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Directors Report of ITC Ltd.

Mar 31, 2015

The Directors submit their Report for the financial year ended 31st March, 2015.

SOCIO-ECONOMIC ENVIRONMENT

2014 marked yet another year of modest global economic growth. According to the International Monetary Fund's April 2015 World Economic Outlook, world output grew by 3.4% - at par with the growth recorded in 2013. While economic growth picked up in the Advanced Economies, the Emerging Market & Developing Economies witnessed further deceleration in growth. The US economy posted a strong performance during the year averaging an annualised growth of 4% in the last three quarters of 2014, driven by growth in consumption expenditure on the back of steady job creation and income growth, lower oil prices and improved consumer confidence. The Euro Area also displayed signs of recovery, growing by 0.9% during 2014 compared to a contraction of 0.5% in the previous year, aided by lower oil prices, higher net exports and supportive financial conditions. However, risks of prolonged deflationary conditions and low growth persist. The Emerging Market & Developing Economies slowed down further - from 5% in 2013 to 4.6% in 2014 with China recording a decline in growth rate - from 7.8% in 2013 to 7.4% in 2014. Other major constituent economies like Brazil, Russia, and South Africa also recorded deceleration in growth rates.

Global growth prospects remain moderate in 2015. As per IMF estimates, world GDP is projected to grow modestly from 3.4% in 2014 to 3.5% in 2015 and 3.8% in 2016 largely driven by the Advanced Economies, where growth is expected to increase from 1.8% in 2014 to 2.4% in 2015 and 2016. Within Advanced Economies, growth is likely to be strongest in the US at 3.1% in 2015 driven by lower energy prices, benign inflation, reduced fiscal drag and improving household, corporate and bank balance sheets. Building on the stronger growth momentum at the end of 2014, overall Euro Area growth is expected to increase to 1.5% in 2015, aided by lower oil prices, a weakening currency and the European Central Bank's massive asset purchase programme to unshackle the economy from its low growth and low inflation state. Emerging Market & Developing Economies are likely to see another year of deceleration in growth - from 4.6% in 2014 to 4.3% in 2015 - before recovering to 4.7% in 2016. GDP growth in China is projected to slow down further to 6.8% in 2015 with decline in investment growth.

Despite the improved prospects in certain sections of the world economy, global economic recovery remains fragile. Geopolitical tensions, stagnation and deflationary conditions in Advanced Economies, continued slowdown in growth rates in China and its consequent adverse impact on commodity exporting countries represent some of the key downside risks to global economic recovery.

While domestic macro-economic variables improved over the previous year, aided by the collapse of global crude oil prices, the Indian economy witnessed yet another challenging year with only a marginal pick-up in economic growth. The weakness in the broader economy was manifest in your Company's operating segments – particularly in the FMCG and Hospitality space. While the new data, rebased to 2011-12, released by the Central Statistics Office (CSO) has pegged GDP growth at 7.4% for 2014-15 compared to 6.9% in 2013-14, there appears to be a significant divergence between the reported growth rates and on-ground economic activity. While growth in Private Final Consumption Expenditure (PFCE) has been estimated at 7.1% for 2014-15 (Vs. 6.2% in 2013-14), leading indicators like rural demand headwinds, muted sales of tractors and two wheelers, depressed production of consumer goods and a marked deceleration in corporate sales growth point to a persistent weakness in private consumption demand. Similarly, while industrial growth based on the new data series is estimated at 5.9%, Index of Industrial Production (IIP) data reflects a relatively subdued performance. As stated by the RBI in its Monetary Policy Report of April 2015, while the new GDP data embodies better coverage and improved methodology as per international best practices, an accurate assessment of the state of the business cycle and forecasting is handicapped by the lack of sufficient historical data based on the new data series.

There was good news on the inflation front, which declined significantly aided by low global crude oil and commodity prices. While Wholesale Price Index (WPI) for 2014-15 stood at 2% as against 6% in 2013-14, Core CPI inflation also eased to 5.5% in 2014-15 as compared to 8.8% in 2013-14. The fall in inflation provided the much needed space for monetary accommodation, with the RBI reducing policy rates by a cumulative 50 bps in Q4 2014-15. Food inflation, however, has displayed an uptrend in recent months and remains a key monitorable given the adverse impact of unseasonal rains in March 2015 on the winter crop and early indications of the likelihood of El Nino weather conditions during the forthcoming south-west monsoon season.

There was significant improvement on the 'twin deficit' front as well. Fiscal Deficit was contained within target at 4.0% of GDP in 2014-15 driven by decline in oil subsidies, once-off proceeds from spectrum auctions and compression in Government expenditure. The Current Account Deficit narrowed further to an estimated 1.3% of GDP as compared to 1.7% in the previous year, primarily aided by a lower import bill on account of the steep fall in crude oil prices. Healthy capital flows on the back of improved investor sentiment and favourable global liquidity conditions helped shore up foreign exchange reserves leading to a relatively stable Rupee and propelling the Sensex to record highs.

The broad-based decline in retail inflation since September 2014, depressed commodity prices and the Government's plans to step up infrastructure investments and focus on improving the ease of doing business in India have improved the prospects for growth in 2015-16.

However, the pace of growth is unlikely to witness significant acceleration in the short term given the inherent time lag involved for business confidence and reforms to translate into higher levels of capital investment and a significant pick-up in Private Consumption Expenditure. As per median estimates, based on the Survey of Professional Forecasters conducted by RBI, the Indian economy is likely to grow by 7.9% in 2015-16 as compared to 7.4% in 2014-15 (based on 2011-12 data series). A sharp reversal in crude oil and global commodity prices, heightened geopolitical risks, low agricultural output due to sub-normal monsoons, and protracted stagnation in the Euro Area represent some of the key downside risks going forward. An accelerated rollout of policy reforms and fast track clearances of large projects would go a long way in stimulating the private investment cycle and turn around the manufacturing sector.

While India remains one of the fastest growing major economies in the world, the rate of economic growth in recent years has remained far below the desired levels and the country's potential. Given the low levels of per capita income and the fact that a significant proportion of our population lives below the poverty line, it is imperative that the economy reverts to a high growth trajectory sooner than later.

Domestic consumption remains one of the key growth engines of the Indian economy. With a large and growing population, rising affluence and literacy, and increasing urbanisation - the structural drivers for rapid growth in consumption are in place. Even so, the subdued growth in private consumption over the last few years is a cause for concern. Equally, given the significant additions to the working age population, there is an urgent need to focus on new job creation and skill development to address the unsustainable levels of unemployment especially amongst the youth. Stagnation in the manufacturing sector needs to be reversed at the earliest towards the creation of sustainable livelihoods and absorption of the increasing working age population of the country. In this context, the Government's 'Make in India' initiative to turn India into a global manufacturing hub is a step in the right direction as it seeks to enhance transparency, speed up the approvals process, resolve policy issues by working in tandem with the States and foster greater levels of value addition within the country. Boosting agricultural productivity and value addition to international standards while simultaneously improving market linkages remain critical for the growth of the Agricultural sector. Supportive policies in the areas of food processing and agro-forestry can significantly contribute to job creation, enhance rural incomes, help manage food inflation and promote sustainable agriculture.

For a country like India which has a disproportionately low share of global natural resources relative to its large population, where millions continue to live in abject poverty, and a young demographic profile which entails 12 million people entering the job market every year, the focus both at the national and corporate level should be on fashioning strategies that foster sustainable, equitable and inclusive growth. Policies and regulations must be aligned towards encouraging businesses to adopt a low-carbon growth path and support the creation of sustainable livelihoods and societal capital. Differentiated and preferential incentives, in the form of fiscal or financial benefits to companies that adopt sustainable business practices would act as a force multiplier towards achieving this critical national goal. It is your Company's belief that businesses can bring about transformational change by pursuing innovative business models that synergise the creation of sustainable livelihoods and the preservation of natural capital with enhancing shareholder value. This 'Triple Bottom Line' approach to creating larger 'stakeholder value', as opposed to merely ensuring uni-dimensional 'shareholder value', is the driving force that defines your Company's sustainability vision and its growth path into the future.

Your Company is a global exemplar in 'Triple Bottom Line' performance and is the only enterprise in the world of comparable dimensions to have achieved and sustained the three key global indices of environmental sustainability of being 'water positive' (for 13 years), 'carbon positive' (for 10 years), and 'solid waste recycling positive' (for 8 years).

The following sections outline your Company's progress in pursuit of the 'Triple Bottom Line'.

FINANCIAL PERFORMANCE

Your Company delivered another year of steady performance in the backdrop of continuing sluggishness in the macro-economic environment, exacerbated by a steep increase in taxes/duties on cigarettes which led to unprecedented pressure on legal cigarette industry sales volumes. Your Company also had to contend with start-up costs relating to the launch of new products and categories in the non-cigarette FMCG segment, input cost pressures in the Paperboards, Paper & Packaging Businesses and a weak demand and pricing environment in the Hotels Business.

Gross Revenue for the year grew by 7.0% to Rs. 49964.82 crores. Net Revenue at Rs. 36083.21 crores grew by 9.7% primarily driven by a 11.3% growth in the non-cigarette FMCG segment, 8.1% growth in the Agribusiness segment and 8.7% growth in the Cigarettes segment. Profit Before Tax registered a growth of 10.6% to Rs. 13997.52 crores while Net Profit at Rs. 9607.73 crores increased by 9.4%. After adjusting for liability written back in Q2 FY14 (towards Rates and Taxes and Interest thereon pertaining to earlier years, aggregating Rs. 192.68 crores) underlying growth in Profit Before Tax and Net Profit for the year grew by 12.3% and 11.0% respectively. Earnings Per Share for the year stood at Rs. 12.05 (previous year Rs. 11.09). Cash flows from Operations aggregated Rs.13534.65 crores compared to Rs. 10759.50 crores in the previous year.

Your Directors are pleased to recommend a Dividend of Rs. 6.25 per share (previous year Rs. 6.00 per share) for the year ended 31st March, 2015. Total cash outflow in this regard will be Rs. 6029.56 crores (previous year Rs. 5582.90 crores) including Dividend Distribution Tax of Rs. 1019.86 crores (previous year Rs. 810.99 crores).

Your Board further recommends a transfer to General Reserve of Rs. 970.00 crores (previous year Rs. 880.00 crores). Consequently, the Surplus in Statement of Profit and Loss as at 31st March, 2015 would stand at Rs. 8767.35 crores (previous year Rs. 6139.09 crores).

FOREIGN EXCHANGE EARNINGS

Your Company continues to view foreign exchange earnings as a priority. All Businesses in the ITC portfolio are mandated to engage with overseas markets with a view to testing and demonstrating international competitiveness and seeking profitable opportunities for growth. The ITC Group's contribution to foreign exchange earnings over the last ten years aggregated nearly US$ 6.6 billion, of which agri exports constituted 57%. Earnings from agri exports, which effectively link small farmers with international markets, are an indicator of your Company's contribution to the rural economy.

During the financial year 2014-15, your Company and its subsidiaries earned Rs. 5901 crores in foreign exchange. The direct foreign exchange earned by your Company amounted to Rs. 5096 crores, mainly on account of exports of agri-commodities. Your Company's expenditure in foreign currency amounted to Rs. 1969 crores, comprising purchase of raw materials, spares and other expenses of Rs. 1676 crores and import of capital goods at Rs. 293 crores. Details of foreign exchange earnings and outgo are provided in Note 31 to the Financial Statements.

PROFITS, DIVIDENDS AND SURPLUS

(Rs. in Crores) PROFITS 2015 2014

a) Profit Before Tax 13997.52 12659.11

b) Tax Expense

– Current Tax 4020.99 3791.13

– Deferred Tax 368.80 82.77

c) Profit for the year 9607.73 8785.21

SURPLUS IN STATEMENT OF PROFIT AND LOSS

a) At the beginning of the year 6139.09 3788.10

b) Less: Loss for the period from 1st April, 2013 8.01 – to 31st March, 2014 adjusted pursuant to the Scheme of Arrangement [Refer Note 31(x)]

c) Add: Unrecognised Net Deferred Tax 45.84 – assets as on 1st April, 2013 adjusted pursuant to the Scheme of Arrangement [Refer Note 31(x)]

d) Less: Depreciation on transition to 48.32 – Schedule II of the Companies Act, 2013 on Tangible Fixed Assets (Net of Deferred Tax Rs.24.88 crores) [Refer Note 31(xi)]

e) Add : Profit for the year 9607.73 8785.21

f) Less:

– Transfer to General Reserve 970.00 880.00

– Proposed Dividend [2015 Rs.6.25 5009.70 4771.91 (2014 - Rs. 6.00) per share]

– Income Tax on Proposed Dividend

- Current Year 1019.86 810.99

- Earlier year's provision no (30.58) (28.68) longer required

g) At the end of the year 8767.35 6139.09

BUSINESS SEGMENTS

A. FAST MOVING CONSUMER GOODS

FMCG - Cigarettes

The legal cigarette industry in India continues to be impacted by a punitive taxation and discriminatory regulatory regime. The operating environment for the legal cigarette industry in India was rendered even more challenging during the year, with two rounds of sharp increase in Excise Duty – in July 2014 and February 2015. This includes a cumulative increase of 115% on filter cigarettes of 'length not exceeding 65 mm', which has widened the price differential between legal and illegal cigarettes and made it extremely difficult for the legal cigarette industry to counter the unabated growth of illegal cigarettes in the country.

Over the last 3 years, the incidence of Excise Duty and VAT on cigarettes, at a per unit level, has gone up cumulatively by 98% and 104% respectively. It is pertinent to note that Kerala, Tamil Nadu and Assam, which together account for a significant portion of your Company's sales volumes, sharply increased VAT rate on cigarettes during the year.

The combined impact of the sharp increase in Excise Duty and VAT as stated above, is exerting unprecedented pressure on legal industry sales volumes. Besides adversely impacting the performance of the legal cigarette industry, this has led to sub-optimisation of the revenue potential from the tobacco sector.

High incidence of taxation and a discriminatory regulatory regime on cigarettes in India have over the years, led to a significant shift in tobacco consumption to lightly taxed or tax evaded tobacco products like bidi, khaini, chewing tobacco, gutkha and illegal cigarettes which presently constitute over 88% of total tobacco consumption in the country. Thus, the share of legal cigarettes in overall tobacco consumption has progressively declined from 21% in 1981-82 to below 12% in 2014-15 even as overall tobacco consumption has increased in India.

As per a recent independent study1, it is estimated that products representing 68% of overall tobacco consumption in the country escape taxation as they are manufactured in the unorganised sector with little statutory oversight. While India accounts for around 17% of world population and constitutes over 84% of global consumption of smokeless tobacco, it has a miniscule share of only 1.8% of global cigarette consumption. As a result, revenue collections from the tobacco sector are sub-optimised even as the overall tobacco control and health objectives remain substantially unfulfilled. The requirement therefore is an India-centric tax and policy framework for tobacco that cognises for the unique tobacco consumption pattern in the country.

The imposition of discriminatory and punitive VAT rates by some States provides an attractive tax arbitrage opportunity for illegal cigarette trade by criminal elements. The consequential decline in legal cigarette volumes in such States has led to stagnation / decline in revenue collections, even as illegal cigarettes gained significant traction. On the other hand, the pragmatic decisions of several State Governments to rationalise VAT on cigarettes have facilitated improvement in revenue buoyancy and arresting the growth of illegal trade.

According to an independent study conducted by Euromonitor International - a renowned global research organisation - India is now the 5th largest market for illegal cigarettes in the world. In fact, illegal trade comprising smuggled foreign and domestically manufactured tax-evaded cigarettes is estimated to constitute one-fifth of the overall cigarette industry in India resulting in a huge revenue loss of over Rs. 7000 crores per annum to the national exchequer.

To combat this menace, your Company continues to make representations to policy makers recommending compulsory licensing of all cigarette manufacturing units irrespective of size, increase in customs duty on imported cigarettes to WTO bound rate levels with suitable safeguards built-in to prevent undervaluation, ban on manufacture of tobacco and tobacco products in EOU and SEZ units, ban on cigarettes from personal baggage allowance and duty-free trade and exclusion of tobacco and tobacco products from preferential treatment under Free Trade Agreements that India is party to.

There is an urgent need for stability in tax rates on cigarettes to reverse the undesirable consequences of

a punitive and discriminatory tobacco taxation policy. It is also relevant to note that despite being one of the largest producers of tobacco in the world, India's share of global tobacco trade remains meagre at approx. 7%. A stable, fair and equitable cigarette taxation policy would be imperative to provide a strong domestic demand base to the Indian farmer, insulating him from the volatilities typically associated with international markets. Such a policy would be the key catalyst in realising the full economic potential of the tobacco sector in India and protect the interest of the Indian tobacco farmer. This assumes critical significance especially in view of the fact that there are few economically viable alternative crops to farmers in the regions where tobacco is grown in India.

Your Company continues to engage with the concerned authorities, both at the Central and State Government level, highlighting the need for moderation in tax rates on cigarettes to maximise the revenue potential from the tobacco sector and contain the growth of the illegal segment.

As per the draft Constitution Amendment Bill 2014 on Goods and Services Tax (GST), cigarettes are likely to come under the purview of the proposed GST framework while continuing to be subjected to the levy of Central Excise Duty. It is imperative that revenue sensitive goods like cigarettes are subjected to uniform standard rates of tax applicable to general category of goods to ensure revenue buoyancy and rein in the growth of the illegal segment. Further, the combined incidence of Excise Duty and GST should be revenue neutral i.e. maintained at current levels and all existing State level taxes should be subsumed into GST. Your Company, along with industry bodies and other stakeholders, continues to make representations to the Government in this regard.

A recent Government notification, originally proposed to be effective from 1st April 2015, mandates larger graphic health warnings covering 85% of the surface area of both sides of the pack as compared to the current requirement of covering 40% of the area of one side of the pack. The proposed graphic health warnings are amongst the most stringent in the world and far larger than those in the top 5 cigarette markets viz. China, Russia, Indonesia, USA and Japan. It is apprehended that the introduction of the new graphic health warnings would inter alia lead to a spurt in the sale of illegal cigarettes which will not carry the new warnings. Besides the consequential loss of revenue to the exchequer, this will also adversely impact the livelihoods of Indian tobacco farmers as illegal cigarettes either do not use Indian tobacco at all or use domestically sourced tobacco of dubious and inferior quality.

It is estimated that about 60% of the countries in the world which have ratified the WHO Framework Convention on Tobacco Control either do not have any health warnings on cigarette packets or prescribe a 'text only' warning (i.e. without any graphics). In fact, China, USA and Japan which together account for more than 51% of global cigarette sales volumes, prescribe 'text only' warnings.

The Committee on Subordinate Legislation, which is examining the issue of introduction of larger graphic health warnings on cigarette packs in India, has in its report dated 16th March 2015 stated that a large number of representations have been received from Members of Parliament as well as various people / organisations and stakeholders involved in the tobacco industry against the introduction of the new warnings and serious apprehensions have been expressed about the adverse impact of the modified rules on the livelihoods of a large number of people directly or indirectly involved in tobacco trade. The Committee has sought more time to review the issues in detail and has recommended to the Government to defer the implementation of the notification, till such time it finalises the examination of the subject and arrive at appropriate conclusions. The Government has accordingly deferred the implementation of the new graphic health warnings.

The Tobacco industry in India supports the livelihoods of over 41 million people including vulnerable sections of the society like farmers, farm labour, rural poor, women, tribals etc. and contributes around Rs. 28000 crores to the national exchequer apart from generating valuable foreign exchange earnings of around Rs. 6000 crores. It is pertinent to note that other tobacco producing countries have taken a balanced view keeping in mind their domestic interests and have not adopted over-sized and excessive health warnings.

The proposed graphic health warnings would impede the ability to compete in the market by leaving insufficient space for your Company's distinctive trademarks and pack designs besides depriving consumers of their valuable right to be informed about a legitimate product they intend to purchase and consume.

Notwithstanding the challenging regulatory and taxation environment, your Company strengthened its product portfolio across segments to reinforce its leadership position in the industry. During the year, specific emphasis was laid on developing and launching products with differentiated tobacco blends, special filters and flavour bouquets. Several innovative variants like 'Classic Blue Leaf with Jet Flo Filter', 'Gold Flake Gold with Quad Core Filter', 'Classic Ice Burst with Capsule Filter' and 'Classic Fine Taste with Triple Solid Filter' were launched during the year in line with your Company's philosophy to offer world-class products to the Indian consumer.

During the year, your Company expanded the market presence of KwikNic nicotine chewing gum adding the pharmaceutical channel to the product's distribution footprint. The year also saw your Company's foray into the Electronic Vaping Device (EVD) category under the 'EON' brand. After its initial launch in Hyderabad and Kolkata, the brand was progressively extended to Bengaluru, Delhi and Goa. EON is also available in the e-commerce channel.

Your Company's objective of providing consumers with a comprehensive range of world-class products has led to increasing complexity in manufacturing operations over the years. Towards this, your Company has focused on building flexibility and agility across the supply chain to ensure delivery of volume and variety in a timely and cost-effective manner. Structural interventions in the area of manufacturing network planning, technology and people systems have helped enhance responsiveness. During the year, the first phase of modernisation of the Kolkata factory was successfully completed. This involved induction of new technologies, automation of shop floor processes and introduction of new segments.

During the year, the Bengaluru and Saharanpur factories won the 'Platinum' and 'Gold' awards respectively in the prestigious 'India Manufacturing Excellence Awards' (IMEA) instituted by Frost & Sullivan and The Economic Times. These awards bear testimony to your Company's standing among India's best manufacturing organisations.

Your Company's manufacturing facilities continue to receive recognition for excellence in sustainability. During the year, the Bengaluru factory was awarded the 'Overall Leader Award' for Green Manufacturing Excellence by Frost & Sullivan, while the Munger, Ranjangaon and Bengaluru factories won the 'CII National Award for Excellence in Energy Management'.

In recognition of excellence in safety management at its factories, your Company received several awards during the year. These include the 'Suraksha Puraskar (Bronze)', under the manufacturing sector category from the National Safety Council of India for Ranjangaon Factory, first prize for Saharanpur factory from FICCI in the 'Safety Systems Excellence Awards for manufacturing sector – Large Scale' category and 'Safety Innovative Award 2014' by Institute of Engineers (India) for Kolkata Factory.

With steep increase in taxation, rising illegal trade and increasing regulatory pressures, the year ahead will indeed be challenging. Despite the severe pressures, your Company remains confident in sustaining its leadership position in the industry by leveraging its robust business strategies, a world-class product portfolio and superior execution capabilities.

FMCG - Others

The FMCG industry continued to grow at a muted pace during the year in the backdrop of a challenging macro-economic environment, with most of your Company's operating segments recording deceleration in growth rates. Categories involving discretionary spends or with relatively high penetration levels remained subdued during the year.

While there are incipient signs of revival of demand, it is expected to take a few more quarters for the industry to revert to a higher growth trajectory. The FMCG industry in India, however, is poised to bounce back over the medium-term driven by increasing affluence, urbanisation, a young workforce, and relatively low levels of penetration and per capita usage.

Your Company's FMCG-Others Businesses clocked Segment Revenue of Rs. 9038 crores during the year, representing a growth of 11% over the previous year. This was achieved in the backdrop of sluggish demand conditions as aforestated and intense competitive activity with industry players stepping up consumer and trade offers with a view to garnering volumes, offsetting the benefit accruing from benign inflation in input costs. Segment Results for the year stood at Rs. 34 crores after absorbing the start-up costs of two new categories viz., Juices and Gums, scale-up costs of Deodorants launched in 2013, besides a host of new launches in existing categories.

Your Company continued to make investments during the year towards enhancing brand salience and consumer connect while simultaneously focusing on implementing strategic cost management measures across the value chain and adopting a judicious pricing approach. Several initiatives were also implemented during the year towards leveraging the rapidly growing e-commerce channel for enhanced reach of your Company's products and harnessing digital and social media platforms for deeper consumer engagement.

Your Company continued to strengthen its formidable distribution highway comprising a large and diverse product portfolio, multiple brands, hundreds of SKUs covering over 1 lakh markets and directly servicing over 2 million retail outlets across trade channels. The Trade Marketing & Distribution vertical of your Company, based on customer and channel insight developed over the years, has crafted differentiated service packs customised for each type of retail outlet. Your Company remains a leader in the convenience channel and is rated as the benchmark supplier in premium grocery outlets. Extensive deployment of in-store merchandisers and consumer contact programmes to aid demand creation coupled with a relentless pursuit of execution excellence has resulted in your Company sustaining its position as one of the fastest growing FMCG companies in the Modern Trade channel. The scale and diversity of your Company's distribution network continues to be leveraged to enhance market presence and serve as a valuable source of consumer/trade insight, facilitating the seamless execution of new product and category launches. Technology enablement in the form of customised mobility solutions and predictive analytics are being increasingly leveraged towards enabling quick and accurate data capture, informed decision making in real time, and scientific designing of geography-specific trade promotion schemes. Supply chain optimisation and capability augmentation of customers (wholesale dealers) and their sales force remain key focus areas.

In addition to scaling up outsourced manufacturing capacity across key categories during the year, your Company progressed the construction of state-of-the-art owned integrated consumer goods manufacturing and logistics facilities across regions in line with long-term demand forecasts. Currently, over 20 projects are underway and in various stages of development – from land acquisition / site development to construction of buildings and other infrastructure.

The new FMCG Businesses comprising Branded Packaged Foods, Personal Care Products, Education and Stationery Products, Lifestyle Retailing, Incense Sticks (Agarbattis) and Safety Matches have grown at an impressive pace over the past several years, with Segment Revenue crossing the Rs. 9000 crores mark during the year.

Your Company's vibrant portfolio of brands viz., 'Aashirvaad', 'Sunfeast Dark Fantasy', 'Sunfeast Dream Cream', 'Sunfeast Delishus', 'Sunfeast Bounce', 'Bingo!', 'Yumitos', 'YiPPee!', 'Candyman', 'mint-o', 'GumOn', 'Kitchens of India' in the Branded Packaged Foods space; 'Classmate' and 'Paperkraft' in Education & Stationery products market; 'Essenza Di Wills', 'Fiama Di Wills', 'Vivel', 'Superia' and 'Engage' in the Personal Care products segment; 'Wills Lifestyle' and 'John Players' in the Lifestyle Retailing Business; 'Mangaldeep' in Agarbattis, 'Aim' in Matches, amongst others continue to garner consumer franchise and enhance market standing. These brands, which represent an annual consumer spend of over Rs. 11000 crores in aggregate, have been built organically by your Company over a relatively short period of time - a feat perhaps unrivalled in the Indian FMCG industry. This includes 4 brands – Aashirvaad, Sunfeast, Classmate, Bingo! - which exceed Rs. 1000 crores each – and several brands that are more than Rs. 500 crores each in terms of annual consumer spend. These world-class Indian brands support the competitiveness of domestic value chains of which they are a part, ensuring creation and retention of value within the country.

In line with the corporate strategy of creating multiple drivers of growth, your Company seeks to rapidly scale up the FMCG Businesses leveraging its institutional strengths viz. deep consumer insight, proven brand building capability, a deep and wide distribution network, strong rural linkages and agri-commodity sourcing expertise, packaging knowhow and cuisine knowledge. In addition, your Company continues to make significant investments in Research & Development to develop and launch disruptive and breakthrough products in the market place.

Highlights of progress in each category are set out below.

Branded Packaged Foods

Demand conditions in the Branded Packaged Foods industry remained subdued for the second year in succession with consumers seeking value-for-money offers and curbing discretionary spending. Against the backdrop of a sluggish demand environment, your Company sustained its position as one of the fastest growing branded packaged foods businesses in the country leveraging a robust portfolio of brands, differentiated range of products customised to regional tastes and preferences along with enhanced product visibility and availability in key markets.

