The Directors of your Company have pleasure in presenting their Annual
 Report and Accounts for the year ended 31st March, 2011.
 
 Financial Results                                           Rs. Lakhs
 
                                                   2010-11     2009-10
 
 Revenue from Operations                            139654      112542
 
 Net Profit after Tax                                 9501        6205
 
 Profit brought forward from previous year*           8620        8200
 
 Balance available for Appropriation                 18121       14405
           
 Amount transferred to General Reserves                975         625
 
 Dividend proposed                                    6949        4632
 
 Corporate Dividend Tax                               1127         770
 
 Surplus carried in Profit and Loss Account           9070        8378
 
 *Including Rs. 242 lakhs taken over on amalgamation of the wholly owned
 subsidiary VST Distribution, Storage & Leasing Company Private Limited
 with the Company.
 
 KEY RATIOS
 
 Earnings Per Share (Rs.)                            61.53       40.18
 
 Dividend Per Share (Rs.)                            45.00       30.00
 
 The financial year 2010-11 recorded an improvement of 24.1% in Sales
 (Gross) and 53.1% Profit after Tax when compared to the previous year.
 A record year with record Sales, record Profit after Tax and Dividends
 Per Share of Rs. 45, the best in the decade. Value Creation during the
 decade has been Compounded Annual Growth Rate (CAGR) of 9.9% in
 Earnings Per Share (EPS) and 28.2% in Dividends Per Share (DPS).
 
 CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
 EARNINGS AND OUTGO
 
 Information in accordance with clause (e) of sub-section (1) of Section
 217
 
 read with the Companies (Disclosure of Particulars in the Report of
 Board of Directors) Rules, 1988 is given in the Annexure to this
 Report.
 
 ENVIRONMENT, HEALTH & SAFETY (EHS) AND COMMUNITY SERVICES
 
 Your Company has been maintaining a high safety performance for the
 last 364 days without any accident.
 
 Gold Award for the year 2010 was presented to your Company by Royal
 Society for Prevention of Accidents (RoSPA), U.K. for maintaining
 highest standards in Occupational, Health and Safety.
 
 Accident Free Award was awarded to your Company from British American
 Tobacco on 5th April, 2010 for One Year Accident Free from 21st March,
 2009 to 20th March, 2010.
 
 Safety Innovation award was awarded to your Company from Institution of
 Engineers India on 28th December, 2010.
 
 Environment, Health and Safety (EHS) in day-to-day business operations
 is given very high priority by your Company. 395 employees and 30
 contractors have undergone EHS training and 543 employees have
 undergone fire fighting training programme. Mock Fire Drills were also
 conducted for workers and management during the period to comply with
 the Companys EHS guidelines. Involvement by workmen in quarterly EHS
 reviews along with staff members and periodical inspections have kept
 the performance monitoring on vigil. Quarterly and annual EHS audits of
 Company operations including leaf godowns was carried out to ensure
 
 compliance of EHS requirements and to measure the EHS progress. EHS
 Road Map rating for your Company was assessed at 3.54 as against the
 scale of 4.0 for the year 2010-11.
 
 Your Company celebrated National Safety Day on 4th March, 2011 by
 conducting safety meetings inside factory and all contractors attended
 safety programme conducted by National Safety Council.
 
 Surveillance Reviews of ISO 14001: 2004 & OHSAS 18001: 2007 for the
 year 2010 by Registro Italiano Navale India (RINA) revalidated your
 Companys certifications.
 
 On the environmental side, as a responsible corporate, your Company
 continues to put in sustained efforts in the upkeep and improvement of
 existing systems like Scrubber, DRF systems, rain water harvesting
 pits, ETP with soil bio- technology and also in energy conservation
 installation of solar water heating panels for boiler feed water and
 for workers canteen boiler.
 
 Water Consumption was reduced by 30 Kl/day.
 
