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