While input cost inflation remained moderate during the year, the high intensity of consumer promos and trade schemes resorted to by industry players in a bid to garner volumes exerted pressure on margins. Your Company's Branded Packaged Foods Businesses mitigated such margin pressure by focusing on product mix enrichment, value engineering initiatives, dynamic sourcing based on close monitoring of market trends, structural interventions in manufacturing technology and supply chain optimisation.

The Branded Packaged Foods Businesses continue to invest in the areas of consumer insight discovery, R&D and product development and differentiated technology platforms to effectively address the diverse tastes and preferences of consumers across the country. Investments continue to be made towards augmenting the manufacturing and sourcing footprint across categories with a view to improving market responsiveness and reducing the cost of servicing proximal markets. During the year, an integrated manufacturing and logistics facility was commissioned at Malur, Karnataka. Significant progress was also made during the year towards setting up an integrated manufacturing facility at Uluberia, West Bengal, a Dairy plant at Munger, Bihar and a biscuit manufacturing factory at Mangaldoi, Assam (through a joint venture company viz., North East Nutrients Pvt. Ltd.). These facilities are expected to become operational in the ensuing year.

— In the Bakery and Confectionery Foods

Business, your Company increased the scale of its operations and improved its market standing. The Sunfeast range of biscuits was augmented during the year with the launch of 'Mom's Magic' in the premium cookies space in two variants - 'Rich Butter' and 'Cashew & Almond'. In addition to the several product development and brand enhancement initiatives undertaken during the year, the Business migrated the popular range of cream biscuits under a new sub-brand - 'Bounce' - which emerged as the largest cream brand in the industry and helped sustain your Company's leadership position in the overall creams segment. The Business also forayed into the Cakes segment with the launch of 'Yumfills Whoopie Pie'- a premium chocolate-enrobed cake - which has seen good traction.

In the Confectionery category, the Business continued to leverage the 'Candyman' and 'mint-o' brands and focused on premiumising its product portfolio by enhancing the share of variants priced at 'Re. 1 & above' in the sales mix. The Business augmented manufacturing capability in the hard boiled candy and jelly segment, which will facilitate introduction of innovative and premium products going forward. The year also marked your Company's foray into the Gums segment with the launch of 'GumOn' brand, which has garnered impressive consumer franchise in launch markets. The product is being rolled out to target markets.

— Your Company's Staples, Spices and Ready-to-Eat Foods Business posted a robust performance during the year, growing well ahead of the industry. In the Staples category, 'Aashirvaad' atta consolidated its leadership position in the industry and grew at a rapid pace driven by the value-added portfolio comprising the 'Multigrain', 'Select' and 'Superior MP' variants. The Business also augmented its product range during the year with the launch of 'Aashirvaad Atta with Methi' in the value-added segment. Brand salience was strengthened further on the back of impactful communication and marketing investments.

— In the Snack Foods Business, your Company recorded impressive gains in market standing in the Savoury Snacks, Noodles & Pasta categories. In the Noodles category, 'Sunfeast YiPPee!' clocked a healthy revenue growth far exceeding the industry growth rate. During the year, Sunfeast YiPPee! entered the league of Top 100 FMCG brands in India – a reflection of its growing stature in the fast growing Noodles category. With the commissioning of the new facility at Malur, Karnataka, the Business expanded its manufacturing footprint to all the four regions of the country which will facilitate more efficient servicing of demand going forward. Sunfeast YiPPee! Tricolor Pasta, a differentiated premium offering launched last year, continued to grow at a fast pace and gain consumer franchise.

In the Savoury Snacks category, the Business registered significant growth in its Bingo! range of finger snacks driven by the 'Mad Angles' and 'Tedhe Medhe' sub-brands through sustained expansion of distribution, activation of passive channels in the North and East markets and measured brand investments. In the potato chips portfolio, 'Bingo! Yumitos' also grew at a robust pace on the strength of region-specific interventions.

— Your Company forayed into the fast-growing Juices category during the year with the launch of 7 exciting variants under the 'B Natural' brand in January 2015. These highly innovative and differentiated products, including the unique offering 'Jamun Joy', have received promising consumer response. Your Company seeks to leverage its agri-sourcing expertise and deep distribution reach and rapidly scale up the B Natural brand in the years ahead.

Your Company is well positioned to establish itself as the 'most trusted provider of food products in the Indian market' leveraging a strong portfolio of world-class brands, deep understanding of the diverse tastes and preferences of Indian consumers, focus on best-in-class quality and operational excellence across the value chain. Your Company will continue to make investments towards establishing a distributed manufacturing footprint, structural interventions with a view to reducing operating costs and focus on supply chain optimisation to support the rapid and profitable growth of the Branded Packaged Foods Businesses. In line with this objective, your Company is in the process of implementing a new 'Strategy of Organisation' towards bringing about sharper focus, greater agility and responsiveness and facilitating the development of deeper specialisms in each operating category.

Personal Care Products

Your Company's Personal Care Products Business posted robust growth in revenue during the year driven by increasing consumer franchise for its products and a series of new launches and range extensions. During the year, the Business rolled out several differentiated product offerings in the Deodorants, Soaps, Shower Gel and Skin Care categories under the 'Engage', 'Fiama Di Wills', 'Vivel', and 'Superia' brands, and improved in-store brand salience of offerings under the 'Essenza Di Wills' brand.

In February 2015, your Company acquired the 'Savlon' and 'Shower to Shower' trademarks and other intellectual property rights for identified markets from the Johnson & Johnson group. Savlon is an established brand with a rich heritage and is associated with personal care products in the fast-growing antiseptic/anti-bacterial categories. Shower to Shower has a strong consumer franchise in the prickly heat talcum powder category. Your Company intends to leverage these assets to strengthen its position in the personal care space by expanding its existing product portfolio and gaining access to newer consumer segments and markets.

The year saw the successful introduction of a new range of soaps at the premium end under the 'Vivel' franchise with the launch of 'Vivel Love & Nourish' and 'Vivel Glycerin'. As part of a brand modernisation exercise, 'Superia Deluxe' and 'Superia Naturals' were launched to address the emerging needs of distinct consumer segments. The year also witnessed the launch of the next edition of the Signature series of 'Fiama Di Wills Shower Gels - Shower Jewel' designed by celebrity designer, Masaba Gupta. In the fast-growing Deodorants category, 'Engage' has emerged as the No.2 player in the country within a relatively short span of 2 years since launch. The year also saw the launch of '0% gas' variants of 'Engage Cologne Sprays' thereby providing consumers a wider repertoire of choice. These interventions have been well received by consumers strengthening your Company's presence in the Personal Care industry.

As in previous years, the Business received accolades for its product quality and innovation initiatives. 'Fiama Di Wills Shower Gel' was voted the best shower gel at the Nykaa.com Femina Beauty Awards. 'Vivel' won the Afaqs Buzziest Brand Award where it was ranked No. 1 in the Personal Care category. 'Superia Silk' was ranked as the No. 1 soap on quality and skin moisturising ability among Grade 1 toilet soaps by Consumer Voice, a Government of India recognised comparative product testing organisation. These awards, amongst others, bear testimony to your Company's relentless focus on quality and delivering world-class products to Indian consumers.

Industry growth remained subdued during the year, with leading players passing on the benefit of softening input prices - primarily of crude palm oil - to consumers with a view to reviving demand. Your Company outperformed the market by launching several value-added products, focusing on a richer product mix, managing costs by developing alternative sources of supply and further improving supply chain responsiveness.

The Indian Personal Care industry is poised for rapid growth given the relatively low levels of per capita consumption in the country as compared to other emerging economies, increasing urbanisation, rising disposable incomes and the increasing consumer preference for enhanced personal grooming. Your Company is well positioned to seize the emerging opportunities in this rapidly evolving industry with its unrelenting focus on creating vibrant brands, world-class product quality, development of innovative and consumer-centric products based on deep consumer understanding leveraging dedicated R&D capabilities as well as partnerships with key institutions in the scientific community.

Education & Stationery Products

Your Company consolidated its leadership position in the Education and Stationery products industry in India. In the Notebooks category, the Business fortified its market standing and expanded its product portfolio with the launch of several differentiated offerings under the 'Classmate', 'Classmate Pulse', 'Paperkraft' and 'Saathi' brands. The Business launched a premium 'Signature' range of products under the Paperkraft brand exclusively in the e-commerce space. The Classmate portfolio of notebooks was enriched with refreshing designs, finishes and binding styles. Complementary categories comprising writing instruments, art stationery and scholastic products witnessed robust growth during the year leveraging the strong equity of Paperkraft and Classmate brands.

The Business continued to focus on innovation and new product development with a dedicated product development cell working in tandem with your Company's Life Sciences & Technology Centre.

On the distribution front, the Business expanded the availability of its products through a multi-pronged approach of channel proliferation, market penetration and outlet coverage increase. The Business also implemented a specific distribution network to cater to the Saathi brand in the value segment and expanded presence amongst leading e-tailers.

In the area of supply chain, the focus was on strengthening the delivery, quality and cost competitiveness of outsourced manufacturers. During the year, the Business deployed state-of-the-art supply chain planning and optimiser tools that are expected to lower overall cost of servicing demand. Your Company continues to provide technical support and training to nearly 40 vendors in the small-scale sector, facilitating a majority of them being certified to ISO 9001:2008 standards.

The Classmate notebook is a manifestation of the environmental capital built by your Company in its paper business. While the notebook cover is made from recycled board sourced from your Company's Forest Stewardship Council (FSC) certified Kovai mill, the paper used in the notebooks leverages your Company's world-class fibre line at Bhadrachalam which is India's first ozone treated elemental chlorine free facility.

Growing literacy, increasing scale of government spend and public-private initiatives in education and higher corporate spends in the education sector are expected to drive rapid growth of the Indian Education & Stationery Products industry. Your Company, with its collaborative linkages with small & medium enterprises, a robust product portfolio and unparalleled distribution network, is well poised to strengthen its leadership position in the rapidly globalising Indian stationery market.

Lifestyle Retailing

During the year, the performance of your Company's Lifestyle Retailing Business was impacted by the continuing slowdown in discretionary consumption expenditure. The rise of online apparel retail, aided by heavy discounting and consumer offers, also impacted performance.

In the Premium segment, Wills Lifestyle with its high fashion imagery, increasing appeal and rich product mix, continues to enjoy strong market standing and consumer bonding. Brand equity was enhanced with heightened focus on premium product platforms. 'Wills Classic' 'Luxuria' and 'Regalia' - a finely crafted range of super premium formals - and the Wills Classic 'Ecostyle' collection in natural-fibre products such as linens, sharpened the premium imagery of the brand and aided higher value capture. The Wills Classic 'Modernist' range, 'Wills Sport' and 'Wills Clublife' attracted newer and younger franchise leveraging high-fashion imagery and design language. The women's collection was strengthened by offering an enhanced range of exclusive designer wear, co-created with India's leading designers. The Business also crafted a range of wardrobe essentials across categories to enhance sell through duly supported by robust replenishment infrastructure and processes. The Wills Lifestyle brand continued to receive industry recognition, including the 'Superbrand' certification. During the year, sales of Wills Lifestyle products to 'Club ITC' members increased significantly, reflecting the brand's enhanced bonding with premium consumers.

Retail presence of Wills Lifestyle was expanded during the year with the brand currently present in 104 exclusive stores in 44 cities and more than 500 'shop-in-shops' in leading departmental stores, regional chain stores and multi-brand outlets. The brand is also present in 6 Wills Lifestyle boutique stores in select ITC Hotels enhancing its availability to high-end and leisure travellers.

In the 'Youth fashion' segment, 'John Players' enhanced its market standing by driving fashion imagery anchored on bold and edgy fashion. John Players has emerged as a leading brand in this segment driven by youthful products such as denims, knits and jackets, earning the distinction of being featured amongst the top 5 brands in the apparel category in 'Brand Equity - The Most Exciting Brands' list published by The Economic Times.

During the year, the Business reformulated its retail presence towards enhancing brand reach and acquiring new consumers. Business processes for creation of winning designs and enhancing supply chain efficiency were further strengthened during the year along with implementation of several initiatives towards improving retail and manufacturing productivity.

Your Company's brands – Wills Lifestyle and John Players – continue to be driven on digital platforms to enhance reach, increase awareness and tap online sales potential including through social media and specific e-commerce portals.

The Business will continue to focus on enhancing the premium and fashion quotient of its offerings based on deep consumer insight, and delivering products of world- class quality. Further investments are being made in building brand salience, enhancing product vitality, implementing contemporary information technology solutions, improving supply chain responsiveness and delivering a superior shopping experience.

Safety Matches and Incense sticks (Agarbattis)

Your Company recorded yet another year of impressive revenue growth in the Agarbatti category, growing well ahead of the industry. Growing franchise for the 'Mangaldeep' brand, superior consumer experience and enhanced distribution reach contributed to a robust performance during the year. Product portfolio was strengthened during the year with a series of new launches and range extensions such as 'Mangaldeep – Flora' and 'Mangaldeep - Dhoop Cones' in the premium segment.

Mangaldeep continues to be the fastest growing agarbatti brand in the country driven by a well-crafted portfolio of offerings born out of deep consumer understanding and increasing brand salience. Your Company also consolidated its leadership position in the 'Dhoop' segment. Investments were made during the year to enhance quality, availability and improving supply chain responsiveness.

The manufacture of agarbattis was reserved for the small-scale & cottage sector in India considering its importance in employment generation. However, import of raw battis (the principal raw material) is still being allowed at low Customs Duty rates. This is resulting in bulk of the raw batti consumption in India being of imported origin leading to a loss of livelihood creation opportunities. Suitable policy changes in arresting this trend would go a long way in creating sustainable livelihoods especially among rural Indian women and tribals.

In the Safety Matches category, your Company sustained its market leadership leveraging a strong portfolio of offerings across market segments. However, sustained escalation in prices of raw materials on the one hand and proliferation of cheaper low quality products on the other, continued to exert severe pressure on sales volumes and margins. The Business implemented several measures such as value engineering, supply chain optimisation and developing alternate sources of supply to mitigate margin pressure. In this regard, the Business continues to focus on developing new products and growing the value-added segment towards enhancing the profitability of the business. Your Company's safety matches brand 'Aim' continues to be the largest selling brand in this industry.

During the year, pursuant to the scheme of demerger of the Non-Engineering Business of Wimco Limited being effective on 27th June 2014, the Safety Matches Business of Wimco Limited was seamlessly integrated with your Company's Safety Matches Business. The Business rationalised its manufacturing operations and implemented a Voluntary Separation Scheme at the Bareilly factory with all permanent workmen and trainees opting for the same. The Business scaled up sourcing from the small-scale sector to meet its requirements and progressively regionalised its sourcing footprint with the induction of units in the North and West towards more efficient servicing of the market.

Technology induction in manufacturing is crucial for the long-term sustainability of the Safety Matches Industry. A uniform taxation framework which provides a level playing field to all manufacturers is necessary to trigger the required investments for modernising this industry and creating a safer working environment for the workforce engaged in this industry. Introduction of GST is expected to create this supportive environment to enable the industry to become globally competitive.

B. HOTELS

The hospitality sector continues to be impacted by a weak pricing scenario in the backdrop of excessive room inventory in key domestic markets and sluggish macro-economic environment both in India and major source markets. While there was marginal improvement in occupancy rate, average room rates remained under pressure in the backdrop of the addition of 8000 rooms in the key markets of Delhi / National Capital Region, Mumbai, Bengaluru, and Chennai over the last 2 years.

Consequently, Segment Revenues recorded a modest increase of 4.8% during the year. Segment Results were impacted mainly on account of the relatively weak pricing scenario, higher depreciation charge for the year due to revision in the useful life of fixed assets in accordance with the provisions of Schedule II to the Companies Act, 2013 and gestation costs of the newly opened properties - ITC Grand Bharat, near Gurgaon and My Fortune Bengaluru.

Your Company's Hotels Business continues to be rated amongst the fastest growing hospitality chains in India, with over 100 properties across the country under 4 distinct brands - 'ITC Hotels' in the Luxury segment, 'WelcomHotel' in the upper-upscale segment, 'Fortune Hotels' in the upscale & mid-market space and 'WelcomHeritage' in the leisure & heritage segment. In addition to these brands, the Business has licensing and franchising agreements for two brands - 'The Luxury Collection' and 'Sheraton' - with Starwood Hotels & Resorts.

Your Company launched My Fortune Bengaluru, a flagship property under the Fortune banner in the 'upscale' segment, in May 2014 which has been well received by guests. In November 2014, the Business unveiled its latest offering in the super premium segment - ITC Grand Bharat near Gurgaon under a licensing arrangement from Landbase India Ltd. - a wholly-owned subsidiary of your Company. Uniquely

positioned as an 'oasis of unhurried luxury', this sprawling 'Luxury Collection' resort is situated in an idyllic expanse amidst the Classic Golf Resort - a 27-hole Jack Nicklaus designed signature golf course - surrounded by the majestic Aravalis and dotted with pristine lakes. ITC Grand Bharat delivers the finest luxury experience to guests with 100 Deluxe Suites and 4 Presidential Villas, a wide range of fine dining restaurants, signature spa 'Kaya Kalp - The Royal Spa', a host of recreational and cultural activities and a world-class meeting / banqueting venue. The resort has received glowing accolades in the domestic and international press including from CNN Travel which has rated the Classic Golf Resort among the Top 10 city golf clubs in the world, while ITC Grand Bharat received the Outlook Traveller Award for the 'Indian Hotel Debut of the year'.

In line with its 'asset-right' growth strategy, the Business commenced providing operating services at WelcomHotel Jodhpur from August 2014, taking the total number of rooms under the management contract model in the 5 Star category to 1200.

Your Company was declared the successful bidder for a 250-room luxury beach resort located in South Goa operating under the name Park Hyatt Goa Resort and Spa, following an auction held by IFCI Limited in February 2015 in terms of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Subsequent to your Company making full payment of the bid amount, IFCI issued the requisite Sale Certificates in favour of your Company on 25th February, 2015. The erstwhile owners of the property have thereafter challenged the sale. The matter is pending before the Honourable Bombay High Court, and the hearing is in progress.

The Food & Beverage segment continues to be a major strength of your Company with some of the most iconic brands in the country. Your Company's prestigious brand 'Bukhara' once again featured in the 'S.Pellegrino Asia's Best 50' list while 'Dum Pukht' featured in the global selection of the 'World's 50 Best Restaurants Academy' list. During the year, the Business added

'Tian' – an Asian cuisine studio offering innovative flavours from East Asia and beyond – to its international food & beverage brand portfolio comprising 'West View', 'Pan Asian', 'Edo', 'Shanghai Club' and 'Ottimo'. 'The Royal Vega', a pan-Indian offering of delectable vegetarian food from the royal kitchens of India, continues to delight Indian and foreign travellers alike.

In line with your Company's commitment to the 'Triple Bottom Line', the Hotels Business targets a continuous reduction in energy and water consumption. Further, the Business continues to enhance usage of renewable energy sources which now stands at 58% of total energy requirements of the Business. The bespoke 'WelcomAqua' water programme has been extended to all properties in the Luxury Collection. These interventions stand testimony to the 'Responsible Luxury' positioning of your Company's Hotels Business and reinforce ITC Hotels' position as the 'greenest luxury hotel chain' in the world.

'Club ITC', your Company's pan-ITC consumer loyalty programme with a current membership base of 2.4 lakh premium consumers, continues to gain franchise amongst the premium clientele of ITC Hotels and Wills Lifestyle. A new dining loyalty programme – 'Club ITC Culinaire' – was launched during the year and is fast gaining popularity.

In view of the positive long-term outlook for the Indian Hotel industry coupled with the prospect of sustained growth in both global and domestic economy, your Company remains committed to its investment-led growth strategy. Steady progress is being made on construction of new hotels at Kolkata, Hyderabad and Coimbatore. Requisite clearances from the Sri Lankan authorities have been received by WelcomHotels Lanka (Private) Ltd., a wholly-owned subsidiary of the Company, to progress your Company's first overseas project in Colombo. Excavation and allied works commenced in November 2014.

The 'Fortune' brand which caters to the 'mid-market to upscale' segment continued to lead this segment and expanded its presence with the addition of 5 new hotels during the year, taking the overall number of operational hotels to 46 hotels across 34 cities. Plans are on the anvil to extend the upscale My Fortune brand to 9 more cities in addition to Chennai and Bengaluru. The 'WelcomHeritage' brand remains the country's most successful and largest chain of heritage hotels with 34 operational hotels.

Your Company's Hotels Business, with its world-class properties, globally benchmarked levels of service excellence and customer centricity, is well positioned to sustain its leadership status in the Industry and to emerge as the largest hotel chain in the country over the next few years.

C. PAPERBOARDS, PAPER AND PACKAGING

During the year, the Paperboards, Paper and Packaging segment was impacted by the continuing slowdown in the FMCG industry and input cost pressures. Consequently, the Segment Revenue and Profits grew a muted 2.2% and 3.3% respectively.

Paperboards & Specialty Papers

Global demand for Paper and Paperboard in 2014 remained stagnant at 401 million tonnes. While demand for Paperboard grew by 1.5% during the year, the Writing & Printing paper (W&P) and Newsprint segments continued to decline. During the period 2008 to 2013, global Paper and Paperboard demand grew marginally by 0.5% CAGR on the back of subdued economic growth and structural decline in W&P demand in developed economies like North America and Western Europe with the increasing adoption of digital media. Emerging economies in Asia, the Middle-East and Africa continue to grow at a faster pace. Over the next 5 years, overall demand is estimated to grow at a slightly faster pace of 1.1% per annum driven mainly by Paperboard on the back of economic recovery in developed economies and lower rate of decline in the W&P segment. In view of the subdued demand conditions as aforestated and significant surplus capacity in China – as a result of huge capacity additions since 2012 and declining economic growth rate – the pricing scenario is expected to remain weak over the medium term.

While India remains one of the fastest growing Paper and Paperboard markets in the world, overall industry demand was adversely impacted for a major part of the year in view of the weak economic environment prevailing in the country. Over the next 5 years, overall demand is expected to grow at 6.6% CAGR, with Paperboard (42% of the market) and W&P (31% of the market) estimated to grow at 7.5% CAGR and 6.2% CAGR respectively.

— Within Paperboards, demand for Value Added Paperboards (VAP) is expected to grow at 10% CAGR during this period. The faster rate of growth in VAP grades is expected to be driven by the increasing demand for branded packaged products, growth in organised retail and the use of packaging as a key differentiator, especially in the FMCG sector. Food, pharmaceuticals, publishing & notebooks and beverages are expected to be the major end-use segments driving demand growth.

— In the W&P paper segment, communication grades for notebooks, school stationery and publishing are likely to be the key drivers of growth fuelled by increasing investments in the education sector and rising literacy levels.

The huge market potential and relatively high rates of growth in India is attracting new capacities despite the recent raw material shortages and pressure on industry profitability. This is evidenced by the significant investments in capacity addition and technology upgradation by industry players over the last 5 years. In the VAP segment, capacity of about 3 Lakh tonnes per annum, representing 50% of the current market size of the segment, is expected to be commissioned over the next 12 to 18 months.

Reduction of import duties under various regional Free Trade Agreements (FTA), especially with ASEAN which became effective from 1st January 2014, continue to impact the profitability of the domestic Paper & Paperboard industry and the economic viability of small paper mills.

The current import policy as aforementioned and extant regulations governing commercial and social forestry in the country, put the Indian Paper and Paperboard industry at a disadvantage vis-à-vis imports. In order to provide a level playing field to the domestic industry and encourage farming of wood in India, there is clearly a need to review the current import duty structure on paper and paperboard and re-examine existing FTAs and the new ones under formulation. It is also recommended to open up commercial forestry on drylands and wastelands with appropriate environmental safeguards and put in place a suitable mechanism that incentivises environment-friendly operations and adoption of sustainable business practices.

Despite a challenging operating environment and heightened competitive intensity, your Company continued to drive volume growth, improve realisations and sustain its market standing during the year. This was achieved by focusing on identified end-use segments, investments in quality systems and processes, and enhancing customer service levels. The Business consolidated its clear market leadership position in the VAP segment with the entire capacity of the recently commissioned paperboard machine (PM7) being dedicated to the manufacture of VAP grades since the beginning of the year.

The Business expanded its presence in the hosiery, apparels and publishing segments during the year. Product portfolio was strengthened with the launch of new products which were developed to address the specific needs of end-users. In line with its 'Green India' approach, the Business sustained its leadership position in sales of eco-labelled products, which are certified to be environmentally friendly. The Business also strengthened its distribution network during the year with the addition of new distributors and stockists. Service levels also improved on the back of strategically located 'quick service centres'.

The Business has emerged as a leading player in the W&P paper segment leveraging strong forward linkages with your Company's Education and Stationery

Products SBU. In the Specialty Papers segment, your Company consolidated its leadership position in the Decor grades segment by focusing on product quality and mix enrichment.

Your Company continues to pursue the strategy of promoting farm forestry with a view to improving the availability of pulpwood. Over the last 2 years, your Company has stepped up plantation coverage, well in excess of its own requirements, leading to improvement of pulpwood availability during this year in Andhra Pradesh and Telangana. This has also led to enhanced farmer incomes and increase in green cover.

During the year, your Company sold / distributed high quality saplings and seeds to farmers that enabled planting of over 165 million saplings on 29,900 hectares of plantations. With this, your Company's bio-technology based research initiatives have cumulatively resulted in the planting of nearly a billion saplings leading to significant wasteland development, greening of over 195,000 hectares. This path-breaking initiative has generated nearly 90 million person days of employment for tribal and marginal farmers. The state-of-the-art clonal sapling production facility, which was commissioned recently towards accelerating the pace of plantation activity, is operating at full capacity. The facility is a critical enabler of your Company's objective to augment pulpwood availability and to meet the ever growing demand for high quality saplings from the farming community.

Your Company's research on clonal development has resulted in the introduction of high yielding and disease resistant clones which are adaptable to a wide variety of agro-climatic conditions. Your Company's Life Sciences & Technology Centre is actively collaborating with several expert agencies to further leverage bio-technology and site specific nutrient management systems for enhancing farm productivity, wood yields and improved fibre and pulp properties. Systems are also being developed to ensure integrated pest and disease management across your Company's forestry initiatives.

Your Company has the distinction of being the first in India to have obtained the Forest Stewardship

Council - Forest Management (FSC-FM) certification which confirms compliance with the highest international benchmarks of plantation management in terms of being environmentally responsible, socially beneficial and economically viable. Till date, your Company has received FSC-FM certification for more than 22,000 hectares of plantations involving over 25,000 farmers with another 2,500 hectares in the pipeline. During the year, more than 25,000 tonnes of FSC-certified wood were procured from these certified plantations. Plans are on the anvil to steadily increase coverage under FSC-FM certification. All four manufacturing units of your Company have obtained the FSC Chain of Custody certification. These certifications make your Company the leading supplier of FSC-certified paper and paperboard in India.

Your Company continues to focus on recycling initiatives including solid waste recycling. While all manufacturing units have already achieved near 100% solid waste recycling by its usage for making products like lime, fly ash bricks, grey boards, egg trays etc., the procurement and recycling of about 1,05,000 tonnes of waste paper during the year has further consolidated the Business's overall positive solid waste recycling footprint.

During the year, the Bhadrachalam and Kovai units received the 'Excellent Energy Efficient Unit 2014' award from the Confederation of Indian Industry (CII). The Kovai unit has received 'Green Award 2013 - 1st Place' from the Tamil Nadu Pollution Control Board. The Tribeni unit was awarded 'Certificate of merit in the Pulp & Paper Sector' (National Energy Conservation Award – 2014) by The Ministry of Power, Government of India.

