INDUSTRY STRUCTURE AND DEVELOPMENTS
The year 2022-23 proved to be a tempestuous period for the global economy. While many
economies are on the path to recovery, geopolitical tensions, continued supply chain
dislocations and climate crisis resulted in unprecedented inflation and volatility in
global commodity and energy prices. The global economy enters 2022 in a weaker position
due to Russia and Ukraine crisis and its implications on the world economies. Despite
ongoing global economic volatility, India is still expected to remain one of the fastest
growing economies backed by strong consumer demand and greater push on infrastructural
development by Government of India.
In India, legal cigarettes account for only 8% of the total tobacco consumption and
this is in complete contrast with rest of the world where 90% of the tobacco is in the
form of cigarettes. The remaining 92% contribution is from other traditional products,
like chewing tobacco, bidis, Khaini etc. and other illegal cigarettes. A 16% hike in
National Calamity Contingent Duty (NCCD) was announced in the Union Budget on 1st
February 2023. This has resulted in an increase of about 1.6% on the overall tax. Illegal
non-duty paid cigarettes remain a threat for legal players as they continue to benefit
from a large price gap versus fully taxed cigarettes. Due to the above high volatile and
discriminatory taxation policy, all the market players are facing margin and volume
problems.
STRENGTHS & OPPORTUNITIES
India is the second largest tobacco producer behind China. The country has around 0.45
million hectares of area under tobacco cultivation. About 10% of the total area under
tobacco cultivation is in India. Globally, it accounts for 9% of the total tobacco
production. The average production for the last 5 years of the country for tobacco crops
was around 800 million kg. India has a long history of tobacco use, with cultural and
traditional practices contributing to steady demand for tobacco products like bidis and
chewing tobacco. The country produces various types of tobacco: Flue-cured Virginia (FCV)
tobacco, Country tobacco, Burley tobacco, Bidi tobacco, Rustica tobacco, Hookah, Cigar
rapped, Oriental, Chewing tobacco, etc. The diversity of Indian tobaccos has enabled the
country to export tobacco to over 121 countries across the globe.
India is the second largest exporter of tobacco behind Brazil. It exports various types
of tobacco and tobacco products such as stripped, wholly stemmed, cigar cheroots, smoking
tobacco, homogenized, flue-cured, sun-cured, extract and essence, FCV tobacco,
unmanufactured tobacco and various tobacco products. During 2022-23, India exported leaf
tobacco and tobacco products and generated foreign exchange earnings of more than Rs. 8000
crores.
Tobacco & Tobacco Products are a large contributor to the National exchequer by way
of Central Excise and GST, etc. Cigarettes which bear the brunt of taxation in India are
the major revenue contributor from the Tobacco sector.
The tobacco industry of India employs about 45 million people in farming, labour
activities, manufacturing, processing, and retailing activities. Tobacco is a highly
remunerative crop providing economic/social benefits to farmers in the tobacco growing
regions. Compared with other tobacco growing and manufacturing countries, India has low
production. Still India has significant opportunity for cigarette industry to extend and
consolidate its position in international market due to some recent trend like withdrawal
/ reduction of agricultural subsidy and escalating costing in the traditional cigarette
exporting countries.
It is your Companys continuous endeavor to maintain the taste and preferences of its
customers while upgrading and developing new brands. Your company is presently dealing in
the 64 mm and 69 mm with new packaging which are sold in various places of India and
export of king size cigarettes.
THREATS, RISKS AND CONCERNS
The Company has a proper mechanism in place for identifying, assessing, monitoring and
mitigating various business related risks. The Board of Directors of the Company are
regularly informed and updated about the risk assessments and minimization procedures. In
the course of its business, the Company is exposed to stiff competition from other
established developers in the market and is exposed to a wide variety of risks such as:
Extreme Regulation
While India is the worlds second largest tobacco producer and a major exporter,
tobacco control measures in India is the most stringent in the world. The Cigarettes and
Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce,
Production, Supply and Distribution) Act, 2003 (COPTA) is the principal comprehensive law
governing tobacco control in India.
