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Directors Report of Godfrey Philips India Ltd.

Mar 31, 2016

The Directors feel privileged to present the 79th Annual Report on the business and operations of the Company along with the Audited Accounts for the financial year, ended March 31, 2016.

FINANCIAL RESULTS

2015-16 2014-15 Rs. in lacs Rs. in lacs

Gross Profit (after exceptional item) 33905.50 37365.53

Less : Depreciation 10220.49 10225.65

Profit before tax 23685.01 27139.88

Less : Provision for tax

- current tax 7042.00 9218.00

- deferred tax charge/(credit) 236.54 (462.76)

- current tax expense relating to prior years (91.89) 76.20

Profit after tax for the year 16498.36 18308.44

Add: Profit brought forward 100261.19 89369.31

Less: Adjustment for depreciation in transition - 410.27

Available for appropriation 116759.55 107267.48

Appropriations

Proposed Dividend 4159.51 4159.51

Corporate Dividend Tax 846.78 846.78

Transfer to General Reserve 2000.00 2000.00

Surplus carried to Balance Sheet 109753.26 100261.19

116759.55 107267.48

During the year ended March 31, 2016, the Company registered operating revenue of Rs.4348 crores as against Rs.4453 crores during corresponding previous financial year, a decline of 2.4%. The profit after tax was lower at Rs.164.98 crores against Rs.183.08 crores last year.

The Union Budget 2016 has yet again increased the excise duty on cigarette which works out to around 10% on weighted average volume base of your Company and this is apart from some State Governments hiking VAT rates.

DIVIDEND

Your Directors are pleased to recommend the same dividend as last year of 400% i.e. Rs.8/- per equity share of face value of Rs.2/- each. The proposed dividend (including tax thereon) will absorb Rs.5006.29 lacs.

DEPOSITS

Your Company has not accepted any deposits, covered under Chapter V of the Companies Act, 2013 and hence no details pursuant to Rules 8(v) and 8(vi) of the Companies (Accounts) Rules, 2014 are reported.

EXTRACT OF ANNUAL RETURN

The extract of Annual Return in Form MGT-9 as on 31st March, 2016 is attached as ''Annexure - 1'' to this Report.

SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

As on 31st March, 2016, your Company had eight subsidiaries and three associate companies. The basic details of these companies form part of the extract of Annual Return given in ''Annexure - 1''.

Form AOC-1 containing the salient features of financial statements of the Company''s subsidiaries and associates is attached as ''Annexure - 2''. Note 43 of the consolidated financial statements shows the share of each subsidiary and associate company in the consolidated net assets and profits of the Company. The audited financial statements of these entities will be available for inspection during business hours at the Registered Office of the Company.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial Statements, Group Accounts form part of this Annual Report. The Group Accounts have been prepared on the basis of audited financial statements received from the subsidiary and associate companies, as approved by their respective Boards.

INTERNAL CONTROL SYSTEMS

Your Company has a robust system of internal controls commensurate with the size of the Company and the nature of its business, which ensures that transactions are recorded, authorised and reported correctly apart from safeguarding its assets against loss from wastage, unauthorised use and disposition.

The internal control systems are supplemented by well documented policies, guidelines and procedures which is in line with the internal financial control framework requirements. There is an extensive programme of internal audit by a firm of chartered accountants followed by periodic management reviews.

The Audit Committee actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same.

CORPORATE SOCIAL RESPONSIBILITY

The Companies Act, 2013 mandates every company that meets certain eligibility criteria, to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (CSR) activities.

Our CSR initiatives focus on inclusive growth with the Company striving to enhance the livelihood of the local communities and contribute to their economic and social well-being through various proactive community partnership programmes.

Your Company, with the support of implementing institutions, is working with most vulnerable communities in target areas by way of providing various supports in the field of education, health, skill development, etc. As part of various programmes for farmers, women, children and community development, your Company is supporting this cause by installation of safe drinking water, holding health camps, extending scholarships for meritorious children, connecting children with schools, conducting HIV awareness programmes, operating skill training centres for adult children, improving infrastructure of schools, building toilets, helping community through drainage construction and other cleanliness drive and thereby improving their living conditions. Higher education is the prime driver for sustainable development and economic growth.

As part of women empowerment initiative, the Kashmir women''s program realized its target of enabling conflict ridden women with skill development and empowerment through livelihood. There were success stories of women moving to entrepreneurial ventures and independent projects.

The Company has constituted a CSR Committee of the Board in accordance with the provisions of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014. The brief outline of the CSR policy, overview of the activities undertaken with amounts spent thereon during the year and composition of the Committee have been disclosed in ''Annexure - 3''.

DIRECTORS

Mr. R.A. Shah (DIN 00009851) and Mrs. Bina Modi (DIN 00048606) are liable to retire by rotation at the ensuing Annual General Meeting, in accordance with the provisions of Section 152 of the Companies Act, 2013 and being eligible, offer themselves for re-appointment.

Mr. Ruchir Kumar Modi (DIN 07174133) was appointed as Additional Director w.e.f. 19th March, 2016 and holds office upto the date of the ensuing Annual General Meeting. The Company has received a notice pursuant to Section 160 of the Companies Act, 2013 from one of its members proposing his candidature for appointment as a Director.

PERFORMANCE EVALUATION OF THE BOARD, ETC.

The details pertaining to the manner in which evaluation of the Board, its Committees and individual Directors has been carried out, forms part of Corporate Governance Report.

KEY MANAGERIAL PERSONNEL

Mr. K.K. Modi, Managing Director, Mr. Samir Kumar Modi, Executive Director, Mr. R. Ramamurthy, Whole- time Director, Mr. Sunil Agrawal, Chief Financial Officer and Mr. Sanjay Gupta, Company Secretary of the Company are deemed to be Key Managerial Personnel of the Company as per the provisions of Companies Act, 2013 and rules made thereunder.

BOARD MEETINGS

The details of the meetings of the Board held during the year, forms part of the Corporate Governance Report.

AUDIT COMMITTEE

The composition, functions and details of the meetings of the Audit Committee held during the year, forms part of the Corporate Governance Report.

RISK MANAGEMENT

Your Company considers that risk is an integral part of its business and therefore, it takes proper steps to manage all risks in a proactive and efficient manner. The Company management periodically assesses risks in the internal and external environment and incorporates suitable risk treatment processes in its strategy, and business and operating plans. The details of practices being followed by the Company in this regard, forms part of the Corporate Governance Report.

There are no risks which, in the opinion of the Board, threaten the very existence of your Company. However, some of the challenges faced by it have been dealt with under Management Discussion and Analysis which forms part of this Report.

DIRECTORS'' RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 134(3)(c) of the Companies Act, 2013 (the ''Act''), the Directors, to the best of their knowledge confirm that:

(i) in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures;

(ii) appropriate accounting policies have been applied consistently and judgements and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

(iii) proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) the Annual Accounts have been prepared on a going concern basis;

(v) the internal financial controls to be followed by the Company have been laid down and such internal financial controls are adequate and are operating effectively; and

(vi) proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

The above statements were noted by the Audit Committee at its meeting held on 16th August, 2016.

RELATED PARTY TRANSACTIONS

Form AOC-2 containing particulars of contracts or arrangements entered into by the Company with related parties referred in Section 188(1) of the Companies Act, 2013 are attached as ''Annexure - 4''.

The details of related party disclosures form part of the notes to the financial statements.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Details of loans, guarantees and investments covered by the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the financial statements.

WHISTLE BLOWER POLICY/VIGIL MECHANISM

The details of Whistle Blower Policy/Vigil Mechanism forms part of the Corporate Governance Report.

REMUNERATION AND NOMINATION POLICY

The details of remuneration and nomination policy for the Directors forms part of the Corporate Governance Report.

The remuneration policy for other senior management employees including key managerial personnel aims at attracting, retaining and motivating high calibre talent and ensures equity, fairness and consistency in rewarding the employees. The remuneration to management grade employees involves a blend of fixed and variable component with performance forming the core. The components of total remuneration vary for different employee grades and are governed by industry practices, qualifications and experience of the employee, responsibilities handled by him, his potentials, etc.

CORPORATE GOVERNANCE

The Company is committed to maximise the value for its stakeholders by adopting the principles of good Corporate Governance in line with the provisions of law and in particular those stipulated in the Listing Obligations and Disclosure Requirement Regulations. Its objective and that of its management and employees is to manufacture and market the Company''s products in a way so as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy in general.

Certificate from the auditors of the Company regarding compliance of the conditions of Corporate Governance as stipulated in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, is enclosed.

Certificate from Mr. K.K. Modi, Managing Director as the Chief Executive Officer (CEO) and Mr. Sunil Agrawal, Executive Vice President - Finance as the Chief Financial Officer (CFO) in relation to the financial statements for the year along with declaration by the CEO regarding compliance with the code of business conduct of the Company by the directors and the members of the senior management team of the Company during the year, were submitted to and taken note of by the Board.

STATUTORY AUDITOR

M/s. Deloitte Haskins & Sells, Chartered Accountants (Firm Registration No. 015125N), were appointed as the Statutory Auditor of your Company at the Annual General Meeting held on 23rd September, 2014 for a term of three years. However, as per the provisions of Section 139 of the Companies Act, 2013, their appointment is required to be ratified by the Shareholders at every Annual General Meeting.

Auditors'' Report on the financial statements of the Company forms part of the Annual Report and doesn''t contain any qualification, reservation, adverse remark or disclaimer.

COST AUDIT

M/s. Chandra Wadhwa & Co., Cost Accountants (Firm Registration No.00239), have been appointed as the Cost Auditor of the Company for the financial year 2016-17 to audit the cost accounting records for ''Tea'' business, at a fee of Rs. 2.50 lacs plus applicable taxes and out of pocket expenses, subject to approval by the Shareholders at the ensuing Annual General Meeting.

Further, the cost audit report for the financial year 2015-16 doesn''t contain any qualification, reservation, adverse remark or disclaimer.

SECRETARIAL AUDIT

M/s Chandrasekaran Associates, Practicing Company Secretaries, have been appointed as the Secretarial Auditor of the Company.

The Secretarial Audit Report for the year under review is attached as ''Annexure - 5'' and doesn''t contain any qualification, reservation, adverse remark or disclaimer.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS

During the year under review, no significant and material order was passed by the Regulators/Courts that could impact the going concern status of the Company and its future operations.

PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are attached as ''Annexure - 6''.