Your Company continues to focus on various safety initiatives including induction of safety stewards, strengthening systems, spreading awareness and integrating Environment, Health and Safety (EHS) as part of the overall Total Productive Maintenance (TPM) initiative. With regard to energy and water consumption, strategies to contain usage across units continue to be pursued with good results.

In line with your Company's objective of meeting 50% of its energy requirements from renewable sources, the

Business has implemented several initiatives including investment in a green boiler, soda recovery boilers and solar & wind energy. The 7.5 MW wind energy unit in Coimbatore, continues to operate at optimum levels providing clean energy to the Kovai unit. The new 12 MW Turbine Generator and 72 tonnes per hour (TPH) Boiler commissioned at the Tribeni unit in the previous year is fully operational, catering to energy requirements of the facility at a reduced cost.

Your Company successfully commissioned a 46 MW wind energy project in Andhra Pradesh in July 2014, which has been generating wind power since then. However, due to the bifurcation of the state of Andhra Pradesh and the resultant need for inter-state wheeling of power – permissions for which have not been granted, the majority of the intended benefits from this large investment have not fructified. Consequently, only a minor proportion of the power generated from this wind energy unit is being used currently by your Company's units in Andhra Pradesh with the balance output being sold to the State power grid at nominal rates, leading to sub-optimal returns. Your Company has made several representations to the concerned authorities on this issue and has also approached the Central Electricity Regulatory Commission to secure inter-state wheeling permission. Your Company remains hopeful of an expeditious resolution of the matter.

The year under review witnessed severe cost pressures in major inputs such as wood, pulp and chemicals. Your Company, with its integrated operations and strategic cost management initiatives, was able to minimise the adverse impact of such cost escalations. The Business is in the process of setting up a Bleached Chemical Thermo Mechanical Pulp mill at its Bhadrachalam unit. Once commissioned, the mill will further reduce the dependence on imports besides reducing your Company's carbon footprint.

The integrated nature of the business model comprising access to high-quality fibre from the economic vicinity of the Bhadrachalam mill, in-house pulp mill and state-of-the-art manufacturing facilities coupled with robust forward linkage with the Education and Stationery

Products Business and focus on Value Added Paperboards - strategically positions the Business to further consolidate and enhance its leadership status in the Indian Paperboard and Paper industry.

Packaging and Printing

Your Company's Packaging and Printing Business continues to be a leading supplier of value-added packaging in the carton and flexibles formats leveraging state-of-the-art technology and processes. The Business provides strategic support to your Company's FMCG Businesses by facilitating faster turnaround of new pack designs, ensuring security of supplies and delivering benchmarked international quality at competitive cost.

Sales of flexibles and cartons packaging recorded healthy growth during the year, driven by increased offtake by existing customers and new business development. Your Company's world-class facility at Haridwar is operating at benchmark standards and has strengthened the Business's ability to service demand in the northern markets more effectively. During the year, the Business augmented in-house printing cylinder manufacturing capacity at the Haridwar unit for speedier customer order fulfilment and enhanced competitiveness.

As in previous years, the Business won several awards for operational excellence, innovation and creativity. These include 4 'World Star Awards' from the World Packaging Organisation, 4 'Asia Star Awards' from the Asian Packaging Federation and 17 'India Star Awards' from the Indian Institute of Packaging for excellence in packaging solutions.

The 14 MW wind energy farm in Tamil Nadu, set up in 2008, provides clean energy to your Company's packaging unit in Chennai, contributing towards reducing your Company's carbon footprint. Wind energy generation from this facility, however, continued to be affected during the year due to external infrastructural deficiencies impacting connectivity to the State power grid.

The factories at Chennai, Haridwar and Munger continued to maintain the highest standards in Quality and

Environment, Health & Safety (EHS). All the three units are certified as per the Integrated Management System, consisting of ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007. The Chennai and Haridwar units have also received Social Accountability certification (SA 8000:2008). During the year, the Haridwar unit received the 'Gold' rating from Indian Green Building Council for its sustainability features. Both the Chennai and Haridwar units received the highest 'Grade A' BRC / IOP certification (British Retail Consortium Institute of Packaging), for global standards in packaging and packaging materials - a key enabler for supplies to the packaged foods industry. The Business continues to be acknowledged as a key associate by several large FMCG companies in the country for providing packaging solutions.

With investments in world-class technology, best-in-class quality management systems, multiple locations and a wide packaging solutions portfolio, the Packaging and Printing Business has established itself as a one-stop shop offering superior packaging solutions. The Business is well positioned to rapidly grow its external business while continuing to service the requirements of your Company's FMCG Businesses.

D. AGRI BUSINESS

Leaf Tobacco

The global legal cigarette industry continues to be under pressure with cigarette consumption declining in most geographies. Production of global Flue Cured Tobacco varieties (excluding China), on the other hand, registered a growth of around 10% in 2014 with Zimbabwe, USA, India and Tanzania recording higher crop output. Driven by remunerative farm gate prices during 2013, Indian Flue Cured production grew by 14% to touch 317 Million Kgs. - the second highest crop output ever.

In the backdrop of a declining trend in cigarette consumption and record crop output, and high levels of uncommitted stocks globally and in India, leaf tobacco export from India is estimated to have degrown by 11% during 2014-15 to around 210 Million Kgs.

Despite the challenging business environment, your Company sustained its pre-eminent position as the leading exporter of unmanufactured tobacco from India through focused strategies aimed at strengthening trade with existing customers and robust new business development.

The Business continued to provide strategic sourcing support to your Company's Cigarette Business meeting all requirements at competitive prices. Large scale deployment of farm yield enhancing measures, extensive farmer training campaigns on agricultural best practices and sustainable agriculture, and customised growing programmes for non-Flue cured varieties were some of the key initiatives undertaken during the year. These interventions also contributed towards improving the competitive positioning of Indian leaf tobacco in international markets.

Your Company has built an enduring partnership with the farming community in the tobacco growing areas in India. Over several decades now, your Company has been actively engaging with growers and collaborating with key public institutions towards deployment of high yielding varieties, upgrading crop growing and curing practices and post-harvest product management technologies. Your Company continues to play a lead role in driving Research and Development in the areas of productivity enhancement, quality improvement, input cost reduction, process and product development.

Your Company is the single largest integrated source of quality Indian tobaccos, co-creating and delivering value at every stage of the leaf tobacco value chain. The Business continues to be at the forefront of facilitating the long-term sustainability of farming through focused interventions in sustainable agriculture, quality and productivity enhancement and community empowerment. These initiatives are anchored around the 6 dimensions of sustainability encompassing soil, water, labour, fuel, bio-diversity and community development with a specific focus on soil fertility management, soil moisture conservation, seedling production, micro irrigation, farm mechanisation, energy conservation and bio-diversity protection.

During the year, the Business designed and administered customised Sustainable Agricultural Practices (SAP) Certification Training programmes, aimed at progressive growers in Flue Cured and non-Flue Cured tobacco growing regions. The Business plans to scale up these training programmes in the years ahead.

The Business also launched Project Safal, an innovative web and mobile based platform, which seeks to enhance traceability and visibility of farm operations and provides customised crop advisory and farm extension support. The initiative won the prestigious 'Manthan Award' (runner-up) in the Agriculture & Ecology category at the 11th Manthan Awards for South Asia held in New Delhi.

The Business continues to focus on enhancing supply chain efficiency through structural interventions in the areas of network planning, warehousing and transportation. These initiatives continue to generate substantial savings in costs apart from enhancing the agility and responsiveness of the supply chain.

The Business continues to set benchmarks in leaf threshing operations through focused initiatives and innovative technological solutions. Investments continue to be made in your Company's Green Leaf Threshing plants (GLT) at Anaparti, Chirala and Mysuru towards delivering world-class quality and upgrading processing technology. In line with your Company's strategy to adopt a low-carbon growth path, the Chirala and Anaparti units commenced using energy generated by the wind energy farm set up in Anantapur, Andhra Pradesh from October 2014. With this, all three GLTs meet a significant portion of their energy needs from renewable sources.

Your Company's GLTs remain committed to the highest standards of Environment, Health & Safety and Quality and continue to win recognition in these areas. During the year, the Chirala unit won the 'Shreshtha Suraksha Puraskar' from the National Safety Council of India while the Anaparti unit won 'Gold' and 'Silver' awards from the Quality Circle Forum of India and the 'Gold' award at the International Convention for Quality Control Circles held in Sri Lanka.

The Anaparti unit also won the 1st prize at the 'National Productivity Competition' held by the Indian Institution of Industrial Engineering, Visakhapatnam. During the year, the Mysuru unit was assessed and accredited in accordance with the ISO / IEC17025:2005 standard by the National Accreditation Board for Testing and Calibration Laboratories (NABL) for moisture testing and chemical analysis. The Mysuru unit also received the 'Gold' rating from the Indian Green Building Council.

The Business has been awarded a 'Certificate of Compliance' for its Risk Management Framework as per the requirements of ISO 31000 - a global standard in risk management principles and procedures. The certificate has been issued based on an independent assessment by an external agency and covers the entire value chain covering crop development, procurement, processing and sales.

With its unmatched R&D capability, state-of-the-art facilities, crop development & extension expertise and a deep understanding of customer and farmer needs, your Company is well poised to leverage the emerging opportunities for Indian leaf tobacco and sustain its position as a world-class leaf tobacco organisation. The Business will continue to extend strategic support to your Company's Cigarette Business while sustaining its leadership position as the leading exporter of quality Indian tobacco, thereby catalysing the multiplier impact of increased farmer incomes to benefit the rural economy.

Other Agri Commodities

Food grain production in India is estimated to have declined by 3.2% in 2014-15 to 257 million tonnes. While wheat output at 96 million tonnes remained at previous year's level, rice output at 103 million tonnes was lower by 3.4% primarily due to the delayed onset of monsoons. Oilseeds production recorded a significant drop of 8.9% to 30 million tonnes mainly due to lower groundnut output. Soya production dipped by 1.9% to 11.6 million tonnes due to delayed monsoons.

During 2014-15, world wheat production increased by 9 million tonnes to about 725 million tonnes mainly due

to higher production in Russia and Canada. Increased production and surplus inventory in the global markets impacted wheat exports from India, which dropped to 1.8 million tonnes from 3.5 million tonnes in the previous year. Despite fewer opportunities for international trading, your Company's wheat exports grew strongly to 7 lakh tonnes as against 5 lakh tonnes in the previous year. This was achieved through competitive sourcing of premium varieties for key customers and by garnering volumes from new customers. On the domestic front, the Business continued to expand its presence amongst brand owners, private labels, food processors and millers.

Your Company's deep rural linkages and expertise in agri-commodity sourcing is a critical source of competitive advantage for the Branded Packaged Foods Businesses. Given the volatile market conditions caused by climatic variations, changes in Government policies and global demand-supply dynamics, your Company has invested significantly in building competitively superior agri-commodity sourcing expertise comprising multiple business models, wide geographical spread and customised infrastructure. These capabilities and infrastructure have created structural advantages that facilitate competitive sourcing of agri raw materials for your Company's Branded Packaged Foods Businesses. The Business continues to focus on increasing the efficiency of procurement and logistics operations by consistently pursuing cost optimisation initiatives including reducing distance travelled and eliminating non value-adding activities.

Towards scaling up wheat sourcing from areas that are in close proximity of atta manufacturing plants, the Business is collaborating with research organisations such as the Indian Agricultural Research Institute, Directorate of Wheat Research, Punjab Agricultural University and Agharkar Research Institute. As part of its wheat crop development programme, your Company has introduced location-specific new and improved seed varieties along with appropriate package of practices in over 50,000 acres across Rajasthan, Uttar Pradesh, Bihar, West Bengal, Madhya Pradesh, Maharashtra and Karnataka. With a view to supporting the future requirements of your Company, the Business continues to focus on building deeper capabilities in proprietary crop intelligence, sourcing & delivery network and crafting multiple customer-centric blends through cost-quality optimisation.

In the area of potato sourcing, the Business continued to source highest quality chip stock potato at competitive prices for your Company's Bingo! Yumitos brand. In addition, the Business is working closely with farmers towards improving quality and yield and introducing chip stock in newer geographies proximal to manufacturing centres.

Your Company recently forayed into the Juices category with the launch of 7 exciting variants under the 'B Natural' brand. The Business leveraged its widespread sourcing network, associated infrastructure in key growing areas and well-entrenched farmer linkages to source quality fruit pulp. The processed fruits business continued to focus on building its portfolio of organic and certified mango products, sustaining its leadership position in 'Fairtrade' mango pulp exports from India. The Business is working closely with small and marginal farmers across 5 States in building scale and sourcing options.

Your Company's Spices Business endeavours to provide food safe spices through quality differentiation across the value chain and leverage export opportunities in the US, EU and South-East Asian countries. The Business also provides sourcing support to your Company's Aashirvaad range of spices. Over the last few years, the Business has developed robust Chilli crop development programmes, designed to 'produce the buy' along with IT driven traceability systems. Your Company's world- class processing unit in Guntur is certified to the highest grade of global food safety standards under the BRC (British Retail Consortium) Food certification regime while the quality lab is certified to the ISO 17025 standard.

Your Company believes that it is imperative to take an integrated and holistic view of the agricultural value chain towards stimulating agricultural growth in the country. This requires a participatory approach from all stakeholders such as farmers, input vendors, traders, processors and the government agencies. More than a decade ago, your Company conceptualised and rolled out the e-Choupal network as a platform towards empowering the farming community by dis-intermediating the value chain, making available accurate weather related information, enabling price discovery in a transparent manner and disseminating best practices relating to farming. Your Company continues to focus on providing various services in rural areas towards enhancing the competitiveness of Indian agriculture and plays a critical enabling role in integrating farmers, input vendors and government agencies besides facilitating the necessary market linkages.

The unique 'Choupal Haat' platform seeks to create awareness and improve access of the rural community to a broad range of areas - ranging from financial services and pharmaceuticals to commercial vehicles and white goods. Along with Choupal Saagars (integrated rural services hubs), this platform fosters round-the-year and large scale engagement with the rural community thereby enhancing the vitality of your Company's e-Choupal network.

The Business will continue to leverage its deep rural linkages and agri-commodity sourcing expertise towards providing your Company's Branded Packaged Foods Businesses a distinct competitive advantage. The e-Choupal platform will also be increasingly leveraged to provide rural marketing and agri services and serve as a unique delivery mechanism towards enhancing agricultural growth and productivity, and fostering sustainable rural development.

NOTES ON SUBSIDIARIES

The following may be read in conjunction with the Consolidated Financial Statements prepared in accordance with Accounting Standard 21. Shareholders desirous of obtaining the report and accounts of your Company's subsidiaries may obtain the same upon request. Further, the report and accounts of the subsidiary companies will also be available under the 'Shareholder Value' section of your Company's website, www.itcportal.com, in a downloadable format.

During the year, no company became or ceased to be your Company's subsidiary, joint venture or associate company.

ITC Global Holdings Pte. Limited, Singapore ('Global'), a subsidiary of your Company, is under winding up in terms of the Order of the High Court of the Republic of Singapore dated 30th November, 2007. Consequently, your Company is not in a position to consolidate the accounts of Global for the financial year ended 31st December, 2014.

The Policy for determining Material Subsidiaries, adopted by your Board, in conformity with Clause 49 of the Listing

Agreement with Stock Exchanges, can be accessed on the Company's corporate website at http://www.itcportal.com/about-itc/policies/policy-on- material-subdidiaries.aspx. Presently, the Company does not have any material subsidiary.

Surya Nepal Private Limited

Nepal's GDP growth accelerated to 5.2% during the fiscal year ended July 2014 compared to 3.5% a year earlier, primarily on the strength of a favourable monsoon that boosted agricultural output and a marked increase in inward remittances that fuelled increased spending in the Services sector. Growth in Agriculture and Services stood at 4.7% and 6.1% respectively – the highest in the last 6 years. The Industry sector, however, grew only marginally by 2.7% as long hours of power outages and other supply side constraints weighed on domestic manufacturing, leading to higher import-led consumer spending in the economy.

Overall economic progress of the country is likely to be halted over the short to medium term, in the aftermath of the severe earthquakes in April and May 2015 which have affected 8 million people including the loss of over 8000 precious lives. Initial estimates peg the economic loss to the country at US$ 20 billion - equivalent to the country's annual GDP - with reconstruction costs of around US$ 5 billion over the next 5 years.

The employees and other assets of the company have remained largely protected from the extreme effects of the disaster. Minor damages to the company's properties have been reported to insurance companies for survey. Technical assessment of post-earthquake structural stability of company's owned/leased buildings is being conducted to take corrective measures, if required.

While the Government of Nepal along with its relief partners are focusing on rescue operations, public safety and health, economic activity in the country is gradually returning to normalcy. The company and its employees are committed to work closely with the Government of Nepal and its relief partners in this hour of crisis in order to overcome the effects of this large scale disaster.

During the year under review, the legal cigarette industry in Nepal continued to be adversely impacted by increased tax incidence and regulatory pressures, and the unabated rise in illegal trade. While Excise Duty on cigarettes was increased by 10% during the year, the regulatory environment turned harsher for the legal cigarette industry with the implementation of Tobacco Products (Control & Regulation) Act, Rules & Directives. This has led to a decline in legal cigarette industry volumes with consumption shifting to tax-evaded tobacco products from the unorganised sector including illegal cigarettes, which do not carry the mandatory graphic health warnings on packs. Consequently, the tobacco industry's contribution to the Government exchequer declined during the year.

Punitive taxation combined with excessive tobacco regulations focused on cigarettes, have led to livelihood related concerns and anxieties for tobacco farmers, farm labour, retailers and other stakeholders who are dependent on the tobacco industry. Further, the Ministry of Health and Population, Government of Nepal, has proposed to revise the existing tobacco legislation and introduce further measures in the near future which, due to their arbitrary, unreasonable and impractical nature, are likely to disrupt more than 4 lakh livelihoods directly/indirectly dependent on the industry. All stakeholders of the industry have been representing to the Government for reconsideration or withdrawal of the new measures. The company supports effective, evidence based regulations that meet public health objectives, which enable differentiation of its products vis-à-vis competition, recognise its legal rights and do not lead to unintended consequences such as increased illegal trade.

Amidst this challenging business environment, the company recorded Gross Revenue of Nepalese Rupees (NRs.) 2033 crores (previous year – NRs. 1957 crores) and Profit After Tax (PAT) of NRs. 451 crores (previous year – NRs. 425 crores) representing a growth of 3.9% and 6.1% respectively. The company improved its market standing in all major operating segments viz. Cigarettes, Branded Apparel, Safety Matches and the recently launched Agarbatti business.

The company continues to be one of the largest contributors to the national exchequer, accounting for about 14% of excise collections and approximately 3% of the total revenues of the Government of Nepal. The company constitutes approximately 17% of manufacturing GDP of the country, making it the largest private sector manufacturing company in Nepal.

In the Cigarettes business, the company consolidated its market standing by focusing on delivering world-class quality and strengthening its product portfolio.

The new state-of-the-art cigarette factory near Pokhara commenced operations in May 2014. The design of the factory incorporates best-in-class features in ergonomics, energy efficiency, usage of natural light and management of ambient conditions. Machines based on leading-edge technology are being leveraged through contemporary manufacturing practices, systems and people processes. The factory is being developed as a benchmark facility in terms of productivity, quality and sustainability. The new leaf redrying plant, which was commissioned at Simara during the year, will strengthen the company's domestic leaf operations by improving productivity and quality of processed leaf. The plant's environmentally sustainable design enables it to harness green energy sources for ventilation, lighting and waste treatment processes. The company successfully commissioned a 20 kWp solar roof top project at the Simara cigarette factory, thereby expanding its green footprint.

In line with Company's proactive approach to employee relations management, the company successfully concluded a Long Term Agreement with the workmen at the Simara cigarette factory, thus ensuring harmonious and efficient operations.

In the Branded Apparel business, the company's brands 'John Players' and 'Springwood' sustained their position as the preferred choice of consumers in the premium and economy segments. In the Safety Matches business, the company's brand 'Tir' sustained its market leadership position in the wax matches segment. The year also marked the company's entry into the Agarbatti market, with the launch of the 'Mangaldeep' brand – licensed from ITC Ltd. - in the premium and popular segments. The company leveraged its marketing and distribution infrastructure to make the brand available across the country in a relatively short span of time. The products have been well received by consumers and plans are on the anvil to scale up the business in the forthcoming years.

The company is focusing on further strengthening processes and improving productivity in all areas of its operations to reduce costs and improve profitability. As part of this initiative, the company has rolled out an Enterprise Resource Planning system during the year.

The company continues to support and invest in initiatives that enhance the social and economic capital of the nation. These initiatives are aligned with the stated priorities of the Government of Nepal and are based on identified societal needs. Accordingly, the company continues to:

- partner tobacco farmers in Nepal to enhance productivity and improve quality at the farm level through the induction of agricultural best practices. The adoption of such practices and other inputs provided by the company has led to consistent improvement in quality of domestic grades of tobacco thereby improving marketability of the crop and enhancing farmer returns.

- assist farmers in cultivating high quality Poplar saplings in the vicinity of the Simara factory. Under the 'Grow Wood, Grow Food' programme that this initiative promotes, farmers are encouraged to adopt agro-forestry while simultaneously inter-cropping with traditional crops.

- support the animal husbandry extension services initiative with a view to driving yield improvement and enhancing returns of underprivileged farmers.

- partner the Nepal Tourism Board in hosting Nepal's premier professional golf tournament - the 'Surya Nepal Private Limited Masters' with the objective of promoting Nepal as an attractive tourism destination.

- focus on building local supply chain capability towards sourcing its agarbatti requirements from domestic small and medium enterprises, thereby providing employment and skill building opportunities to the economically deprived sections of society, especially women.

The company declared a dividend of NRs. 200.00 per equity share of NRs. 100/- each for the year ended 16th July 2014 (32nd Ashad 2071).

ITC Infotech India Limited and its subsidiaries

2014-15 witnessed the beginnings of major shifts in how businesses use and deploy technology to better understand and service their customers, and use the growing volume, variety and velocity of data flow to gain competitive advantage. With corporates increasingly crafting newer digital business models, business users are replacing the Chief Information Officer (CIO) as the key decision-maker for purchase of information technology products and services. Similarly, the traditional software licensing model is being challenged by 'subscription-based' and 'as-a-service' revenue models.

Against this backdrop, the global IT industry grew by 4.6% in 2014 – significantly higher than the preceding two years.

During the year, the company's Consolidated Total Revenue grew by 15% to Rs. 1476.40 crores, while Net Profit grew by 23% to Rs. 106.30 crores. The company's strategies and operating approach are anchored on the following key elements: (i) focusing sharply on domain expertise, delivery excellence, digital and data towards achieving meaningful, differentiated and specialised scale (ii) building solutions and capabilities around products of global software vendors and partnering with them to take these products to market (iii) focusing on geographical expansion to develop new markets and acquire customers, (iv) driving cost management and resource optimisation while balancing growth-led investment imperatives and (v) creating future-ready business verticals while improving overall profitability.

For the year under review:

a) ITC Infotech India Limited recorded Total Revenue of Rs. 1006 crores (previous year Rs. 926 crores) and Net Profit of Rs. 122 crores (previous year Rs. 101 crores). For the year under review, the company paid a dividend of Rs. 9.00 per Equity Share of Rs. 10/- each aggregating Rs. 76.68 crores (previous year: Nil);

b) ITC Infotech Limited, UK, (ITC Infotech UK), a wholly-owned subsidiary of the company, recorded Total Revenue of GBP 28.69 million (previous year GBP 25.29 million) and Net Profit of GBP 0.68 million (previous year GBP 1.18 million). For the year under review, ITC Infotech UK declared a dividend of GBP 4.25 (previous year GBP 3.00) per Ordinary Share of GBP 1/- each on 685,815 shares, amounting to GBP 2,914,714 (previous year GBP 2,057,445);

c) ITC Infotech (USA), Inc., (ITC Infotech USA), a wholly-owned subsidiary of the company, together with its wholly-owned subsidiary Pyxis Solutions LLC, recorded Total Revenue of US$ 81.62 million (previous year US$ 70.61 million) and Net Profit of US$ 0.82 million (previous year US$ 0.17 million).

During the year, the company implemented a new organisation structure for better alignment with the company's strategic direction. A new Independent

Business Unit (IBU) focused on Product Engineering Services and Data Analytics was also set up during the year. The IBU has seen significant growth within a short span of time with a healthy pipeline of customers.

During the year, the company witnessed robust growth in the Asia-Pacific region aided by a combination of partner-driven initiatives as well as a direct sales approach. The company also gained traction in the Middle-East region during the year and generated significant interest amongst prospective clients in that region.

The company continues to expand its service lines, sales channels and presence in Europe and USA. Robust business traction in the USA over the past few years has made that region the highest contributor to the consolidated revenues of the group.

The company's superior service delivery capability continued to earn global recognition. The company featured for the 9th consecutive year in the 'Leaders Category' in the '2015 Global Outsourcing 100' list compiled by the International Association of Outsourcing Professionals (IAOP). The company won the 2014 European Outsourcing award (under the category 'Delivering Business Value in European Outsourcing') from the European Outsourcing Association in recognition of its long-term engagement with the Banking sector.

With enhanced focus on encompassing newer technologies and driven by domain knowledge and delivery excellence, the company is poised to garner a higher share of India-based IT exports and sustain its growth trajectory. Towards attracting high quality human resources, the company has broadened its channels for sourcing quality talent and has strengthened its capability building processes through college affiliations, technology incubation cells and employee ideation panels, thereby ensuring seamless and scalable business operations.

The outlook for the Indian IT industry remains buoyant with NASSCOM forecasting a growth of 12% to 14% in 2015-16. The company is poised to leverage its leadership in knowledge-centric IT services and increasing global presence in attaining its strategic and financial objectives.

Technico Pty Limited and its subsidiaries

The company continues to focus on upgradation and commercialisation of TECHNITUBER® seed technology and customising its application across various geographies. Besides, the company is engaged in the marketing of TECHNITUBER® seeds to global customers from the production facilities of its subsidiaries in India and China. The Indian and Canadian subsidiaries of the Company are also engaged in field multiplication of seeds.

Technico's leadership in production of early generation seed potatoes and strength in agronomy continue to be leveraged for sourcing chip stock for the 'Bingo! Yumitos' range of potato chips and servicing the seed potato requirements of the farmer base of your Company's Agri Business.

For the year under review:

a) Technico Pty Limited, Australia registered Turnover of Australian Dollar (A$) 2.2 million (previous year A$ 2.2 million) and Net Profit of A$ 0.78 million (previous year A$ 0.44 million).

b) Technico Agri Sciences Limited, India registered Net Revenue of Rs. 105.08 crores (previous year Rs. 73.24 crores) and Net Profit of Rs. 45.25 crores (previous year Rs. 14.09 crores). During the year, potato prices rose sharply primarily due to lower crop output. Consequently, demand for good quality seed potato increased significantly. This coupled with the strength of its brand, superior product quality, better on-field performance and strong trade and customer relationships enabled the company to realise better prices during the year.

c) Technico Asia Holdings Pty Limited, Australia, Technico Technologies Inc., Canada and Technico Horticultural (Kunming) Co. Limited, China – There were no significant events to report with respect to the above companies.

Srinivasa Resorts Limited

The company's hotel ITC Kakatiya in Hyderabad continued to be impacted by a challenging economic environment exacerbated by sluggish demand conditions in the city pursuant to the bifurcation of the State of Andhra Pradesh.

The company recorded Total Revenue of Rs. 52.74 crores (previous year Rs. 53.28 crores) during the year ended 31st March, 2015 and Net Loss of Rs. 0.72 crores (previous year Net Profit of Rs. 3.33 crores). Included in the Net Loss for the year is an incremental depreciation charge of Rs. 2.74 crores on account of revision in the useful lives of fixed assets in accordance with the provisions of Schedule II to the Companies Act, 2013.