 As a social responsibility and to conserve greenery, your Company is
 encouraging social forestry through afforestation and Trees for Life
 programme. It is also actively discouraging child labour involvement in
 tobacco growing/processing. Your Company has installed water purifiers
 in major tobacco growing villages to improve health through supply of
 clean drinking water to the rural community.
 
 All statutory compliances are in place.
 
 The thrust on EHS will continue while emphasizing the focus on Best
 International Work practices.
 
 FINANCE
 
 a.  Profits
 
 The Profit after Tax for the year at Rs. 95 crore is the highest ever
 recorded by your Company in its history.
 
 The continuous increase in taxation over the last several years has
 made improvement in margins a daunting task thereby impacting
 profitability.
 
 Your Companys thrust on growing volumes continued during the year with
 reasonable success though industry growth remained flat.
 
 Your Companys focus on working capital management and budgetary
 control on expenses has resulted in improvement of profitability. When
 compared to previous year, your Companys profits improved both in
 cigarettes and leaf tobacco operations.
 
 b.  Treasury Operations
 
 Your Company follows a SLR model (Safety, Liquidity and Return) in
 deployment of surplus funds which arise during various periods of time.
 The Company predominantly deploys money in income funds of reputed
 mutual funds and tax free bonds. Such investments earned Rs. 13 crore
 during the current year.
 
 ENTERPRISE RESOURCE PLANNING (ERP)
 
 Your Company was able to successfully manage the entire ERP system by
 developing an in-house team. All routine business issues as well as
 improvements in existing systems have been
 
 undertaken by the team. This team interacts with managers of the
 operating teams and works continuously to help improve the overall
 business processes.  Your Company has also developed adequate skills to
 manage issues arising out of facilities management and networking which
 are the other limbs of the IT infrastructure.
 
 FIXED DEPOSITS
 
 Your Company has stopped accepting fresh deposits for several years
 now.
 
 As on 31st March, 2011, your Company does not have any deposits for the
 purpose of its business.  Unclaimed deposits amounting to Rs. 8,000 is
 outstanding.
 
 RATING
 
 The Credit Rating Information Services India Limited (CRISIL) has
 re-affirmed the rating of your Company to FAAA/ Stable for Fixed
 Deposit Schemes, AA+/Stable for Long Term Non- convertible Debentures
 and P1+ for Non-fund based liabilities (Letter of Credit and Bank
 Guarantee).
 
 UNCLAIMED DIVIDENDS
 
 Your Company had by its letter dated 25th October, 2001 communicated to
 all the Members about the promulgation of rules pertaining to the
 Investor Education and Protection Fund.  Dividends which remain unpaid
 or unclaimed for a period of seven years would be deposited in the
 Investor Education and Protection Fund. The final dividend for the year
 ended 31st March, 2004 remaining unpaid would be deposited by 26th
 August, 2011 in accordance with Section 205C read with Investor
 Education and Protection Fund (Awareness and Protection of Investors)
 Rules, 2001.
 
 UNCLAIMED SHARE CERTIFICATES
 
 Your Company has communicated to the Members whose share certificates
 are returned undelivered to the Company that these would be transferred
 to the Unclaimed Suspense Account if not claimed by them, as required
 under the Listing Agreement amended by SEBI vide its Circular dated
 16th December, 2010.
 
 CORPORATE GOVERNANCE
 
 The Companys Report on Corporate Governance is annexed to this Report.
 
 Certificate of the Statutory Auditors of your Company regarding
 compliance of the conditions of Corporate Governance as stipulated in
 Clause 49 of the Listing Agreement with stock exchanges is annexed to
 this Report.
 
 Your Company has taken adequate steps for strict compliance with the
 Corporate Governance guidelines, as amended from time to time.
 
 The Ministry of Corporate Affairs has released draft guidelines for
 voluntary compliance covering various aspects.  Your Company has
 already implemented most of the items and examined the balance
 provisions for implementation.
 
 INTERNAL CONTROL SYSTEMS
 
 Your Company remains committed to improve effectiveness of internal
 control systems and processes which would help in increasing the
 efficiency of operations and provide security of its assets.
 