Pursuant to the provisions of Section 136(1) of the Act and as advised, the statement containing particulars of employees as required under Section 197(12) of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, will be available for inspection at the Registered Office of the Company during working hours and Members interested in obtaining a copy of the same may write to the Company Secretary and the same will be furnished on request. Hence, the Annual Report is being sent to all the Members of the Company excluding the aforesaid information.

CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars prescribed under Section 143(3)(m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are attached as ''Annexure - 7''.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

The Company has in place a policy on prevention, prohibition and redressal of sexual harassment of women at work place in line with the requirements of the above Act.

Under the said policy, an Internal Complaints Committee (ICC) has been set up to redress complaints received relating to sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy.

During the year under review, no complaint was filed with the Company.

THE FUTURE

Your Company has a strong platform in the form of the state of the art manufacturing facilities, best in class technology, vast distribution network, adequate financial resources and motivated manpower to drive growth across its various businesses and product categories both in domestic and international markets. Your Directors are confident that the Company will continue to create value for its shareholders in times to come.

ACKNOWLEDGEMENT

Your Directors wish to place on record their sincere appreciation to the Government authorities, Company''s bankers, customers, vendors, investors and all other stakeholders for their continued support during the year. Your Directors are also pleased to record their appreciation for the dedicated services of employees at all levels of operations in the Company.

Respectfully submitted on behalf of the Board

R.A. SHAH

CHAIRMAN

New Delhi

Dated : 16th August,2016


Mar 31, 2015

The Directors feel privileged to present the 78th Annual Report on the business and operations of the Company along with the Audited Accounts for the financial year, ended March 31, 2015.

FINANCIAL RESULTS

2014-15 2013-14 Rs. in lacs Rs. in lacs

Gross Profit (after exceptional item) 37365.53 34122.98

Less : Depreciation 10225.65 8655.43

Profit before tax 27139.88 25467.55

Less : Provision for tax

- current tax 9218.00 9602.40

- deferred tax charge/(credit) (462.76) (1356.42)

- current tax expense relating to prior years 76.20 157.51

Profit after tax for the year 18308.44 17064.06

Profit brought forward 89369.31 79171.67

Less: Adjustment for depreciation in transition 410.27 -

Available for appropriation 107267.48 96235.73

Appropriations

Proposed Dividend 4159.51 4159.51

Corporate Dividend Tax 846.78 706.91

Transfer to General Reserve 2000.00 2000.00

Surplus carried to Balance Sheet 100261.19 89369.31

107267.48 96235.73

During the year ended March 31, 2015, the Company registered operating revenue of Rs. 4453 crore as against Rs. 4193 crore during corresponding previous financial year, a growth of almost 6.2%. The profit after tax was higher at Rs. 183.08 crore against Rs. 170.64 crore last year.

The Union Budget 2015 has yet again increased the excise duty on cigarette which works out to around 15% on weighted average volume base of your Company and this is apart from some State Governments hiking VAT rates. The trend of steep increase in taxation on cigarette as prevalent over the last several years is likely to continue.

SUB-DIVISION OF SHARES

Pursuant to the approval of the Shareholders obtained at last Annual General Meeting held on 23rd September, 2014, each equity share of nominal face value of Rs.10/- (Rupees Ten) each was sub-divided into 5 (Five) equity shares of face value of Rs.2/- (Rupees Two) each with effect from 1st December, 2014.

DIVIDEND

Your Directors are pleased to recommend the same dividend as last year of 400% i.e. Rs. 8/- per equity share of face value of Rs. 2/- each.The proposed dividend (including tax thereon) will absorb Rs. 5006.29 lacs.

DEPOSITS

Your Company has not accepted any deposits, covered under Chapter V of the Companies Act, 2013 and hence no details pursuant to Rules 8(v) and 8(vi) of the Companies (Accounts) Rules, 2014 are reported.

EXTRACT OF ANNUAL RETURN

The extract of Annual Return in Form MGT-9 as on 31st March, 2015 is attached as 'Annexure - 1' to this Report.

SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

As on 31st March, 2015, your Company had six subsidiaries and three associate companies. The basic details of these companies form part of the extract of Annual Return given in 'Annexure-1'.

Form AOC-1containing the salient features of financial statements of the Company's subsidiaries and associates is attached as 'Annexure - 2'. The audited financial statements of these entities will be available for inspection during business hours at the Registered Office of the Company.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial Statements, Group Accounts form part of this Annual Report. The Group Accounts have been prepared on the basis of audited financial statements received from the subsidiary and associate companies, as approved by their respective Boards.

INTERNAL CONTROL SYSTEMS

Your Company has a robust system of internal controls commensurate with the size of the Company and the nature of its business, which ensures that transactions are recorded, authorised and reported correctly apart from safeguarding its assets against loss from wastage, unauthorised use and disposition.

The internal control systems are supplemented by well documented policies, guidelines and procedures, an extensive programme of internal audit by a firm of chartered accountants and management reviews.

The Audit Committee actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same.

CORPORATE SOCIAL RESPONSIBILITY

As a long-standing business, led by a promoter family with philanthropy ingrained in them, your Company has always strived to be a responsible corporate citizen. As a successful cigarette manufacturing company, we feel an even greater obligation to take our social responsibility efforts further to cover a wide spectrum of social issues.

In its endeavour to benefit co-communities of the Company, the project Amodini is focussing on improvement of quality of lives of contractual women labourers engaged in leaf tobacco grading in Ongole, Andhra Pradesh. This initiative has not just made women financially aware with thrift and credit, but also supported them in becoming economically independent through vocational training and skill development and has been able to promote gender equality.

Another large project for conflict ridden women was initiated in Kashmir, a major market of the Company. Already equipped with traditional skills in Kashmiri handicraft, these women are being provided technical inputs on the aspects of marketing, design and financial management to ensure a sufficient and consistent income for sustainable livelihood.

Our commitment to be responsible to the environment from which we extract resources is reflected in our Good Agricultural Practices (GAP) initiative with farmers. And to minimise the impact of our business on the environment, we have ISO 14001:2004 (Environment Management System) certification for our manufacturing plants and use methods that have been proven to be environmentally safe.

Rabale factory was bestowed with 'Greentech Environment Gold' award for outstanding achievement in Environment Management, 'Super Achiever' award for outstanding achievement in Safety Management and also 'Silver' award in IRIM Global Manufacturing Competitiveness.

The Company has constituted Corporate Social Responsibility (CSR) Committee of the Board in accordance with the provisions of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014. The brief outline of the CSR policy, overview of the activities undertaken with amounts spent thereon during the year and composition of the Committee have been disclosed in 'Annexure - 3'.

DIRECTORS

Mr. Samir Kumar Modi (DIN 00029554) and Mr. R. Ramamurthy (DIN 00030463) are liable to retire by rotation in accordance with the provisions of Section 152 of the Companies Act, 2013 at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment.

Mr. Lalit Kumar Modi vacated his office as the Director of the Company with effect from 28th May, 2015 by virtue of the provisions of Section 167 (1) (b) of the Companies Act, 2013.

Mr. Atul Kumar Gupta (DIN 01734070) was appointed as Additional Director w.e.f. 20th June, 2015 and holds office upto the date of the ensuing Annual General Meeting. The Company has received notice pursuant to Section 160 of the Companies Act, 2013 from one of its members proposing his candidature for appointment as a Director.

PERFORMANCE EVALUATION OF THE BOARD, ETC.

The details pertaining to the manner in which evaluation of the Board, its Committees and individual Directors has been carried out, forms part of Corporate Governance Report.

KEY MANAGERIAL PERSONNEL

Mr. K.K. Modi, President & Managing Director, Mr. Samir Kumar Modi, Executive Director, Mr. R. Ramamurthy, Whole-time Director, Mr. Sunil Agrawal, Chief Financial Officer and Mr. Sanjay Gupta, Company Secretary of the Company are deemed to be Key Managerial Personnel of the Company as per the provisions of Companies Act, 2013 and rules made thereunder. All of these officials were already in the office prior to commencement of the Companies Act, 2013.

BOARD MEETINGS

The details of the meetings of the Board held during the year, forms part of the Corporate Governance Report.

AUDIT COMMITTEE

The composition, functions and details of the meetings of the Audit Committee held during the year, forms part of the Corporate Governance Report.

RISK MANAGEMENT

Your Company considers that risk is an integral part of its business and therefore, it takes proper steps to manage all risks in a proactive and efficient manner. The Company management periodically assesses risks in the internal and external environment and incorporates suitable risk treatment processes in its strategy, and business and operating plans. The details of practices being followed by the Company in this regard, forms part of the Corporate Governance Report.

There are no risks which, in the opinion of the Board, threaten the very existence of your Company. However, some of the challenges faced by it have been dealt with under Management Discussion and Analysis which forms part of this Report.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 134(3)(c) of the Companies Act, 2013 (the 'Act'), the Directors, to the best of their knowledge confirm that:

(i) in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures;

(ii) appropriate accounting policies have been applied consistently and judgements and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

(iii) proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) the Annual Accounts have been prepared on a going concern basis;

(v) the internal financial controls to be followed by the Company have been laid down and such internal financial controls are adequate and are operating effectively; and

(vi) proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

The above statements were noted by the Audit Committee at its meeting held on July 31, 2015.

RELATED PARTY TRANSACTIONS

Form AOC-2 containing particulars of contracts or arrangements entered into by the Company with related parties referred in Section 188(1) of the Companies Act, 2013 are attached as 'Annexure -4'.

The details of related party disclosures form part of the notes to the financial statements.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Details of loans, guarantees and investments covered by the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the financial statements.

WHISTLE BLOWER POLICY / VIGIL MECHANISM

The details of Whistle Blower Policy/Vigil Mechanism forms part of the Corporate Governance Report.

REMUNERATION AND NOMINATION POLICY

The details of remuneration and nomination policy for the Directors forms part of the Corporate Governance Report.

The remuneration policy for other senior management employees including key managerial personnel aims at attracting, retaining and motivating high calibre talent and ensures equity, fairness and consistency in rewarding the employees. The remuneration to management grade employees involves a blend of fixed and variable component with performance forming the core. The components of total remuneration vary for different employee grades and are governed by industry practices, qualifications and experience of the employee, responsibilities handled by him, his potentials etc.

CORPORATE GOVERNANCE

The Company is committed to maximise the value for its stakeholders by adopting the principles of good Corporate Governance in line with the provisions of law and in particular those stipulated in the Listing Agreement with the Stock Exchanges. Its objective and that of its management and employees is to manufacture and market the Company's products in a way so as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy in general.