During the Year, ITC Kakatiya received the 'Times Food Guide' awards for 'Dakshin' (Best South Indian Fine Dining), Kebabs & Kurries (Best Indian Barbeque), and Marco Polo (Best Bar). TripAdvisor, a renowned hotel review site, also recognised Dakshin and Kebabs & Kurries as the best restaurants in Hyderabad, ranking them No.1 and No.2 respectively. During the year, the hotel was also awarded the '3 Star Rating for Appreciation in EHS Practices' by CII.

Last year, a land parcel measuring about 4.27 acres in Amritsar was assigned to the company by ITC Ltd. towards the development and operation of a full service hotel. During the year, the company obtained the necessary approvals from various authorities and has commenced civil works at the site. Excavation of the site to construct a 100-key full service hotel was completed during the year.

Fortune Park Hotels Limited

During the year ended 31st March, 2015, the company recorded Total Revenue of Rs. 27.19 crores (previous year Rs. 24.85 crores) and earned Net Profit of Rs. 5.74 crores (previous year Rs. 6.25 crores).

The company, which caters to the 'mid-market to upscale' segment through a chain of Fortune hotels, continues to forge new alliances and expand its footprint. Currently, the company has an aggregate inventory of nearly 6,000 rooms spread over 76 properties of which 46 are operating hotels. Of the balance 30 properties,

5 hotels are slated to be commissioned in the ensuing year and 25 hotel projects are under various stages of development.

Two hotels have already been operationalised under the flagship 'My Fortune' brand at Chennai and Bengaluru. Plans are on the anvil to launch 9 more hotels under the My Fortune brand over the next few years.

During the year, the company bagged the Travel

6 Hospitality Award 2014 for the 'Most Outstanding Mid- Market Hotel Chain', Today's Traveller Award

2014 for the 'Best First Class Business Hotel Chain',

Safari India Award 2014 for the 'Best First Class Business Hotel Chain', Hotel Build India Award 2014 in the 'Best Mid-Market Hotel' category by Hotelier India and ITP Publishing Group India and Hospitality India Award 2014 for the 'Best First Class Hotel Chain'.

The company has established 'Fortune' as the premier 'value' brand in the Indian hospitality sector. The brand remains a frontrunner in its operating segment and is well positioned to sustain its leadership position in the industry.

The Board of Directors of the company has recommended a dividend of Rs. 12.50 per equity share of Rs. 10/- each for the year ended 31st March, 2015.

WelcomHotels Lanka (Private) Limited

WelcomHotels Lanka (Private) Limited (WLPL), a wholly-owned subsidiary of your Company, was incorporated in Sri Lanka with the objective of developing and operating a mixed-use development project ('Project') including a luxury hotel on 5.86 acres of prime sea-facing land in Colombo, which was allotted by the Board of Investment of Sri Lanka on a 99-year lease to the company for this purpose.

The Project has been accorded 'Strategic Development Project' status entitling the company to various fiscal benefits in Sri Lanka. Further, the Project is also exempt from Sri Lankan foreign exchange regulations.

During the year, the company obtained necessary approvals to commence construction activity and all major consultants and architects have been appointed. The ground breaking ceremony for the Project was held on 19th November, 2014 and excavation and allied works, which were commenced immediately thereafter, are progressing satisfactorily.

Your Company's investment in WLPL stood at US$ 82.8 million as at 31st March, 2015.

Bay Islands Hotels Limited

Fortune Resort Bay Island, the company's hotel in Port Blair, with its great location, excellent architectural design and superior service quality, continues to offer a unique gateway to the Andamans. The company has commenced a comprehensive renovation and expansion programme with a view to enhancing the market standing of the hotel.

During the year ended 31st March, 2015, the company recorded Total Revenue of Rs. 1.58 crores (previous year Rs. 1.62 crores) and Net Profit of Rs. 0.99 crores (previous year Rs. 1.03 crores).

The Board of Directors of the company has recommended a dividend of Rs. 70.00 per equity share of Rs. 100/- each for year ended 31st March, 2015.

Landbase India Limited

During the year, the company completed the construction of a 104-key luxury hotel, the 'ITC Grand Bharat', at the Classic Golf Resort.

The hotel, which has been licensed to ITC Ltd., commenced operations in November 2014. The company also owns and operates the Classic Golf & Country Club, a 27-hole Jack Nicklaus Signature Course.

During the year ended 31st March 2015, the company recorded Total Revenue of Rs. 17.40 crores (previous year Rs. 12.85 crores) and Net Profit of Rs. 1.07 crores (previous year Net Loss Rs. 2.76 crores). During the year, the company issued and allotted to ITC Ltd., 2,80,00,000 Equity Shares of Rs. 10/- each for cash at par, aggregating Rs. 28 crores. The proceeds from the share issue were utilised by the company for the construction of the destination luxury resort hotel.

King Maker Marketing, Inc.

King Maker Marketing, Inc. (KMM) is a wholly-owned subsidiary of your Company registered in the State of New Jersey, USA. Its main business is to import and distribute tobacco products to licensed wholesalers and retailers throughout the USA. Your Company is KMM's sole supplier of tobacco products.

Despite the continuing decline in consumption in the US market, the company's Net Sales grew by 9% during the year, driven by robust growth in volumes on the back of focused market interventions. The company recorded Net Sales of US$ 29.3 million (previous year US$ 26.9 million) and earned a Net Income of US$ 0.14 million (previous year US$ 0.07 million) during the financial year ended 31st March, 2015. During the year, KMM also paid a dividend of US$ 2.0 million to your Company.

Increasing presence of major cigarette manufacturers in the discount segment – in direct competition with KMM, illicit trade driven by tax differentials between various States in USA, non-compliant cigarette imports and Native American manufacture continue to pose significant challenges for the company.

Wimco Limited

The scheme of arrangement involving the demerger of the company's Non-Engineering Business into ITC Ltd. with effect from 1st April 2013, became effective from 27th June 2014.

Pursuant to the demerger as aforestated, the company's business activities are mainly focused on fabrication and assembly of machinery for tube filling, cartoning, wrapping, material handling and conveyor solutions for the FMCG and Pharmaceutical industry.

The company's order book remained subdued during the year with customers holding back capital expenditure in view of the sluggish demand conditions prevailing in the FMCG and Pharmaceutical industry in India.

Consequently, the company's Net Revenue for the year declined to Rs. 12.90 crores (previous year Rs. 17.17 crores on a comparable basis) and reported a Net Loss of Rs. 0.48 crores (previous year Net Profit Rs. 1.67 crores on a comparable basis).

The company is focusing on building a robust business model, widening its customer base and developing superior solutions towards addressing customer requirements.

North East Nutrients Private Limited

Your Company holds 76% of the equity stake in North East Nutrients Private Limited (NENPL), a company formed with the objective of setting up a food processing facility in Mangaldoi, Assam to cater to the fast-growing biscuits market in Assam and other north-eastern States. Construction work on the manufacturing facility is currently in progress and commercial production is expected to start in the ensuing year.

Your Company's investment in NENPL stood at Rs. 48.13 crores as at 31st March 2015.

Russell Credit Limited

During the year, the company registered Total Revenue of Rs. 70.81 crores (previous year Rs. 65.52 crores) and Net

Profit of Rs. 56.38 crores (previous year Rs. 34.57 crores). The company paid a dividend of Rs. 1.40 per equity share aggregating Rs. 90.51 crores for the year ended 31st March, 2015.

Temporary surplus liquidity of the company is mainly deployed in debt mutual funds and bank fixed deposits. The company continues to explore opportunities to make strategic investments for the ITC group.

Gold Flake Corporation Limited

The company registered Total Revenue of Rs. 4.20 crores during the year under review (previous year Rs. 4.37 crores). The company paid a dividend of Rs. 9.00 per equity share aggregating Rs. 14.40 crores for the year ended 31st March, 2015.

The company holds 50% equity stake in ITC Essentra Ltd. – a joint venture with Essentra group, UK.

Wills Corporation Limited

The company recorded Total Revenue of Rs. 0.89 crore during the year (previous year Rs. 0.93 crore). The company paid a dividend of Rs. 7.00 per equity share aggregating Rs. 3.42 crores for the year ended 31st March, 2015.

Greenacre Holdings Limited

During the year, the company recorded Total Revenue of Rs. 3.51 crores (previous year Rs. 3.31 crores) and Net Profit of Rs. 1.04 crores (previous year Rs. 0.87 crore). The company continues to provide maintenance services for commercial office buildings.

ITC Investments & Holdings Limited

The company, a Core Investment Company within the meaning of the Core Investment Companies (Reserve Bank) Directions, 2011, recorded Total Revenue of Rs. 0.48 crore during the year (previous year Rs. 0.32 crore) and Net Profit of Rs. 0.33 crore (previous year Rs. 0.31 crore).

During the year, the company purchased the entire shareholding (50,000 equity shares) of MRR Trading & Investment Company Limited from BFIL Finance Limited, a fellow subsidiary, at an aggregate consideration of Rs. 4.52 crores. Consequently, MRR Trading & Investment Company Limited became a wholly-owned subsidiary of the company with effect from 30th March, 2015.

BFIL Finance Limited

The company registered Total Revenue of Rs. 0.34 crore during the year (previous year Rs. 0.81 crore). Net Loss for the year stood at Rs. 4.37 crores (previous year Net Profit Rs. 0.61 crore) mainly on account of payment of interest on loan from the parent entity. The company is actively pursuing various legal cases initiated against defaulting clients for recoveries.

MRR Trading & Investment Company Limited

The company holds tenancy rights in a commercial building located in Mumbai and also provides estate maintenance services. During the year, the company recorded Total Revenue of Rs. 0.07 crore (previous year Rs. Nil).

Pavan Poplar Limited

The scheme of arrangement involving the demerger of Wimco Limited's Non-Engineering Business into ITC Ltd. with effect from 1st April 2013, became effective from 27th June 2014. As a result, the company, which was earlier a wholly-owned subsidiary of Wimco Ltd., became a direct wholly-owned subsidiary of ITC Ltd. with effect from 27th June 2014.

The operations of the company remained impacted during the current year pursuant to the order of the Uttarakhand High Court in February 2014 dismissing the writ petition filed by the company against the order of the District Magistrate authorising State authorities to take possession of the land leased to the company. The appeal filed by the company against the aforestated order was admitted in April 2014 and the matter is pending before the Honourable High Court.

Consequently, the company's Total Revenue declined from Rs. 0.96 crore in the previous year to Rs. 0.02 crore in the current year. The company reported a Net Loss of Rs. 0.47 crore during the year (previous year Net Loss of Rs. 4.47 crores after considering an aggregate provision of Rs. 4.55 crores made towards inventory and fixed assets).

Prag Agro Farm Limited

The scheme of arrangement involving the demerger of Wimco Limited's Non-Engineering Business into ITC Ltd. with effect from 1st April 2013, became effective from 27th June 2014. As a result, the company, which was earlier a wholly-owned subsidiary of Wimco Ltd., became a direct wholly-owned subsidiary of ITC Ltd. with effect from 27th June 2014.

The operations of the company remained impacted during the current year pursuant to the order of the Uttarakhand High Court in February 2014 dismissing the writ petition filed by the company against the order of the District Magistrate authorising State authorities to take possession of the land leased to the company. The appeal filed by the company against the aforestated order was admitted in April 2014 and the matter is pending before the Honourable High Court.

Consequently, the company's Total Revenue declined from Rs. 0.70 crore in the previous year to Rs. 0.04 crore during the current year. The company reported a Net Loss of Rs. 0.08 crore during the year (previous year: Net Loss of Rs. 4.05 crores after considering an aggregate provision of Rs. 4.00 crores made towards inventory and fixed assets).

ITC Global Holdings Pte. Limited

As has been stated in the previous years' reports, the Judicial Managers had been conducting the affairs of ITC Global Holdings Pte. Limited ('Global') since 8th November, 1996, under the authority of the High Court of Singapore.

Pursuant to the application of the Judicial Managers, the Singapore High Court on 30th November, 2007 ordered the winding up of Global, appointed a Liquidator and discharged the Judicial Managers.

The Judicial Managers commenced proceedings against your Company in November 2002 before the Singapore High Court claiming approximately US$ 18.10 million. Pursuant to legal advice, your Company has filed its defence in the proceedings.

On 22nd July, 2013, the Liquidator filed an application, to amend the Statement of Claim filed in the proceedings to include an additional claim of US$ 1.03 million against your Company, which was dismissed by the Assistant Registrar. The Liquidator's appeal against the said dismissal was also dismissed on 29th May, 2014, by the Singapore High Court.

Your Company is contesting the claims contending that the same are not sustainable and your Company does not accept any liability in this regard. The proceedings are pending.

NOTES ON JOINT VENTURES

ITC Essentra Limited

The company recorded Gross Revenue of Rs. 328.60 crores (previous year Rs. 292.74 crores) and Net Profit of Rs. 12.22 crores (previous year Rs. 13.77 crores) for the financial year ended 31st December, 2014. During the year, the company consolidated its leadership position in the backdrop of a challenging operating environment which saw increasing taxation and regulatory pressures on the cigarette industry. The company countered the challenges posed by these difficult market conditions by focusing on innovation, superior execution, consistent delivery and world-class quality. Although the company garnered additional volumes, adverse sales mix and higher interest cost impacted the performance for the year. During the year, the company fully operationalised its new state-of-the-art manufacturing line at Doddaballapur, Karnataka.

Given that a significant portion of the company's sales are to customers in the domestic cigarette industry which is facing unprecedented pressure on volumes due to steep increase in taxes/duties, the year ahead will indeed be challenging. In this context, the company is also focusing on growing exports with best-in-class delivery of high quality products to customers at competitive prices. Besides, the company continues to diversify the sourcing base for its principal raw material - acetate tow - towards ensuring security of supplies and optimising costs.

A sustained drive to develop contemporary and value added cigarette filter solutions coupled with integrated online quality control systems have enabled the company to consolidate its position as the preferred supply chain partner for several well-known national and international brands. The company remains focused on sustaining its position as the innovation and quality benchmark in the cigarette filter market.

The Board of Directors of the company has recommended a dividend of Rs. 9.00 per Ordinary Share of Rs. 10/- each for the year ended 31st December, 2014.

Maharaja Heritage Resorts Limited

Maharaja Heritage Resorts Limited, a joint venture of your Company with Jodhana Heritage Resorts Private Limited, currently operates 34 heritage properties across 13 States in India. The company, with its WelcomHeritage brand portfolio comprising 'Legend Hotels', 'Heritage Hotels' and 'Nature Resorts', provides uniquely differentiated offerings to guests in the cultural, heritage and adventure tourism segments respectively.

During the year ended 31st March, 2015, the company recorded Total Revenue of Rs. 3.80 crores (previous year Rs. 3.46 crores) and Net Profit of Rs. 0.24 crores (previous year Rs. 0.10 crores).

The 'WelcomHeritage Hotels' brand was awarded the 'Best Heritage Hotel Chain' by Today's Traveller Awards 2014.

Espirit Hotels Private Limited

Espirit Hotels Private Limited (EHPL) is a joint venture between your Company and the Ambience Group, Hyderabad for developing a luxury hotel complex at Begumpet, Hyderabad. Under the terms of the Joint Venture Agreement, your Company acquired 26% equity stake in EHPL and will, inter alia, provide hotel operating services under an Operating Services Agreement, upon commissioning of the hotel.

The Ambience Group has expressed its desire to review the timing of further investments in EHPL, citing concerns about the viability of the project in view of the challenging economic environment and the sluggish demand conditions currently prevailing in Hyderabad pursuant to the bifurcation of the State of Andhra Pradesh. In this regard, your Company is examining the way forward under the Joint Venture Agreement.

Your Company's investment in EHPL stood at Rs. 46.51 crores as at 31st March, 2015.

Logix Developers Private Limited

Logix Developers Private Limited (LDPL) is a joint venture between your Company and Logix Estates Private Ltd., NOIDA for developing a luxury hotel-cum-service apartment complex at Sector 105 in NOIDA. Under the terms of the Joint Venture Agreement, your Company acquired 26% equity stake in LDPL and will, inter alia, provide hotel operating services under an Operating Services Agreement, upon commissioning of the hotel.

Pursuant to an equity cash call aggregating Rs. 14.87 crores made by LDPL during the year, your Company invested Rs. 3.87 crores in LDPL. However, the JV partner did not subscribe to its share of the cash call. Consequently, your Company's total investment in LDPL increased to Rs. 41.95 crores as at 31st March 2015, taking its equity stake to 27.9% in the company.

Logix Estates Private Ltd., the JV partner, has communicated to your Company that it would like to explore alternative project development plans, failing which, it proposes to exit the joint venture by selling its shareholding in LDPL to your Company. Your Company is exploring its options in this regard.

NOTES ON ASSOCIATES

International Travel House Limited

During the financial year ended 31st March, 2015, the company recorded Total Revenue of Rs. 183.48 crores (previous year Rs. 176.44 crores) and Net Profit of Rs. 18.38 crores (previous year Rs. 18.11 crores).

The Company offers a full range of travel services including air ticketing, car rentals, inbound and outbound tourism, domestic holidays, conferences, events and exhibition management and foreign exchange services to travellers.

The Board of Directors of the company has recommended a dividend of Rs. 4.25 per equity share of Rs. 10/- each for the year ended 31st March, 2015.

Gujarat Hotels Limited

During the financial year ended 31st March, 2015, the company recorded Total Revenue of Rs. 4.31 crores (previous year Rs. 4.51 crores) and Net Profit of Rs. 2.73 crores (previous year Rs. 3.27 crores).

The company's hotel, 'WelcomHotel Vadodara' at Vadodara is operated by ITC Ltd. under an Operating License Agreement.

The Board of Directors of the company has recommended a dividend of Rs. 3.50 per equity share of Rs. 10/- each for the year ended 31st March, 2015.

ATC Limited (an associate of Gold Flake Corporation Limited)

The company is a contract manufacturer of cigarettes. During the year, the company recorded Total Revenue of Rs. 23.16 crores (previous year Rs. 21.95 crores) and Net Profit of Rs. 0.91 crore (previous year Rs. 0.84 crore).

During the year, the company exhibited robust operational performance with benchmark scores in product quality

and material utilisation. The company won the 'Platinum Award' from The Economic Times for manufacturing excellence, a 'Certificate of Appreciation' from FICCI for excellence in quality systems and various safety awards for outstanding track record in safety.

Associates of Russell Credit Limited

Classic Infrastructure & Development Limited

The company recorded Total Revenue of Rs. 0.45 crore during the year (previous year Rs. 0.41 crore) and Net Profit of Rs. 0.20 crore (previous year Rs. 0.35 crore).

The company continues to explore growth opportunities.

Russell Investments Limited

During the year, the company recorded Total Revenue of Rs. 5.66 crores (previous year Rs. 2.42 crores) and Net Profit of Rs. 5.42 crores (previous year Net Loss Rs. 0.20 crore).

The company continues to explore opportunities to make investments.

Divya Management Limited

During the year, the company recorded Total Revenue of Rs. 0.24 crore (previous year Rs. 0.23 crore) and Net Profit of Rs. 0.08 crore (previous year Rs. 0.10 crore).

The company continues to explore opportunities to make investments.

Antrang Finance Limited

During the year, the company recorded Total Revenue of Rs. 0.30 crore (previous year Rs. 0.28 crore) and Net Profit of Rs. 0.20 crore (previous year Rs. 0.20 crore).

The company continues to explore opportunities to make investments.

INTERNAL FINANCIAL CONTROLS

The Corporate Governance Policy guides the conduct of affairs of your Company and clearly delineates the roles, responsibilities and authorities at each level of its three-tiered governance structure and key functionaries involved in governance. The ITC Code of Conduct commits management to financial and accounting policies, systems and processes. The Corporate Governance Policy and the ITC Code of Conduct stand widely communicated across the enterprise at all times, and, together with the 'Strategy of Organisation', Planning & Review Processes and the Risk Management Framework provide the foundation for Internal Financial Controls with reference to your Company's Financial Statements.

Such Financial Statements are prepared on the basis of the Significant Accounting Policies that are carefully selected by management and approved by the Audit Committee and the Board. These Policies are supported by the Corporate Accounting and Systems Policies that apply to the entity as a whole to implement the tenets of Corporate Governance and the Significant Accounting Policies uniformly across the Company. The Accounting Policies are reviewed and updated from time to time. These, in turn are supported by a set of divisional policies and Standard Operating Procedures (SOPs) that have been established for individual businesses.

Your Company uses ERP Systems as a business enabler and also to maintain its Books of Account. The SOPs in tandem with transactional controls built into the ERP Systems ensure appropriate segregation of duties, tiered approval mechanisms and maintenance of supporting records. The Information Management Policy reinforces the control environment. The systems, SOPs and controls are reviewed by divisional management and audited by Internal Audit whose findings and recommendations are reviewed by the Audit Committee and tracked through to implementation.

Your Company has in place adequate internal financial controls with reference to the Financial Statements. Such controls have been tested during the year and no reportable material weakness in the design or operation was observed. Nonetheless your Company recognises that any internal financial control framework, no matter how well designed, has inherent limitations and accordingly, regular audit and review processes ensure that such systems are reinforced on an ongoing basis.

RISK MANAGEMENT

As a diversified enterprise, your Company continues to focus on a system-based approach to business risk management. The management of risk is embedded in the corporate strategies of developing a portfolio of world-class businesses that best match organisational capability with market opportunities, focusing on building distributed leadership and succession planning processes, nurturing specialism and enhancing organisational capabilities through timely developmental inputs. Accordingly, management of risk has always been an integral part of the Company's 'Strategy of Organisation' and straddles its planning, execution and reporting processes and systems. Backed by strong internal control systems, the current Risk Management Framework consists of the following key elements:

— The Corporate Governance Policy approved by the Board, clearly lays down the roles and responsibilities of the various entities in relation to risk management covering a range of responsibilities, from the strategic to the operational. These role definitions, inter alia, provide the foundation for your Company's Risk Management Policy and Framework that is endorsed by the Board and is aimed at ensuring formulation of appropriate risk management procedures, their effective implementation across your Company and independent monitoring and reporting by Internal Audit.

— The Corporate Risk Management Cell, through focused interactions with businesses, facilitates the identification and prioritisation of strategic and operational risks, development of appropriate mitigation strategies and conducts periodic reviews of the progress on the management of identified risks.

— A combination of centrally issued policies and divisionally-evolved procedures brings robustness to the process of ensuring that business risks are effectively addressed.

— Appropriate structures are in place to proactively monitor and manage the inherent risks in businesses with unique / relatively high risk profiles.

— A strong and independent Internal Audit function at the Corporate level carries out risk focused audits across all businesses, enabling identification of areas where risk management processes may need to be strengthened. The Audit Committee of the Board reviews Internal Audit findings, and provides strategic guidance on internal controls. The Audit Compliance Review Committee closely monitors the internal control environment within your Company including implementation of the action plans emerging out of internal audit findings.

— At the Business level, Divisional Auditors continuously verify compliance with laid down policies and procedures, and help plug control gaps by assisting operating management in the formulation of control procedures for new areas of operation.

— A robust and comprehensive framework of strategic planning and performance management ensures realisation of business objectives based on effective strategy implementation. The annual planning exercise requires all businesses to clearly identify their top risks and set out a mitigation plan with agreed timelines and accountability. Businesses are required to confirm periodically that all relevant risks have been identified, assessed, evaluated and that appropriate mitigation systems have been implemented.

The combination of policies and processes as outlined above adequately addresses the various risks associated with your Company's businesses.

The Company during the year has also constituted a Risk Management Committee, as required by revised Clause 49 of the Listing Agreement.

AUDIT AND SYSTEMS

Your Company believes that internal control is a necessary concomitant of the principle of governance that freedom of management should be exercised within a framework of appropriate checks and balances. Your Company remains committed to ensuring an effective internal control environment that inter alia provides assurance on orderly and efficient conduct of operations, security of assets, prevention and detection of frauds/errors, accuracy and completeness of accounting records and the timely preparation of reliable financial information.

Your Company's independent and robust Internal Audit processes, both at the Business and Corporate levels, provide assurance on the adequacy and effectiveness of internal controls, compliance with operating systems, internal policies and regulatory requirements.

The Internal Audit function consisting of professionally qualified accountants, engineers and IT Specialists is adequately skilled and resourced to deliver audit assurances at highest levels. In the context of the IT environment of your Company, systems and policies relating to Information Management are periodically reviewed and benchmarked for contemporariness. Compliance with the Information Management policies receive focused attention of the Internal Audit team. Qualified engineers in the Internal Audit function review the quality of planning and execution of all ongoing projects involving significant expenditure to ensure that project management controls are adequate and yield 'value for money'.

Processes in the Internal Audit function have been continuously improved for enhanced effectiveness and productivity including the deployment of best-in-class tools for analytics in the Audit domain, certification as complying with ISO 9001:2008 Quality Standards in its processes, ongoing knowledge improvement programmes for staff, etc.

The Audit Committee of your Board met eight times during the year. The Terms of Reference of the Audit Committee inter alia included reviewing the adequacy and effectiveness of the internal control environment, monitoring implementation of the action plans emerging out of Internal Audit findings including those relating to strengthening of your Company's risk management systems and discharge of statutory mandates.

HUMAN RESOURCE DEVELOPMENT

Your Company believes that it is the quality and dynamism of its human resource that enables it to make a significant contribution to enhancing stakeholder value. In order to sustain its position as one of India's most valuable corporations, your Company works relentlessly towards being customer-focused, competitively-superior, performance-driven and future-ready.

The talent management strategy of your Company strives to deliver its unique talent promise - 'Building Winning Businesses. Building Business Leaders. Creating Value for India.' Your Company is guided by a holistic approach to talent management - focusing on synchronising the multiple elements of talent sourcing, work design, performance management, remuneration, individual growth and development – to deliver breakthrough outcomes. Human Resource Development practices in your Company are guided by the principles of relevance, consistency and fairness based on the premise that 'what' is done is as critical as 'how' it is done. Taken together, these initiatives and processes have made a significant impact on talent attraction, retention and commitment.

Your Company has assiduously built a culture of continuous learning, innovation and collaboration across the organisation by judiciously leveraging cutting-edge learning and development practices with coaching, mentoring and on-the-job training. Based on the premise that action learning is a more effective approach to development of human resources, learning and development interventions stress less on classroom learning and more on workplace projects. These interventions are therefore fashioned along the lines of longer term journeys rather than short term events.

Your Company's strategic Learning and Development agenda is geared to building front-line managerial capability, middle-management functional leadership and strategic leadership capability of senior management. Apart from this, your Company's 'Strategy of Organisation' serves as an excellent platform to build distributed leadership. This two-pronged approach to leadership development has ensured that each of your Company's businesses is managed by a team of competent, passionate and inspiring leaders, capable of building a high-performance and future-ready organisation.

Your Company continues to invest in the time-tested approach of progressive employee relations based on the core principles of trusteeship, fairness, equity, industrial democracy and partnership with enlightened trade unions. This has enabled your Company consistently set a fine record of industrial harmony, highlighted not merely by the absence of strife, but by the more positive outcome of high productivity and superior quality. A productive and innovative workplace is a key requirement of successful business performance. Hence the push for embracing commitment-enhancing people processes that seek and nurture employee participation and involvement in managing the shop floor. Your Company's belief in the mutuality of interests of key stakeholders, aligns all employees to a shared purpose and vision, thus providing it with the vital force to win in the market and enhance value creation.

Your Company has been able to galvanise its human resource to become more agile, leverage change, stay ahead of competition and win in the market. Your Company's employees relentlessly strive to deliver world-class performance and discharge their role as 'trustees' of all stakeholders with true faith and in the spirit of allegiance. Over 25,000 of your Company's employees have collectively envisioned the future with commitment to realising your Company's vision of creating enduring value - for the nation and for the institution that is ITC.