Taxation
As compared to other developed countries like China, USA, UK the tax rates applicable
on cigarettes are much higher in India. Consequently, per capita cigarette consumption of
India is lowest in the world.
Pictorial/Graphic Warning
The Union Ministry of Health & Family Welfare has mandated an increase in the size
of pictorial warnings from the current 40% on front of the packs to 85% on both sides with
effect from 1st April 2016. Such an extreme position on warnings overlooking
the huge livelihood dependency and enormous socio-economic benefits of Tobacco in India.
These warnings act as a visual reminder of the potential harm caused by tobacco products.
Illegal Cigarette Trade
Extremely high tax rates and constantly increasing tax rates on Cigarettes provide a
profitable opportunity for tax evasion by illegal trade in both international smuggled and
domestic tax evaded cigarettes. Moreover, in the current market situation there is a stiff
competition from big players with regard to marketing of new brands.
Advertising, Promotion and Sponsorship
Advertising through most forms of mass media is prohibited. There are some restrictions
to tobacco sponsorship and the publicity of such sponsorship.
Further, Campaigning by various NGOs and Forums against the use and consumption of
tobacco remains a big threat to the industry. The passing of various bans on smoking is
also supplementing these threats.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
NTC has a robust system of internal financial control, commensurate with the size and
complexity of its business operations. The Corporate Governance Policy guides the conduct
of the affairs of your Company and clearly delineates the roles, responsibilities at each
level of its key functionaries involved in governance. It safeguarding its assets,
ensuring transactions are in accordance with the policies, and are duly authorised to
identify possible risk areas and to prevent possibilities of frauds or other
irregularities.
The Company has an external and independent firm of Internal Auditors that scrutinizes
the financials and other operations of the Company. Internal Auditors directly report to
the Audit Committee. The Audit committee review the adequacy and effectiveness of internal
control system of the Company and keeps the Board of Directors informed of its major
observations from time to time. Based on the findings of Internal Auditors, process owners
undertake corrective actions in their respective areas. During the year and at the
year-end, no reportable material weakness or significant deficiency was observed in the
design or operations. Your company is also ISO 9001:2008 certified for its internal audit
function.
FINANCIAL PERFORMANCE OF THE COMPANY
The financial highlight including the operational performance of the Company is stated
hereunder, in brief:
(Rs. in Lakhs)
Particulars |
Financial Year 2022-23 |
Financial Year 2021-22 |
Total Revenue from Operations |
4318.39 |
2485.64 |
EBIDTA |
357.11 |
638.45 |
PAT |
164.76 |
444.28 |
Basic EPS |
1.38 |
3.72 |
SEGMENT WISE / PRODUCT WISE PERFORMANCE
Your Company considers “Manufacturing of Cigarette and Smoking Mixture” as
the primary business segment. The Company has achieved an overall total turnover of Rs.
4318.39 Lakhs as compared to Rs. 2485.64 Lakhs in the previous year reflecting growth of
73.73%. The export sales decreased to Rs. 1070. 30 Lakhs from Rs. 1402.33 Lakhs. Your
company has a Profit Before Tax of Rs. 246.28 Lakhs as compared to Rs. 549.50 Lakhs in the
previous year. During the year under review, your Company generated a revenue of Rs.
2113.60 Lakhs from manufacturing and sale of Cigarettes and sale of FMCG products as
compared to Rs. 2026.24 Lakhs. The Company had generated a revenue of Rs. 1747.66 Lakhs
from high seas sales trading business during the year. The Company also generated revenue
out of Rental Services of Rs. 457.13 Lakhs during the year under review as compared to Rs.
459.40 Lakhs. Though the market conditions were not favorable and the same was challenging
for the Company. Further, domestic demand continued to be sluggish in throughout the year
due to trade disruption and geo-political uncertainties yet your Company managed to
achieve better results across the different markets.