Certificate from the auditors of the Company regarding compliance of the conditions of Corporate Governance as stipulated in clause 49 of the Listing Agreement with the Stock Exchanges, is enclosed.

Certificate from Mr. K.K. Modi, Managing Director as the Chief Executive Officer (CEO) and Mr. Sunil Agrawal, Executive Vice President – Finance as the Chief Financial Officer (CFO) in relation to the financial statements for the year along with declaration by the CEO regarding compliance with the code of business conduct of the Company by the directors and the members of the senior management team of the Company during the year, were submitted to and taken note of by the Board.

STATUTORY AUDITOR

M/s. Deloitte Haskins & Sells, Chartered Accountants (Firm Registration No. 015125N), were appointed as the Statutory Auditor of your Company at the last Annual General Meeting held on 23rd September, 2014 for a term of three years. However, as per the provisions of Section 139 of the Companies Act, 2013, their appointment is required to be ratified by the Shareholders at every Annual General Meeting.

Auditors' Report on the financial statements of the Company forms part of the Annual Report and doesn't contain any qualification, reservation, adverse remark or disclaimer.

COST AUDIT

M/s. Chandra Wadhwa & Co., Cost Accountants (Firm Registration No.00239), have been appointed as the Cost Auditor of the Company for the financial year 2015-16 to audit the cost accounting records for 'Tea' business, at a fee of Rs. 2.50 lacs plus applicable taxes and out of pocket expenses, subject to ratification by the Shareholders at the ensuing Annual General Meeting.

SECRETARIAL AUDIT

M/s. Chandrasekaran Associates, Practicing Company Secretaries, have been appointed as the Secretarial Auditor of the Company.

The Secretarial Audit Report for the year under review is attached as 'Annexure - 5' and the observation of the Secretarial Auditor with regard to absence of one out of two Independent Directors at the Audit Committee Meetings held on 28th May, 2014 and 9th November, 2014, has been addressed in the para 3(ii) of the Corporate Governance Report for the year ended 31st March, 2015.

Except for one observation as mentioned above, the Secretarial Audit Report doesn't contain any qualification, reservation, adverse remark or disclaimer.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS

During the year under review, no significant and material order was passed by the Regulators/Courts that could impact the going concern status of the Company and its future operations.

PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are attached as 'Annexure -6'.

Pursuant to the provisions of Section 136(1) of the Act and as advised, the statement containing particulars of employees as required under Section 197(12) of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, will be available for inspection at the Registered Office of the Company during working hours and Members interested in obtaining a copy of the same may write to the Company Secretary and the same will be furnished on request. Hence, the Annual Report is being sent to all the Members of the Company excluding the aforesaid information.

CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars prescribed under Section 143(3)(m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are attached as 'Annexure -7'.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

The Company has in place a policy on prevention, prohibition and redressed of sexual harassment of women at work place in line with the requirements of the above Act.

Under the said policy, an Internal Complaints Committee (ICC) has been set up to redress complaints received relating to sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy.

During the year under review, one complaint was filed with the Company and the same was investigated by the ICC and resolved as per the provisions of the Act.

THE FUTURE

Your Company has the requisite infrastructure, best in class technology, vast distribution network and talented pool of human resources to drive growth in various business and product categories both in domestic and international markets. Your Directors are confident that the Company will continue to create value for its shareholders in times to come.

ACKNOWLEDGEMENT

Your Directors wish to place on record their sincere appreciation to the Government authorities, Company's bankers, customers, vendors, investors and all other stakeholders for their continued support during the year. Your Directors are also pleased to record their appreciation for the dedicated services of employees at all levels of operations in the Company.

Respectfully submitted on behalf of the Board

New Delhi R.A. SHAH

Dated : July 31, 2015 CHAIRMAN


Mar 31, 2014

Dear members,

The Directors have pleasure in presenting the Seventy-seventh Annual Report on the business and operations of the Company together with the Audited Accounts for the financial year ended March 31, 2014.

FIXED DEPOSITS

The Company has not accepted any Fixed Deposits from the public or members during the year. No amount was outstanding towards unclaimed deposits payable to the depositors as on March 31, 2014.

FINANCIAL RESULTS

2013-14 2012-13 Rs. in lacs Rs. in lacs

Gross Profit (after exceptional item) 34122.98 32490.35

Less : Depreciation 8655.43 8800.03

Profit before tax 25467.55 23690.32

Less : Provision for tax

* current tax 9602.40 5855.62

* deferred tax charge/(credit) (1356.42) 1136.03

* current tax expense relating to prior years 157.51 (249.11)

Profit after tax for the year 17064.06 16947.78

Profit brought forward 79171.67 69090.31 Available for appropriation 96235.73 86038.09

Appropriations

Proposed Dividend 4159.51 4159.51

Corporate Dividend Tax 706.91 706.91

Transfer to General Reserve 2000.00 2000.00

Surplus carried to Balance Sheet 89369.31 79171.67

96235.73 86038.09

During the year ended March 31, 2014, the Company registered sales turnover of Rs. 4132 crore as against Rs. 3598 crore during corresponding previous financial year, a growth of almost 15%. The profit after tax was marginally higher at Rs. 170.64 crore against Rs. 169.47 crore last year.

The Union Budget 2014 has yet again increased the excise duty on cigarette which works out to around 24% on weighted average volume base of your Company and this is apart from some State Governments hiking VAT rates. The trend of steep increase in taxation on cigarette over the last several years is likely to continue.

DIVIDEND

Your Directors are pleased to recommend the same dividend as last year of Rs. 40 per equity share of face value of Rs. 10 each.

INTERNAL CONTROL SYSTEM

Your Company has a robust system of internal controls commensurate with the size of the Company and the nature of its business, which ensures that transactions are recorded, authorised and reported correctly apart from safeguarding its assets against loss from wastage, unauthorised use and disposition.

The internal control system is supplemented by well documented policies, guidelines and procedures, an extensive programme of internal audit by a firm of chartered accountants and management reviews.

HUMAN RESOURCE DEVELOPMENT

Your Company modified the organization structures of its Businesses/ Core Functions to facilitate better performance outcomes. Simultaneously, it is also working towards building a working culture aimed at achieving higher performance orientation, openness in communication, structured succession planning and more empowerment. The Key business result areas of different functions are being integrated to ensure better synergy and intra and inter-functional effectiveness.

Initiatives such as training of female employees on personal safety and security issues, meeting other guidelines on the subject of prevention and prohibition of sexual harassment and its redressal, annual health check-ups for employees and building employee capabilities are helping your Company to better engage its employees and drive improvement in business outcomes.

CORPORATE DEVELOPMENT

Corporate Development division continued to serve towards fine-tuning the business model through long term planning for the Company and providing strategic inputs to the senior leadership as well as the business teams by continuously engaging in alignment of business objectives, long term planning for identification of key trends, monitoring the changes in the market and competitive landscape, understanding the industry trends and its impact on the business, analysing the regulatory environment and providing inputs on business portfolio optimization. The Corporate Development team of your Company is also engaged in working with external partners towards development of the envisioned growth strategy.

INFORMATION TECHNOLOGY

Your Company is continuing its investment in Information Technology to improve operational efficiencies and enhance productivity. It successfully completed ERP implementation for all businesses and implementation of state of art hardware technologies to provide uninterrupted services to the businesses. Your Company has decided to leverage IT in its sales and distribution functions to drive towards transformational phase aimed at achieving improvement in sales system efficiencies, converting sales information into actionable data points and integrating information across the enterprise.

Your Company is closely observing evolution in the digital space and looking at suitable opportunity to participate in this revolution to enhance its business landscape in times to come.

CORPORATE SOCIAL RESPONSIBILITY

''Amodini'', your Company''s flagship CSR initiative for women''s empowerment has grown from strength to strength impacting over 23,000 women directly. The program has been able to promote gender equality and address power imbalances by joining hands with many reputed NGOs. This initiative has not just made women financially aware with thrift and credit, but also supported them in becoming economically independent through vocational training and skill development.

In its endeavour to benefit the communities directly connected with the Company''s business, Amodini program is focussing on improvement of quality of lives of 650 contractual women labourers engaged in tobacco leaf grading in Ongole, Andhra Pradesh through water, sanitation, health, hygiene, thrift-credit and education related interventions. Another large project for conflict ridden women was initiated in Kashmir, a major market of the Company. Already equipped with traditional skills in Kashmiri handicraft, these women are being provided support for earning sustainable livelihoods from the same. It is an economic empowerment program which intends to provide technical inputs on aspects of marketing, design and financial management to ensure a sufficient and consistent income for about 1200 women over a period of three years.

Rabale factory''s Green initiative was recognized with ''Gold Rating'' by the IGBC and Ghaziabad factory was bestowed with ''Platinum Award'' by the Greentech Foundation for outstanding achievement in environment management and ''Gold Award'' by FICCI for quality awards in manufacturing.

CONSERVATION OF ENERGY

Several energy saving measures were taken during the year, details of which are given below:

1. Installation of LED lighting for pilot plant at Rabale has resulted in saving of energy consumption by about 30%.

2. Optimized use of energy on air handling units at SMD by reducing height of its duct at Rabale factory.

3. Optimized use of energy by H&V plant at PMD by interconnecting its usage with PMD machines'' running at Rabale factory.

4. Optimized use of energy for vacuum pump by interconnecting vacuum line for making and packing machines at Rabale factory.

TECHNOLOGICAL ABSORPTION, ADOPTION AND INNOVATION

1. Modified Tower Dryer to achieve optimum temp flash drying of cut tobacco at Rabale factory.

2. Installed high sensitivity metal detector at chewing products plant for food safety considerations.

3. Installed tea cleaning conveyor system to ensure teas are free from any impurities and remain untouched by hands during entire process.

4. Designed and locally developed inner frame registration units on cigarette packing machines to run pre- printed inner frames.

5. Designed and locally developed machine for cigarette packing and wrapping in 20''s ''Shoulder Box''.

6. Pan masala packing machine upgraded from the speed of 600 ppm to 1000 ppm.

7. Automated flavor dosing system installed for uniform dosage of flavor in pan masala.

8. Obtained IS0-22000 certification for the chewing products plant.

9. Introduced square corner extended cigarette pack of 77 mm length.

10. Dock leveller installed for direct loading of cut tobacco cartons in the containers for export.

RESEARCH & DEVELOPMENT

New Product Development

1. Carried out development work for some differentiated products in cigarette, cut tobacco and chewing categories for meeting requirements of both domestic and overseas customer needs.