WHISTLEBLOWER POLICY

The Company's Whistleblower Policy encourages Directors and employees to bring to the Company's attention, instances of unethical behaviour, actual or suspected incidents of fraud or violation of the ITC Code of Conduct that could adversely impact the Company's operations, business performance and / or reputation. The Policy provides that the Company investigates such incidents, when reported, in an impartial manner and takes appropriate action to ensure that the requisite standards of professional and ethical conduct are always upheld. It is the Company's Policy to ensure that no employee is victimised or harassed for bringing such incidents to the attention of the Company. The practice of the Whistleblower Policy is overseen by the Audit Committee of the Board and no employee has been denied access to the Committee. The Whistleblower Policy is available on the Company's corporate website www.itcportal.com.

SUSTAINABILITY – CONTRIBUTION TO THE 'TRIPLE BOTTOM LINE'

Your Company's vision to sub-serve larger national priorities and create enduring societal value is the inspiration behind its multi-dimensional sustainability initiatives that are today acknowledged as global exemplars. Your Company's sustainability strategy aims to significantly enhance value creation for the nation through superior 'Triple Bottom Line' performance that builds and enriches the country's economic, environmental and societal capital. The sustainability strategy is premised on the belief that the transformational capacity of business can be very effectively leveraged to create significant societal value through a spirit of innovation and enterprise.

It is a matter of immense satisfaction that your Company's models of sustainable development and value chains designed to promote livelihoods, have supported the creation of around 6 million sustainable livelihoods, largely among the marginalised sections of society. Your Company has sustained its position of being the only Company in the world of comparable dimensions to have achieved the global environmental distinction of being carbon positive (for 10 consecutive years), water positive (for 13 years in a row) and solid waste recycling positive (for 8 years in succession).

Your Company's renewable energy portfolio ensures that over 43% of its total energy requirements are met from renewable energy sources - a remarkable achievement given the large manufacturing base of your Company. Further, premium luxury hotels, several office complexes and factories of your Company are LEED® (Leadership in Energy & Environmental Design) certified at the highest level by the US Green Building Council/Indian Green Building Council and the Bureau of Energy Efficiency (BEE) under its star rating scheme.

Your Company has adopted a comprehensive set of sustainability policies that are being implemented across the organisation in pursuit of its 'Triple Bottom Line' agenda. The broad objectives with which your Company has rolled out these policies include strengthening the mechanisms of engagement with key stakeholders, the identification of material sustainability issues and the efforts towards monitoring and mitigating the impacts along the value chain of each Business, wherever relevant.

Your Company's 11th Sustainability Report, published during the year detailed the progress made across all dimensions of the 'Triple Bottom Line' for the year 2013-14. Your Company's Sustainability Report in conformance with the new Global Reporting Initiative (GRI) G4 Guidelines was amongst the first in India under "In Accordance - Comprehensive" category with "Materiality Matters" confirmation from GRI and also the first in India that has been third party assured at the highest criteria of "reasonable assurance" as per International Standard on Assurance Engagements (ISAE) 3000. The 12th Sustainability Report, covering the sustainability performance of your Company for the year 2014-15, is being prepared in accordance with the GRI guidelines – G4 and will be available to you shortly.

In addition, the Business Responsibility Report (BRR), as mandated by the Securities & Exchange Board of India (SEBI), was brought out as an annexure to the Report and Accounts 2014, mapping the sustainability performance of your Company against the reporting framework suggested by SEBI. The BRR for the year under review is annexed to this Report and Accounts.

Corporate Social Responsibility (CSR)

Your Company's overarching aspiration to create significant and sustainable societal value, inspired by a vision to sub-serve a larger national purpose and abide by the strong value of trusteeship, is manifest in its CSR initiatives that embrace the most disadvantaged sections of society, especially in rural India, through economic empowerment based on grassroots capacity building. Towards this end, the Company adopted a comprehensive CSR policy in 2014-15 that defines the framework for your Company's Social Investments Programme.

Your Company's Social Investments Programme has identified three important stakeholder groups: (a) Rural communities in the Company's operational areas who seek viable solutions to some of the major challenges that threaten the sustainability of their farming systems; (b) Communities residing in close proximity to our production units who expect help in the creation of the necessary socio-economic infrastructure for the emergence of a healthy, educated and skilled work force and the promotion of entrepreneurship, especially amongst women, to generate additional income streams; and (c) Central and State governments, which encourage Public Private Partnerships to demonstrate scalable and replicable models of development. Your Company's stakeholders are confronted with multiple, but inter-related, issues at the core of which is the challenge of securing sustainable livelihoods. Interventions therefore are appropriately designed to respond to their unique multi-dimensional development challenges in order to accomplish the goal of empowering stakeholder communities to promote sustainable livelihoods.

The footprint of your Company's CSR projects promoted under the Social Investments Programme is spread over 14 states covering 71 districts. The interventions reach out to over 6,70,000 households in more than 10,600 villages.

Social Forestry

Your Company's pioneering initiative of wasteland development through the Social Forestry Programme cumulatively covers 67,536 hectares in 3,720 villages, impacting over 70,000 poor households. This is part of the Social and Farm Forestry initiative that has together greened nearly 200,000 hectares to date and generated nearly 90 million person days of employment for rural households, including poor tribal and marginal farmers. The agro-forestry initiative, that ensures food, fodder and wood security, cumulatively covered about 9,800 hectares during the year and 17,600 hectares till date.

Soil and Moisture Conservation

The coverage of your Company's Soil and Moisture Conservation programme, designed to assist farmers in identified moisture-stressed areas, increased by an additional 51,397 hectares taking the total area covered under the watershed programme to 200,186 hectares. 1,490 water-bodies were built during the year, taking the total number of water harvesting structures to 6,464.

Bio Diversity

In the catchments of your Company's agri-business operations, your Company scaled up bio-diversity conservation in 57 plots covering 504 hectares with the objective of protecting native flora and fauna and providing other eco-system services. Cumulatively, the area under bio-diversity now stands at 3,191 hectares. Reports of some of the bio-diversity conservation initiatives were published in the International Journal of Biodiversity & Endangered Species – Spain 2014 and also featured as a case study in the India Business & Biodiversity Initiative (IBBI) report published by the CII-ITC Centre of Excellence for Sustainable Development and the Ministry of Environment, Forests & Climate Change. Your Company has promoted bio-diversity conservation on 22 hectares in Telangana and Andhra Pradesh. Your Company has also collaborated with the Telangana Government to strengthen and benchmark bio-diversity conservation in the KBR National Park in Hyderabad covering an area of 140 hectares, thereby enabling FSC certification of the said park.

Sustainable Agriculture

Your Company's sustainable agriculture programme aims to introduce advanced knowledge and technology through different packages of farm practices and increase awareness of farmers on optimum use of natural resources in order to increase farm productivity and minimise cost of cultivation. During the year, 521 farmer field schools disseminated advanced agri-practices to over 21,000 farmers through 7,736 demonstration plots covering over 18,000 hectares under different crops.

In pursuit of your Company's long term sustainable objective of increasing soil organic carbon, a total of 3,668 compost units were constructed during the year taking the total number till date to 23,554 units. In addition, the 'Choupal Pradarshan Khet' promoted field demonstrations of seed varieties and production practices for improved yield and quality in soybean, wheat, rice, summer pulses and horticultural crops in more than 1,200 villages covering around 21,000 hectares and more than 60,000 farmers with focus on sustainable farm practices like moisture conservation, promotion of bio-fertilisers, zero-tillage, prophylactic pest management, etc.

Livestock Development

Livestock development remains a key focus area of your Company's CSR initiatives. The programme for genetic improvement of cattle through artificial insemination to produce high-yielding crossbred progenies is implemented through 256 Cattle Development Centres (CDCs) covering over 10,000 villages. These CDCs facilitated 2,24,000 artificial inseminations during the year, taking the total to 15,61,000 artificial inseminations performed till date. Your Company's CSR initiatives aimed at enhancing milk production, increasing dairy farm productivity and ensuring remunerative prices to farmers in multiple locations continued to make good progress. The Dairy Development programme is currently sourcing an average of 32,000 litres per day (lpd) of milk, with a peak of 57,000 lpd, in Munger and Saharanpur from 6,470 farmers. As part of this initiative, an end-to-end mobile enabled farm automation and IT solution for productivity enhancement, real-time management of cattle herds' health, fertility, milk quality, productivity and providing farm management inputs to farmers was piloted during the year and currently covers 1,000 animals.

Women Empowerment

The women's micro-enterprise programme was specifically designed for women from economically weaker sections to provide a range of gainful employment opportunities and support with financial assistance by way of loans and grants. Over 23,000 women have been covered through 2,057 Self-Help Groups (SHG) with total savings of over Rs. 4 crores. A major thrust was given to financial inclusion of women members by opening bank accounts for 1,335 women this year. Cumulatively, over 40,000 women were gainfully employed either through micro-enterprises or assisted with loans to pursue income generating activities.

Education

The Primary Education programme is designed to provide children from weaker sections, access to education with focus on quality and retention. During the year, 36,000 children were covered by the 'Read India Programme' and another 34,000 children were covered by Supplementary Learning Centres, taking the cumulative total of children covered to 4,06,000. A total of 147 government primary schools (including Anganwadis) were provided infrastructure support comprising boundary walls, additional classrooms, sanitation units, furniture and electrical fittings, thus taking the total number of government primary schools covered till date to 1,158.

Skilling & Vocational Training

Given the inadequate availability of skilled manpower and the Government's efforts to promote vocational education and training, your Company's Vocational Training programme played an active role in building and upgrading skills of marginalised youth to better meet the emerging needs of the job market. 13,180 youth were enrolled for training under different courses during the year. Of the total students enrolled, 10,378 (79% of enrolled) completed training and 3,280 (32% of trained) students were provided placement. The students trained included a healthy mix of women and SC/ST candidates.

To cater to the ever growing need for professionally trained human resources in the hospitality industry, your Company continues to work with the Welcomgroup Graduate School of Hotel Administration together with Dr. TMA Pai Foundation. This institution continues to be ranked among the top educational institutions in the sector. Graduates of the institution are today part of several leading hotel chains of the world. In addition, your Company also opened a Culinary Institute at Chhindwara in 2014, where cooking skills are imparted to youth from disadvantaged sections of society.

Leveraging its core competencies in the FMCG sector, your Company launched an employability programme to skill unemployed youth in FMCG sales and distribution across various locations of the country. Candidates who successfully completed the programme were certified by the National Skill Development Corporation and have been gainfully employed in the FMCG sector.

A programme to promote entrepreneurship for self-help groups from economically weaker sections of society was launched in select districts of Odisha. This initiative targeted to equip unemployed rural youth to become entrepreneurs and small businessmen capable of generating independent earnings by selling products on a direct-to-home sale model. This initiative has resulted in generating a sustained supplementary income for economically disadvantaged youth and will be further scaled up in the future.

Health & Sanitation

Your Company invested in impacting public health through multiple routes. To promote a hygienic environment through prevention of open defecation and reduce incidence of water-borne diseases, 3,578 individual household toilets were constructed during the year. With this, a total of 8,254 low-cost sanitary units have been constructed so far in your Company's factory catchment areas. In areas with water quality problems, 19 plants providing safe drinking water to about 28000 rural households have been installed in the state of Andhra Pradesh. 'Swasthya Choupal', your Company's e-Choupal Rural Health initiative was consolidated in 7 districts of Uttar Pradesh and expanded to 3 new districts in Madhya Pradesh with a coverage of over 450 villages.

Solid Waste Management

Your Company's Solid Waste Management programme, christened 'WOW – Wellbeing Out of Waste' inculcates the habit of source segregation and recycling among school children, housewives and general public as well as industries and business enterprises. The WOW movement today extends to Hyderabad, Chennai, Bengaluru, Coimbatore and some towns of Telangana, enjoying the support of over 3 million citizens, 500,000 school children, 350 corporates, more than 1,000 commercial establishments and around 200 industrial plants.

On the occasion of the 3rd anniversary of National Recycling Day, your Company launched a novel pilot programme in 12 selected wards of Bengaluru with the support of the Bruhat Bengaluru Mahanagara Palike (BBMP) and a similar programme in 30 wards of

Coimbatore to create sustainable livelihoods for rag pickers and waste collectors by propagating source segregation at each household and facilitating effective collection mechanisms in collaboration with Municipal corporations.

ITC Sangeet Research Academy

The ITC Sangeet Research Academy (ITC SRA), which was established in 1977, is a true embodiment of your Company's sustained commitment to a priceless national heritage. Your Company's pledge towards ensuring enduring excellence in Classical Music education has helped ITC SRA adhere to the age-old 'Guru-Shishya Parampara' – a model that has otherwise begun fading away owing to lack of patronage. Although methods of music education are now changing with the advent of digitisation, exceptionally gifted students, carefully handpicked across India receive full scholarships to reside and pursue their music education at the Academy's campus. This has helped young talent who have limited access to the newer modes of music education, to train under the tutelage of the country's most distinguished stalwarts who are helping create the next generation of musical masters.

Forging Partnerships with NGOs

The substantial progress made by your Company's Social Investments Programme in contributing to address some of the country's development challenges, has been possible in significant measure, to your Company's partnerships with globally renowned NGOs like BAIF, DB Tech, DSC, FES, MYRADA, Pratham, LabourNet, SEWA, SRIJAN and Outreach, amongst others. These partnerships, which bring together the best-in-class management practices of your Company and the development experience and mobilisation skills of NGOs, will continue to provide innovative grassroots solutions to some of India's most challenging problems of development in the years to come.

CSR Expenditure

The annual report on Corporate Social Responsibility activities as required under Sections 134 and 135 of the Companies Act, 2013 read with Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 and Rule 9 of the Companies (Accounts) Rules, 2014 is provided in the Annexure forming part of this Report.

Environment, Health & Safety

Your Company's Environment, Health & Safety (EHS) strategies are directed towards achieving the greenest and safest operations across all your Company's units by optimising natural resource usage and providing a safe and healthy workplace. Systemic and structured efforts continue to be made towards natural resource conservation by continuously improving resource-use efficiencies and enhancing the positive environmental footprint following a life-cycle based approach.

Your Company's focus on inculcating a green and safe culture is supported through the adoption of EHS standards that incorporate best international codes and practices and verifying compliance through regular audits.

Your Company has addressed the critical area of climate change mitigation through several innovative and pioneering initiatives. These include continuous improvement in energy efficiency, enhancing the renewable energy portfolio, integrating green attributes into the built environment, better efficiency in material utilisation, maximising water use efficiencies and rain water harvesting, maximising reuse and recycling of waste and increasing use of post-consumer waste as raw material.

Energy Conservation and Renewable Energy

Your Company is well positioned to benefit from India-specific energy conservation and renewable energy promotion schemes such as Perform, Achieve and Trade (PAT) and Renewable Energy Certificates (RECs) promoted by the Government of India. As a responsible corporate citizen, your Company has made a commitment to reduce dependence on energy from fossil fuels. Substantial progress has been made in enhancing the renewable energy portfolio and during 2014-15 over 43% of your Company's total energy requirements was met from carbon neutral fuels such as biomass, and wind and solar. Your Company has developed a strategic approach and drawn up action plans based on a feasible balance of energy conservation and renewable energy investments to progressively move towards meeting at least 50% of its total energy requirements from renewable sources by 2020.

Water Conservation

With water scarcity increasingly becoming an area of serious concern, your Company continues to focus on integrated water management including water conservation and harvesting initiatives at its units – while also working towards meeting the water security needs of all stakeholders at the local watershed level. These include adopting latest technologies to reduce fresh water intake and increase reuse and recycling practices, best practices to achieve zero effluent discharges, rainwater harvesting, etc. These initiatives, along with your Company's CSR interventions in the area of integrated watershed management, have resulted in the creation of rainwater harvesting potential that is over twice the net water consumption of your Company's operations.

Greenhouse Gases and Carbon Sequestration

During the year, your Company improved its 'disclosure score' in the Climate Disclosure Leadership Index 2014 published under the aegis of the Carbon Disclosure Project from 85% in 2013-14 to 94% in 2014-15, placing it amongst the top 10 Indian organisations who have been so evaluated. The greenhouse gas (GHG) inventory of your Company for the year 2014-15 compiled as per the ISO 14064 standard, has been assured at the highest 'Reasonable Level' by an independent 3rd party assurance provider, a significant achievement considering the scale and spread of your Company's operations. This is also evidence of the importance accorded to GHG management by your Company.

Reaffirming your Company's commitment to the ethos of 'Responsible Luxury', all luxury hotels of your Company are LEED® Platinum certified (certification in progress for ITC Grand Bharat which was opened recently) making it the 'greenest luxury hotel chain' in the world. In order to continually reduce your Company's energy footprint, green features are integrated in all new constructions and are also being incorporated in existing hotels, manufacturing units, warehouses and office complexes during retrofits.

Your Company's Social & Farm Forestry initiatives enable sequestration of over twice the amount of Carbon Dioxide emitted by its operations. Besides mitigating the impact of increasing levels of GHG emissions in the atmosphere, these initiatives help greening degraded wasteland, prevent soil erosion, enhance organic matter content in soil and enable ground water recharge.

Waste Recycling

Your Company has made significant progress in reducing specific waste generation through constant monitoring and improvement of efficiencies in material utilisation and also in achieving almost total recycling of waste generated in operations. In this way, your Company has prevented waste reaching landfills and associated problems such as soil and groundwater contamination and GHG emissions, all of which can impact public health. In the current year, your Company has achieved over 99% waste- recycling, with the Paperboards and Specialty Papers Business, which accounts for 91.2% of the total waste generated in your Company, recycling 99.8% of the total waste generated by its operations. During the year, this Business also recycled around 114,563 tonnes of externally sourced post-consumer waste paper, thereby creating yet another positive environmental footprint.

Safety

Your Company's commitment to provide a safe and healthy workplace to all has been reaffirmed by the significant reduction in the number of accidents and several national and international awards and certifications received by various units. Your Company's approach is to institutionalise safety as a value-led concept with focus on inculcating a sense of ownership at all levels and driving behavioural change leading to the creation of a safety culture. In line with this approach, several behavioural based safety initiatives and custom-made risk based training programmes were rolled out at your Company's operating units, resulting in a noticeable improvement in safety performance. Your Company incorporates established engineering standards in the design and project execution phase itself for all investments in the built environment, with a view to ensuring the highest levels of safety besides optimising costs. Environment, Health & Safety audits before commissioning and during the operation of units are carried out to verify compliance with standards. 2014-15 was a zero fatal accident year and there was also a 56% drop in Loss Time Accidents, over the previous year. These statistics cover all categories of employees working on-site at ITC premises, including employees of service providers.

Promoting Thought Leadership in Sustainability

The 'CII–ITC Centre of Excellence for Sustainable Development' (the Centre), established by your Company in 2006 in collaboration with the Confederation of Indian Industry (CII), continues to focus on its endeavours to promote sustainable business practices amongst Indian enterprises. The major highlights during the year include the annual Sustainability Summit, held on 16th & 17th September 2014 in New Delhi, which was inaugurated by Shri Prakash Javadekar, Minister of Environment, Forests and Climate Change (MoEFCC), and chaired by Shri Y C Deveshwar. The Summit was attended by over 300 participants.

On 19th December 2014, the 9th CII-ITC Sustainability Awards were handed over by Shri Prakash Javadekar to the 27 winning companies as India's Most Sustainable.

On the invitation of the MoEFCC, the Centre is hosting the India Business & Biodiversity Initiative (IBBI) with the support of German International Cooperation. Launched on the occasion of International Day for Biological Diversity on 22nd May 2014 in New Delhi, the IBBI serves as a national platform for business and its stakeholders for dialogue, sharing and learning, ultimately leading to mainstreaming sustainable management of biological diversity into businesses. On the sidelines of the 12th meeting of the Conference of the Parties (COP) to the Convention on Biological Diversity (CBD), the IBBI launched the publication "Business and Biodiversity in India: 20 Illustrations" in Pyeongchang, Republic of Korea. The report features initiatives of 20 companies across diverse sectors in biodiversity management.

The Centre has introduced integrated reporting to India by setting up a business network called Lab India with mentorship of International Integrated Reporting Council. The objective of Lab is to build capacities of companies in India on integrated reporting and to represent concerns of Indian business to the International Integrated Reporting Council (IIRC).

The Centre has been building capacities of companies on the new CSR legislation as per the Companies Act, 2013. In 2014, the Centre conducted 7 open workshops in New Delhi, Mumbai, Lucknow, Bhubaneswar, Chennai, Visakhapatnam and Goa. The Centre is also offering services to companies in baseline studies, measurement of human development indicators, and social return on investments.

R&D, QUALITY AND PRODUCT DEVELOPMENT

The ITC Life Sciences & Technology Centre (LSTC) has a mandate to develop unique sources of competitive advantage and build future-readiness by harnessing contemporary advances in several relevant areas of science and technology, and blending the same with classical concepts of product development and leveraging cross-business synergies. This challenging task of driving science-led product innovation has been carefully addressed by appropriately identifying the required set of core competency areas of science. Presently, the LSTC team has evolved with over 350 world-class scientists augmented by world-class experimental and measurement system capabilities. During the year, LSTC's capability was further enhanced with the operationalisation of state-of-the-art facilities for performing experimental research. In addition to the several Centres of Excellence that have been created over past few years, a number of areas centred around these capabilities have secured global quality certifications of the highest order.

The Agrisciences R&D team has continued its efforts in evaluating and introducing several germplasm lines of identified crops including Casuarina and Eucalyptus to increase the genetic and trait diversities in these species, towards developing new varieties with higher yields, better quality and other relevant traits for your Company's businesses. LSTC continues to evaluate and build research collaborations with globally recognised centres of excellence to remain contemporary and fast-track its journey towards demonstrating multiple 'proofs of concept'. These collaborations, covering identified species, are designed in a manner that enables your Company in gaining fundamental insights into several technical aspects of plant breeding and genetics and the influence of agro-climatic conditions on the growth of these species. Such interventions will accelerate LSTC's efforts in creating future generations of these crops with greater genetic and trait diversities leading to significant benefits for your Company's businesses. Further, these outcomes have a strong potential to contribute towards augmenting the nation's ecological capital and biodiversity as well. Several proof of concept studies have been accomplished at the laboratory scale and which are being advanced to large scale field trials in multiple locations.

Recognising the unique construct of your Company in terms of its strong presence in agriculture, Branded Packaged Foods and Personal Care Products Businesses, a convergence of R&D capabilities is being leveraged to deliver future products aimed at nutrition, health and well-being. Advances in biosciences are creating a 'convergence' of these areas and it is likely that several future developments in these businesses and their products are heavily influenced by this trend. In this context, LSTC has created a Biosciences R&D team to design and develop several long-term research platforms evolving multi-generation product concepts and associated claims that are fully backed by scientific evidence for the Branded Packaged Foods and Personal Care Products Businesses. Multiple value propositions have been identified in the area of functional foods, which are being progressed to products of the future with strong scientifically validated claims via clinical trials. Similar advances have been made in the area of personal care products. In addition, LSTC has evolved a strategy in building a new value chain called, 'Nutrition' with a special focus on 'Indianness' and 'health and well-being' founded on the basis of Value Added Agriculture (VAA) and Medicinal and Aromatic Plants. The initial activities related to VAA have already commenced with a focus on soya.

LSTC has a clear vision and a road map for long-term R&D, to ensure an outstanding journey backed by a well-crafted Intellectual Property strategy. With scale, speed, science and sustainability considerations, LSTC is poised to deliver long-term competitive advantage and play a lead role in creating significant business impact for your Company.

Pursuing your Company's relentless commitment to quality, each Business is mandated to continuously innovate on processes and systems to enhance their competitive position. During the year, your Company's Hotels Business leveraged its 'Lean' and 'Six Sigma' programmes to improve business process efficiencies. This will further enhance capability to create superior customer value through a service excellence framework. The Paperboards, Paper & Packaging Businesses continued to pursue 'Total Productive Maintenance' (TPM) programmes in all units, resulting in substantial cost savings and productivity improvements.

All manufacturing units of your Company have ISO quality certification. All manufacturing units of the Branded Packaged Foods Businesses (including contract manufacturing units) and hotels operate in compliance to stringent food safety and quality standards. Almost all Company owned units/hotels and contract manufacturing units of the Branded Packaged Foods Businesses are certified by an accredited 'third party' in accordance with 'Hazard Analysis Critical Control Points' (HACCP) / ISO 22000 standards. Additionally, the quality of all FMCG products of your Company is regularly monitored through 'Product Quality Ratings Systems' (PQRS).

RECOVERY OF DUES FROM THE CHITALIAS AND PROCEEDINGS INITIATED BY THE ENFORCEMENT DIRECTORATE

As mentioned in the previous years' Reports of the Directors, your Company had secured from the District Court of New Jersey, USA, a decree for US$ 12.19 million together with interest and costs against Suresh and Devang Chitalia of USA and their companies, and the Chitalias had filed Bankruptcy Petitions before the Bankruptcy Court, Orlando, Florida, which are yet to be determined. Last year, the US Trustee of EST Fibers Inc., USA, a Chitalia group entity, made a small interim distribution of estate funds to your Company.

Though your Company has written off the export dues in foreign exchange from the Chitalias with the approval of the Reserve Bank of India, your Company continues with its recovery efforts by a suit filed in India against some associates of the Chitalias. The suit is in progress.

In the proceedings initiated by the Enforcement Directorate, in respect of some of the show cause memoranda issued by the Directorate, after hearing arguments on behalf of your Company, the appropriate authority has passed orders in favour of your Company, and dropped those memoranda. Meanwhile, some of the prosecutions launched by the Enforcement Directorate have been quashed by the Honourable Calcutta High Court while others are pending.

TREASURY OPERATIONS

During the year, your Company's treasury operations continued to focus on deployment of temporary surplus liquidity and management of foreign exchange exposures within a well-defined risk management framework.

The year under review was characterised by falling interest rates on the back of improvement in the domestic macro-economic environment. Easing inflation and improvement on the Fiscal and Current Account deficit front, enabled the Reserve Bank of India to reduce policy rates by a cumulative 50 basis points in Q4 2014-15. However, muted growth in bank deposits and intermittent tightness in banking liquidity brought about spikes in market interest rates.

All investment decisions in deployment of temporary surplus liquidity continued to be guided by the tenets of Safety, Liquidity and Return. Proactive management of portfolio duration helped improve treasury performance. During the year, investment portfolio mix was continuously rebalanced in line with the evolving interest rate environment. Further, the quantum of investment in Bank Fixed Deposits was increased towards the year end, taking advantage of spikes in market interest rates and in line with expectations of lower interest rates going forward. Your Company's risk management processes ensured that all deployments were made with proper evaluation of underlying risk while remaining focused on capturing market opportunities.

In the foreign exchange market, the US Dollar witnessed unprecedented strength against all major global currencies during the year on the back of strengthening US economic recovery amidst persistent weakness in the other major economies like the Euro Area, Japan and China. Divergence in monetary policy stance between the US and rest of the developed economies coupled with rising geopolitical tensions in Ukraine/Russia and the Middle-East added to US Dollar strength. Against this backdrop, the Indian Rupee remained relatively range bound, with a depreciating bias. In this scenario, your Company adopted an appropriate forex management strategy, which included the use of foreign exchange forward contracts and plain vanilla options, to protect business margins and reduce risks / costs.

As in earlier years, commensurate with the large size of temporary surplus liquidity under management, treasury operations continue to be supported by appropriate control mechanisms, including an independent check of 100% of transactions, by your Company's Internal Audit department.