Your Companys main focus is the affordable segment of 64 mm and 69 mm but the
continuous excise hike is making your companys foothold weak in the segment. Tobacco
Institute of India (TII), the association that lobbies for cigarette companies, has long
been vocal about high tax structure which it said has created the market for
smuggled foreign cigarette impacting the legal cigarette manufacturers. Health warning
labels are pictorial and text; cover 85 percent of the front and back panels of the
tobacco product package parallel to the top edge; and are rotated every 12 months. The
discriminatory taxation policy, increased harsh pictorial warning and availability of
cheaper non duty paid cigarettes, impacting your Companys performance. However, in the
abovementioned adverse scenarios, your Company is dedicated to its customers and taking
all the available efforts to regain its lost place in the industry by improving its
portfolio and technologies. During the year under review, the Company focused on improving
productivity, reducing costs and utilized its cash flows most effectively. Statement of
Segment- wise Revenue, Results, Assets and Liabilities for the year ended 31st
March, 2023 are disclosed in Note No. 30 of Notes on Standalone Financial Statements in
the Annual Report.
CHANGES IN KEY FINANCIAL RATIOS
Pursuant to the provisions of the Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) Regulations, 2015, the details of key financial
ratios along with the reasons for significant changes therein are given below:
Particulars
No. |
For the year ended 31st March, 2023 |
For the year ended 31st March, 2022 |
Reasons for significant change (if any) |
1. Debtors Turnover |
9.39 |
4.72 |
- |
2. Inventory Turnover |
7.56 |
4.04 |
Increase due to increase in revenue from operations |
3. Interest Coverage Ratio |
6.38 |
23.78 |
Due to decrease in profit because of increase in raw material cost |
4. Current Ratio |
4.54 |
5.29 |
Decrease in trade payable due to less procurement at year end |
5. Debt Equity Ratio |
0.11 |
0.09 |
- |
Operating Profit Margin (%) |
6.36% |
19.02% |
Due to increase in raw material cost |
7. Net Profit Margin (%) |
3.59% |
14.73% |
Due to increase in raw material cost |
Notes:
1. Above ratios are based on the standalone financial statements of the Company.
2. Significant change means a change of 25% or more as compared to the immediately
preceding financial year.
3. The figures of previous year have been reclassified and regrouped wherever
considered necessary.
Details of change in return on net worth as compared to the immediately preceding
financial year:
Particulars |
For the year ended 31st March, 2023 |
For the year ended 31st March, 2022 |
Reasons for Significant change (if any) |
Return on Net Worth |
4.06 |
9.29 |
Due to decrease in profit because of increase in raw material cost |
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT
At NTC, we follow a culture that provides a platform for continuous learning and
development to meet the challenges posed by ever-changing market realities. The most
valuable resources of the company are its employees and the Management recognizes them as
the prime machinery of the organization. They are always given the first priority and are
provided with all the basic requirements and safety measures for good health and
well-being. The Management, in order to create enduring value, has fostered a culture of
feeling of being togetherness and attachment amongst the employees through participative
management practices, open interaction and mutual respect.
Your Companys human resource management systems and processes aim to enhance
organizational capability and vitality to seize emerging market opportunities. The
strategy of the organization and its ongoing emphasis on developing and nurturing
distributed leadership has ensured that each of your Companys business is managed by a
team of competent, passionate and inspiring leaders. As on 31st March, 2023
your Company has a total of 64 employees.
Your Companys belief in the mutuality of interests of key stakeholders binds all
employees to a shared vision and purpose. The Company enjoyed amiable relationship with
workers and employees at all levels and did not report any sort of strike or lockout that
would have impacted Companys operations.
CAUTIONARY STATEMENT
Statements in the Management Discussion and Analysis describing the industrial
expectations are “forward looking statements” within the meaning of applicable
securities law and regulations. Actual results could differ materially from those
expressed or implied, important factors that could make difference to the Companys
operations include raw material availability and prices, cyclical demand and pricing in
the Companys principal markets, changes in the government regulations, tax regimes,
economic developments in India and other incidental factors.
|
For and on behalf of the Board |
Place: Kolkata |
|
Date: 30th May 2023 |
|
|
Priyawart Jariwala |
|
Managing Director |
+91-9892691696
