Brief about the Company Godfrey Phillips is today the second

largest player in the Indian cigarette industry with an annual

turnover of over US$ 265 million Incorporated in India in 1936, the
Company established its own manufacturing facilities in 1944 The
Company today is the proud owner of some of the most popular
cigarette brands in the country like Red and White, Four Square,
Jaisalmer, Cavanders, Tipper and Prince Its products are distributed
through an extensive India wide network comprising 484 exclusive
distributors and over 800,000 retail outlets

Slide 34:
History 1844 Mr. Godfrey Phillips, founder of Godfrey Phillips & Sons
commenced business in the Barbican (London), as a Cigar
manufacturer 1944 Company established its own manufacturing
facilities 1946 GODFREY PHILLIPS became a Public Ltd. Co. with its
manufacturing operations in Mumbai 1967 D. Macropolo & Co.,
which was the sole selling agent for GODFREY PHILLIPS, opened a
subsidiary company called "International Tobacco Co.",

Slide 35:
History 1967-68 Philip Morris acquired substantial holding in Godfrey
Phillips Ltd 1979 Philip Morris. joined hands with the K.K. Modi Group
and in the following year the Modi Enterprises took over the
management of GODFREY PHILLIPS 2002 The Company re-launch
some of its brands, by giving them an entirely new look &
positioning, while some new, innovative products like Tipper & Piper
were also introduced 2003 Jaisalmer & Prince re-launched

Slide 36:
History Cigarette Four Square Jaisalmer Red & White Cavanders
Tipper North Pole Prince Cigars - Brands Don Diego Hav-a-tampa
Phillies Santa Damiana H-2000 Rothschild

Slide 37:
Market Share The domestic market share has grown from 10% to 12
% over 2003-04 Godfrey Phillips has surpassed industry standards
and demonstrated phenomenal growth, at 8.3% in the year 2003 -
04, against industry growth of 4.4% for the same period
 Mba project

In cigarettes industry because of the intensive competition and

standardized products customer has become more powerful and
demand not only for quality but also low cost.

• Market is being dominated a market leader

Cigarettes market in India is dominated by ITC because of its quality,

low cost production and mass distribution network.

• Increase in promotion activities

Maturity stage shows a significant increase the promotional activities

which is clearly evident from the activities which are being followed by
the cigarettes company to increase their brand visibility

Cigarette Industry in India:

India is the second largest producer of tobacco in the world after

China. It produced 572 million kgs of tobacco in 2002-2003. India
only holds a meager 0.7% share of the US$30 billion global Import-
Export trade in Tobacco, with cigarettes/cigarette tobaccos accounting
for 85% of the Country’s total tobacco exports.The tobacco industry
holds tremendous potential for India. For the government, it means
excise duties and export revenues, and for the Country in general, it
translates into huge employment opportunities.

Despite being the second largest producer, India is only the ninth
largest exporter of tobacco and tobacco products in the world. Out of
the total tobacco produced in India, only one-third is flue-cured
tobacco suitable for cigarette manufacturing. Most of the tobacco
produce is suitable for the manufacture of chewing tobacco, bidis and
other cheap tobacco products, which have no demand outside the
country. There is only an export demand for flue-cured tobacco, which
is used for cigarette manufacturing.

If India adopted a rational tax policy for the tobacco industry that
encouraged the growing of export tobacco, tobacco farmer income
would increase and export revenue would grow. If India adopted
China’s tax policy on tobacco, tax revenue could rise from the current
Rs 6,031 crore to Rs 54,000 crore. China’s economy-oriented tax
policies have given cigarettes 100% share of domestic tobacco
consumption. This strong domestic base has proved to be conducive to
exports as well as revenue generation.

The Indian tobacco industry makes a very substantial contribution to

employment. 35 million people are directly or indirectly engaged in
the production and selling of tobacco & tobacco products as shown in
the table below.

Economic Impact of Tobacco Industry – Employment.

MILLIO
TYPE SOURCE
NS
Farmers 6.0 22nd Report of the Parliamentary Committee o
Farmer Labour 20.0 Legislation, 1995

Bidi workers 4.4 Lok Sabha reply to question on 17.05.2000

Tendu Leaf
2.2 M.P. Govt Advertisement (TOI, June 8, 2000)
Pluckers
Trade/Retailers 2.0 ORG-MARG Research data

Total 34.6

The production of tobacco is integral to the economies of a number of

Indian states and regions, where it is grown. Tobacco is
predominantly grown in Andhra Pradesh, Karnataka, Gujarat and
Uttar Pradesh. Andhra Pradesh & Karnataka traditionally produce
flue-cured leaf. Growing of tobacco is very lucrative owing to its short
growing season and the profitability in relation to other cash crops.

Indian consumption of tobacco does not follow western trends with

38% of tobacco being consumed as bidi’s, 48% as chewing tobacco,
and only 14% as cigarettes. That is, bidis, snuff and chewing tobacco
such as gutka, khaini and zarda form the bulk (86%) of India’s total
tobacco production. This low percentage of consumption in cigarettes
of 14% compares to 90% in the rest of the world. In fact the per capita
consumption of cigarettes in India is merely 1/10th of the world
average.

This unique tobacco consumption pattern is a combination of

tradition and more importantly the discriminatory tax imposed on
cigarettes over the last 2 decades. Cigarette smokers pay almost 85%
(Rs 5,181 crore) of the total tax revenues generated from tobacco. This
discriminatory tax is justified on the grounds that it is a “luxury” tax.
This is a misnomer because it is the discriminatory tax, which is
causing the difference in prices between cigarettes and other tobacco
products.

Revenue contribution from each of the forms of tobacco consumption.