DEPOSITS

Your Company's erstwhile Public Deposit Scheme closed in the year 2000. As at 31st March, 2015, there were no deposits due for repayment except in respect of 2 deposit holders totalling Rs. 20,000 which have been withheld on the directives received from government agencies.

There was no failure to make repayments of Fixed Deposits on maturity and the interest due thereon in terms of the conditions of your Company's erstwhile Schemes.

Your Company has not accepted any deposit from the public/members under Section 73 of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014 during the year.

DIRECTORS

Changes in Directors

Mr. Anthony Ruys [representing Tobacco Manufacturers (India) Limited, a subsidiary of British American Tobacco p.l.c., the ultimate holding company] ceased to be Non-Executive Director of your Company with effect from 24th July, 2014, on completion of his term. Your Directors would like to record their appreciation of the services rendered by Mr. Ruys.

Messrs. Anil Baijal, Arun Duggal, Serajul Haq Khan, Sunil Behari Mathur, Pillappakkam Bahukutumbi Ramanujam and Sahibzada Syed Habib-ur-Rehman and Ms. Meera Shankar were appointed by the Members with effect from 15th September, 2014 as Independent Directors of the Company under Section 149 of the Companies Act, 2013 ('the Act').

Retirement by Rotation

In accordance with the provisions of Section 152 of the Act read with Article 91 of the Articles of Association of the Company, Mr. Kurush Noshir Grant and Mr. Krishnamoorthy Vaidyanath will retire by rotation at the ensuing Annual General Meeting ('AGM') of your Company and being eligible, offer themselves for re-election. The Board of Directors of your Company ('the Board') has recommended their re-election.

Number of Board Meetings

During the year ended 31st March, 2015, seven meetings of the Board were held.

Attributes, Qualifications & Independence of Directors and their Appointment

The Nomination & Compensation Committee of the Board approved the criteria for determining qualifications, positive attributes and independence of Directors in terms of the Act and the Rules thereunder, both in respect of Independent Directors and other Directors as applicable. The Governance Policy of the Company also inter alia requires that Non-Executive Directors, including Independent Directors, be drawn from amongst eminent professionals with experience in business / finance / law / public administration & enterprises. The Board Diversity Policy of the Company requires the Board to have balance of skills, experience and diversity of perspectives appropriate to the Company. The Articles of Association of the Company provide that the strength of the Board shall not be fewer than five nor more than eighteen.

Directors are appointed / re-appointed with the approval of the members for a period of three to five years or a shorter duration, in accordance with retirement guidelines as determined by the Board from time to time. The initial appointment of Executive Directors is normally for a period of three years. All Directors, other than Independent Directors, are liable to retire by rotation, unless otherwise approved by the members or provided under any statute. One-third of the Directors who are liable to retire by rotation, retire every year and are eligible for re-election.

The Independent Directors of your Company have confirmed that they meet the criteria of independence as prescribed under Section 149(6) of the Act and the Listing Agreement with Stock Exchanges.

The Company's Policy relating to remuneration of Directors, Key Managerial Personnel and other employees is provided under the section 'Report on Corporate Governance' in the Report and Accounts.

Board evaluation

The Nomination & Compensation Committee has approved the Policy on Board evaluation, evaluation of Board Committees' functioning and individual Director evaluation. In keeping with ITC's belief that it is the collective effectiveness of the Board that impacts Company performance, the primary evaluation platform is that of collective performance of the Board as a whole. Board performance is assessed against the role and responsibilities of the Board as provided in the Act and the Listing Agreement read with the Company's Governance Policy. The parameters for Board performance evaluation have been derived from the Board's core role of trusteeship to protect and enhance shareholder value as well as fulfil expectations of other stakeholders through strategic supervision of the Company. Evaluation of functioning of Board Committees is based on discussions amongst Committee members and shared by each Committee Chairman with the Board. Individual Directors are evaluated in the context of the role played by each Director as a member of the Board at its meetings, in assisting the Board in realising its role of strategic supervision of the functioning of the Company in pursuit of its purpose and goals.

While the Board evaluated its performance against the parameters laid down by the Nomination & Compensation Committee, the evaluation of individual Directors was carried out anonymously in order to ensure objectivity. Reports on functioning of Committees were placed by the respective Committee Chairman before the Board.

Key Managerial Personnel

During the year there was no change in the Key Managerial Personnel of your Company.

AUDIT COMMITTEE & AUDITORS

The composition of the Audit Committee is provided under the section 'Board of Directors and Committees' in the Report and Accounts.

Statutory Auditors

The Auditors, Messrs. Deloitte Haskins & Sells, Chartered Accountants (DHS), were appointed with your approval at the 103rd AGM to hold such office till the conclusion of the 108th AGM. The Board, in terms of Section 139 of the Act, on the recommendation of the Audit Committee, has recommended for the ratification of the Members the appointment of DHS from the conclusion of the ensuing AGM till the conclusion of the 105th AGM. The Board, in terms of Section 142 of the Act, on the recommendation of the Audit Committee, has also recommended for the approval of the Members the remuneration of DHS for the financial year 2015-16. Appropriate resolution in respect of the above is appearing in the Notice convening the 104th AGM of the Company.

Cost Auditors

Your Board, on the recommendation of the Audit Committee, appointed -

(i) Messrs. Shome & Banerjee, Cost Accountants, for audit of cost records maintained by the Company

– in respect of 'Soyabean Oil' and 'Face wash' for the financial year 2014-15, and

– in respect of all applicable products of the Company, other than 'Paper and Paperboard' for the financial year 2015-16.

(ii) Mr. P. Raju Iyer, Cost Accountant, for audit of cost records maintained by the Company in respect of 'Paper and Paperboard' for the financial year 2015-16.

In terms of Section 148 of the Act read with the Companies (Audit and Auditors) Rules, 2014, appropriate resolution seeking your ratification of the remuneration of Messrs. Shome & Banerjee and Mr. P. Raju Iyer is appearing in the Notice convening the 104th AGM of the Company.

Secretarial Auditors

Your Board, during the year, appointed Messrs. S. M. Gupta & Co., Company Secretaries, to conduct secretarial audit of the Company for the financial year ended 31st March, 2015. The Report of Messrs. S. M. Gupta & Co. in terms of Section 204 of the Act is provided in the Annexure forming part of this Report.

CHANGES IN SHARE CAPITAL

During the year the following changes were effected in the Share Capital of your Company:- a) Issue of Shares under the ITC Employee Stock Option Schemes:

6,22,48,830 Ordinary Shares of Rs. 1/- each, fully paid-up, were issued and allotted during the year upon exercise of 62,24,883 Options under your Company's Employee Stock Option Schemes.

b) Issue of Shares upon Demerger of the Non- Engineering Business of Wimco Limited into the Company:

87,761 Ordinary Shares of Rs. 1/- each, fully paid- up, were issued and allotted on 29th August, 2014

pursuant to the Scheme of Arrangement for demerger of the Non-Engineering Business of Wimco into the Company.

Consequently, the Issued and Subscribed Share Capital of your Company, as on 31st March, 2015, stands increased to Rs. 801,55,19,541/- divided into 801,55,19,541 Ordinary Shares of Rs. 1/- each.

The Ordinary Shares issued during the year rank pari passu with the existing Ordinary Shares of your Company.

EMPLOYEE STOCK OPTION SCHEMES

Your Company's Auditors, Messrs. Deloitte Haskins & Sells, have certified that the Company's Employee Stock Option Schemes have been implemented in accordance with the erstwhile SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as replaced by the SEBI (Share Based Employee Benefits) Regulations, 2014 and the resolutions passed by the Members in this regard.

INVESTOR SERVICE CENTRE

The Investor Service Centre (ISC) of your Company, backed by state-of-the-art infrastructure and experienced team of professionals, caters to the increasing expectations of investors by keeping its services contemporary and efficient.

ISC achieved the highest 'Level 5' rating for the sixth consecutive year, accorded by Messrs. Det Norske Veritas – a testimony to the excellence achieved by ISC in providing quality investor services.

RELATED PARTY TRANSACTIONS

All contracts or arrangements with related parties, entered into or modified during the financial year, were on an arm's length basis and in the ordinary course of business. All such contracts or arrangements have been approved by the Audit Committee. No material contracts or arrangements with related parties were entered into during the year under review. Accordingly, no transactions are being reported in Form No. AOC-2 in terms of Section 134 of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014.

Your Company's Policy on Related Party Transactions, as adopted by your Board, can be accessed on the corporate website at http://www.itcportal.com/about- itc/policies/policy-on-rpt.aspx.

DIRECTORS' RESPONSIBILITY STATEMENT

As required under Section 134 of the Companies Act, 2013, your Directors confirm having:

a) followed in the preparation of the Annual Accounts, the applicable accounting standards with proper explanation relating to material departures if any;

b) selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company at the end of the financial year and of the profit of your Company for that period;

c) taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;

d) prepared the Annual Accounts on a going concern basis;

e) laid down internal financial controls to be followed by your Company and that such internal financial controls are adequate and were operating effectively; and

f) devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

CONSOLIDATED FINANCIAL STATEMENTS

Your Company's Board of Directors is responsible for the preparation of the consolidated financial statements of your Company, its Subsidiaries, Associates and Joint Venture entities ('the Group'), in terms of the requirements of the Companies Act, 2013 and in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

The respective Board of Directors of the companies included in the Group and of its associates and joint venture entities are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Group and for preventing and detecting frauds and other irregularities; the selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used for the purpose of preparation of the consolidated financial statements by the Directors of your Company, as aforestated.

OTHER INFORMATION

Compliance with Clause 49 of the Listing Agreement - Corporate Governance

The certificate of the Auditors, Messrs. Deloitte Haskins & Sells, confirming compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is annexed.

Compliance with requirements relating to downstream investments

Your Company's Auditors, Messrs. Deloitte Haskins & Sells, have certified that the Company and its subsidiaries are in compliance with the requirements relating to downstream investment as laid down in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Ninth Amendment) Regulations, 2013 and other applicable FEMA Regulations.

Going concern status

There is no significant or material order passed during the year by any regulator, court or tribunal impacting the going concern status of the Company or its future operations.

Extracts of Annual Return

The information required under Section 134 of the Act read with Rule 12 of the Companies (Management and Administration) Rules, 2014, is annexed.

Particulars of loans, guarantees or investments

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are provided in Notes 11, 12, 13, 17 and 31 (iv) (a) (ii) to the Financial Statements.

Particulars relating to Conservation of Energy and Technology Absorption

Particulars as required under Section 134 of the Companies Act, 2013 relating to Conservation of Energy and Technology Absorption are also provided in the Annexure to this Report.

Employees

The total number of employees as on 31st March, 2015 stood at 25787.

There were 143 employees, who were employed throughout the year and were in receipt of remuneration aggregating Rs. 60 lakhs or more or were employed for part of the year and were in receipt of remuneration aggregating Rs. 5 lakhs per month or more during the financial year ended 31st March, 2015. The information required under Section 197(12) of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is provided in the Annexure forming part of this Report.

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements that involve risks and uncertainties. When used in this Report, the words 'anticipate', 'believe', 'estimate', 'expect', 'intend', 'will' and other similar expressions as they relate to the Company and/or its businesses are intended to identify such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of their dates. This Report should be read in conjunction with the financial statements included herein and the notes thereto.

CONCLUSION

Your Company's Board and employees are inspired by the Vision of sustaining ITC's position as one of India's most admired and valuable companies, creating enduring value for all stakeholders, including the shareholders and the Indian society. The vision of enlarging your Company's contribution to the Indian economy is inspired by its 'Let's Put India First' credo as well as the core values of Trusteeship, Transparency, Empowerment, Accountability and Ethical Citizenship, which are the cornerstones of ITC's Corporate Governance philosophy.

The Directors and employees look forward to the future with confidence, powered by your Company's world- class brands, spirit of innovation, focus on game changing R&D, strong rural linkages that have earned the trust of millions of farmers, unique strengths in trade marketing & distribution, world-class manufacturing, superior service delivery and its track record as a global exemplar in sustainable business practices.

On behalf of the Board

22nd May, 2015 Y. C. DEVESHWAR Chairman

Kolkata

India K. N. GRANT Director


Mar 31, 2014

The Directors submit their Report for the financial year ended 31st March, 2014.

FINANCIAL PERFORMANCE

Your Company continued to deliver strong financial performance with healthy growth in revenues and high quality earnings. This performance is particularly commendable when viewed against the backdrop of the extremely challenging business context in which it was achieved, namely, a sluggish macro-economic environment which saw GDP growth remaining below 5% for the second year in succession, high inflation and a marked deceleration in the rate of growth of Private Final Consumption Expenditure; steep increase in taxes/duties on Cigarettes for two years in a row; weak demand conditions in the FMCG industry; gestation costs relating to the new FMCG businesses; sharp escalation in input costs in the Paperboards, Paper & Packaging Businesses and a weak demand & pricing environment in the Hotels business.

Gross Revenue for the year grew by 11.7% to Rs. 46712.62 crores. Net Revenue at Rs. 32882.56 crores grew by 11.1% primarily driven by a 16.0% growth in the non-cigarette FMCG segment, 14.7% growth in Paperboards, Paper and Packaging segment and 10.6% growth in the Cigarettes segment. Profit Before Tax registered a growth of 18.5% to Rs. 12659.11 crores while Net Profit at Rs. 8785.21 crores increased by 18.4%. Earnings Per Share for the year stood at Rs. 11.09 (previous year Rs. 9.45). Cash flows from Operations aggregated Rs. 10759.50 crores compared to Rs. 9596.24 crores in the previous year.

Your Company is one of India''s most admired and valuable corporations with a current market capitalisation of over Rs. 270000 crores and has consistently featured amongst the top 10 private sector companies in terms of market capitalisation and profits. Over the last 18 years, your Company''s Net Revenue and Profit After Tax recorded an impressive compound annual growth rate of 15.3% and 21.6% respectively. During this period, Return on Capital Employed improved substantially from 28.4% to 45.8% while Total Shareholder Returns, measured in terms of increase in market capitalisation and dividends, grew at a compound annual rate of 25.9%, placing your Company amongst the foremost in the country in terms of efficiency of servicing financial capital.

Your Directors are pleased to recommend a Dividend of Rs. 6.00 per share (previous year Rs. 5.25 per share) for the year ended 31st March, 2014. Total cash outflow in this regard will be Rs. 5582.90 crores (previous year Rs. 4853.49 crores) including Dividend Distribution Tax of Rs. 810.99 crores (previous year Rs. 705.03 crores).

Your Board further recommends a transfer to General Reserve of Rs. 880.00 crores (previous year Rs. 750.00 crores). Consequently, the Surplus in Statement of Profit and Loss as at 31st March, 2014 would stand at Rs. 6139.09 crores (previous year Rs. 3788.10 crores).

FOREIGN EXCHANGE EARNINGS

Your Company continues to view foreign exchange earnings as a priority. All businesses in the ITC portfolio are mandated to engage with overseas markets with a view to testing and demonstrating international competitiveness and seeking profitable opportunities for growth. The ITC Group''s contribution to foreign exchange earnings over the last ten years amounted to nearly US$ 6.0 billion, of which agri exports constituted 57%. Earnings from agri exports, which effectively link small farmers with international markets, are an indicator of your Company''s contribution to the rural economy.

During the financial year 2013-14, your Company and its subsidiaries earned Rs. 5068 crores in foreign exchange. The direct foreign exchange earned by your Company amounted to Rs. 4290 crores, mainly on account of exports of agri-commodities. Your Company''s expenditure in foreign currency amounted to Rs. 2073 crores, comprising purchase of raw materials, spares and other expenses of Rs. 1343 crores and import of capital goods at Rs. 730 crores. Details of foreign exchange earnings and outgo are provided in Note 31 to the Financial Statements.

PROFITS, DIVIDENDS AND SURPLUS

(Rs. in Crores)

PROFITS 2014 2013

a) Profit Before Tax 12659.11 10684.18

b) Tax Expense

- Current Tax 3791.13 2934.79

- Deferred Tax 82.77 331.00

c) Profit for the year 8785.21 7418.39

SURPLUS IN STATEMENT OF PROFIT AND LOSS

a) At the beginning of the year 3788.10 1972.59

b) Add : Profit for the year 8785.21 7418.39

c) Less:

- Transfer to General Reserve 880.00 750.00

- Proposed Dividend 4771.91 4148.46 [Rs. 6.00 (2013 - Rs. 5.25) per share]

- Income Tax on Proposed Dividend

- Current Year 810.99 705.03

- Earlier year''s provision no (28.68) (0.61) longer required

d) At the end of the year 6139.09 3788.10

TAXATION

As mentioned in the Report of the Directors of earlier years, your Company had obtained Stay Orders from the Honourable Calcutta High Court against re-opening of past assessments for the period 1st July, 1983 to 30th June, 1986. The Honourable Calcutta High Court has now held in your Company''s favour by allowing the concerned Writ Petitions and the impugned notices & the proceedings thereunder have been quashed.

Also, as stated in the Report of the Directors of earlier years, in respect of similar Income Tax notices for re-opening the past assessments for the period 1st April, 1990 to 31st March, 1993, the Honourable Calcutta High Court had admitted the Writ Petitions and ordered that no final assessment orders be passed without the leave of the Court. This status remains unchanged.

PUBLIC DEPOSITS

Your Company''s Public Deposit Scheme closed in the year 2000. As at 31st March, 2014, there were no deposits due for repayment except in respect of 2 deposit holders totalling Rs. 20,000 which have been withheld on the directives received from government agencies.

There was no failure to make repayments of Fixed Deposits on maturity and the interest due thereon in terms of the conditions of your Company''s erstwhile Schemes.

INVESTOR SERVICE CENTRE

The Investor Service Centre (ISC) of your Company maintains its position as an exemplar in investor servicing.

During the year, SEBI granted your Company a Certificate of Permanent Registration to act as Category II Share Transfer Agent for providing in-house share registration and related services.

The ISO 9001:2008 Quality Management System Certification for investor servicing by ISC was renewed during the year by Messrs. Det Norske Veritas (DNV) for a further period of three years. ISC achieved the highest ''Level 5'' rating for the fifth consecutive year – a testimony to the excellence achieved by ISC in providing quality investor services.

During the year, a Shareholder Satisfaction Survey was conducted by your Company. An overwhelming number of Members who participated in the Survey responded that they were extremely satisfied with the services provided by ISC.

DIRECTORS

Mr. Hugo Geoffrey Powell [representing Tobacco Manufacturers (India) Limited, a subsidiary of British American Tobacco p.l.c., the ultimate holding company], Dr. Basudeb Sen, Mr. Balakrishnan Vijayaraghavan and Mr. Dinesh Kumar Mehrotra (representing the Life Insurance Corporation of India) ceased to be Non-Executive Directors of your Company with effect from 30th July, 2013, 27th August, 2013, 27th August, 2013 and 27th October, 2013, respectively, on completion of their terms. Mr. Shilabhadra Banerjee (representing the Specified Undertaking of the Unit Trust of India) resigned as Non-Executive Director of your Company with effect from 26th March, 2014. Your Directors would like to record their appreciation of the services rendered by Mr. Powell, Dr. Sen, Mr. Vijayaraghavan, Mr. Mehrotra and Mr. Banerjee.

Mr. Nakul Anand and Mr. Pradeep Vasant Dhobale, Wholetime Directors of your Company since 3rd January, 2011, completed their terms on 2nd January, 2014. Mr. Anand and Mr. Dhobale, on the recommendations of the erstwhile Nominations Committee and the Compensation Committee, were appointed by the Board of Directors of your Company (the ''Board'') as Additional Directors with effect from 3rd January, 2014, and subject to the approval of the Members, also as Wholetime Directors, liable to retire by rotation, for a period of five years from 3rd January, 2014.

Mr. Robert Earl Lerwill [representing Tobacco Manufacturers (India) Limited, a subsidiary of British American Tobacco p.l.c., the ultimate holding company], on the recommendation of the erstwhile Nominations Committee, was appointed by the Board as Additional Non-Executive Director of your Company with effect from 18th November, 2013. Mr. Suryakant Balkrishna Mainak (representing the Life Insurance Corporation of India), on the recommendation of the Nomination & Compensation Committee, was appointed by the Board as Additional Non-Executive Director of your Company with effect from 25th April, 2014. Mr. Shilabhadra Banerjee, on the recommendation of the Nomination & Compensation Committee, was also appointed by the Board as Additional Non-Executive Director of your Company with effect from 24th July, 2014. By virtue of the provisions of Article 96 of the Articles of Association of your Company and Section 161 of the Companies Act, 2013, Messrs. Lerwill, Mainak and Banerjee will vacate office at the ensuing Annual General Meeting (''AGM'') of your Company.

Your Board at its meeting held on 23rd May, 2014, on the recommendation of the Nomination & Compensation Committee, has recommended for the approval of the Members the appointment of Mr. Banerjee as an Independent Director in terms of Section 149 of the Companies Act, 2013, with effect from the date of the ensuing AGM of your Company. Your Board at the said meeting, on the recommendation of the Nomination & Compensation Committee also recommended for the approval of the Members the appointment of Mr. Lerwill and Mr. Mainak as Non-Executive Directors of the Company, liable to retire by rotation, with effect from the date of the ensuing AGM of your Company.

Notices under Section 160 of the Companies Act, 2013, have been received for the appointment of Messrs. Anand, Dhobale, Banerjee, Lerwill and Mainak who have filed their consents to act as Directors of the Company, if appointed.

Appropriate resolutions seeking your approval to the aforesaid appointments are appearing in the Notice convening the 103rd AGM of the Company.

In accordance with the provisions of Article 91 of the Articles of Association of the Company, Mr. Krishnamoorthy Vaidyanath will retire by rotation at the ensuing AGM of your Company and being eligible, offers himself for re-election. The Board has recommended his re-election.

Messrs. Anil Baijal, Serajul Haq Khan, Sunil Behari Mathur, Pillappakkam Bahukutumbi Ramanujam, Sahibzada Syed Habib-ur-Rehman and Ms. Meera Shankar, by virtue of being Independent Directors of your Company in terms of the provisions of the Companies Act, 2013, will not be liable to retire by rotation for the residual period of their respective terms of appointment approved by the Members of the Company.

AUDITORS

Statutory Auditors

Your Company''s Auditors, Messrs. Deloitte Haskins & Sells, retire at the ensuing AGM and, being eligible, have offered themselves for re-appointment. The Board, on the recommendation of the Audit Committee, has recommended the re-appointment of Messrs. Deloitte Haskins & Sells for a period of five years in accordance with Section 139 of the Companies Act, 2013. Appropriate resolution seeking your approval to the said re-appointment is appearing in the Notice convening the 103rd AGM of the Company.

Cost Auditors

Your Company had appointed (i) Messrs. Shome & Banerjee, Cost Accountants, Kolkata, for audit of cost records in respect of ''Paper'' products other than the cost records maintained by the Paperboards and Specialty Papers Business. They were also appointed as the Cost Auditors in respect of Plastics & Polymers, Apparel, Edible Oil Seeds & Oil and Plantation products; (ii) Messrs. S. Mahadevan & Co., Cost Accountants, Chennai, as Cost Auditor for audit of cost records maintained in respect of Packaged Food Products; and (iii) Mr. P. Raju Iyer, Cost Accountant, Chennai, as Cost Auditor for audit of cost records maintained by the Paperboards and Specialty Papers business for the financial year ended 31st March, 2013. The Cost Audit Report was filed by the Cost Auditor on 20th September, 2013 within the due date of 27th September, 2013.

In respect of the financial year ended 31st March, 2014, your Company has appointed (i) Messrs. Shome & Banerjee, Cost Accountants, Kolkata, for audit of cost records in respect of ''Paper'' products other than the cost records maintained by the Paperboards and Specialty Papers business. They are also appointed as the Cost Auditors in respect of Plastics & Polymers, Apparel, Edible Oil Seeds & Oil, Plantation products and Personal Care products including Soap; (ii) Messrs. S. Mahadevan & Co., Cost Accountants, Chennai, as Cost Auditor for audit of cost records maintained in respect of Packaged Food Products; and (iii) Mr. P. Raju Iyer, Cost Accountant, Chennai, as Cost Auditor for audit of cost records maintained by the Paperboards and Specialty Papers business and for all other additional applicable product groups. The due date for filing the Cost Audit Reports is 27th September, 2014.

EMPLOYEE STOCK OPTION SCHEME

Under your Company''s Employee Stock Option Schemes, 5,13,49,840 Ordinary Shares of Rs. 1/- each, were issued and allotted during the year upon exercise of 51,34,984 Options; such shares rank pari passu with the existing Ordinary Shares of your Company. Consequently, the Issued and Subscribed Share Capital of your Company as at 31st March, 2014 stands increased to Rs. 795,31,82,950/- divided into 795,31,82,950 Ordinary Shares of Rs. 1/- each.

Details of the Options granted up to 31st March, 2014 and other disclosures as required under Clause 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (the ''SEBI Guidelines'') are set out in the Annexure to this Report.

Your Company''s Auditors, Messrs. Deloitte Haskins & Sells, have certified that the Company''s Employee Stock Option Schemes have been implemented in accordance with the SEBI Guidelines and the resolutions passed by the Members in this regard.

DIRECTORS'' RESPONSIBILITY STATEMENT

As required under Section 217 (2AA) of the Companies Act, 1956, your Directors confirm having:

a) followed in the preparation of the Annual Accounts, the applicable accounting standards with proper explanation relating to material departures if any;

b) selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company at the end of the financial year and of the profit of your Company for that period;

c) taken proper and sufficient care 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; and

d) prepared the Annual Accounts on a going concern basis.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial Statements, ITC Group

Accounts form part of this Report & Accounts. These Group Accounts also incorporate the Accounting Standard 23 - Accounting for Investments in Associates in Consolidated Financial Statements and Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures as notified under the Companies (Accounting Standards) Rules, 2006. These Group accounts have been prepared on the basis of audited financial statements received from Subsidiary, Associate and Joint Venture Companies, as approved by their respective Boards.

OTHER INFORMATION

The total number of employees as on 31st March, 2014 stood at 25917.

The certificate of the Auditors, Messrs. Deloitte Haskins & Sells, confirming compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is annexed.

Your Company''s Auditors, Messrs. Deloitte Haskins & Sells, have certified that the Company and its subsidiaries are in compliance with the requirements relating to downstream investment as laid down in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Ninth Amendment) Regulations, 2013 and other applicable FEMA Regulations.

Particulars as required under Section 217(1)(e) of the Companies Act, 1956 relating to Conservation of Energy and Technology Absorption are also provided in the Annexure to this Report.

There were 135 employees, who were employed throughout the year and were in receipt of remuneration aggregating Rs. 60 lakhs or more or were employed for part of the year and were in receipt of remuneration aggregating Rs. 5 lakhs per month or more during the financial year ended 31st March, 2014. The information required under Section 217(2A) of the Companies Act, 1956 and the Rules thereunder, in respect of the aforesaid employees, is provided in the Annexure forming part of this Report.

CONCLUSION

Your Company is today, the leading FMCG marketer in India, a trailblazer in ''green hoteliering'' and the second largest Hotel chain in India, the clear market leader in the Indian Paperboard and Packaging industry, the country''s foremost Agri business player and a global exemplar in sustainable business practices. Your Company''s wholly-owned subsidiary, ITC Infotech India Limited, is one of India''s fast-growing Information Technology companies in the mid-tier segment.

Your Company''s Board and employees are inspired by the Vision of sustaining ITC''s position as one of India''s most admired and valuable companies, creating enduring value for all stakeholders, including the shareholders and the Indian society. The vision of enlarging your Company''s contribution to the Indian economy is manifest in the creation of unique business models that foster international competitiveness not only of its businesses but also the entire value chain of which they are a part.

Inspired by this Vision, driven by Values and powered by internal Vitality, your Directors and employees look forward to the future with confidence and stand committed to creating an even brighter future for all stakeholders.