 The internal audit process in your Company captures the control
 environment prevalent in the
 
 organization. Over a period of three years, the entire business process
 of your Company is reviewed through a systems audit process which helps
 review the systems on a continuous basis. The objective is to identify
 potential risk areas and come up with a comprehensive mitigation plan.
 
 The Audit Committee of your Board met four times during the year.
 Review of audit observations covering the operations, consideration of
 accounts on a quarterly basis and monitoring the implementation of
 audit
 
 recommendations were some of the key areas of focus which were dealt
 with by the Committee. The Statutory Auditors/System Auditors were
 invited to attend all the Audit Committee meetings and make
 presentations covering their observation on adequacy of internal
 controls and the steps required to bridge gaps, if any.
 
 The self-evaluation system which was put in place on internal controls
 is being reviewed continuously to improve its effectiveness.
 
 Risk Management
 
 Risk Management is monitored by a Committee comprising members from
 various functions. The Committee meets periodically to identify the
 potential risks as well as to take adequate steps for mitigating the
 risks which have been identified. A comprehensive note covering various
 aspects is reported to the Board every quarter.
 
 DIRECTORS
 
 Directors retiring by rotation
 
 In accordance with Article 93 of the Articles of Association of your
 Company, Mr. T. Lakshmanan and
 
 Mr. S. Thirumalai retire from the Board and being eligible, offer
 themselves, for re-election. Your Board recommends their
 re-appointment.
 
 Mr. T. Lakshmanan
 
 Mr. T. Lakshmanan was re-appointed at the Annual General Meeting held
 on 17th July, 2008. He is now due to retire by rotation at the
 forthcoming Annual General Meeting and being eligible, offers himself
 for re-appointment.
 
 Mr. Lakshmanan is a Post Graduate in Science and a Member of FFII. He
 has over 33 years of experience in various departments of General
 Insurance Corporation (GIC) and retired as General Manager of GIC in
 2001. He was a nominee Director on the Board of your Company prior to
 his appointment as an Additional Director.  He is the Chairman of the
 Audit Committee and a Member of Committee of Directors and Shareholders
 Grievance Committee of your Company. Mr. Lakshmanan does not hold any
 shares in the Company and is not related to any other Director of the
 Company.
 
 Mr. S. Thirumalai
 
 Mr. S. Thirumalai was re-appointed at the Annual General Meeting held
 on 16th July, 2009. He is now due to retire by rotation at the
 forthcoming Annual General Meeting and being eligible, offers himself
 for re-appointment.
 
 Mr. S. Thirumalai is a Commerce and Law Graduate and is a Fellow Member
 of Institute of Chartered Accountants of India and Institute of Company
 Secretaries of India. He is also a Certified Associate of the Indian
 Institute of Bankers. He attended the Advanced
 
 Management Program at Harvard Business School, Boston, MA (USA) in
 1992. He has over 30 years of experience in manufacturing industry
 covering all aspects of Finance, Taxation and General Management
 (including three years with Reserve Bank of India/Unit Trust of India
 as an Officer). He is now the Senior Advisor to the consulting firm
 Deloitte Touche Tohmatsu India Private Limited. He is the Chairman of
 the Shareholders Grievance Committee and a Member of Audit Committee
 and Committee of Directors of your Company.  Mr. Thirumalai holds 25
 shares in the Company and is not related to any other Director of the
 Company.
 
 Directors Resignation/ Appointment
 
 Mr. R.V.K.M. Suryarau
 
 Mr. R.V.K.M. Suryarau is elected Chairman of your Company and of its
 Board of Directors with effect from 15th October, 2010 in place of Mr.
 Abhijit Basu who had tendered his resignation.
 
 The Board of Directors place on record their deep appreciation of the
 contribution made to your Company by Mr. Abhijit Basu.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000 the
 Directors confirm that:
 
 1.  in the preparation of the Annual Accounts, the applicable
 accounting standards have been followed;
 
 2.  appropriate accounting policies have been applied consistently.
 Judgement 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 your
 Company as at the end of the financial year and of the profit of your
 Company for the period;
 
 3.  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 your Company and for
 preventing and detecting fraud and other irregularities;
 
 4.  the Annual Accounts have been prepared on a going concern basis.
 
