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)

Crop
State

Next

Giving Differences
Best Returns

Returns (I)
Andhra

Net

Between

Tobacco and (I)

Pradesh

(Northern
Soils)
Andhra

in

Black Bengal gram

4405

Pradesh

(Southern
Soils)
Karnataka
Gujarat
Bihar
West Bengal
Tamil Nadu

Black Chilies
Cotton
Pearl millet
Maize+ Potato
Potato
Groundnut

875
4500
2306
2729
5134
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 countrywise 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 locallygrown 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 17 th
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
always use the drug

recreationally

hallucinogenic

accordingly; Native Americans did not

. Instead, it was often consumed as an

among some tribes, this was done only by experienced

shamans

or

entheogen

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

, either in defined

pipes

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
slave

African

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
an English

statute

Stigian

smoke of the

pit that is bottomelesse

was enacted that placed a heavy protective

." In that same year,

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
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

England

Bermuda

Varina Farms Plantation

. When he left for

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
Manchester

Dumfries

on the Potomac, Richmond and

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 tobaccoproducing 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-capitals 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 citys 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, mustnt 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 years 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: 120). 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 60s 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 Indias 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
EPS (Rs)
Sales (Rs crore)
Face Value (Rs)
Net profit margin (%)
Last bonus
Last dividend (%)
Return on average equity

20.61
8.28
3,862.67
1
16.94
1:2
350
28.76

21/11/08
Mar, 08
Sep, 08
Mar, 99
17/06/05
23/05/08
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
2008
2007
2006
2005
2004
2003
2002
2001
2000

Month
May
May
May
May
May
May
May
Apr
May

Financial data of Dividend particulars of ITC

Income Statement

Dividend (%)
350
310
265
310
200
150
135
100
75

As on( Months )
31-Mar-08(12)
Profit / Loss A/C
Rs mn
Net Sales
139207.60
Operating
Income
142804.50
(OI)
OPBDIT
45351.00
OPBDT
45275.10
OPBT
40890.50
Non-Operating
4827.20
Income
Extraordinary/Prior
-722.20
Period
Tax
13794.50
Profit after tax(PAT) 31201.00
Cash Profit
35585.60
Dividend-Equity
13190.10

Share Statistics
As on
EPS (Rs.)
CFPS (Rs.)

31-Mar-08
8.28
9.44

%OI
97.48

31-Mar-07(12)
Rs mn
%OI
122988.90
99.16

31-MarRs mn
97863.4

100.00 124027.40

100.00

99109.3

31.76
31.70
28.63

40801.50
40730.20
37101.00

32.90
32.84
29.91

34491.8
34337.5
31014.1

3.38

2166.00

1.75

1677.80

-0.51

-1481.70

-1.19

63.10

9.66
21.85
24.92
9.24

10785.60
26999.70
30628.90
11662.90

8.70
21.77
24.70
9.40

10401.5
22353.5
25676.9
9951.2

31-Mar-07
7.18
8.14

31-Mar-06
5.95
6.84

Book Value (Rs.)

DPS (Rs.)

31.57
3.50

27.34
3.10

23.84
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

affiliate, each with 13% of the total market share, and

(VST), a

Golden Tobacco Company

BAT

(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 shelland-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 belowthe-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 onthe-spot arm wrestling matches across the State.

Dividend information of GTC

Report card
PE ratio
EPS (Rs)
Sales (Rs crore)
Face Value (Rs)
Net profit margin (%)
Last bonus
Last dividend (%)
Return on average equity

8.80
107.90
271.33
10
9.43
1:1
250
29.53

14/11/08
Mar, 08
Sep, 08
Mar, 99
30/09/93
30/06/08
Mar, 99

(GPI) Godfrey Phillips India

The success of Godfrey Phillips India is the result of the
Companys 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
2008
2007
2006
2005
2004
2003

Month
Jun
Jun
Jun
Jul
Aug
Aug

Dividend (%)
250
250
225
220
190
170

2002
2001
2000
1999
1998

Aug
Aug
Apr
Aug
Oct

160
120
10