On behalf of the Board

23rd May, 2014 Y. C. DEVESHWAR Chairman New Delhi India P. V. DHOBALE Director


Mar 31, 2013

To The Members

FINANCIAL PERFORMANCE

The Company posted another year of strong performance across all financial parameters, leveraging its corporate strategy of creating multiple drivers of growth. This performance is even more encouraging when viewed against the backdrop of the extremely challenging business context in which it was achieved, namely, the continued economic slowdown, steep increase in taxes /duties on Cigarettes, gestation costs relating to the new FMCG businesses and recent investments in the Paperboards, Paper and Packaging and Hotels businesses.

Gross Revenue for the year grew by 19.9% to Rs. 41809.82 crores. Net Revenue at Rs. 29605.58 crores grew by 19.4% primarily driven by a 26.4% growth in the non-cigarette FMCG segment, 26.4% growth in Agri business segment and 13.4% growth in the Cigarettes segment. Profit before tax increased by 20.1% to Rs. 10684.18 crores while Net Profits at Rs. 7418.39 crores registered a growth of 20.4%. Earnings Per Share for the year stands at Rs. 9.45 (previous year Rs. 7.93). Cash flows from Operations aggregated Rs. 9596.24 crores compared to Rs. 8333.56 crores in the previous year.

Continuing with your Companys chosen strategy of creating multiple drivers of growth, your Company is today, the leading FMCG marketer in India, a trailblazer in green hoteliering and the second largest Hotel chain in India, the clear market leader in the Indian Paperboard and Packaging industry and the countrys foremost Agri business player. Your Companys wholly-owned subsidiary, ITC Infotech India Limited, is one of Indias fast growing Information Technology companies in the mid-tier segment. Your Company is one of Indias most admired and valuable corporations with a current market capitalisation of over Rs. 260000 crores and has consistently featured amongst the top 10 private sector companies in terms of market capitalisation and profits.

Additionally, over the last 17 years, your Companys Net Revenue and Net Profit recorded an impressive compound growth of 15.6% and 21.8% per annum respectively. During this period, Return on Capital Employed improved substantially from 28.4% to 45.7% while Total Shareholder Returns, measured in terms of increase in market capitalisation and dividends, grew at a compound annual growth rate of over 26%, placing your Company amongst the foremost in the country in terms of efficiency of servicing financial capital.

Such an impressive performance track record, delivered consistently over a long period of time, won global recognition during the year with the Harvard Business Review ranking your Companys Chairman Mr. Y.C.Deveshwar - under whose stewardship this was achieved - as the 7th best performing CEO in the world.

Your Directors are pleased to recommend a Dividend of Rs. 5.25 per share (previous year Rs. 4.50 per share) for the year ended 31st March, 2013. Total cash outflow in this regard will be Rs. 4853.49 crores (previous year Rs. 4089.04 crores) including Dividend Distribution Tax of Rs. 705.03 crores (previous year Rs. 570.75 crores).

Your Board further recommends a transfer to General Reserve of Rs. 750.00 crores (previous year Rs. 650.00 crores). Consequently, your Board recommends leaving a surplus in Statement of Profit and Loss of Rs. 3788.10 crores (previous year Rs. 1972.59 crores).

FOREIGN EXCHANGE EARNINGS

Your Company continues to view foreign exchange earnings as a priority. All businesses in the ITC portfolio are mandated to engage with overseas markets with a view to testing and demonstrating international competitiveness and seeking profitable opportunities for growth. The ITC groups contribution to foreign exchange earnings over the last ten years amounted to nearly US$ 5.4 billion, of which agri exports constituted 56%. Earnings from agri exports, which effectively link small farmers with international markets, are an indicator of your Companys contribution to the rural economy.

During the financial year 2012-13, your Company and its subsidiaries earned Rs. 4388 crores in foreign exchange. The direct foreign exchange earned by your Company amounted to Rs. 3807 crores, mainly on account of exports of agri-commodities. Your Companys expenditure in foreign currency amounted to Rs. 1966 crores, comprising purchase of raw materials, spares and other expenses of Rs. 1345 crores and import of capital goods at Rs. 621 crores. Details of foreign exchange earnings and outgo are provided in Note 31 to the Financial Statements.

PROFITS, DIVIDENDS AND SURPLUS

(Rs. in Crores)

PROFITS 2013 2012

a) Profit Before Tax 10684.18 8897.53

b) Tax Expense

- Current Tax 2934.79 2664.29

- Deferred Tax 331.00 70.87

c) Profit for the year 7418.39 6162.37

SURPLUS IN STATEMENT OF PROFIT AND LOSS

a) At the beginning of the year 1972.59 548.67

b) Add : Profit for the year 7418.39 6162.37

c) Less:

-Transfer to General Reserve 750.00 650.00

- Proposed Dividend for the financial year

- Ordinary Dividend of Rs. 5.25 per ordinary share of Rs. 1/- each (previous year Rs. 4.50 per share) 4148.46 3518.29

- Income Tax on Proposed Dividends

- Current Year 705.03 570.75

- Earlier years provision no (0.61) (0.59) longer required

d) At the end of the year 3788.10 1972.59

BUSINESS SEGMENTS A. FAST MOVING CONSUMER GOODS FMCG - Cigarettes

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 increase of 22% in cigarette Excise Duty rates announced in the Union Budget 2012 and the arbitrary 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.

The pattern of tobacco consumption in India is unique and is dominated by non-cigarette products which are not only cheaper but also revenue inefficient. With over 17% of the world population, India has a miniscule share of only 1.8% of global cigarette consumption but accounts for about 90% of the global consumption of smokeless tobacco. According to the Global Adult Tobacco Survey, 2010 conducted by Ministry of Health and Family Welfare, Government of India, while 34.6% of all adults in India use tobacco in some form, only 5.7% of the adult population consume cigarettes. It is also pertinent to note that while cigarettes account for less than 15% of the 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. In contrast, other forms of tobacco are lightly taxed in India, and in some cases are even tax exempt, leading to a high degree of potential tax loss.

According to various independent reports, there is a high degree of dual consumption with an estimated 60% of cigarette consumers in India also consuming other forms of tobacco. The high incidence of taxation on cigarettes coupled with a large differential in Excise Duty rates between cigarettes and other tobacco products has rendered the demand for cigarettes highly price elastic and are driving consumers to shift to cheaper and revenue-inefficient forms of tobacco leading to sub-optimal revenue collections. The fact that cigarette consumption is price elastic, while consumption of tobacco per se is not, is borne out by the fact that the total tobacco consumption in the country increased from 406 million kg in 1981-82 to 475 million kg in 2010-11 even as the tobacco consumption in the form of cigarettes declined from 86 million kg to 72 million kg during the same period. Thus, while overall tobacco consumption is increasing in India, the share of cigarettes in overall tobacco consumption has declined from 21% to 15%.

In fact, Indias annual per capita consumption of cigarettes is amongst the lowest in the world.

The requirement therefore is an India-centric tax and policy framework for tobacco that cognises for the unique consumption pattern in the country.

A cross-country study of cigarette prices and affordability based on evidence from the Global Adult Tobacco Survey, and published in Tobacco Control (British Medical Journal), found that the price of cigarettes was the highest in India relative to its income (in terms of Purchasing Power Parity).

Interestingly, the Study also established the fact that bidis in India were extremely affordable with a large price differential of more than 8 times as compared to cigarettes on account of the high levels of taxation on cigarettes. At 2.25% of per capita GDP, cigarette taxes (per 1000 cigarettes in most popular price category) in India are the highest in the world. In comparison, tax incidence on cigarettes (per 1000 cigarettes in most popular price category) as a percentage of per capita GDP in other countries such as Japan (0.37%), Germany (0.62%), China (0.81%), Pakistan (0.85%), Thailand (1.20%) is much lower. Such high taxes make cigarettes unaffordable to a large number of consumers.

The policy of high taxation narrowly focused on cigarettes has also led to the rapid growth of the illegal cigarettes segment. This segment has grown exponentially from 11 billion sticks in 2004 to 22 billion sticks in 2012, of which, 2 billion sticks have been added in the last one year alone. The illegal segment now accounts for 18% of cigarette trade and India is now the 5th largest market in the world for illegal cigarettes comprising smuggled foreign as well as domestic duty-evaded cigarettes. Most of these illegal regular sized filter cigarettes are offered to consumers at a convenient and low price of Rs. 1 per stick. Such low consumer prices are feasible only if taxes are evaded, as the Excise Duty component alone on a regular size filter cigarette is significantly higher than the price point.

Increasing volumes of smuggled foreign cigarettes also result in the decline in demand for Indian tobaccos since these cigarettes do not use any tobacco grown by Indian farmers. On the other hand, illegal cigarettes produced in India, use tobacco of dubious and inferior quality. Consequently, the proliferation of duty-evaded cigarettes leads to a drop in demand for high quality Indian tobaccos thereby adversely impacting the incomes of farmers engaged in the cultivation of tobacco in the country.

In addition, various media reports have highlighted the link between cigarette smuggling and organised criminal syndicates as well as terrorist organisations, which utilise the funds for anti-social and unlawful activities. If not reined in quickly, illegal cigarette trade has the potential of destroying the countrys social fabric.

The introduction of a new segment of filter cigarettes of length not exceeding 65 mm announced in the Union Budget 2012, was a positive step towards arresting the growth of illegal cigarette trade. The industry has responded swiftly making significant investments and launched several offerings in the new segment. While initial response from the market has been encouraging, the high central Excise Duty rate of Rs. 689 per thousand cigarettes applicable to this segment coupled with a steep increase in the rate and incidence of VAT, have made it difficult for the legitimate industry to fully counter the menace of illegal cigarettes.

An appropriate policy framework will enable the domestic legal cigarette industry to offer viable products at competitive price points to consumers. It is a well-established principle of fiscal policy that moderate taxes enable widening of the tax base and higher compliance leading to enhanced buoyancy in tax collection. Your Company along with other stakeholders and industry bodies will continue to engage with relevant authorities to ensure the implementation of a pragmatic and equitable tax policy for the tobacco industry.

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 and have led to multi-fold increase in illegal trade of cigarettes without any visible decrease in overall tobacco consumption.

Till the introduction of VAT in 2007, cigarettes were subject to single point taxation by the Central Government. As per the provisions of Additional Excise Duty (Goods of Special Importance) Act, 1957, apart from Basic Excise Duty, tobacco products were subject to an Additional Excise Duty (AED) in lieu of State level taxation. The proceeds from this component were exclusively distributed among States.

For a revenue sensitive product like cigarettes, a revenue efficient single point taxation system would provide the highest levels of certainty in tax collection. In addition, it would help in removing inter-State trade distortions and barriers and is aligned to the principles of the proposed National Competition Policy which seeks to create a single unified national market. Several expert committees such as the Taxation Reform Committee headed by Dr. Raja Chelliah and Indirect Tax Reform Committee headed by Dr. Vijay Kelkar have recommended the single point taxation model for cigarettes.

If State level taxation of cigarettes needs to continue, it would be appropriate to implement and adhere to the original principle enunciated by the Empowered Committee of State Finance Ministers on VAT where all goods (other than goods that were exempt or subjected to concessional rate) were to be taxed at a common Revenue Neutral Rate. Going forward, the implementation of the proposed Goods and Service Tax (GST) should ensure that revenue sensitive goods like cigarettes are subjected to uniform standard rate of tax applicable to general category of goods. The combined incidence of Excise Duty and GST should be revenue neutral i.e. maintained at current levels.

Despite such a challenging business scenario, your Company has successfully enhanced its market standing through robust strategies and excellence in execution. Your Company will continue to invest in development of products that are best-in-class and offer superior and differentiated value propositions to consumers.

As part of its efforts to continuously ensure product integrity and consistently deliver superior quality, your Company has deployed advanced tools like Six Sigma and template based quality predictor systems. Modernisation of the factory in Kolkata is also at an advanced stage and is expected to be completed during 2013-14.

With the long-term objective of enhancing skill availability, your Company has established an in-house technical training centre in collaboration with experts in the field of technical education. The first batch of trainees has commenced training at the centre during the year.

This intervention is expected to create a ready pool of technical talent for your Companys operations in the years to come.

In line with your Companys pursuit of proactive employee relations management, Long Term Agreements were successfully concluded at the Bengaluru and Kolkata factories during the year. Systemic improvements were made in the areas such as grievance resolution and better work practices were introduced in the factories to ensure harmonious and efficient operations.

Your Companys relentless focus on Safety, Health and Sustainability in its operations led to several recognitions during the year. Your Companys Bengaluru, Saharanpur, Kolkata and Ranjangaon factories have received the British Safety Councils Sword of Honour award.

The Munger factory received the Shreshta Suraksha Puraskar from the National Safety Council of India, Mumbai. The Bengaluru factory was conferred the award for Industrial Water Efficiency at the prestigious Federation of Indian Chambers of Commerce and Industry (FICCI) Water Awards. The Munger factory also received the Energy Efficient Unit award for excellence in energy management from the Confederation of Indian Industry (CII).

Your Company is committed to the socio-economic upliftment of the farming community through various Social Investments / Corporate Social Responsibility programmes primarily in the economic vicinity of its operations towards making a meaningful contribution to sustainable and inclusive growth. Fragmented land holding, poor infrastructure, restricted access to scientific knowledge and endemic inefficiencies of the market have engulfed the farmers in a vicious cycle of low risk taking ability, low productivity and low margins. To address some of these challenges confronted by the farming community, your Company has been involved in the creation of on and off-farm sustainable livelihood opportunities which empower stakeholder communities to conserve and manage their resources. A recent initiative in this direction has been the dairy development programme in Munger, Bihar. This initiative focuses on enhancing milk production in the area, increasing productivity by adopting scientific techniques and ensuring remunerative prices to farmers by creating marketing opportunities for milk and milk products. A total of 87 Milk Producer Groups (MPGs) with over 2,800 members were involved in the initiative during the year. The dairy development programme also delivers a comprehensive package of extension services such as veterinary care, breeding, supply of quality cattle feed and feed supplement, fodder propagation and training to farmers.

The pilot has been well received by the community in Munger. In order to scale-up the Dairy initiative, your Company is in the process of setting up a state-of-the- art Milk Processing Plant at Munger with a capacity to handle upto 2 lakh litres of milk per day.

With steep Excise Duty hikes, discriminatory VAT taxes by various States, rising illegal trade and heightened competitive intensity, the year ahead will indeed be challenging. To serve the interests of all stakeholders, your Company, will continue to engage with policy makers for a balanced regulatory and fiscal framework for tobacco, equitable and harmonious VAT rates across States and implementation of a uniform GST rate.

Your Company remains confident that despite the severe pressures, its robust product portfolio, world-class quality, innovation in processes and investments in cutting-edge technology and superior execution of competitive strategies will enable it to sustain and reinforce its market standing in the years to come.

FMCG - Others

The size of the Indian FMCG industry is estimated at around Rs. 250000 crores representing nearly 2.5% of the countrys GDP. The industry has tripled in size over the last 10 years and has grown at approximately 17% CAGR in the last 5 years driven by rising income levels, increasing urbanisation, strong rural demand and favourable demographic trends. These growth drivers, coupled with the low levels of penetration and per capita usage in India, are expected to result in robust industry growth in excess of 15% per annum over the medium-term.

Your Company continues to rapidly scale up its new FMCG businesses leveraging its institutional strengths viz. deep consumer insight, proven brand building capability, a deep & wide distribution network, strong rural & agri-sourcing linkages, paper and packaging expertise and cuisine knowledge.

The new FMCG businesses comprising Branded Packaged Foods, Personal Care Products, Education and Stationery Products, Lifestyle Retailing, Incense Sticks (Agarbattis) and Safety Matches have grown at an impressive pace over the past several years, crossing Rs. 7000 crores mark during the year. Your Companys new FMCG businesses have been rated to be the fastest growing among top consumer goods companies operating in India as per a recent Nielsen report.

Within a relatively short span of time, your Company has established several vibrant consumer brands such as Aashirvaad, Sunfeast, Bingo!, Yippee!, Candyman, mint-o, Kitchens of India in the Branded Packaged Foods space; Essenza Di Wills, Fiama Di Wills, Vivel and Superia in the Personal Care products segment; Classmate and Paperkraft in Education & Stationery products market; Wills Lifestyle and John Players in the Lifestyle Retailing business; Mangaldeep in Agarbattis, Aim in Matches and so on. In terms of annualised consumer spend, Aashirvaad and Sunfeast are today over Rs. 2000 crores each, Classmate at around Rs. 1000 crores while Bingo!, Candyman and Vivel are more than Rs. 500 crores each. These world-class Indian brands, which continue to gain increasing consumer franchise, support the competitiveness of domestic value chains of which they are a part and create and retain value within the country.

The year under review saw a 26.5% growth in Segment Revenues and a significant improvement in profitability as reflected by the positive swing of Rs. 114 crores at the PBIT level. Segment Results reflect the gestation costs of these businesses largely comprising costs associated with brand building, product development, R&D and infrastructure creation.

Your Companys relentless focus on quality, innovation and differentiation backed by deep consumer insights, world-class R&D and an efficient and responsive supply chain will further strengthen its leadership position in the Indian FMCG industry.

Highlights of progress in each category are set out below.

Branded Packaged Foods Businesses

Your Companys Branded Packaged Foods businesses continued on a high growth trajectory recording impressive growth in market shares and enhanced market standing across segments. The businesses accelerated investments in distributed capacities and capabilities to meet anticipated growth and develop a differentiated and distinctive range of products. Significant investments in R&D and product development coupled with deep consumer insight have enabled launch of successful innovative products catering to the varied regional tastes and preferences of consumers across the country. Your Companys products continue to be best-in-class in terms of product quality.

During the year, the Branded Packaged Foods businesses had to contend with high levels of input costs. Global demand-supply dynamics, policy uncertainties and adverse currency movement led to steep hike in prices of key commodities such as wheat, maida, edible oils, packaging material and industrial fuels particularly during the first half of the year.

These cost pressures were however mitigated through a combination of improvements in product and process efficiencies, smart sourcing and supply chain initiatives.

In the Bakery and Confectionery Foods business, the Biscuits and Confectionery categories gained significant scale and market standing during the year. Sunfeast biscuits sustained its robust growth trajectory, especially at the value-added and premium end. Product range stood significantly augmented with the launch of several first-to-market variants including Dark Fantasy Choco Fills - Coffee, Dark Fantasy Choco Meltz, Butterscotch Zing, Kaju Badam Cookies. During the year, the brand emerged as the clear market leader in the highly competitive premium cream biscuits segment. In the Confectionery category, Candyman and mint-o continued to register strong growth during the year. The business launched Creme Lacto and mint-o Ultramintz - a sugar-free extra-strong mint in select markets. These products have met with encouraging consumer response.

In the Snack Foods business, your Company continued to enhance market standing and expand scale in the fast growing Savoury Snacks, Noodles and Pasta categories. In the Savoury Snacks category, the market standing of your Companys Bingo! brand has significantly improved, leveraging an innovative product range, enhanced brand building efforts, use of digital media to spur word-of-mouth and clutter-breaking advertising campaigns. Your Companys new-to-market format of Snacks, Bingo! Tangles, has been well received in target markets and is gaining impressive consumer traction. In the Instant Noodles and Pasta category, your Companys brand Sunfeast Yippee! has been well received by consumers and is the second largest brand in the market. Focused market research, deep consumer insights and innovative product formats under the Sunfeast Yippee! brand are expected to further strengthen consumer franchise in this fast growing and highly competitive category.

In the Staples, Spices and Ready to Eat Foods business, your Companys Staples and Ready to Eat categories continued to grow rapidly. In the Staples category, Aashirvaad atta consolidated its leadership position aided by the strong performance of Aashirvaad Multi-grain atta. The premium Multi-grain and Select variants continued to grow rapidly with an increasing proportion of consumers shifting to these value-added offerings.

The Branded Packaged Foods businesses continue to invest in manufacturing and distribution infrastructure to support larger scale in view of the growing demand for their products and maximise the benefits of distributed manufacture for efficient servicing of proximal markets.

Buoyed by increasing consumer franchise for your Companys brands, it is expected that the accelerated growth of the Branded Packaged Foods businesses will be sustained in the years ahead. Your Company will continue to rapidly scale-up the Branded Packaged Foods businesses drawing upon the agri-sourcing strength of the e-Choupals, in-house cuisine knowledge, product development capabilities, packaging expertise and branding, sales & distribution competencies to establish itself as the most trusted provider of food products in the Indian market.

Personal Care Products

Your Companys Personal Care Products business continued to gain consumer franchise during the year aided by a slew of new product launches in the Personal Wash, Skin Care, Face Wash and Deodorants categories. The business continues to leverage the umbrella brands, namely, Essenza Di Wills, Fiama Di Wills, Vivel and Superia and is focused on addressing various consumer benefits with the introduction of new variants.

The launch of the Couture Spa range of soaps under the Fiama Di Wills brand was one of the key interventions during the year. The signature series, created in alliance with fashion guru Wendell Rodricks, provides consumers an invigorating bathing experience. The business also launched a Collectors Edition soap series in association with the Lonely Planet Magazine under the Fiama Di Wills Mens range. The six exciting Collectors Edition packs are inspired by various water sports and destinations renowned for rejuvenating and revitalizing experiences, in line with the brands value proposition of rejuvenation. The year also marked your Companys foray into the high growth Deodorants market with the launch of Aqua Pulse Deodorant Spray under the Fiama Di Wills Men franchise. The Skin Care range was also expanded during the year with the launch of Vivel Cell Renew Body Lotion, Hand Creme / Moisturizer and Vivel Perfect Glow Skin Toner in target markets. The new product launches have received encouraging consumer response.

The business continues to increasingly leverage Laboratoire Naturel - the state-of-the-art consumer and product interaction centre located in Bengaluru - to connect the R&D and brand teams to the Indian consumer with a view to launching products with unique and differentiated benefits. As in previous years, in recognition of excellence in product quality and innovation, two of your Companys products - Fiama Di Wills Men Aqua Pulse De-Stressing & Brightening Face Wash, and Vivel Cell Renew Fortify & Repair Moisturiser - were voted Product of the Year in their respective categories.

Innovative consumer engagement continues to be at the centre of your Companys personal care strategy. Several new initiatives such as launch of the Couture Spa gel bathing bar, and a unique consumer engagement programme - christened The Fabulous Hair Show - were undertaken during the year. Your Company is at the forefront of leveraging new age media for enhanced consumer engagement pioneering campaigns such as Fiama Di Wills Men website launch via Google+ Hangout and Fiama Di Wills Men - Face of the Year campaign, to name a few. A greater presence of your Companys brands on traditional as well as digital media, direct consumer interaction initiatives, and improved market presence contributed to your Companys products being tried by over 7 crore households during the year (as per IMRB Household Panel survey - January 2013). In addition, Vivel was voted as one of the Top 5 Most Exciting Brands in Personal Care in India by Brand Equity and Nielsens Annual Survey for Most Exciting Brands.

Your Companys Personal Care Products business continued to grow at a fast clip, distinctly ahead of industry despite competitive pressures from entrenched players. This was achieved through a combination of innovative and differentiated offers and by leveraging the distribution network of your Company to reach target consumers.

Input materials, especially palm oil, witnessed significant levels of price volatility during the year. The depreciation of the Indian Rupee against the US Dollar added to inflationary pressure on other input materials for a major part of the year. The business managed its raw material costs effectively by adopting a proactive sourcing strategy based on deep understanding of market trends, developing alternate sources of supply, leveraging enhanced scale of operations and prudent inventory management.

The Personal Care industry in India continues to be on a long-term growth path driven by rising disposable incomes and changing consumer preference for enhanced personal grooming. Your Company is well poised to seize the emerging opportunities in this rapidly evolving industry and continues to invest in creation of vibrant brands, cutting-edge products, flexible and responsive manufacturing and supply chain operations, and development of high quality human capital to build sustainable competitive advantage.

Education & Stationery Products

The Stationery business recorded robust growth in revenues during the year, consolidating your Companys position as the leading and fastest growing player in the Indian Stationery market. Your Companys flagship brands - Classmate for the student community and Paperkraft for office and executive requirements - continue to gain increasing consumer franchise.

Continuing investments in a superior product range, effective consumer engagement and an efficient and responsive supply chain network has enabled Classmate gain significant market share. During the year, brand Classmate was strengthened through a series of interventions resulting in improvement in brand health and market standing. A new television commercial backed by on-ground activation and social media inputs, repositioned Classmate as a brand that celebrates the uniqueness in every child. The business also made good progress during the year in the non-paper categories comprising pens, wood-cased & mechanical pens, mathematical instruments, art stationery & scholastic products. Such complementary products are helping position Classmate as a complete student stationery brand.

Your Companys Social Investments Programme in primary education, that has cumulatively benefited over 300,000 children, is showcased on the back cover of every Classmate notebook. The Classmate notebook is itself an embodiment of the environmental capital built by your Company in its paper business. While the cover is made from recycled board sourced from your Companys Forest Stewardship Council (FSC) certified Kovai mill, the inner pages are made from virgin pulp sourced from your Companys social & farm forestry programme that has greened over 142,000 hectares - including substantial tracts of private waste lands belonging to poor tribals and marginal farmers - and provided 64 million person days of employment. Further, used notebooks are collected from schools in the catchment areas of your Companys paper mill under the Wealth Out of Waste (WOW) programme where they are converted to recycled board. This sets in motion a virtuous cycle that continuously re-generates environmental capital. Additionally, the collaborative supply chain established by the business comprising 800 customers and 30 outsourced manufacturers provides indirect employment to over 5,000 people. The small-scale manufacturers, with support from your Company, have built impressive quality and delivery capability, resulting in a majority of them being certified to ISO 9001:2008 standards.

The education & stationery products industry is poised for exponential growth driven by large investments in the education sector, growing literacy and the increasing scale of government initiatives in education. Your Company with its collaborative linkages with small & medium enterprises and a strong product portfolio of notebooks & writing instruments, is well poised to strengthen its leadership position in the Indian stationery market.

Lifestyle Retailing

During the year, your Companys Lifestyle Retailing business posted high growth in revenues and continued to strengthen its position in the branded apparel market. While revenue growth was impacted in the initial part of the year due to weak consumer sentiment, there was a marked improvement as the year progressed. The restoration of exemption of excise duty on branded readymade garments as announced in the Union Budget 2013, is expected to provide the much needed impetus for the industry.

In the Premium segment, Wills Lifestyle further strengthened its consumer franchise on the back of significant improvements in product variety, enhanced availability and impactful visibility. The retail footprint of the brand was expanded to 90 Exclusive stores across 40 cities and more than 500 shop-in-shops in leading departmental stores and multi-brand outlets. During the year, the premium imagery of the brand was reinforced through the association with Wills Lifestyle India Fashion Week, the countrys most prestigious fashion & lifestyle event.

With the addition of a boutique store at the ITC Grand Chola, the brand is now available in five ITC Hotels, thereby enhancing brand availability to high-end business and leisure travellers. The Club ITC loyalty program, with over 1 lakh members, leveraged synergies between Wills Lifestyle and ITC Hotels to target and strengthen bonding with the premium consumer.

Product appeal was enhanced through the introduction of differentiated offerings across several premium product platforms. The Wills Classic formal range now offers Wonderpress wrinkle-free shirts, Regalia superfine fabrics, premium Ecostyle organic collection and Creme de Cotton supersoft cottons. The Luxuria range of high-end formals with luxurious fabrics and superior craftsmanship continued to receive positive consumer response. The Wills Sport range, with its vibrant and fashionable portfolio, strengthened its appeal amongst the youth segment, widening the consumer franchise. The Womens offering witnessed strong growth energised by an extensive high-end range, stylised formals, trendy silhouettes and premium accessories. The exclusive designer-wear offering, Wills Signature, co-created with Indias leading designers, was strengthened with the launch of Ritu Kumar creations, adding to the product equity.

