MANAGEMENT DISCUSSION AND ANALYSIS REPORT 

Steep increases in Excise and VAT coupled with strong enforcement of anti smoking campaign by several states is taking its toll on the cigarette industry. Though the decline on paper is only 5% in the financial year 2014-15, the actual decline is much more. This is because a huge amount of stock was pushed into the market in the last quarter which remained unconsumed. This is borne out by the fact that industry cleared only 30% of last year's average sale in the month of April 2015.

The popular priced 65mm filter category introduced in the earlier budget was growing and was providing as a backup to down graders. However despite this segment averaging 1500 million in 2014-15, could not stem the industry decline. However since July last year after an excise increase of 70% this segment too has become static and in some areas begun declining. has added more than 1800 million per month to industry volume in the lower price sectors. However, despite this gain the industry has declined by more than 500 million sticks which is about 5%

Another two areas that continues to plague the industry is the growing grey market and cheap branded smuggled cigarettes. These products sell at 20%-25% price of branded products and offer the trade more than 250% profit margin. It is interesting to note that the excise component alone is more than the selling price of the cigarette. North India in particular is affected by the huge influx of cheap branded cigarettes manufactured by a subsidiary of ITC in Nepal which sell at less than half the price of Indian cigarettes.

As a result your Company sales volume has also declined. Though some gains have been made in the 65mm filter category, there has been a sharp erosion in the 65m m plain segment where plain now has to compete with filter at the same price.

Several restructuring activities in sales and distribution have resulted in considerable savings without compromising on productivity. There is urgent need to focus more sharply on the lower priced 65mm filter segment as this is the only segment that is likely to register some growth in the coming years.

OPPORTUNITIES, THREATS AND FUTURE OUTLOOK:

In the last two budgets, excise duty on the 65mm filter segment has almost doubled. Yet this segment is showing signs of holding onto its segment volume and possibly register some gains in this financial year. This is an opportunity for the industry in general and your company in particular. This segment has already exhibited good growth prospects and your company has already taken steps to maximize benefits from the same.

The grey market cigarettes continue to be the biggest threat to the organized sector. These units have been set up in most of the states and continue their illegal acts and now account for a sizable volume of the total industry. The management has taken up this issue with the government at the highest level.

Anti smoking campaign has been gaining momentum and is now resulting in a decline in the incidence of smoking, particularly in the above 50 age group. State governments have also been strictly enforcing no smoking zones. This campaign is also likely to adversely impact the industry. 

Banning of loose stick sale by Chandigarh, Punjab & Mumbai is likely to impact the industry too as a substantial cigarette volume accrues from this purchasing habit. Not everyone will shift to pack buying. Your company is exploring options of introducing two and three stick packs to address this issue.

SEGMENT WISE / PRODUCT WISE PERFORMANCE

Segment wise / product wise performance reporting is not applicable to the Company since it is a uni-product Company. INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company has a sound and well defined internal control system commensurate with the size and nature of its business activities, which records transactions and operations; ensures protection against misuse or loss of the Company's assets; ensures efficiency in operations of the plant and facilitates transparency and accuracy of financial reporting. Under the system, regular Internal Audit is conducted to review the existing financial and operating controls, working and the feedback generated is used in improvements. These reports are placed before the Audit committee for their review at regular intervals. The system is assisted by an Enterprise Resource Planning (ERP) package named Baan employed to ensure efficient operation of the business enterprise.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT

Your Company endeavors to move ahead with its most valuable resources, its employees. Our progress as a Company is very intimately entwined with the well being of our manpower. Realizing the essence, we have and will continue in the future to have cordial and healthy relations with the Unions. We pledge to continue to maintain these good industrial relations through concerted positive efforts.

The Company had 309 employees as on March 31, 2015, comprising of 68 in management / supervisory cadres, 26 in the staff cadres and 215 as workmen as compared to 368 of the brvious at the beginning of the year.

FINANCIAL PERFORMANCE

The performance of the Company is adversely affected due to various reasons as mentioned in the Directors' Report. The gross turnover for the year under review stood at Rs. 10308.66 Lacs as against Rs. 11617.65 Lacs of the brvious year. The Net Loss for the year under review was Rs. 3063.33 Lacs as against Rs. 2190.07 Lacs of the brvious year.

CAUTIONARY STATEMENT

The above statements are based on the current scenario and the input available to the Directors. Any extraneous developments may have an impact on the above perceptions.