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Highlights

Gross Revenue : +13.4%

Profit Before Tax : +18.2%

Net Profit : +18.1%

Non-cigarette FMCG segment registers revenue growth of 18.3% and improves profitability amid a slowdown in private consumption expenditure

Robust performance by Agri Business driven by wheat and leaf tobacco

Weak global macroeconomic environment and high levels of room inventory in key domestic markets continue to impact the performance of the Hotels business

Paperboards, Paper & Packaging Segment Revenues up 9.9% aided by new capacity addition. High input price levels (mainly of wood and coal) impact profitability

The Company posted another strong performance during the quarter with robust growth in revenue and profits. This performance is particularly commendable given that it has been delivered against a backdrop of a challenging business environment, not least the slowdown in private consumption expenditure and the steep hike in Excise Duty on cigarettes announced in the Union Budget 2013. Gross Revenue for the quarter grew by 13.4% to Rs. 10726.84 crores driven by Agri Business and the FMCG businesses. Profit Before Tax increased by 18.2% to Rs. 2762.24 crores while Net Profit at Rs. 1891.33 crores registered a growth of 18.1%. Earnings Per Share for the quarter stood at Rs. 2.39.

The Company's Branded Packaged Foods businesses posted robust growth in revenues and enhanced market standing across categories during the quarter. The businesses launched a number of differentiated and innovative products during the quarter leveraging deep consumer insight, product development capability and state-of-the-art R&D and manufacturing facilities.

In the Staples, Spices and Ready-to-Eat Foods business, 'Aashirvaad' atta sustained its high growth trajectory consolidating its leadership position across markets. The premium 'Multi-grain' and 'Select' offerings under the Aashirvaad brand posted robust growth. In the Bakery and Confectionery Foods business, the Biscuits and Confectionery categories saw the launch of premium and innovative products with the introduction of 'Sunfeast Delishus' gourmet cookies in two delectable variants viz., 'Nut Biscotti' and 'Nut and Raisins', and 'Candyman Jellicious' in the jelly segment. The products have met with excellent consumer response and are being rolled out to target markets.

During the quarter, the Snack Foods business rolled out the 'Yumitos' sub-brand for its potato chips range under the umbrella brand Bingo! in keeping with its value proposition of fulfilling the consumer need of 'casual snacking' and to provide the potato chips range with its own unique identity. The relaunch offer comprises new packaging and communication as well as the introduction of 2 new exciting regional flavours - 'Apnu Mithu' and 'Masala Jalsa' for the Gujarat market.

During the quarter, the Personal Care Products Business expanded its product portfolio with the launch of 'Engage' - a first-to-market range of deodorants for couples. Engage marks the Personal Care Business' foray into deodorants with an exclusive brand. This new range of deo sprays for men and women provides 24-hour freshness and has been crafted to enhance personal grooming and confidence.

During the quarter, the 'Vivel Cell Renew' Skin Care range was expanded with the launch of a new variant of Body Lotion and 2 variants of Face Wash. In the Personal Wash category, the Vivel range of soaps was modernised with the objective of fortifying the brand. A new range of soaps, comprising 4 exciting variants, addressing the consumer need for skin nourishment was launched during the quarter. The business also augmented its product range under the 'Fiama Di Wills' brand with the introduction of several new and differentiated variants of soaps and shower gels. The new products have received encouraging consumer response.

The Education & Stationery Products business consolidated its position as the leading and fastest growing 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 is implementing several initiatives to enhance supply chain efficiencies with a view to optimising delivery costs and improving market servicing.