2. Developed methods for testing of e-cigarettes.

3. Fully implemented the ''Agile'' software system for mapping the process of product development thereby increasing the pace of new offer development.

4. Scaled up the size of pilot plant to a 500 kg line.

5. Developed flavours in-house for use in pan masala and zarda.

6. Took up project to reduce cigarette densities of major brands.

Benefits derived as a result of this Development

1. Created and improved premium brands of cigarettes where we have marginal presence in the domestic markets.

2. Further enhanced existing tobacco blends in order to improve the smoke characteristics.

3. Reduced the delivery levels of our existing major RSFT brands.

4. Further increased the number of variants of cut tobacco blends and cigarettes in the library for domestic as well as export markets.

5. Agile software has helped in building the robust product development process.

Future Plan of Action

1. Continuous endeavour to improve the efficiency in terms of creating differentiated / innovative products for the cigarette and chewing business, thereby maintaining a healthy offer pipeline.

2. Developing new flavors for e-cigarettes.

3. Constituting expert panel for testing chewing products developed in-house.

4. Continue endeavour on smoke delivery reduction in cigarette brands.

DIRECTORS

Your Directors express their profound grief on the sad demise of two sitting directors of the Company, namely, Mr. O.P. Vaish and Mr. C.M. Maniar on September 18, 2013 and June 29, 2014, respectively. The Board has recorded its deep sense of appreciation for the valuable contribution made by them in course of their tenure as directors of the Company.

As per the provision of the Companies Act, 2013, Independent Directors are required to be appointed for a term of five consecutive years and shall not be liable to retire by rotation. Accordingly, resolutions proposing appointment of Mr. R.A. Shah (DIN 00009851), Mr. Anup N. Kothari (DIN 00294737) and Dr. Lalit Bhasin (DIN 00001607) as Independent Directors of the Company, form part of the Notice of the ensuing Annual General Meeting.

In accordance with the Articles of Association of the Company and pursuant to the provisions of Section 152 of the Companies Act, 2013, Mr. Lalit Kumar Modi (DIN 00029520) would retire by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment.

Mrs. Bina Modi (DIN 00048606) was appointed as Additional Director w.e.f. April 7, 2014 in terms of Section 161 of the Companies Act, 2013 and holds office upto the date of the ensuing Annual General Meeting. The Company has received notice pursuant to Section 160 of the Companies Act, 2013 from one of its members proposing her candidature for appointment as a Director.

DIRECTORS'' RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors'' Responsibilities Statement, the Directors confirm that:

(i) in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed;

(ii) appropriate accounting policies have been selected and applied consistently and judgements and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for the year under review;

(iii) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

(iv) the Annual Accounts have been prepared on a going concern basis.

The above statements were noted by the Audit Committee at its meeting held on August 2, 2014.

CORPORATE GOVERNANCE

The Company is committed to maximise the value for its stakeholders by adopting the principles of good Corporate Governance in line with the provisions of law and in particular those stipulated in the Listing Agree- ment with the Stock Exchanges. Its objective and that of its management and employees is to manufacture and market the Company''s products in a way so as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy in general.

Certificate from the auditors of the Company regarding compliance of the conditions of Corporate Governance as stipulated in clause 49 of the Listing Agreement with the Stock Exchanges, is enclosed.

Certificate from Mr. K.K. Modi, Managing Director as the Chief Executive Officer (CEO) and Mr. Sunil Agrawal, Senior Vice President - Finance as the Chief Financial Officer (CFO) in relation to the financial statements for the year along with declaration by the CEO regarding compliance with the code of business conduct of the Company by the directors and the members of the senior management team of the Company during the year, were submitted to and taken note of by the Board.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial Statements, Group Accounts form part of this Annual Report. The Group Accounts have been prepared on the basis of audited financial statements received from the Subsidiary & Associate Companies, as approved by their respective Boards.

AUDITORS

M/s. Deloitte Haskins & Sells, Chartered Accountants(Firm Registration No. 015125N), Statutory Auditors of the Company, holds office until the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. In accordance with the provisions of Section 139 of the Companies Act, 2013, they can be appointed for a term of three years starting from the conclusion of the ensuing Annual General Meeting.

The Company has received letter from the Statutory Auditors to the effect that their re-appointment, if made, would be within the prescribed limits under Section 139 of the Companies Act, 2013 and they are not disqualified for re-appointment. Accordingly, the Board recommends re-appointment of M/s. Deloitte Haskins & Sells as Statutory Auditors of the Company from the conclusion of ensuing Annual General Meeting till the conclusion of Annual General Meeting to be held in the calendar year 2017, subject to the ratification of their appointment at each Annual General Meeting.

COST AUDIT

Ministry of Corporate Affairs, vide notification dated 30th June, 2014, has announced Companies (Cost Records and Audit) Rules, 2014. These rules supersede the rules notified under Companies Act, 1956 and specify the classes of companies that would be required to maintain cost records and which will be subject to Cost Audit. Your Company is not covered under any of the classes of companies mentioned under these rules.

In compliance with the erstwhile provisions of Section 233B of the Companies Act, 1956 read with MCA''s General Order dated 24th January, 2012 (as amended vide another Order dated 6th November, 2012), the Cost Audit Report for the year ended 31st March, 2014 will be submitted in due course.

SUBSIDIARY COMPANIES

Ministry of Corporate Affairs, vide its General Circular No. 2 dated 8th February, 2011 has granted a general exemption to companies under section 212(8) of the Companies Act, 1956, from attaching the documents referred to in section 212(1) pertaining to its subsidiaries subject to the fulfilment of conditions stipulated in the Circular. Your Company has satisfied the conditions specified in the Circular and hence entitled to the exemption.

In compliance of the aforesaid Circular, the annual accounts of the subsidiaries will be made available upon request by any shareholder of the Company and its subsidiaries. The annual audited accounts of the subsidiaries will also be kept for inspection during business hours by any shareholder at the Company''s Corporate Office as well as its Registered Office and at the offices of the respective subsidiaries. Further, as per the provisions of Section 212 of the Act, a statement of the Company''s interest in its subsidiaries and a statement summarising financial performance parameters of subsidiary companies are included under notes to the consolidated financial statements and forms part of the Annual Report.

EMPLOYEES

As required by the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are set out in the annexure to the Directors'' Report. However, as per the provisions of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to all shareholders of the Company excluding the aforesaid information. Any shareholder interested in obtaining such particulars may write to the Company Secretary.

The relations with the employees of the Company continue to be cordial and the Directors wish to record their appreciation of their dedicated services at all levels of operations in the Company.

THE FUTURE

Your Company has the best in class manufacturing facilities, well established distribution network, committed pool of human resources and sound financial status which provides a sound base to drive growth in various business segments of the Company. Your Directors are confident that the Company will continue to create value for its shareholders in times to come.

Respectfully submitted on behalf of the Board

New Delhi R.A. SHAH Dated: August 2, 2014 CHAIRMAN


Mar 31, 2013

The Directors have pleasure in presenting the Seventy-sixth Annual Report of your Company and the Audited Accounts for the fnancial year ended March 31'' 2013.

FINANCIAL RESULTS 2012-13 2011-12 Rs. in lacs Rs. in lacs

Gross Proft 32490.35 31986.62

Less : Depreciation 8800.03 6263.13

Proft before taxation 23690.32 25723.49

Less : Provision for taxation

- current tax 5855.62 8260.64

- deferred tax charge/(credit) 1136.03 (673.42)

- current tax expense relating to prior years (249.11)

Proft after tax for the year 16947.78 18136.27

Proft brought forward 69090.31 57988.33

Available for appropriation 86038.09 76124.60

Appropriations

Proposed Dividend 4159.51 4159.51

Corporate Dividend Tax 706.91 674.78

Transfer to General Reserve 2000.00 2200.00

surplus carried to Balance Sheet 79171.67 69090.31

86038.09 76124.60

During the year ended March 31'' 2013'' the Company registered sales turnover of Rs. 3598 crore as against Rs. 3349 crore during corresponding previous fnancial year'' a growth of 7.4%. The proft after tax was marginally lower at Rs. 170 crore against Rs. 181 crore last year.

The Union Budget 2013 has yet again increased the excise duty on cigarette by around 18%'' which has been followed up by some State Governments hiking VAT rates signifcantly. The continuous increase in taxation on cigarette over the last several years has been adversely affecting the volumes and therefore'' impacting proftability.

DIVIDEND

Your Directors are pleased to recommend the same dividend as last year of Rs. 40 per equity share of face value of Rs. 10 each.

INTERNAL CONTROL SYSTEMS

Your Company has a robust system of internal control commensurate with the size of the Company and the nature of its business'' which ensures that transactions are recorded'' authorised and reported correctly apart from safeguarding its assets against loss from wastage'' unauthorised use and disposition.

The internal control system is supplemented by well documented policies'' guidelines and procedures'' an extensive programme of internal audit by a frm of chartered accountants and management reviews.

HUMAN RESOURCE DEVELOPMENT

Your Company actively engages its workforce by building enduring relationships with employees through progressive'' transparent'' robust and fair systems and policies. In pursuance of the same'' new online Human Resource Information System called ''Hruday’ has been put in place for better and fast addressal of needs of employees. ''Hruday’'' developed by PeopleSoft'' is considered to be one of the best HR tools.

A job evaluation exercise for various managerial positions has been undertaken to understand the relative importance of various jobs and to assign true worth to each job position. This initiative will help your Company in creating a robust job hierarchy and providing appropriate placement to individual employees.

CORPORATE DEVELOPMENT

Corporate Development division continued to serve as the central strategy and planning team for your Company. Its primary objective is to provide business and advisory inputs to different business segments and senior leadership on industry dynamics'' regulatory challenges'' competitive landscape and developments in major markets in the world. The role of this division has been extended to include active business portfolio optimization'' developing and nurturing partnerships and alliances'' working with partners and business teams to develop alternate business models towards driving future growth and business sustainability'' designing and development of a robust go-to-market strategy'' understanding brand dynamics and strategising to regain lost market share in key markets. Going forward'' the division will also endeavor to take up initiatives in business intelligence'' knowledge management and risk management.