Cigarettes, with only 14% of the Indian consumption, account for more
than 85% of the total revenue from tobacco products. In reading this
chart one should realize more than 50% of the revenue from cigarettes
is taxation.

Tobacco consumption and revenue split 2002/2003

The Bidi industry is relatively unorganized, rural and labour intensive

in nature, with very few large producers. They wrap the product in
tendu leaf and much of the industry volume is hand rolled. The market
is very regional in character with different brands sporting different
shapes and sizes dominating the market. The major centres of
production are:1. Andhra Pradesh (A.P.)2. Bihar3. Gujarat4. Kerala5.
Madhya Pradesh (M.P.)6. Chattishgarh7. Tamilnadu8. Maharashtra9.
Karnataka10. Orissa11. Uttar Pradesh (U.P.)12. West Bengal

The non smoking tobacco including chewing tobacco and gutka

market, has grown at a rapid rate from almost zero a decade ago to its
current position. The market is divided between chewing tobacco,
snuff and hookah. The industry is also very regional in character with
only two brands having a national presence, Pan Parag and
Manikchand.

Chewing tobacco and hookah occupy about 25% of the total tobacco
grown in India and are consumed internally in the form of chewing,
hookah, paste, quiwam, candy and gutka purposes. There are some
400-500 products of pan masala available in the market such as
sented supari, aromatic powder, khaini, mishri, mawa, snuff, zarda,
cheroot, etc.

Gutka is banned in some states of India.

On the cigarette side India is rapidly seeing a growing demand for

filter tipped cigarettes on account of the rising middle class who are
migrating from non-filter cigarettes to filter tipped cigarettes, owing to
the rise in the disposable income of the people.

The tax collection from cigarettes is the highest in the tobacco

industry: duty per kg for cigarettes is as high as Rs. 722 per kg, while
combined duty per kg for other tobacco products like bidis and
chewing tobacco is only Rs. 21 per kg.

In India, three major cigarette players dominate the market, primarily

ITC with 66.9% market share, Godfrey Phillips with 12.3% ,VST with
12% share and GTC with 7.8% of the market. However, for Godfrey
Phillips there exists huge untapped opportunity for growth on account
of geographical expansion possibilities (as it is presently available in
only the northern, western and certain southern parts of the Country)
and product portfolio expansion.

.
3>>>

Godfrey Phillips (GPI ) Cigarette Industry - September 20th, 2010

GPI.

GPI the second largest player in the Indian cigarette industry is a joint
venture between Modi group and global cigarette major Phillip Morris.
Some of the leading brands in GPI’s portfolio are Jaisalmer, Cavenders,
Four Square, Red & White and Originals. The company has a value market
share of 11.4% and a volume share of 12.4% in the cigarette industry. In
FY2000 while industry volumes declined by 3.5% company's cigarette
volumes dropped by 5.3%. The GPI also has a presence in the domestic
and export packet tea business.

The cigarette and tobacco players face increasing protests from anti-
tobacco and health organizations. Globally as well as in India, the anti-
smoking lobbying has been gaining ground. The cigarette industry faces
immense pressure with declining volumes and increasing government
regulations and taxation.

Profitability of most players has been affected. The industry has received
some relief in the form of excise exemption for manufacturing in North
Eastern states, and most companies have commenced manufacture in the
region to avail of the excise exemption. During the year the company
entered into arrangements with small scale manufacturing units in Assam
for purchase of cigarettes under company's brands.

During Q2 FY01 company sales dropped by 13%yoy to Rs2.5bn while its

net profits increased more than two-folds to Rs123mn.The growth in
profits has come from higher operating profits, other income and lower
interest costs despite higher tax provisioning and depreciation charged
during the quarter. Operating profit margins increased by 3.8% points to
6.6% of sales.

The improvement in margins has come from drop in excise duty and

lower staff cost which more than offset the increases in advertisement

cost and other expenditure. The drop in excise duty can be attributed to

excise duty exemption for cigarette manufacturing in Northeast.

Godfrey Phillips (GPI ) Cigarette Industry - September 20th, 2010
GPI.

GPI the second largest player in the Indian cigarette industry is a joint
venture between Modi group and global cigarette major Phillip Morris.
Some of the leading brands in GPI’s portfolio are Jaisalmer, Cavenders,
Four Square, Red & White and Originals. The company has a value market
share of 11.4% and a volume share of 12.4% in the cigarette industry. In
FY2000 while industry volumes declined by 3.5% company's cigarette
volumes dropped by 5.3%. The GPI also has a presence in the domestic
and export packet tea business.

The cigarette and tobacco players face increasing protests from anti-
tobacco and health organizations. Globally as well as in India, the anti-
smoking lobbying has been gaining ground. The cigarette industry faces
immense pressure with declining volumes and increasing government
regulations and taxation.

Profitability of most players has been affected. The industry has received
some relief in the form of excise exemption for manufacturing in North
Eastern states, and most companies have commenced manufacture in the
region to avail of the excise exemption. During the year the company
entered into arrangements with small scale manufacturing units in Assam
for purchase of cigarettes under company's brands.

During Q2 FY01 company sales dropped by 13%yoy to Rs2.5bn while its

net profits increased more than two-folds to Rs123mn.The growth in
profits has come from higher operating profits, other income and lower
interest costs despite higher tax provisioning and depreciation charged
during the quarter. Operating profit margins increased by 3.8% points to
6.6% of sales.

The improvement in margins has come from drop in excise duty and

lower staff cost which more than offset the increases in advertisement

cost and other expenditure. The drop in excise duty can be attributed to

excise duty exemption for cigarette manufacturing in Northeast.