The cigarette industry in India continues to be impacted by a discriminatory taxation and regulatory policy framework and the growing incidence of smuggling and illegal manufacture. Steep increases in Excise duty on cigarettes for the second year in succession and the arbitrary increases in Value Added Tax (VAT) on cigarettes by some States during the quarter have exacerbated the situation vis-a-vis lightly taxed or tax evaded tobacco products like Bidi, Khaini, Chewing Tobacco and Gutkha. These lightly taxed or tax evaded tobacco products are the most dominant forms of tobacco consumption in India and constitute as much as 85% of total usage. It is pertinent to note that while cigarettes account for less than 15% of overall tobacco consumption (by weight) in the country, they contribute about 75% of the total tax revenue from the tobacco sector accruing to the exchequer.

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. Punitive tax rates on cigarettes have proved detrimental to revenue collection leading to a multi-fold increase in illegal trade of cigarettes without any visible decrease in overall tobacco consumption. 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.

Despite a challenging operating environment as aforementioned, the Company's unwavering focus on providing world-class products to consumers enabled it to sustain its leadership position in the industry. Consumer centricity, product innovation and quality processes have enabled the business to deliver superior value. Several initiatives were launched during the quarter across the portfolio in terms of pack modernization and introduction of new variants with a view to consolidating market standing. The business also augmented its product portfolio in the recently introduced segment of 'filter cigarettes of length not exceeding 65 mm' with the launch of 3 new offers - 'Flake Galaxy', 'Flake Liberty' & 'Silk Cut Virginia' in identified markets. While the segment 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 has made it difficult for the legitimate industry to fully counter the menace of illegal cigarettes.

A weak macroeconomic scenario in major source markets and in India, coupled with high room inventory levels in key domestic cities resulted in a relatively weak pricing scenario leading to a muted growth in Segment Revenues during the quarter. Segment Results were also impacted by the gestation costs relating to ITC Grand Chola, which commenced operations in September 2012.

The Company's subsidiary, WelcomHotels Lanka Private Limited, obtained the requisite approvals from the Government of Sri Lanka entitling the company to certain fiscal benefits pertaining to the mixed-use project it is currently developing in Colombo, Sri Lanka. Construction activity of the new properties at Kolkata, Bengaluru and at the Classic Golf Resort near Gurgaon is progressing as per plans.

During the quarter, the Paperboards, Paper and Packaging segment recorded a growth of 10% in revenues aided primarily by new capacity additions. However, Segment Results were impacted by high input prices, particularly of wood and coal.

The recently commissioned state-of-the-art paperboard machine at Bhadrachalam is stabilising well. This new capacity of over 1 lakh tonnes per annum is expected to strengthen the market standing of the business in the fast growing and premium value-added paperboard segment. The pulp capacity expansion project at the Bhadrachalam unit is progressing as per schedule. The business is also progressing a wind energy project in Andhra Pradesh to meet the growing energy requirements of the Company through renewable sources.

The Packaging and Printing business continues to provide competitive advantage to the Company's FMCG businesses by enabling quicker turnaround of designs, pack changes and reduced product launch timelines. The business continues to leverage multiple packaging platforms to offer a wide range of packaging solutions both in the domestic and export markets. The newly commissioned facility at Haridwar is performing well on key operating parameters.

The Agri Business posted a strong performance during the quarter with Segment Revenues and Segment Profits growing by 29.4% and 16.4% respectively. This impressive performance was primarily driven by higher trading volumes and improved realisations in leaf tobacco and wheat.

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 in the States of Andhra Pradesh, Bihar, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal.

Intervention Areas	Unit of Measurement	Cumulative till date
Total Districts Covered	Number	60
Social and Farm Forestry Soil and Moisture Conservation Programme	Hectare Hectare	145,948 121,996
Sustainable Agricultural Practices Compost Units	Number	15,737
Sustainable Livelihoods Initiative Cattle Development Centres Animal Husbandry Services	Number Artificial Insemination doses (in lakhs)	314 11.12
Economic Empowerment of Women Self Help Group Members Livelihoods created	Persons Persons	18791 40005
Primary Education Beneficiaries	Children (in lakhs)	3.07
Health and Sanitation Low Cost Sanitary Units	Number	3847