeholders.

CONTRAVENTION

Subject is not known to have contravened any existing local laws, regulations or policies that prohibit, restrict or otherwise affect the terms and conditions that could be included in the agreement with the subject.

FOREIGN EXCHANGE RATES

Currency	Unit	Indian Rupees
US Dollar	1	Rs.55.54
UK Pound	1	Rs.87.39
Euro	1	Rs.68.72

INFORMATION DETAILS

Report Prepared by :

TPT

SCORE & RATING EXPLANATIONS

SCORE FACTORS	RANGE	POINTS
HISTORY	1~10	7
PAID-UP CAPITAL	1~10	7
OPERATING SCALE	1~10	8
FINANCIAL CONDITION
--BUSINESS SCALE	1~10	8
--PROFITABILIRY	1~10	8
--LIQUIDITY	1~10	7
--LEVERAGE	1~10	7
--RESERVES	1~10	8
--CREDIT LINES	1~10	7
--MARGINS	-5~5	-
DEMERIT POINTS
--BANK CHARGES	YES/NO	YES
--LITIGATION	YES/NO	NO
--OTHER ADVERSE INFORMATION	YES/NO	NO
MERIT POINTS
--SOLE DISTRIBUTORSHIP	YES/NO	NO
--EXPORT ACTIVITIES	YES/NO	YES
--AFFILIATION	YES/NO	YES
--LISTED	YES/NO	YES
--OTHER MERIT FACTORS	YES/NO	YES
TOTAL		67

This score serves as a reference to assess SC’s credit risk and to set the amount of credit to be extended. It is calculated from a composite of weighted scores obtained from each of the major sections of this report. The assessed factors and their relative weights (as indicated through %) are as follows:

Financial condition (40%) Ownership background (20%) Payment record (10%)

Credit history (10%) Market trend (10%) Operational size (10%)

RATING EXPLANATIONS

RATING		STATUS	PROPOSED CREDIT LINE
>86	Aaa	Possesses an extremely sound financial base with the strongest capability for timely payment of interest and principal sums	Unlimited
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory
26-40	B	Capability to overcome financial difficulties seems comparatively below average.	Small
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security
<10	C	Absolute credit risk exists. Caution needed to be exercised	Credit not recommended
-	NB	New Business	-

PRIVATE & CONFIDENTIAL : This information is provided to you at your request, you having employed MIPL for such purpose. You will use the information as aid only in determining the propriety of giving credit and generally as an aid to your business and for no other purpose. You will hold the information in strict confidence, and shall not reveal it or make it known to the subject persons, firms or corporations or to any other. MIPL does not warrant the correctness of the information as you hold it free of any liability whatsoever. You will be liable to and indemnify MIPL for any loss, damage or expense, occasioned by your breach or non observance of any one, or more of these conditions

This report is issued at your request without any risk and responsibility on the part of MIRA INFORM PRIVATE LIMITED (MIPL) or its officials.

MIRA INFORM REPORT

2382.509

1790.755

126.211

145.095

359.745

63.704

15.725

1.611

244.575

145.510

3128.765

2146.675

470.279

1613.295

2573.071

941.752

1171.553

540.199

4214.903

3095.246

(1086.138)

(948.571)

12.28

18.12

24.63

0.35

1.25

0.70

Unit