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Highlights

Underlying growth in Net Revenue : +15.2%

Profit Before Tax : +21.5%

Net Profit : +21.5%

Net Revenue records an underlying growth of 15.2% after adjusting for the high level of wheat exports in Q2 FY13 due to shortfall in global crop output last year.

Non-cigarette FMCG segment registers a healthy revenue growth of 15.7% despite a sluggish demand environment; sustains improving profitability momentum.

Hotels Business continues to be impacted by the weak macroeconomic environment and a spurt in room additions in key markets.

Agri Business records an underlying growth of 8.5% in Segment Revenue with significant improvement in profitability.

Paperboards, Paper & Packaging Segment Revenue up 11.7% driven by paperboards and flexible packaging. Sharp escalation in input costs (particularly of wood) impacts profitability.

The Company posted another quarter of robust performance with healthy growth in revenue and profits notwithstanding a challenging business environment engendered by a marked slowdown in consumption expenditure, sustained high inflationary conditions and the steep hike in Excise Duty on cigarettes announced in the Union Budget 2013. After adjusting for the high level of wheat exports in Q2 FY13, underlying Net Revenue growth during the quarter stood at 15.2% driven mainly by the Branded Foods businesses, Paperboards and Leaf Tobacco exports. During the quarter, Profit Before Tax grew by 21.5% to Rs. 3233.83 crores while Net Profit at Rs. 2230.53 crores registered a growth of 21.5%. The financials for the quarter include Rs. 192.68 crores (pre-tax) representing write-back of provisions (towards Rates & Taxes and interest thereon pertaining to earlier years) that are no longer required consequent to a favourable High Court Order. Earnings Per Share for the quarter stood at Rs. 2.82.

In the Staples, Spices and Ready-to-Eat Foods business, 'Aashirvaad' atta continued to record impressive growth consolidating its leadership position across markets. The business launched 'Aashirvaad Fortified Atta' in select markets in line with emerging consumer needs. In the Bakery and Confectionery Foods business, the recently launched 'Sunfeast Delishus' gourmet cookies and 'Candyman Jellicious' in the jelly segment are being rolled out nationally after receiving good consumer response in test markets.

The Snack Foods business recorded strong growth during the quarter. The potato chips range, relaunched under the 'Yumitos' sub-brand earlier this year, received encouraging response. In line with its strategy of introducing innovative products catering to region-specific consumer tastes and preferences, the business launched 'Bingo! Galata Masti' in the finger snacks sub-category for the southern markets.

In the Instant Noodles category, 'Sunfeast Yippee!' continues to grow at a rapid pace and gain consumer franchise. The recently launched premium 'Chinese Masala' variant continued to gain traction during the quarter.

The 'Engage' range of deodorants, launched in April 2013, continued to garner increasing consumer franchise during the quarter. Product range was expanded with the launch of two differentiated variants each for men and women during the quarter.

In the Personal Wash category, the modernised range of 'Vivel' soaps gained good consumer traction during the quarter. The business also augmented its presence in the fast-growing male grooming segment with the introduction of several differentiated variants of soaps and shower gels under the 'Fiama Di Wills' brand. These new products have received encouraging consumer response and are being extended to target markets.

The Education & Stationery Products business sustained its position as the leading player in the Indian Stationery market. The Company's flagship brands - 'Classmate' for the student community and 'Paperkraft' for office and executive requirements - continue to gain consumer franchise leveraging a superior product range and effective consumer engagement. The business continued to focus on several initiatives to enhance supply chain efficiencies with a view to optimising delivery costs and improve market servicing.

Discriminatory and punitive taxation coupled with a growing incidence of smuggling and illegal manufacture are the biggest challenges confronted by the domestic cigarette industry. These challenges were further compounded during the year by the steep increases in Excise duty on cigarettes for the second successive year and, discriminatory and punitive increases in Value Added Tax (VAT) on cigarettes by some States. Such increases not only undermine the legal domestic cigarette industry and sub-optimise revenue potential from this sector but also fail to achieve the objective of tobacco control in the country.