 VST DISTRIBUTION, STORAGE & LEASING COMPANY PRIVATE LIMITED
 
 The wholly owned subsidiary, VST Distribution, Storage & Leasing
 Company Private Limited was merged with your Company effective 1st
 April, 2010 in terms of Court Order dated 16th March, 2011.
 
 TAXATION
 
 i.  Income Tax
 
 a.  Financial Services
 
 Business
 
 It may be recalled that your Company had diversified into Financial
 Services Business and Foods Business in the early nineties.
 Subsequently in the year 1998-99, your Company incurred a total loss of
 Rs. 38.67 crore in the financial services business of which Rs. 29.70
 crore was claimed as loss under the
 
 head Income from Business and Rs. 8.97 crore was claimed as a capital
 loss under the provisions of the Income Tax Act.
 
 The Income Tax Appellate Tribunal allowed the entire amount of Rs.
 38.67 crore as a capital loss. It may be noted that the department had
 treated the entire loss as a Speculation Loss.
 
 Your Company has filed an appeal before the Honble High Court of
 Andhra Pradesh which has been admitted. The matter is yet to be heard.
 
 Further in connection with its divestment from the Foods Business in
 the financial year 1999-2000, your Company had incurred a total loss of
 Rs. 53.68 crore, of which Rs. 44.18 crore was claimed as a loss under
 the head Income from Business and Rs.9.50 crore was claimed as a
 capital loss under the provisions of the Income Tax Act. The Income Tax
 Department has disallowed the entire amount excepting Rs. 5.70 crore
 which was allowed as a capital loss. The Commissioner of Income Tax
 (Appeals) further allowed Rs. 11.24 crore out of the balance amount of
 Rs. 47.98 crore, on appeal before him and the same was upheld by the
 Income Tax Appellate Tribunal. Your Company has preferred an appeal
 against the above order and the
 
 matter is now before the Honble High Court of Andhra Pradesh.
 
 Consequent to the above orders, the Income Tax Department had issued
 consequential orders under Section 154 of the Income Tax Act demanding
 Rs. 28.86 crore (revised) which was paid by your Company.
 
 b.  North East
 
 You would recall that pursuant to the withdrawal of exemption
 notification for manufacture of cigarettes in the North Eastern region
 in terms of Supreme Court judgement of 19th September, 2005. Your
 Company had paid an amount of Rs. 31.20 crore towards principal and
 provided an amount of Rs. 12.69 crore towards interest.
 
 In the income tax return filed by your Company for the relevant year,
 this amount was considered as an allowable expenditure in the
 assessment for the year 2006-07.  However, subsequently the Income Tax
 department has now sent a demand notice seeking payment of Rs. 20 crore
 being tax payable along with interest. Your Company will contest the
 same.
 
 c.  Subsidiary Company
 
 During the financial year 1998-1999, your Companys subsidiary had
 received financial assets worth of Rs. 1200 lakhs against a future
 
 liability of Rs. 5200 lakhs. This was settled on 31st March, 1999 for
 an immediate payment of Rs. 1250 lakhs. The settlement was not accepted
 during the assessment proceedings and accordingly disallowed by the
 Income Tax Authorities. On appeal before the CIT(A), the matter was
 held in favour of your Companys subsidiary.  However, the Income Tax
 Tribunal while holding the matter against your Companys subsidiary
 held that the ratification of the said settlement agreement by the
 Board did not relate to 31st March, 1999 and
 
 consequently the liability to pay Rs. 1250 lakhs did not arise in the
 financial year 1998- 1999 and therefore not allowable as a deduction
 for the year. The tax liability on this is Rs. 420 lakhs apart from
 interest.
 
