Tobacco Company VST Industries is selling its subsidiary, VST Natural Products, to the Global Green Company, a subsidiary of paper major Ballarpur Industries (BILT).
Hyderabad-based VST manufactures and distributes cigarettes sold under the brand names 'Charminar' & 'Charms', in the lower segment of the industry. The company commands a 13% share of the domestic market. Cigarettes account for nearly 93% of its turnover while unmanufactured and cut tobacco accounts for the rest. The company is the largest exporter of cigarettes to the Middle East from India.
The move to sell VST Natural Products, which exports bulk pickled gherkin (cucumber), is part of VST's restructuring plan to divest its non-core businesses. The company plans to focus on its core business of manufacturing and marketing cigarettes. The natural products division and its financial services foray have been a drain on VST's resources. VST profits have consistently declined in the last five years, with the company reporting a net loss of Rs 888 m in FY99.
VST hopes to improve its performance after its restructuring is complete. The company plans to utilise the amount realised from the divestment for retiring its debt. This should be good news for the company's shareholders.
VST's strategy to focus only on its cigarette business is surprising. Declining growth rate in cigarette sales and the punitive taxation policies of the government have forced other tobacco companies to diversify into other businesses and spread their risks. For example, industry leader ITC Limited has identified hotels, packaging and infotech as its key areas of growth, in addition to its tobacco business.
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