While the recently introduced segment of 'filter cigarette not exceeding 65 mm' is showing incipient signs of arresting the growth of illegal cigarette trade in India, the relatively high Central Excise Duty rate of Rs. 689 per thousand cigarettes applicable to this segment coupled with the high rates of VAT on cigarettes have made it difficult for the legitimate industry to fully counter the menace of illegal cigarettes.

The imposition of discriminatory and punitive VAT rates by some States provides an attractive tax arbitrage opportunity resulting in illegal inter-state diversion of stocks by criminal elements thus depriving the State Governments of their legitimate revenue share. A case in point is the State of Uttar Pradesh which increased VAT on cigarettes from 17.5% to 50% with effect from 1st July 2012. The steep increase in VAT rates led to a sharp drop in legal cigarette sales in the State even as illegal and duty-evaded cigarettes and inter-state movement of stocks gained significant traction leading to loss of potential tax revenues to the State exchequer. The recent pragmatic decision of the State Government of Uttar Pradesh to rationalise VAT on cigarettes is a step in the right direction and is already showing results in terms of revenue buoyancy and arresting the growth of illegal trade in the State.

The hospitality sector continued to be adversely impacted by the weak economic conditions prevailing in major international source markets and India on the one hand, and significant additions to room supplies in key Indian cities on the other. While Segment Revenues grew by a robust 13.8% during the quarter driven by ITC Grand Chola which commenced operations in September 2012, profitability was impacted by the relatively weak pricing scenario prevailing in the industry and gestation costs of the new property. The business recorded a modest growth of 4% in EBITDA over the same period last year and remains the leader amongst the lead players in the industry in terms of profitability.

In line with its strategy of expanding presence in an asset-light manner, the business signed up management contracts for operating 4 properties (2 in Kerala, 1 each in Dwarka and Chandigarh) under the 'WelcomHotel' brand during the year. While the 393-room WelcomHotel, Dwarka is already operational, the other 3 properties comprising ~ 260 rooms in aggregate are expected to go on stream shortly.

The Paperboards, Paper and Packaging segment recorded a growth of 11.7% in revenues during the quarter driven by strong growth in paperboards and flexible packaging. Segment Results for the quarter were, however, impacted by the steep increase in input costs - particularly of wood and coal.

The recently commissioned state-of-the-art paperboard machine at Bhadrachalam is expected to further enhance the market standing of the business in the fast growing and premium value-added paperboard segment. Investment in pulp capacity expansion and wind energy are progressing as per schedule.

The newly commissioned facility at Haridwar comprising state-of-the-art facilities for cartons and flexibles packaging is performing well on key operating parameters and is being increasingly leveraged to meet the growing demand from the northern markets.

Segment Revenue grew by 8.5% during the quarter after adjusting for the high level of wheat exports in Q2 FY13 due to shortfall in global crop output last year. Segment Results grew at a faster pace primarily driven by an enriched product mix and strong growth in leaf tobacco exports leading to significant improvement in profitability.

The business continued to provide strategic sourcing support to the Company's Cigarette business and leverage the e-Choupal network to source identity-preserved and specific varieties of high quality wheat for the Branded Packaged Foods businesses. In the area of potato sourcing, the business continued to support the Bingo! Yumitos brand of potato chips by procuring high quality chip stock potatoes at competitive prices. The endeavour of partnering with farmers to source locally grown potatoes in close proximity to manufacturing units helped minimise logistics costs.

The Company's Social Investments Programme aims to address the challenges arising out of poverty, environmental degradation and climate change through a range of activities with the overarching objective of creating sustainable sources of livelihood for the stakeholders. The footprint of the Company's Social Investments Programme has spread to 60 districts across the country.

Intervention Areas	Unit of Measurement	Cumulative till date
Total Districts Covered	Number	60
Social and Farm Forestry Soil and Moisture Conservation Programme	Hectare Hectare	156,881 126,028
Sustainable Agricultural Practices Compost Units	Number	16,695
Sustainable Livelihoods Initiative Cattle Development Centres Animal Husbandry Services	Number Artificial Insemination doses (in lakhs)	314 11.98
Economic Empowerment of Women Self Help Group Members Livelihoods created	Persons Persons	18,859 41,931
Primary Education Beneficiaries	Children (in lakhs)	3.14
Health and Sanitation Low Cost Sanitary Units	Number	4,244