INFORMATION TECHNOLOGY

Your Company continues to invest in Information Technology to improve operational effciencies and enhance productivity. During the year'' Company implemented ERP core modules at its production facilities and sales establishments thereby making the entire supply chain ERP enabled. Your Company is currently exploring introduction of suitable IT processes in the sales function to enable the sales force to focus on their core activity of selling with better effciency. The Company will continue to leverage the Information Technology function to gain competitive advantage.

CORPORATE SOCIAL RESPONSIBILITY

Godfrey Phillips Bravery Awards continued to exhibit the Company’s commitment to recognizing common citizens for their acts of courage. The National Award ceremony held for the year 2012 saw the launch of the book ''A Billion Bravehearts’ that epitomizes bravery not only in physical form but also in the intellectual'' social and individual spheres'' as a selfess act and a contribution to the higher good. Social media has become a powerful platform to activate and increase participation in social campaigns. The ''Be Brave’ campaign on social media today is an active group of over 14 lakh members spreading the message of bravery'' courage and integrity.

Your Company is now also emphasising on programmes that contribute to sustainable development. ''Amodini’'' the women’s empowerment initiative now includes strategic activities and initiatives linking back to business. Amodini is now concentrating on communities associated with the Company’s businesses and is working towards improvement of quality of lives of 540 women engaged in tobacco leaf grading in Ongole'' Andhra Pradesh. The program is also focussing on provision of safe drinking water'' sanitation'' hygiene and health facilities'' adult education and thrift and credit facilities. In Murshidabad'' West Bengal'' 200 women beedi rollers have directly beneftted by health camps organised to mitigate occupational health hazards.

Your Company has evinced its keen interest in environment management with the launch of the new green factory at Rabale'' Navi Mumbai with a IGBC Gold-Green Factory Certifcation. The Company was recognized by the Greentech Awards for its consistent efforts towards Environment Management.

CONSERVATION OF ENERGY

Several energy saving measures were taken during the year'' details of which are given below:

1. Rabale factory building has been designed in line with the IGBC Green Factory norms with some unique features like LED based landscape lighting'' zero discharge as per CPCB norms'' use of friendly fuel PNG in Boiler'' etc.

2. Utilization of heat of compression and rejected heat of condenser coil in customized dehumidifcation system has resulted in reduction of electrical consumption by 15 KW per 5 TR dehumidifcation load at chewing products plants.

3. Installation of LED lights and VFD in supari dryer has resulted in lower power consumption at chewing products plant at Ghaziabad.

TECHNOLOGICAL ABSORPTION'' ADOPTION AND INNOVATION

1. Installed ERP enable automatic storage & retrieval system (ASRS) for tobacco and non-tobacco materials at Rabale factory for better inventory control.

2. Installed centralized UTILITY monitoring system (SCADA) at Rabale factory to control resource utilization.

3. Introduced fash drying of lamina portion of tobacco blend by installing latest generation ''Tower Dryer’ for improved product quality.

4. Introduced fully automated inventory / bin management system for Cut Tobacco.

5. Implemented oracle based ERP system in the areas of Production'' Engineering'' Quality Control to facilitate collection and analysis of reliable data.

RESEARCH & DEVELOPMENT

New Product Development

1. Carried out development work for some differentiated products in cigarette category for creating new consumer base for gaining domestic market share and for meeting the requirements of overseas customers.

2. Standardized the methods for determination of newer compounds in smoke.

3. Introduced a new technique of sensory evaluation of smoking products.

4. Developed more value added and differentiated products in chewing category.

5. Obtained NABL (ISO 17025) accreditation to R&D Foods Lab for chemical and microbiological analysis of Pan masala'' Zarda and Gutka.

6. Did some work on vitamin and mineral fortifcation of CTC Tea.

Benefts derived as a result of this Development

1. Further enhanced existing tobacco blends in order to improve the smoke characteristics.

2. Further increased variants of blends and cigarettes in the library for both domestic as well as export markets.

3. Further enhanced capability to generate new ideas and create differentiated products for domestic as well as export markets.

4. The launch of new variants in chewing segment will add potential to grow both top-line and bottom- line.

5. Improved the analytical facility to meet the future challenges and requirements.

Future Plan of Action

1. Develop cigarettes for premium category thereby creating base to gain space in the premium segment.

2. Improve the effciency in terms of creating differentiated / innovative products for the cigarette business'' thereby increasing the new offers and maintain a healthy offer pipeline.

3. Continuous endeavour on smoke delivery reduction of our existing cigarette brands.

4. Lay special emphasis on favor related development projects.

5. Intensify work on development of new products using R & D pilot plants.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The earnings in foreign exchange during the year under report by way of exports and other income amounted to Rs. 361 crore (previous year Rs. 319 crore) as against the foreign exchange outgo on imports'' dividends and other expenditure aggregating to Rs. 136 crore (previous year Rs. 290 crore).

DIRECTORS

Mr. O.P. Vaish'' Mr. R. Ramamurthy and Mr. R.A. Shah'' Directors'' retire by rotation at the ensuing Annual General Meeting and being eligible'' have offered themselves for re-appointment.

The present term of Mr. Samir Kumar Modi as Executive Director of the Company will expire on 31st August'' 2013. The Board of Directors has re-appointed'' subject to approval of shareholders'' Mr. Samir Kumar Modi as Executive Director for a further period of 3 years with effect from 1st September'' 2013.

Brief resumes of the Directors offering themselves for re-appointment are furnished in the Corporate Governance Report and in the explanatory statement to the notice of the ensuing Annual General Meeting.

DIRECTORS'' RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217(2AA) of the Companies Act'' 1956 with respect to Directors'' Responsibilities Statement'' the Directors confrm that:

(i) in the preparation of the Annual Accounts'' the applicable Accounting Standards have been followed;

(ii) appropriate accounting policies have been selected and applied consistently and judgements and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the fnancial year and of the proft of the Company for the year under review;

(iii) proper and suffcient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act'' 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

(iv) the Annual Accounts have been prepared on a going concern basis.

The above statements were noted by the Audit Committee at its meeting held on July 27th'' 2013.

CORPORATE GOVERNANCE

The Company is committed to maximise the value of its stakeholders by adopting the principles of good Corporate Governance in line with the provisions of law and in particular those stipulated in the Listing Agreement with the Stock Exchanges. Its objective and that of its management and employees is to manufacture and market the Company''s products in a way so as to create value that can be sustained over the long term for consumers'' shareholders'' employees'' business partners and the national economy in general.

Certifcate from the auditors of the Company regarding compliance of the conditions of Corporate Governance as stipulated in clause 49 of the Listing Agreement with the Stock Exchanges'' is enclosed.

Certifcate from Mr. K.K. Modi'' Managing Director as the Chief Executive Offcer (CEO) and Mr. Sunil Agrawal'' Senior Vice President – Finance as the Chief Financial Offcer (CFO) in relation to the fnancial statements for the year along with declaration by the CEO regarding compliance with the code of business conduct of the Company by the directors and the members of the senior management team of the Company during the year were submitted to and taken note of by the Board.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial Statements'' Group Accounts form part of this Report & Accounts. The Group Accounts have been prepared on the basis of audited fnancial statements received from the Subsidiary & Associate Companies'' as approved by their respective Boards.

AUDITORS

The Company’s Auditors'' M/s. A. F. Ferguson & Co.'' Chartered Accountants (Firm Registration No. 112066W)'' who retire at the ensuing AGM'' have expressed that they would not like to offer themselves for re-appointment as Auditors of the Company.

The Board in its meeting held on July 27'' 2013 considered and recommended for the appointment of M/s. Deloitte Haskins & Sells'' Chartered Accountants (Firm Registration No. 015125N)'' as Statutory Auditors'' in place of M/s. A. F. Ferguson & Co.'' after considering the recommendation of Audit Committee. Further the Company has received a certifcate dated July 25'' 2013 from M/s. Deloitte Haskins & Sells to the effect that their appointment'' if made'' would be in accordance with Section 224(1B) of the Companies Act'' 1956 and they are not disqualifed in terms of Section 226 of the Companies Act'' 1956 from being appointed as Statutory Auditors of the Company.

COST AUDIT

Complying with the provisions of Section 233B of the Companies Act'' 1956 and MCA general order No. F. No. 52/26/CAB-2010 dated 24th January'' 2012'' (as amended vide another order No. F. No. 52/26/CAB- 2010 dated 6th November'' 2012)'' the Board of Directors has appointed M/s. Chandra Wadhwa & Co.'' Cost Accountants (Registration No. 000239)'' as Cost Auditors of the Company for the fnancial year 2013-14'' subject to approval of the Central Government.

The Cost Audit Report for the year ended 31st March'' 2013 will be submitted in due course.

SUBSIDIARY COMPANIES

Ministry of Corporate Affairs'' Government of India has'' vide its General Circular No. 2 dated 8th February'' 2011 granted a general exemption to companies under section 212(8) of the Companies Act'' 1956 from attaching the documents referred to in section 212(1) pertaining to its subsidiaries subject to the fulflment of conditions stipulated in the Circular. Your Company has satisfed the conditions specifed in the Circular and hence entitled to the exemption.

In compliance of the aforesaid Circular'' the annual accounts of the subsidiaries will be made available upon request by any shareholder of the Company and its subsidiaries. The annual audited accounts of the subsidiaries will also be kept for inspection by any shareholder at the Company’s Corporate Offce as well as its Registered Offce and at the offces of the respective subsidiaries during business hours. Further'' as per the provisions of Section 212 of the Act'' a statement of the Company’s interest in its subsidiaries and a statement summarising fnancial performance parameters of subsidiary companies are included under notes to the consolidated fnancial statements and forms part of the Annual Report.

EMPLOYEES

As required by the provisions of Section 217(2A) of the Companies Act'' 1956'' read with the Companies (Particulars of Employees) Rules'' 1975'' as amended'' the names and other particulars of employees are set out in the annexure to the Directors’ Report. However'' as per the provisions of Section 219(1)(b)(iv) of the Act'' the Report and Accounts are being sent to all shareholders of the Company excluding the aforesaid information. Any shareholder interested in obtaining such particulars may write to the Company Secretary.

The relations with the employees of the Company continue to be cordial and the Directors wish to record their appreciation of their dedicated services at all levels of operations in the Company.

Consequent to the recent settlement made by the Company with unionized staff and workmen attached to its cigarette plant at Andheri'' Mumbai'' pursuant to the voluntary retirement schemes'' the production facilities from Andheri have been largely relocated to the new plant at Rabale'' Navi Mumbai. This is expected to improve operational effciency and productivity.