 Your Companys subsidiary preferred an appeal against the above order
 before the Honble High Court of Andhra Pradesh.
 
 ii.  Luxury Tax
 
 As mentioned in last years Report, a Contempt Petition has been filed
 in the Honble Supreme Court by the Commercial Tax Officer, on behalf
 of the Government of Andhra Pradesh against the Managing Director of
 your Company alleging contempt of the Honble Supreme Courts judgement
 dated 20th January,
 
 2005, which had set aside levy of Luxury Tax. The Department has
 alleged that your Company has failed to pay an amount of Rs. 34.86
 crore being the Luxury Tax collected from customers by your Company
 after passing of the interim order dated 1st June,1999, but not paid to
 the State Government of Andhra Pradesh which is in violation of the
 said judgement dated 20th January, 2005. An amount of Rs. 29.81 crore
 has also been claimed as interest thereon @ 24% per annum. Your Company
 and the Managing Director have both filed separate counter affidavits
 strenuously denying that there has been any contempt on their part of
 the said judgement of the Honble Supreme Court. The contempt case
 against the Managing Director of your Company was dismissed by Honble
 Supreme Court. As far as the case against the Company is concerned,
 there have been no further developments during the year.
 
 iii.  Entry Tax
 
 As mentioned in last years Report, several High Courts in the country
 including those of Andhra Pradesh, Kerala, Tamilnadu and Assam have
 struck down the levy of Entry Tax on the ground that it is violative of
 Article 301 and not saved under Article 304(b) of the Constitution, as
 it is not compensatory in the manner required in terms of the Supreme
 Court judgement in the case of M/s.Jindal Stainless Ltd.  Thereafter,
 several states such as Uttar Pradesh, Bihar and Haryana
 
 have attempted to re-introduce Entry Tax by amending the original Acts,
 sparking a fresh round of legal challenges in the High Courts.  Most of
 the appeals filed by the various states, and individual companies have
 been clubbed together. The Honble Supreme Court by its Order dated
 18th December, 2008 in the batch of cases headed by Jai Prakash
 Associates vs the State of MP has referred a number of vital questions
 on levy of Entry Tax, to the Constitutional Bench in terms of Article
 145(3) of the Constitution which are still pending adjudication.
 
 iv.  Excise
 
 a.  Wrapping Materials
 
 As mentioned in last years Report, the Customs, Excise and Service Tax
 Appellate Tribunal, Bangalore by its Order dated 8th October, 2004, had
 allowed your Companys appeal and set aside the demand of the Excise
 Department for an amount of Rs. 3.62 crore (including penalty and
 interest @ 24%) on the ground that Gay Wrappers (printed paper used for
 wrapping cigarette packets) had been manufactured and consumed by your
 Company without payment of duty during the period April 1996 to March
 2002. An appeal against the said Order has been filed by the Excise
 Department and is presently pending in the Honble Supreme Court.
 
 In the meantime, the Honble Supreme Court by its Order dated 27th
 November, 2008 has remanded various other similar appeals pertaining to
 other manufacturers back to their respective Tribunals for
 re-adjudication in the light of individual facts of each case.  Notices
 for subsequent periods have also been received by your Company which
 have been kept pending awaiting the decision of the Honble Supreme
 Court.
 
 b.  Cigarette manufacture in North Eastern states
 
 As mentioned in the last years Report, the Excise Department had
 demanded a sum of Rs. 5.85 crore from two of your Companys former
 contract manufacturers, by way of interest on the principal amount of
 Rs. 31.20 crore repaid to the Excise Department, consequent upon the
 judgement of the Honble Supreme Court dated 19th September, 2005. The
 two contract manufacturers had filed Writ Petitions challenging the
 said demands in the Honble Guwahati High Court and obtained Interim
 Orders staying partial recovery until final disposal. Against the said
 Interim Orders, the Department had filed appeals in the Honble Supreme
 Court.  By its Order dated 15th April, 2009 the Honble Supreme Court
 has requested the Honble High Court to dispose
 
 off the Writ Petitions within a period of two months from the date of
 communication of the Order. A Single Member Bench disallowed the writ
 petitions and upheld levy of interest. Against the judgement, the
 contract manufacturers filed appeals before the Division Bench, which
 passed interim orders staying the judgement of the Single Bench. First
 hearing has been completed and the appeals are reserved for judgement.
 
 c.  Tobacco Refuse
 
 Your Company has received show cause notices demanding recovery of duty
 on cut tobacco used in the manufacture of tobacco refuse together with
 interest and penalty from January 2005 to November 2009.
 