THE FUTURE

Your Company continues to be a prominent cigarette manufacturing company in India. While continuing to emphasise on tobacco segment'' the Company will focus on growing pan masala and other mouth freshening products'' tea and retail businesses as well. It is expected that high rate of taxation on tobacco products will continue to be a norm in India and is'' therefore'' likely to be a challenge in future.

Respectfully submitted on behalf of the Board

New Delhi R.A. SHAH

Dated : July 27'' 2013 CHAIRMAN


Mar 31, 2012

The Directors deem it a privilege to present the Annual Report and Accounts for the year ending March 31, 2012.

GENERAL ECONOMIC ENVIRONMENT

As the FY 2011-12 started for all of us, global economy was recovering from political unrest in different parts of the world, and economic slowdown in the U.S. and Europe. The global economic environment has been tenuous through the year, particularly turning adverse post-September 2011, against the Euro-zone crisis, downgrades of sovereign credit rating of euro-zone and other advanced countries (including the U.S.), followed by political unrests, currency wars and the more recent oil crisis.

One clear and comforting sign was a relatively better performance by Indian Economy. Government of India also indicated that despite some weakness in the economy, the outlook was rather positive for the coming years, with economic activity having 'bottomed out' and 'a gradual upswing being imminent'. However, it was clear that managing growth and having price stability were going to be prime challenges for the Government. While agriculture and services sector provided support to overall growth, weakening industrial activity had pulled down economic performance resulting in India's real GDP growth decelerating sharply from 8.5% in 2010-11 to 6.5% in 2011-12. The real GDP declined to 5.3% in Q4 of FY 2011-12 as compared with 9.2% in the corresponding period last year. The Q4 GDP data validates that the growth trajectory is weaker than expected.

Exports from India have faced challenges on logistics and movements due to geopolitical disturbances. Infrastructure and public services need more impetus. Rising fuel costs have burdened the common man and industry. Yet, it is hoped Indian economy will rebound once more and achieve good, sustained and inclusive growth.

TOBACCO INDUSTRY

During 2011-12, Indian cigarette market has shown a growth of around 5% in volume and 11% in value over the previous year. Growth is largely seen in premium & economy segments. However, due to glut in the international market, Indian leaf tobacco exports were lower as compared to last year and the situation continues to be the same. Also, the industry continues to face the menace from non-duty paid cigarettes available across markets in India.

Regulatory Environment

Global regime continued to get stricter on tobacco during the year. UN bodies like WHO have been making strong efforts to ban or restrict use of specific ingredients, flavor and additives in manufacture of tobacco products, as well as to reduce acreage under tobacco cultivation. Different countries have looked at increased taxation, restriction on display, anti-smoking proposals etc. to discourage smoking. Australia and New Zealand are focusing on plain packaging in order to make the packs less enticing for people. U.K. has banned display of tobacco products at retail outlets.

India is also witnessing various anti-tobacco initiatives by various authorities and agencies with the new graphic health warnings coming into effect from 1st December, 2011. We respect such initiatives and shall abide by them as a responsible corporate citizen.

Taxation

The trend to increase Value Added Tax (VAT) rates at State level continued during the FY 2011-12 with more and more States resorting to tax tobacco products to bridge the revenue shortfall. And as an impact of that, VAT rates in India on cigarettes now vary from 12.5% to 50%. We are hopeful that unified VAT or GST regime in course of time will help the industry, trade and consumers by bringing rationality and clarity.

SEGMENTWISE PERFORMANCE IN 2011-2012 Cigarettes

The Industry is under pressure on account of rising excise duty coupled with increase in VAT rates by various State Governments. Despite this, your Company has registered a marginal increase of 0.7% in the domestic sales volume with the value being higher at Rs. 2776 crore as compared to Rs. 2627 crore in the previous year reflecting an increase of 5.7%. Various steps are underway to strengthen parent brands namely Four Square, Red & White and Cavanders. The current distribution system is also being leveraged to handle multiple product categories now being offered by the Company.

Tea

Although the domestic tea business showed a marginal decline with the sales value during the year placed at Rs. 95 crore as against Rs. 97 crore during the preceding year, yet the margins were slightly better as compared to last year. Your Company is making all out efforts to achieve improved performance in this segment of the business and has taken various new initiatives to broad-base the distribution which include introduction of Super Cup tea bags to make inroads into the HORECA segment and coverage of HTS (Hot Tea Shops) channel in Chennai. Your Company has gained formal entry into Railways also which is the biggest institutional business of the country. Tea blending and packing units at Kolkata and Bazpur have been automated and modernised to help in maintaining current loyal customer base and attract new international customers. Super Cup franchise is being relaunched with rejuvenated packaging and a premium product option.

Exports

The following table shows the status of exports for different products during the year under report:

2011 - 12 2010 - 11

Commodity / Product Value (Rs. in crore) Value (Rs.in crore)

Cigarette 107.63 120.68

Unmanufactured tobacco 131.28 104.42

Cut tobacco 61.27 42.86

Tea 18.36 16.11

While cigarette exports in terms of value were lower by 11%, the cut tobacco exports increased by 43% over the previous year. Unmanufactured tobacco exports also grew by 26% during the year. Various initiatives to improve the unmanufactured tobacco exports are resulting into substantial new export orders and spurt in new businesses in South East Asia and other key global markets. With a view to give further impetus to the export performance of the Company, your Company is also looking forward to setting up offices in key overseas locations in next two years.

During the year, the Company has developed new markets and added many international buyers to our existing portfolio for tea. Tea exports grew to 1508 tons over last year's 1222 tons, in terms of volume. Export of private labels for Packet Tea and Tea Bags in Kazakhstan was initiated under the brand name "Bimker". Your Company got renewal of ISO 22000 Space & HACCP Certification to value add and meet minimal International Tea Export standards apart from receiving "Good Manufacturing Practices" certification from the Iran Health Ministry.

Chewing Products

Your Company had a challenging year for its Chewing Business. The industry needed to shift from plastic packaging to paper based packaging format and where the competition was scrambling for options, your Company introduced the first successful commercial paper package that held ground even during the monsoons. The impetus helped the Company's pan masala brand "Pan Vilas" close the year at a turnover of Rs. 121 crore against Rs. 24 crore in the last fiscal. Your Company captured roughly 12% share of the market and became leaders in the small pack segment in some markets/states. During the year, the Company also opened the West Bengal and the Punjab markets and currently it is operating in 10 states in India. Your Company also ventured in the difficult zarda segment with the brand "Swarn Vilas". The Company plans to continue the momentum and grow further by venturing into new markets and categories and by leveraging and further building upon technology and back-end infrastructure to support the engines of growth.

Retail

Company's foray into retail business through Twenty Four Seven convenience stores is making steady progress. The Company is currently operating through 11 own stores spread across Delhi and expects to more than double this number during the current year.

TREASURY OPERATIONS

Your Company continues to enjoy the highest rating of 'CRISIL A1 ' for Short-Term Debt Programme, 'CRISIL AA /Stable' for Long Term Loan, 'CRISIL AA /Stable' for Cash Credit Limit and 'CRISIL A1 ' for Non-fund based limits. With these ratings in place, your Company is able to raise funds at most competitive and attractive terms.

Guided by the policy of safe, liquid and tax efficient returns, the Company has been deploying its long term surplus funds primarily in debt oriented schemes of reputed mutual funds mainly consisting of Fixed Maturity Plans (FMPs). Out of the total investment of Rs. 358 crore as at March 31, 2012, investments of Rs. 303 crore stood in debt segment of various mutual funds with major chunk being into highly safe FMPs which are yielding decent tax efficient returns. The Company also continued to park its temporary surpluses in liquid schemes of various mutual funds.

FIXED DEPOSITS

At the end of the financial year, the balance on account of Fixed Deposits accepted from the Public and Members stood at Rs. Nil. Presently the Company is not accepting fresh deposits as it no longer deems it economical to raise money through this mode of finance.

FINANCIAL PERFORMANCE

FINANCIAL RESULTS 2011-12 2010-11 Rs. in lacs Rs. in lacs

Gross Profit 31986.62 28147.66

Less : Depreciation 6263.13 4000.29

Profit before taxation 25723.49 24147.37

Less : Provision for taxation

- current tax 8260.64 7720.00

- deferred tax (673.42) (175.98)

- fringe benefit tax - -

Profit after tax for the year 18136.27 16603.35

Profit brought forward 57988.33 47614.98

Available for appropriation 76124.60 64218.33

FINANCIAL RESULTS 2011-12 2010-11 Rs. in lacs Rs. in lacs

Appropriations

Proposed Dividend 4159.51 3639.57

Corporate Dividend Tax 674.78 590.43

Transfer to General Reserve 2200.00 2000.00

Surplus carried to Balance Sheet 69090.31 57988.33

76124.60 64218.33

The overall sales turnover was higher at Rs. 3349 crore as against Rs. 3057 crore in the previous year, registering an impressive growth of around 9.5%. After providing for tax, the net profit of the Company stood at Rs. 181.36 crore as against Rs. 166.03 crore in the previous year.

The Union Budget 2012 has increased the excise duty on cigarette by around 22%, which has been followed up by some State Governments hiking VAT rates significantly. The continuous increase in taxation on cigarette over the last several years has been adversely affecting the margins and therefore, impacting profitability.

DIVIDEND

Keeping in view the Company's overall performance for the year under report the Board of Directors of the Company is pleased to recommend a dividend of Rs. 40 per share.

INTERNAL CONTROL SYSTEMS

Your Company has an adequate system of internal control commensurate with the size of the Company and the nature of its business, which ensures that transactions are recorded, authorised and reported correctly apart from safeguarding its assets against loss from wastage, unauthorised use and disposition.

The internal control system is supplemented by well documented policies, guidelines and procedures, an extensive programme of internal audit by a firm of chartered accountants and management reviews.

HUMAN RESOURCE DEVELOPMENT

Your Company believes that its employees are its partner in progress and ensures that they are treated well. To pursue this belief, your Company conducted an Employee Engagement Survey to seek opinions of its managerial level employees about their work-life issues and concerns at work. Further, a root cause analysis was done and issues/concerns are being addressed. Your Company also believes that long term growth and productivity is possible by investing in robust and right kind of long lasting people systems. To develop the internal functional capabilities, your Company has initiated the process of upgrading its existing Human Resource Information System (HRIS) which acts as an enabling gateway for servicing employee needs. In continuation of efforts by your Company to equip the sales force in persistently handling multiple products and to manage change with their stakeholders, various interventions were conducted on Multiple Product Handling and its related Change Management. Your Company is proactively investing in developing future talent pipeline. The ongoing initiative of Targeted People Development has put in place a detailed process of development planning and grooming for potential employees.

CORPORATE DEVELOPMENT

Your Company has continued to add to its advantage the strong corporate governance mechanism and processes for making new product offers, launching new products, developing business strategy and implementation thereof through effective engagement of Corporate Development division. The division provided regular support and inputs to all the business teams on industry dynamics, regulatory aspects and other components of business environment to help them to draw plans with 3-5 years' perspective. Detailed planning, appropriate methodology, support in execution and monitoring has helped each of the existing and new businesses add further to our market reach and in achieving better results. Automated Management Dashboards and Business Intelligence Tools have continued to provide seamless view to senior leadership on all critical performance parameters for timely action. The two ongoing corporate initiatives focusing on product offer development and multi-product distribution have progressed well during the year with initial pilots and outputs giving good results. All such efforts and forthcoming drives and rigor are expected to have long term positive impact on businesses of your Company.

INFORMATION TECHNOLOGY

Your Company continues to invest in Information Technology to improve operational efficiencies and enhance productivity. As a part of process improvement and improved control, your Company is currently implementing ERP system for its production facilities and sales establishments. This will make the complete supply chain ERP enabled for the Company. Also, Product Life Cycle Management System called AGILE is being implemented for R&D. During the year, your Company also consolidated its core IT infrastructure using new generation servers leading to significant reduction in energy and space requirements.

CORPORATE SOCIAL RESPONSIBILITY

Exhibiting commitment to recognizing common citizens for their acts of courage, Godfrey Phillips Bravery today has inspired millions with the message of hope, compassion and selflessness. To mark the completion of 20 years, nationwide campaign was launched on print, electronic, outdoor and social media to honor the occasion. The Be-Brave campaign on social media touched an impressive 5.5 lacs member participation within a year.

Along with Godfrey Phillips Bravery, Amodini, the women's empowerment initiative also has grown progressively. Since inception in 2007, over 23000 women have been benefitted by Amodini. Your Company works with renowned non-profit associates to help women beneficiaries become financially independent with various training and development programs. Amodini continues its commitment to women empowerment by using hand made products by women for all occasion gifting that has been highly appreciated.

Your Company also exhibited its commitment towards minimizing the impact of our business on the environment. It continues to lay emphasis on policies that encourage environment management and employees are also recognized for initiatives that take this commitment forward. The Company won prestigious Greentech Gold Award for Environment Management for its consistent efforts towards it.

CONSERVATION OF ENERGY

Several energy saving measures were taken during the year, details of which are given below:

1. Replaced CMD cooling tower at Andheri factory with the new one having flat belt and energy efficient motor, resulting in saving of 92,400 units per annum.

2. Constructed insulated roof with sky-lights at Rabale factory to reduce need for lighting energy.

3. Used low density concrete blocks with fly ash for the walls at Rabale factory for achieving better insulation properties.

4. Installed latest energy efficient HVAC systems for the shop floors and offices at Rabale factory.

5. Replaced 2 nos. CRT based OPC (Operator Panel) with LCD, resulting in lower energy consumption.

6. Installed new transformer at Andheri factory power house having lower no-load losses, resulting in saving of 7,000 Units per annum.

TECHNOLOGICAL ABSORPTION, ADOPTION AND INNOVATION

1. Table-top cigarette maker introduced in R&D for cigarette development purpose.

2. Flavor injection system 'Cjector' introduced in R&D for cigarette development purpose.

3. Installed print registration unit for inner frame on cigarette packing machines to support pack communication and enhance brand recall.

4. Made hard link-up of high speed cigarette makers and packers to improve the productivity and product quality.

5. Oil I PTFE free air compressors introduced for improved product quality.

RESEARCH & DEVELOPMENT New Product Development

1. Commissioned a plant to make reconstituted tobacco (RECON) in order to improve blend quality and optimize blend cost.

2. Carried out development work for some differentiated products in cigarette category for creating new consumer base for gaining domestic market share.

3. Developed some new tobacco blends and enhanced current blends in order to cater to varied consumer/ buyer base.

4. Developed more value added and differentiated products in Bidi and Chewing categories.

5. Initiated developmental work in Mouth Freshener category.

Benefits derived as a result of this Development

1. Improved premium brands in which the Company currently has marginal presence in the domestic cigarette markets.

2. Enhanced existing tobacco blends in order to improve the smoke characteristics.

3. Enhanced capability to generate new ideas and create differentiated products for domestic as well as export markets.

4. Created a range of products for consumers and thus add potential to both top-line and bottom-line growth.

5. Increased number of variants of blends and cigarettes in the library for both domestic and export markets.

Future Plan of Action

1. Improve the efficiency in terms of creating differentiated and innovative products for the cigarette business, thereby maintain a healthy offer pipeline.

2. Continuous upgradation of analytical facility to meet future challenges.

3. Intensify work on development of new products using R&D pilot plants.

4. Create strong knowledge base for chewing products' ingredients.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The earnings in foreign exchange during the year under report by way of exports and other income amounted to Rs. 319 crore (previous year Rs. 284 crore) as against the foreign exchange outgo on imports, dividends and other expenditure aggregating to Rs. 290 crore (previous year Rs. 132 crore).

DIRECTORS

Mr. C.M. Maniar, Mr. Lalit Bhasin and Mr. Anup N. Kothari, Directors, will retire by rotation at the forthcoming Annual General Meeting and being eligible, have offered themselves for re-appointment.

The terms of appointment of Mr. K.K. Modi as Managing Director and Mr. R. Ramamurthy as Whole-time Director will expire on 13th August, 2012. Your Directors have recommended their re-appointment for a further period of 3 years.

Brief resumes of the Directors offering themselves for re-appointment are furnished in the Corporate Governance Report and in the explanatory statement to the notice of the ensuing Annual General Meeting.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors' Responsibilities Statement, the Directors confirm that:

(i) in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed;

(ii) appropriate accounting policies have been selected and applied consistently and judgements and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for the year under review;

(iii) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) the Annual Accounts have been prepared on a going concern basis.

The above statements were noted by the Audit Committee at its meeting held on July 31, 2012.

CORPORATE GOVERNANCE

The Company is committed to maximise the value of its stakeholders by adopting the principles of good Corporate Governance in line with the provisions of law and in particular those stipulated in the Listing Agreement with the Stock Exchanges. Its objective and that of its management and employees is to manufacture and market the Company's products in a way so as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy in general.

Certificate from the auditors of the Company regarding compliance of the conditions of Corporate Governance as stipulated in clause 49 of the Listing Agreement with the Stock Exchanges, is enclosed.

Certificate from Mr. K.K. Modi, Managing Director as the Chief Executive Officer (CEO) and Mr. Sunil Agrawal, Vice President - Finance as the Chief Financial Officer (CFO) in relation to the financial statements for the year along with declaration by the CEO regarding compliance with the code of business conduct of the Company by the directors and the members of the senior management team of the Company during the year were submitted to and taken note of by the Board.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial Statements, Group Accounts form part of this Report & Accounts. The Group Accounts have been prepared on the basis of audited financial statements received from the Subsidiary & Associate Companies, as approved by their respective Boards.

AUDITORS

A.F. Ferguson & Co., Chartered Accountants, the retiring auditors, have offered themselves for re- appointment as auditors for the Head Office as well as branch offices at Ahmedabad, Mumbai, Kolkata, Ghaziabad, Guntur, Hyderabad, Chennai, New Delhi, Chandigarh, Baramati and Rabale (Navi Mumbai).

COST AUDIT

Pursuant to the various circulars issued by the Ministry of Corporate Affairs, the Company is required to maintain cost records and get the same audited by a cost auditor in relation to some of the products manufactured by the Company. Accordingly, Chandra Wadhwa & Co., Cost Accountants, have been appointed as the cost auditors for the financial year 2012-13.

SUBSIDIARY COMPANIES

Ministry of Corporate Affairs, Government of India has, vide its General Circular No. 2 dated 8th February, 2011 granted a general exemption to companies under section 212(8) of the Companies Act, from attaching the documents referred to in section 212(1) pertaining to its subsidiaries subject to approval by the Board of Directors of the Company and furnishing certain financial information in the Annual Report.

Accordingly, the annual accounts of the subsidiaries will be made available upon request by any shareholder of the Company and its subsidiaries. The annual audited accounts of the subsidiaries will also be kept for inspection by any shareholder at the Company's Corporate Office as well as its Registered Office and at the offices of the respective subsidiaries during business hours. Further, as per the provisions of Section 212 of the Act, a statement of the Company's interest in its subsidiaries and a statement summarising financial performance parameters of subsidiary companies are included under notes to the consolidated financial statements and forms part of the Annual Report.

EMPLOYEES

As required by the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are set out in the annexure to the Directors' Report. However, as per the provisions of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to all shareholders of the Company excluding the aforesaid information. Any shareholder interested in obtaining such particulars may write to the Company Secretary.

The relations with the employees of the Company continue to be cordial and the Directors wish to record their appreciation of their dedicated services at all levels of operations in the Company.

THE FUTURE

Your Company continues to be the second largest cigarette manufacturing company in India. The focus of your Company will continue to remain in tobacco segment comprising of cigarette, bidi and chewing products. Your Directors look forward to the future with cautious optimism.

Respectfully submitted on behalf of the Board

New Delhi R.A. SHAH

Dated : July 31, 2012 CHAIRMAN


Mar 31, 2011

Dear Members,

The Directors deem it a privilege to present the Annual Report and Accounts for the year ending March 31, 2011.

FINANCIAL PERFORMANCE

FINANCIAL RESULTS 2010-11 2009-10

Rs. in lacs Rs. in lacs

Gross Profit 28147.66 20130.54

Less : Depreciation 4000.29 3390.97

Profit before taxation 24147.37 16739.57

Less : Provision for Taxation

- current tax 7720.00 4552.96

- deferred tax (175.98) 333.04

- fringe benefit tax - 15.10

Profit after tax for the year 16603.35 11838.47

Profit brought forward 47614.98 40307.99

Available for appropriation 64218.33 52146.46

Appropriations

Proposed Dividend 3639.57 2599.70

Corporate Dividend Tax 590.43 431.78

Transfer to General Reserve 2000.00 1500.00

Surplus carried to Balance Sheet 57988.33 47614.98

64218.33 52146.46

The overall sales turnover was higher at Rs. 3057 crore as against Rs. 2608 crore in the previous year, registering an impressive growth of around 17%. The operating margins improved leading to increase in overall profitability during the year. After providing for tax, the net profit of the Company stood at Rs. 166.03 crore as against Rs. 118.38 crore in the previous year.