 Your Company has now received a demand for Rs. 10.22 crore being excise
 duty and penalty for the period upto 30th November, 2009. Interest is
 payable separately till the date of payment. Your Company is in the
 process of filing an appeal before CESAT.
 
 v.  Service Tax
 
 Your Company has received show cause notices from the Excise Department
 seeking to deny CENVAT credit availed on service tax paid by various
 service providers on the ground that the
 
 same are not in relation to the manufacture of final products. They are
 pending adjudication at various levels. Total amount involved is
 approximately Rs. 2.5 crore with equivalent penalty and interest
 thereon.
 
 PUBLIC INTEREST LITIGATION (PIL)
 
 i. A PIL was filed in the Honble Supreme Court by an NGO Health for
 Millions seeking immediate implementation of various provisions of
 COTPA including the pictorial warnings, is still pending.
 
 ii. A PIL has been filed by Mr. A.  Sherfuddin in the Honble Madras
 High Court against the Health Ministry and tobacco companies (including
 your Company) seeking various reliefs including printing of ingredients
 contained in cigarettes on packets and their ill effects so as to
 inform the public of the dangers of smoking, removal of all hoardings
 and other visible representations of the brands which is still pending.
 
 iii. A PIL has been filed in the Honble High Court of Andhra Pradesh
 by the Old Students Association, PG College, Secunderabad against the
 Central Government and the tobacco companies (including your Company)
 seeking introduction of stronger pictorial warnings on both sides of
 the packets. Your Company has entered appearance in the Court.
 
 INTELLECTUAL PROPERTY
 
 A Suit for infringement and passing off was filed by ITC Limited
 against the
 
 Company in the Original Side of Calcutta High Court alleging that the
 Company had violated ITC Limiteds Gold Flake trade mark by using a
 deceptively similar get up and trade dress consisting of a combination
 of red and gold colors, on its Special brand of cigarettes. A Single
 judge of the Calcutta High Court by his Order dated 4th March, 2011 has
 dismissed ITC Limiteds application for interim injunction. The main
 suit is posted for trial in August 2011. Your Company has filed a
 Caveat in the Division Bench of the Calcutta High Court in anticipation
 of ITC Limited filing an appeal against this said interim order of the
 Single Judge.
 
 FINANCIAL SERVICES BUSINESS
 
 As mentioned in last years Report the Company Petition filed by the
 Official Liquidator in the Honble High Court of Andhra Pradesh seeking
 directions to some of the Ex-Directors of ITC Agro Tech Finance and
 Investments Limited (ITCATF) to file a Statement of Affairs is still
 pending.
 
 In terms of the Order dated 10th July, 2007 the Division Bench of the
 Honble High Court of Andhra Pradesh had directed the Regional
 Director, Department of Corporate Affairs, Chennai to conduct an
 investigation and submit a report showing the persons who promoted
 ITCATF and the persons who were responsible in conducting its affairs
 until its winding up. A comprehensive report dated 19th May, 2008 was
 prepared and filed in the Honble High Court of Andhra Pradesh by the
 Regional Director in July 2008.  All the matters are still pending
 final adjudication.
 
 THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT
 AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND
 DISTRIBUTION) ACT, 2003 (COTPA)
 
 i. Some of the provisions of COTPA have come into force with effect
 from 1st May, 2004. These include ban on advertising in print and
 visual media, ban on outdoor advertising, regulation of in-store
 advertising, prohibition of sale of cigarettes to persons below the age
 of 18 years.
 
 ii. The tobacco industry has been told to print the prescribed graphic
 health warnings on all its product packing. The Cigarettes and Other
 Tobacco Products (Packaging & Labelling) Rules, 2006 (COTPR) had
 originally prescribed pictorial warnings along with health messages and
 sign of skull and cross bones. However, due to vociferous objections
 from various sections of the industry and public, a Committee of a
 Group of Ministers (GoM) was constituted to relook at the warnings.
 Based on their recommendations, a new set of labelling requirements has
 been prescribed under the COTPR which were published on 16th March,
 2008. However, these have again been modified based on representations
 made. The GoM is yet to give its conclusive recommendations. The
 revised implementation date as originally envisaged from 1st November,
 2010 has been deferred.
 
 iii. In the meantime, some Tobacco manufacturers had challenged various
 provisions of COTPA and Rules made thereunder in different High Courts
 across the country. The Union Government filed Transfer Petitions in
 the Honble Supreme Court seeking to transfer 31 pending Writ Petitions
 from various High Courts to the Honble Supreme Court. On 18th
 November, 2008 all the Transfer Petitions were allowed and the Writ
 Petitions have thus been moved to the Honble Supreme Court, for final
 adjudication.
 
 iv. Your Company had also filed a Writ Petition in the Honble High
 Court of Andhra Pradesh challenging COTPR and the Amendment Rules 2008,
 on the grounds inter alia that they are ultra vires of COTPA and
 therefore the Notifications issued thereunder (including those seeking
 implementation of Graphic Health Warnings) should be quashed. The said
 Writ Petition was admitted on 17th October, 2008 but no interim orders
 were passed by the Honble Court.
 
 v. A ban on smoking in public places as envisaged under COTPA, came
 into effect on 2nd October, 2008, under which smoking has been banned
 in virtually all public places including courts, public buildings,
 restaurants, bars, cinema halls etc.  A batch of writ petitions
 challenging this was filed in the Honble Delhi High Court and
 transferred to the Honble Supreme Court, which came up for admission
 on 29th September, 2008. While the Honble Supreme Court admitted the
 Transfer Petitions it declined to grant interim relief prayed for by
 the petitioners seeking to postpone implementation of the ban on
 smoking in public places.
 
 COMPANY EMPLOYEES
 
 Under the provisions of Section 217 (2A) of the Companies Act, 1956,
 read with the Companies (Particulars of Employees) Rules, 1975 as
 amended, the particulars of employees are set out in 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 the shareholders of the
 Company excluding the aforesaid information.  Any shareholder
 interested in obtaining such particulars may write to the Company
 Secretary.
 
 Your Directors take this opportunity to record their deep appreciation
 of the continuous support and contribution from all employees of your
 Company.
 
 AUDITORS
 
 The Auditors, Messrs. Lovelock & Lewes, Chartered Accountants, retire
 at the ensuing Annual General Meeting and being eligible, offer
 themselves for re-appointment.
 
 THE FUTURE
 
 In the current years Budget no increase in excise duties has been
 proposed which has been a welcome relief.
 
 The focus of your Company will continue to remain on cigarettes and
 tobacco. The strategy of offering value for money brands in both
 existing and new geographies which provide opportunities will continue
 as it has improved the performance of your Company for the last several
 years.
 
 The challenge to cope with increased bout of taxation across various
 states would continue as would be the challenge when comprehensive
 Goods and Services Tax (GST) is introduced in the financial year
 2012-13 as per current indication, as GST would lead to change in the
 operation structure.
 
 New pictorial warnings would have to be displayed on the packs
 effective financial year 2011-12. However the exact date for change in
 graphical warning is awaited.
 
 Leaf tobacco exports have been growing over the last several years and
 your Companys thrust on this area will continue.
 
                                                On behalf of the Board,
 
                                                     R.V.K.M. SURYARAU 
                                                              Chairman
 
 Dated this 13th day of April, 2011.  
 Azamabad, Hyderabad - 500 020,
 Andhra Pradesh.