Fortunately the Union Budget in February, 2011 did not propose any change in the rates of excise duty on cigarettes, which has provided much needed relief to the Industry.

DIVIDEND

Keeping in view the Company's overall performance for the year under report the Board of Directors of the Company is pleased to recommend a dividend of Rs. 35 per share.

INTERNAL CONTROL SYSTEMS

Your Company has an adequate system of internal control commensurate with the size of the Company and the nature of its business, which ensures that transactions are recorded, authorised and reported correctly apart from safeguarding its assets against loss from wastage, unauthorised use and disposition.

The internal control system is supplemented by well documented policies, guidelines and procedures, an extensive programme of internal audit by a firm of chartered accountants and management reviews.

HUMAN RESOURCE DEVELOPMENT

Our employees are our assets. In order to nurture their ambitions and meet future leadership challenges in the organization, we have embarked upon an initiative called "Targeted People Development". Under this initiative, the developmental needs of a set of key employees have been scientifically assessed, a career orientation is defined and a development plan in sync with organizational goals is being worked upon. We also conducted a series of Leadership Development Programs to support this initiative. On the talent acquisition front, the Company has inducted young talent from reputed B-schools and is grooming them for managing the current and upcoming business needs. The Job evaluation exercise which was started last year, has been completed and we have mapped various job positions relative to their business worth. Also, we have won a Greentech silver award for Excellence in HR for Best HR Strategy category.

CORPORATE DEVELOPMENT AND INFORMATION TECHNOLOGY

Your Company has continued to leverage to its advantage the strong internal systems and processes for business planning and strategy formulation residing in Corporate Development division. On one hand, the division provided regular support and inputs to all the business teams on developments in the industry and business environment, it also drove the efforts to identify key capability development areas in the organization to propel it to growth path. Annual planning process and three year strategy formulation process were well adhered to, along with much deeper and analytic based efforts to identify new growth opportunities. Detailed planning, appropriate methodology, execution and monitoring has helped each of the existing businesses add further to our market reach and in achieving better results in the market place. Automated Management Dashboards and Business Intelligence Tools have enabled the seamless view of all performance parameters for the senior management to action timely. Further, two new corporate initiatives were conceived during the year, focusing on higher level of capabilities in the areas of product offer development and multi-product distribution. All these efforts are expected to have long term positive impact for business of your Company.

CORPORATE SOCIAL RESPONSIBILITY

This year was a milestone for Godfrey Phillips Bravery Awards as it completed 20 years. This unique award system, sustained over two decades, has brought common citizen to limelight and served to provide inspiration to live life with pride and dignity.

Along with recognizing and awarding individual acts of bravery, the Godfrey Phillips Bravery has grown into a movement with Amodini, the women's empowerment initiative under its aegis. In association with renowned NGOs, several major projects for underprivileged women have been underway that help train women to be financially independent. The projects, ranging from skill development in traditional handicraft and handmade products, rural business training to dairy farming, have ensured that the women are not only trained in production, but acquire equal proficiency in marketing the products also. Over 7000 women would have benefitted from the Amodini initiatives during the year.

As a conscientious corporate citizen, the Company is well aware of its responsibility towards the conservation of the environment. Along with the growth of business the Company encourages total commitment towards minimizing the impact of our business on the environment. Over and above the mandatory certifications to maintain standards of environment management, all the manufacturing units have adopted the use of environment friendly measures such as recycling water, rainwater harvesting and using solar power systems, steam heated hot water generator system and various automation and interlocking systems to save power. We won the prestigious Outstanding Achievement in Environment Management award by Greentech Foundation in 2010 for our efforts.

CONSERVATION OF ENERGY

Several energy saving measures were taken during the year, details of which are given below:

1. Panel air conditioner (1050 watts) for Focke cigarette packing machine was replaced with central air conditioning air flow, giving rise to savings of 189 units per annum.

2. Twenty four LED tube lights were installed over GD 121 cigarette making machine on experimental basis resulting in saving of 180 units per annum.

3. After studying light intensity in the passage areas, thirteen tube lights were removed resulting in saving of 3360 units per annum.

TECHNOLOGICAL ABSORPTION, ADOPTION AND INNOVATION

1. Installation and commissioning of 'print registration system' on cigarette packing machines for providing printed BOPP packs.

2. Installation and commissioning of RO Plant of 2000 ltrs per hour capacity.

3. Installation of 'acoustic guards' on high speed cigarette making and packing machines to reduce noise pollution.

4. Installation of high performance isopropyl alcohol 'leak detector' to enhance safety standards.

5. Installation of 'wonder ware software' on quality monitoring instruments for the cigarette making machines to enhance final product quality.

6. Installation of 'sifter' in pan masala making process to ensure product consistency.

RESEARCH & DEVELOPMENT

New Product Development

1. Initiated development work for some differentiated products for domestic markets for creating new consumer base for gaining market share.

2. Developed and implemented low ignition propensity cigarettes and tested the same for overseas customers.

3. Developed various new blends and enhanced current blends, thus creating a library in order to cater to varied buyer base.

4. Developed value added and differentiated products for the Bidi and Chewing categories.

5. Analysed cigarette samples on commercial basis from overseas customers.

Benefits derived as a result of this Development

1. Created premium brands, a category where we have only marginal presence in the domestic cigarette markets.

2. Enhanced capability in creating and analysing differentiated products for domestic as well as export markets.

3. Created a range of products for consumers and thus add potential to both top-line and bottom-line growth.

4. Increased number of variants of blends and cigarettes available for both domestic and export markets.

Future Plan of Action

1. Capability improvement in terms of creating differentiated and innovative products for the cigarette business thus widen the offering base.

2. Standardization of Bidi smoking method on smoking machine.

3. Continuous up-gradation of analytical facility and library to meet future challenges.

4. NABL accreditation of R&D food laboratory.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The earnings in foreign exchange during the year under report by way of exports and other income amounted to Rs. 284 crore (previous year Rs. 317 crore) as against the foreign exchange outgo on imports, dividends and other expenditure aggregating to Rs. 132 crore (previous year Rs. 94 crore).

DIRECTORS

Mr. R. A. Shah, Mr. Lalit Kumar Modi and Mr. Samir Kumar Modi, Directors, will retire by rotation at the forthcoming Annual General Meeting and being eligible, have offered themselves for re-appointment. Brief resume of these Directors, as stipulated under clause 49 of the Listing Agreement, is annexed in the Corporate Governance Report.

Mr. Lalit Kumar Modi has ceased to be the Director in whole-time employment of the Company with effect from 1st August, 2010.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors' Responsibilities Statement, the Directors confirm that:

(i) in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed;

(ii) appropriate accounting policies have been selected and applied consistently and judgements and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for the year under review;

(iii) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) the Annual Accounts have been prepared on a going concern basis.

The above statements were noted by the Audit Committee at its meeting held on July 30, 2011.

CORPORATE GOVERNANCE

The Company is committed to maximise the value of its stakeholders by adopting the principles of good Corporate Governance in line with the provisions of law and in particular those stipulated in the Listing Agreement with the Stock Exchanges. Its objective and that of its management and employees is to manufacture and market the Company's products in a way so as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy in general.

A certificate from the auditors of the Company regarding compliance of the conditions of Corporate Governance as stipulated in clause 49 of the Listing Agreement with the Stock Exchanges, is enclosed.

A certificate from Mr. K.K. Modi, Managing Director as the Chief Executive Officer (CEO) and Mr. Sunil Agrawal, as the Chief Financial Officer in relation to the financial statements for the year ended March 31, 2011 along with a declaration by the CEO regarding compliance with the code of business conduct of the Company by the directors and the members of the senior management team of the Company during that year were submitted to and taken note of by the Board.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial Statements, Group Accounts form part of this Report & Accounts. The Group Accounts have been prepared on the basis of audited financial statements received from the Subsidiary & Associate Companies, as approved by their respective Boards.

AUDITORS

A.F. Ferguson & Co., Chartered Accountants, the retiring Auditors, have offered themselves for re-appointment as Auditors for the Head Office as well as branch offices at Ahmedabad, Mumbai, Kolkata, Ghaziabad, Guntur, Hyderabad, Chennai, New Delhi, Chandigarh and Baramati.

SUBSIDIARY COMPANIES

The Reports and Accounts of the subsidiary companies are annexed to this Report along with the statement pursuant to Section 212 of the Companies Act, 1956. However, in the context of mandatory requirement to present consolidated accounts, which provides members with a consolidated position of the Company including subsidiaries, at the first instance, members are being provided with the Report and Accounts of the Company treating these as abridged accounts as contemplated by Section 219 of the Companies Act, 1956. Members desirous of receiving the full Report and Accounts including the Report and Accounts of the subsidiaries will be provided the same on receipt of a written request from them.

GROUP

Pursuant to disclosure received from the Indian Promoter of the Company, the names of the promoters and entities comprising 'Modi Group' are annexed to this Report for the purpose of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and otherwise.

EMPLOYEES

As required by the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are set out in the annexure to the Directors' Report. However, as per the provisions of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to all shareholders of the Company excluding the aforesaid information. Any shareholder interested in obtaining such particulars may write to the Company Secretary.

The relations with the employees of the Company continue to be cordial and the Directors wish to record their appreciation of their dedicated services at all levels of operations in the Company.

THE FUTURE

Your Company continues to be the second largest cigarette manufacturing company in India. Various corporate initiatives like new product development, expansion of distribution in Southern and Eastern Indian markets, strengthening presence in existing markets, multi-product distribution, etc. are being used as drivers for enhancing business value. Steady growth in domestic business, growing international presence and prospects in new product categories like chewing products and bidis, show promise to accelerate growth momentum. Robust sales & distribution network alongwith the best of the manufacturing facilities, including the new plant being built at Thane in Maharashtra will likely ensure sustained growth opportunities. Your Directors, therefore, look forward to the future with confidence and optimism.

Respectfully submitted on behalf of the Board

New Delhi R.A. SHAH

Dated : July 30, 2011 CHAIRMAN

 
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