In the Youth segment, John Players has established a strong pan-India presence with availability in over 350 stores and 1,400 multi-brand outlets and departmental stores. Brand reach was further augmented during the year with the launch of nearly 100 stores, penetrating more markets and acquiring new franchise. The casual portfolio registered strong growth as a result of an enhanced range, premium differentiated washes and contemporary fits. The John Players Jeans brand strengthened its positioning as a vibrant and fashionable denim offering with impactful communication and the launch of exclusive John Players Jeans stores and improved availability through shop-in-shops. Social media and e-commerce platforms were activated to engage with the youth and expand reach to new consumers seeking affordable fashion.

Product portfolio was strengthened with new designs in the core range and region-specific collections, robust replenishment infrastructure and processes. During the year, the business operationalised its new state-of-the-art product development facility in Manesar, Haryana. Initiatives were undertaken to enhance range vitality, supply chain responsiveness and superior customer service for a delightful shopping experience.

The business continued to receive industry recognition during the year. While Wills Lifestyle was accorded

Superbrand status, John Players was rated amongst the top 10 Most Trusted Apparel Brands 2012 by The Economic Times.

The business continues to focus on enhancing the premium quotient of its offerings and strengthen processes for creation of winning designs and enhancing supply chain responsiveness on the basis of a deep understanding of consumer preferences.

Safety Matches and Incense sticks (Agarbattis)

The Agarbatti category recorded an impressive growth in revenues well ahead of the industry, driven by increasing consumer franchise for the Mangaldeep brand and enhanced distribution reach. Product portfolio was augmented during the year with the launch of variants such as Fragrance of Temple series and Dhoop 4-in-1, under the umbrella brand Mangaldeep.

The business maintained its market leadership in the Safety Matches category aided by continued consumer preference for its strong brand portfolio across all market segments.

The Matches & Agarbatti business continues to contribute to your Companys commitment to the Triple Bottom Line supporting over 18,000 livelihoods, mainly amongst rural women. The business sources its products from over 50 small-scale and cottage sector units as well as womens self-help groups. It continues to provide support to such units through the introduction of scientific methods to enhance productivity and product quality. Business initiatives of introducing enabling tools and technology in the rural communities continue to enhance product quality and increase the earning potential of agarbatti rollers. These initiatives, along with the continuing association with various State Governments for setting up sourcing centres, are creating sustainable livelihood opportunities for rural women through agarbatti rolling. Your Company continues to partner the small-scale sector by sourcing a significant portion of its Safety Matches requirement from multiple units in this sector. Your Company is helping improve the competitive ability of these units by providing technical inputs towards strengthening systems and processes.

While the manufacture of Agarbattis is reserved for the small-scale & cottage sector in India considering its importance in employment generation, imports of raw battis (the principal raw material) are freely allowed at low Customs Duty rates. This is resulting in bulk of the raw batti consumption in India being of imported origin leading to a loss of livelihood creation opportunities. Suitable policy changes in arresting this trend would go a long way in creating sustainable livelihoods especially among rural Indian women and tribals in the North-East.

B. HOTELS

The domestic tourism industry remained sluggish during the year in the backdrop of a weak global and domestic economic environment. While growth in foreign tourist arrivals slowed down to 2.8% during the year versus 9.9% in 2011-12, domestic air travel recorded de-growth. Industry performance was also affected due to the significant increase in room inventory in some of the key domestic markets.

Such a challenging business environment adversely impacted business performance leading to a muted growth in Segment Revenues during the year. While your Companys Hotels business maintained its leadership position in terms of operating margins, Segment Results were adversely impacted largely by the relatively weak pricing scenario and the gestation costs relating to ITC Grand Chola, which commenced operations in September 2012.

Your Companys Hotels business continues to be rated amongst the fastest growing hospitality chains with 93 properties at 64 locations in India operating under 4 brands - ITC Hotel at the luxury end, WelcomHotel in the 5 star segment, Fortune in the mid market to upscale segment and WelcomHeritage in the heritage leisure segment. In addition, the business has licensing and franchising agreements for two brands - The Luxury Collection and Sheraton with the Starwood Hotels & Resorts.

During the year, your Company unveiled its latest offering in the super premium segment - ITC Grand Chola in Chennai. The hotel is part of the ITC Hotel brand and has 522 plush hotel rooms and suites, 78 service apartments, 60,000 sq. ft. of conference & banqueting facilities, 10 Food & Beverage outlets and the award winning spa Kaya Kalp. The hotel has achieved the distinction of being the worlds largest Leadership in Energy and Environmental Design (LEED) Platinum rated hotel under the New Construction category and Indias first 5 Star Green Rating for Integrated Habitat Assessment (GRIHA) rated luxury hotel by the Ministry of New and Renewable Energy, thereby bolstering the unique positioning of ITC Hotels as the greenest luxury hotel chain in the world. The Food & Beverage segment remains a major strength of your Company and its iconic brands Bukhara, Dum Pukht and Dakshin continue to garner coveted international awards and accolades. Other signature F&B brands viz. West View, Kebabs & Kurries, Edo and Pan Asian have firmly established themselves and continue to sustain leadership position in their respective cities. During the year, the business launched 2 new signature F&B offerings - Ottimo and Royal Vega - focusing on exquisite Italian cuisine and delectable vegetarian food from the magnificent royal kitchens of India, respectively.

In line with your Companys commitment to the Triple Bottom Line, investments have been made in renewable energy to provide clean power to your Companys hotels in Bengaluru (ITC Windsor and ITC Gardenia), Chennai (ITC Grand Chola), Mumbai (ITC Maratha) and Jaipur (ITC Rajputana). With these investments, your Companys Hotels business met over half of its energy requirements from clean and renewable sources.

During the year, the business leveraged the recently launched pan-ITC consumer loyalty programme - Club ITC to enhance revenues. The business seeks to position Club ITC - targeted at the premium clientele of Wills Lifestyle and ITC Hotels - as the greenest and most admired customer loyalty programme over the next few years.

In view of the positive long-term outlook for the Indian Hotel industry, your Company continues to sustain its investment-led growth strategy. Construction activity of two new luxury properties at Kolkata and at Classic Golf Resort near Gurgaon is progressing satisfactorily. During the year, your Company invested in a newly formed wholly-owned subsidiary incorporated in Sri Lanka which acquired a prime plot of land in Colombo on a 99-year lease from the Government of Sri Lanka, for developing a mixed-use project including a 5-star luxury hotel. Further, several new projects, including joint ventures and management contracts, are on the anvil to rapidly scale up the business across all brands.

The Fortune brand which caters to the mid-market to upscale segment continued its expansion by forging new alliances, taking the total number of hotels in its fold to 69 with an aggregate inventory of over 5,000 rooms. Of these, 30 properties are under various stages of development with 3 hotels slated for commissioning in the coming year. The WelcomHeritage brand continues to be the countrys most successful and largest chain of heritage hotels with 39 operating properties, spread across 13 States in India.

Your Companys Hotels business, with its globally benchmarked levels of product and service excellence and customer centricity, is well positioned not only to sustain its leadership status in the industry, but also emerge as the largest hotel chain in the country over the next few years.

C. PAPERBOARDS, PAPER AND PACKAGING

During the year, the Paperboards, Paper and Packaging segment recorded a growth of 9% in revenues aided by higher volumes and product mix enrichment. The relatively lower growth in Segment Results during the year, reflects the steep hike in input prices particularly of wood, coal and chemicals.

Paperboards & Specialty Papers

Global demand for paper & paperboard de-grew by 0.5% in 2012 primarily due to the continuing weak economic environment prevailing in Western Europe and the US. The domestic market also recorded a slowdown with demand decelerating to around 5.9% during 2012-13 against 6.1% in the previous year.

The global paper market continues to witness a structural shift with emerging economies, particularly in Asia such as China and India, driving the demand growth. While such structural shift in demand and the relatively low levels of per capita consumption in India offers attractive opportunities going forward, the Indian market is also getting increasingly competitive drawing large investments especially from global players. Though growth in demand is expected to absorb the additional capacity, increasing market share and sustaining margins will be a challenge in the short-term.

Further, reduction of import duties under various Regional Free Trade Agreements especially with ASEAN is impacting the profitability of the domestic paper industry and the economic viability of the small paper mills. With the US and EU imposing anti-dumping duties against import of paper / paperboards from China / Indonesia to protect their domestic industries, the additional capacities created in these countries are increasingly finding their way into India given the lower levels of import duty. Clearly, there is a need to ensure that the current duty structures are, at the very least, kept unchanged.

The domestic paperboard industry is expected to grow at around 7.5% per annum over the medium-term. During the year, your Company consolidated its pre-eminent position in the industry through new product launches like Carte Lumina with best-in-class whiteness suited for high-end FMCG and over-the-counter products and Nanobev for the small paper cups segment. Paperboards developed for high-end cigarette packaging needs are running seamlessly on the high speed packaging machines at your Companys cigarette factories. The business also strengthened its distribution network with the addition of new distributors, authorised stockists and market development partners for improved market servicing.

Your Company continues to focus on the value-added product segment in which it is a clear market leader. The market for value-added paperboard is expected to grow faster at a compound annual growth rate of 12% driven by higher demand for branded packaged products in the FMCG and Pharma sectors, increasing number of product categories catering to aspirational lifestyles, higher rural demand, higher penetration of organized retail and increasing salience of packaging in driving brand awareness. Towards this end, your Company successfully commissioned a state-of-the-art and highly energy efficient paper machine with an installed capacity of over 1 lakh tonnes per annum at the Bhadrachalam plant during the year. With this, the total capacity of the Bhadrachalam plant stands at over 5.5 lakh tonnes per annum, thereby sustaining its position as the single largest integrated pulp and paperboard/paper unit in the Indian industry. Your Company has also invested in a new 25 MW Turbine Generator and 130 tonnes per hour (TPH) Boiler to meet the energy requirements of this expansion.

The Writing and Printing paper segment, currently estimated at 3.8 million tonnes per annum, is projected to grow at a compound annual growth rate of around 7% over the medium term. Growth in the value-added writing and printing paper segment will continue to be fuelled by initiatives like Sarva Shiksha Abhiyan and Right of Children to Free and Compulsory Education as well as by rising literacy levels, changing demographic profiles and GDP growth. The business, with its strong forward linkages with your Companys Education and Stationery Products, has emerged as a leading player in this segment.

Your Company continues with its strategy of promoting social forestry plantations for pulpwood as access to adequate supplies of pulpwood at competitive prices remains a major challenge for the paper industry.

The industry is currently facing an acute shortage of pulpwood especially in Andhra Pradesh, which is largely attributable to the enhanced demand from new pulp capacities that have been set up without adequate investments in pulpwood plantations and diversion of supplies for alternative usage such as commercial poles, bio-fuel etc. With demand far exceeding supplies, pulpwood procurement prices witnessed steep hikes during the year, adversely impacting industry margins.

Your Company expects the current demand-supply skew to be corrected over the next couple of years on the back of additional plantations by farmers due to the prevailing remunerative price levels and renewed efforts by pulp mills in promoting plantations in their core areas. In the short to medium term, the business is exploring several options including procurement of wood from other states, use of bamboo in a limited scale etc. with a view to mitigating the cost pressure.

Your Company remains focused on promoting pulpwood plantations in its core area of operations. During the year, the business sold / distributed high quality saplings/seeds to farmers that enabled planting of over 110 million saplings in 17500 hectares of plantations. With this, your Companys bio-technology based research initiatives have cumulatively resulted in the planting of about 656 million saplings leading to significant wasteland development and greening of over 142,000 hectares and generation of over 64 million person days of employment for poor tribals and marginal farmers. With a view to accelerating the pace of plantation activity, the business commissioned a state-of-the-art clonal sapling production facility during the year. The facility has a capacity to produce 25 million saplings with improved survival rates and higher productivity and will go a long way in supporting your Companys endeavour to augment pulpwood availability.

Your Companys research on clonal development has resulted in the introduction of high yielding and disease resistant clones which are adaptable to a wide variety of agro-climatic conditions. Besides securing the long-term supply of fibre at competitive costs, this initiative also assists in generating farm incomes by utilisation of marginal wastelands. Your Companys continued focus on clonal plantations in core areas is expected to yield significant competitive advantage in the years to come. Your Companys Life Sciences & Technology team is actively collaborating with several expert agencies to further leverage bio-technology for enhancing farm productivity, wood yields and improving fibre and pulp properties.

Your Company continues to promote agro-forestry in pulpwood plantations on wasteland as well as on land where mono-cropping is practised. In Andhra Pradesh, mono-cropping is currently practised in cultivation of cotton, tobacco, maize and pulses in more than 30 lakh hectares. During the year under review, your Company facilitated the introduction of agro-forestry models, in about 1,800 hectares, incorporating inter-cropping practices where eucalyptus trees are grown adjacent to agricultural crops. By integrating tree growing with crop production, the problems of poor agricultural production, worsening wood shortages and environmental degradation can be simultaneously addressed. Furthermore, inter-cropping technologies / practices also help in reducing the pressure on the remaining natural forests and increases the diversity of vegetation on existing farms. Your Companys initiatives under this model currently extend to nearly 2,500 hectares assuring wood and food security to the farmer from the same unit of land addressing long-term sustainability. The area covered under this model is proposed to be substantially increased in the years to come.

Hitherto, in India, the subject domain of Biodiversity has remained with the Ministry of Environment and Forests. For the first time in the Indian paper industry, your Company has proactively attempted a biodiversity conservation project on private lands. On a pilot basis, 11.52 hectares of farmer lands in Andhra Pradesh were selected and afforestation, reforestation, reclamation, rehabilitation, protection and conservation of biological resources were attempted. Further, your Company promoted natural regeneration, enrichment planting with native species and conserved threatened and endemic species. In order to sustain these efforts, your Company is promoting local stewardship for biodiversity through awareness programmes which will go a long way in reversing the impact created by anthropogenic pressures, integrating it with agriculture, pulpwood plantations, fishery, apiculture, medicinal plants and creating sustainable livelihood to the tribal farmers. As a responsible Corporate Citizen, your Company is willing to participate in initiatives of this nature towards preserving biodiversity on an ongoing basis.

In India only 25% of the paper consumed is recovered for recycling as against about 70% in the western countries. Your Companys collaborative initiative, christened Wealth Out of Waste (WOW), continues to promote and facilitate waste paper recycling, with a view to conserving scarce natural resources. The waste paper industry is largely unorganised and a lot of effort has gone into establishing processes and systems in the operational areas of collection, sorting and grading of waste paper as well as on accounting, compliances and controls. It is expected that such efforts would assist in the availability of quality fibre on a sustainable basis at competitive prices. About 48,000 tonnes of waste paper were collected during the year and with continued focus on building capability it is expected that the entire waste paper requirements of the business would be sourced through this initiative within the next few years. In this context, the second anniversary of National Recycling Day was celebrated in Chennai on 1st July 2012 with widespread participation of the general public and 14,000 school children. This initiative won CIIs Best environmental project of the year 2012 and Most Useful Environmental Project awards.

Your Company has the distinction of being the first paper company in India to have obtained the Forest Stewardship Council - Forest Management (FSC-FM) certification covering 8,000 hectares of social forestry plantations involving about 9,000 farmers with another 14,000 hectares awaiting certification. FSC-FM certifies that the plantation activities of an organisation are economically, socially and environmentally viable.

To the extent of pulp produced from such certified plantations, your Company will be able to commit to its customers, FSC certified paper & paperboard. Environmentally conscious customers are already beginning to show keenness to source such green products which in turn will further increase the competitiveness of the business. Plans are afoot to steadily increase coverage over the next few years.

All four manufacturing units of your Company have obtained the FSC Chain of Custody certification.

Your Company has made significant investments in contemporary technologies including environment-friendly Elemental Chlorine-Free (ECF) and Ozone bleaching for pulp thereby improving the environmental standards of its manufacturing operations. Such investments are expected to provide customers with sophisticated products, way ahead of legislation, thereby creating new benchmarks in environmental stewardship. The Industry would welcome policies that lay down environmental benchmarks in tune with other industries such as automotives etc. and suitably reward those who achieve or exceed such parameters.

Your Company continues to focus on recycling initiatives including solid waste recycling. While all manufacturing units have already achieved near 100% solid waste recycling by its usage for making products like lime, fly ash bricks, grey boards, egg trays etc., the procurement and recycling of about 120,000 tonnes of waste paper during the year has further consolidated the businesss overall positive solid waste recycling footprint. The Bhadrachalam unit is the first in India to have been awarded the GreenCo Gold certificate by CII in June 2012. The unit also won the Excellent Energy Efficient, Excellent Water Efficient and Appreciation prize - State Energy Conservation awards. The Bollaram unit won Silver for FICCI Safety System Excellence award in manufacturing while the Kovai unit won Best Water Efficient award at 9th National Water Management meet. The business also won IPMA Environmental award for Cleaner Technologies.

The above have been made possible as a result of continuous focus on various safety initiatives including induction of safety stewards, strengthening systems, spreading awareness and integrating environment, health and safety (EHS) as part of the overall Total Productive Maintenance (TPM) initiative. With regard to energy consumption, strategies to contain usage across units continue to be pursued. Further, the business is also investing in a new high pressure fuel efficient boiler in its Tribeni unit, which will enable significant reduction in coal consumption and usage of lower grades of coal.

The 7.5 MW wind energy farm in Coimbatore, continues to operate at optimum levels providing clean energy to the Kovai unit. It is expected that energy efficiency coupled with greater use of renewable sources of energy will enable your Company to derive benefits from sale of Renewable Energy Certificates (RECs) under the Electricity Act 2003 as well as obtain benefits from newer initiatives like Perform, Achieve and Trade (PAT) under the Energy Conservation Act 2001.

The year under review witnessed steep hikes in the cost of chemicals and coal as well as curtailment in supplies of coal by the Government through the reduction of allocations, forcing the industry to buy high cost coal in the open market. These factors, together with the sharp depreciation of the Indian Rupee, adversely impacted the industry. However, your Company with its integrated operations and strategic cost management actions was able to minimise the adverse impact of such cost escalations.

The integrated nature of the business model - access to high-quality fibre from the economic vicinity of the Bhadrachalam mill, in-house pulp mill and state-of-the-art manufacturing facilities, focus on value-added paperboards and a robust forward linkage with the Education and Stationery Products business - strategically positions your Company to further consolidate and enhance its leadership status in the Indian paperboard and paper industry.

Packaging and Printing

Your Companys Packaging and Printing business continues to provide contemporary and superior packaging solutions facilitated by its state-of-the-art technology and processes. The business provides strategic support to your Companys FMCG businesses through innovative packaging solutions, faster speed-to-market for new launches and security of supplies in addition to delivering benchmarked international quality at competitive costs.

The business continued to leverage its multiple packaging platforms to offer a wide range of packaging solutions and expand business both in domestic and export markets. Your Company continues to be a leading supplier of value-added packaging in cartons and flexibles.

During the year, the business augmented the capacity and capability of its Haridwar plant with the successful commissioning of a new state-of-the-art line for cigarette packaging, expansion of carton line capacity and other downstream conversion facilities towards meeting the growing demand from the northern markets. The business also made investments in backward integration for key raw materials in the flexibles segment, thereby enhancing competitiveness. These in-house capabilities have enabled quicker turnaround of designs, pack changes and reduced product launch timelines for your Companys FMCG businesses, thereby providing a source of competitive advantage in the market place.

The business won several awards during the year for operational excellence, innovation and creativity. These include three World Star Awards from the World Packaging Organisation, several India Star Awards from the Indian Institute of Packaging and Golden Peacock Award instituted by Institute of Directors for innovative product / services.

The 14.1 MW wind energy farm in Tamil Nadu, set up in 2008, continues to operate at optimum levels providing clean energy to the Chennai unit. This initiative is a certified project under the Clean Development Mechanism of the Kyoto Protocol and is in line with your Companys commitment to reduce the carbon footprint of its operations.

The factories at Chennai, Haridwar and Munger continued to maintain the highest standards in Environment, Health and Safety (EHS). The Chennai unit was certified for BRC IoP (British Retail Consortium, Institute of Packaging, global food packaging standard), SA 8000 (Social Accountability Certification), and FSC (Forest Stewardship Council Certification - Sustainable Forestry Practices). The Haridwar unit was accredited with ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007 for the new plant within six months of commissioning and also received the 13th Annual Greentech Environment Award in the Silver category. The Munger unit won the Suraksha Puraskar at the National level from National Safety Council and International Safety Award with Merit from British Safety Council.

With substantial investments in world-class technology & quality systems, and distributed & diversified manufacturing capability, the business is well poised to sustain its position as one of the foremost packaging houses in the country.

D. AGRI BUSINESS Leaf Tobacco

While overall global leaf tobacco crop output saw a decline in 2012, the prevalent high levels of uncommitted inventory continued to limit demand for the fresh crop. Global cigarette demand remained muted due to the weak global economic scenario, regulatory pressures, enhanced levels of taxation and growth in illegal trade. Cigarette-type tobacco crop production in India was lower during 2012 mainly on account of the severe drought that adversely impacted Mysore crop output and quality. Your Companys focused crop development efforts at the farm level towards ensuring adequate availability of seedlings, educating the farmers on crop management and post harvest product management techniques helped revive the crop substantially thereby improving livelihoods particularly in the drought affected areas in rural Karnataka.

Notwithstanding a sluggish global demand scenario, your Company recorded robust growth in export volumes and revenues by servicing customers based on their specific needs and leveraging strengths in crop development, superior sourcing and processing capabilities. The business not only strengthened its presence in existing markets but also accessed customers in new markets. The business also made progress during the year in growing the smokeless tobacco segment through customized offerings.

The business continued to provide strategic sourcing support to your Companys cigarette business.

Achieving enhanced productivity continues to be a focus area of research and crop development initiatives of the business. Substantial progress has been made in strengthening the pipeline of new hybrid combinations for deployment in growth zones.

Your Company continues to engage in a pioneering role in promoting sustainable agriculture practices in the tobacco growing regions in Andhra Pradesh and Karnataka. Key interventions such as farm mechanisation, soil health management, water conservation and seedling production technologies through well researched dissemination models continue to support the farmer towards enhancing quality of produce and optimising costs. Your Companys efforts in this area have been recognised in a number of international forums. The approach on dissemination models of farm mechanisation has been published in the International Journal of Sustainability Japan, while the float seedling production initiative has been recognised by the World Academy of Science, Engineering & Technology (WASET), Amsterdam for its sustainability features & economic suitability to the farming community. These efforts are not only helping secure global demand for Indian leaf tobacco by providing enhanced value to global customers but also in improving the socio-economic status of the small / tribal farmer. Capitalising on your Companys R&D efforts on varietal improvement, the area under coverage of flue-cured virginia hybrids was substantially increased in collaboration with the Central Tobacco Research Institute and the Tobacco Board of India.

Your Companys newly commissioned Green Leaf Threshing plant in Mysore has stabilized and exceeded benchmarks on all operating parameters of throughput, processing yield and quality. This investment has enhanced the processing capability of the business and reduced transportation costs given the factorys proximity to the tobacco growing areas in Karnataka. The business is also actively engaged in augmenting its warehousing capacities and re-engineering its supply chain towards driving operational efficiencies and reducing costs.

Further, in line with your Companys commitment to sustainable business practices, the business is investing in wind energy in Karnataka to increase usage of renewable sources of energy. With this, 100% of the energy requirements of the newly commissioned plant at Mysore will be met through renewable energy sources.

Your Company with its unmatched R&D capability, state-of-the-art facilities, unique crop development and extension expertise, deep understanding of customer and farmer needs, is well poised to leverage emerging opportunities for Indian leaf tobacco and sustain its position as a world-class leaf tobacco organisation.

Other Agri Commodities

Food grain production in India is estimated to have declined by around 1.5% to about 255 million tonnes during 2012-13 as compared to the record 259 million tonnes in 2011-12. Output of major food grain items such as rice and wheat are expected to be lower in 2012-13. While wheat output is estimated to be lower by 1% at 94 million tonnes, rice output at about 104 million tonnes represents a decline of 1% over the previous year. While overall oilseed production during 2012-13 is expected to remain at about 31 million tonnes, soya production is expected to be higher at 14 million tonnes vis-a-vis 12 million tonnes in 2011-12.

Adverse weather conditions in the major global wheat producing regions of Black Sea (Ukraine, Russia), South America (Brazil, Argentina) and Australia led to a dip in world production by about 40 million tonnes to about 656 million tonnes. Given the shortage in global markets as aforementioned, the business successfully leveraged the wheat export opportunity recording robust growth in revenues and asset turns. On the domestic front, the business continued to expand its presence with brand owners, private labels, food processors and millers.

Global soya bean production, estimated at 270 million tonnes during the current season, represents an increase of 12.5% over the previous season. The increase is mainly attributable to higher output in South American origins offset by a reduction in output in the United States. Such a global oversupply situation coupled with higher domestic crop production led to a steep correction in domestic soya prices. Consequently, market arrivals of the domestic crop remained weak with farmers holding back sale of soya bean in anticipation of improved realisations.

Your Companys uniquely structured commodity sourcing business model with strong competencies in multi-location sourcing, logistics and supply chain management enabled achieving enhanced scale and value capture in the wheat and soya market.

The business continued to source identity preserved and special varieties of wheat through its e-Choupal network for your Companys Branded Packaged Foods businesses. The continuous focus on cost-quality optimisation through varietal and geographical arbitrage and driving supply chain and logistics efficiencies provided a competitive advantage to your Companys Aashirvaad Atta brand.

In the area of potato sourcing, the business continued to support your Companys Bingo! brand of potato chips by procuring the highest 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 business continued to engage with the farming community towards enhancing the quality and variety of chip stock seed usage, adoption of best farming practices and improving yields.

India is the worlds largest producer, consumer and exporter of spices. The growing concerns around food safety and product integrity have resulted in the increased demand for suppliers with end-to-end capabilities having complete custody of the supply chain, supported by appropriate technology, quality assurance and traceability management systems. Your Company is well poised to garner an increasing share of the fast growing domestic and export spices market leveraging its processing unit which is certified to the highest grade of global food safety standards under the BRC (British Retail Consortium) Food certification regime and an embedded IT enabled farm to fork traceability system. The business continues to provide support to your Companys Aashirvaad range of spices.

An integrated and holistic view of the agricultural value chain is essential towards providing the necessary fillip to stagnating agricultural growth in the country. This requires a joint participatory approach from all stakeholders such as farmers, input vendors, traders, processors and the government agencies. Your Company plays a critical role as a catalyst in integrating farmers, input vendors and government agencies besides facilitating the necessary market linkages. Through its Choupal Pradarshan Khet initiative, the business works with various government and private bodies to promote new seed varieties, adoption of farm technologies and practices among farmers towards improving productivity of crops (food grains, oilseeds, cereals etc.) while deepening relationship with the farming community. During the year, new soya seed varieties with high yield, high protein and high oleic acid were identified by your Companys Life Sciences & Technology Centre in association with the Directorate of Soybean Research, India. A number of farmer training programmes along with farm field demonstration of new technology (seed varieties and process) were conducted in more than 730 villages covering over 22,000 farmers towards yield enhancement in soybean, barley and wheat. Promotion of sustainability practices through the use of bio-fertilizers in paddy and bajra in western UP were also taken up.

Your Company will continue to leverage the unique e-Choupal platform towards achieving the superordinate goal of enhancing agricultural growth and productivity in the country enmeshed with a strong socio-economic model for rural development and sustainability even as it provides structural and sustainable competitive advantage to the Branded Packaged Foods businesses.

NOTES ON SUBSIDIARIES

The following may be read in conjunction with the Consolidated Financial Statements enclosed with the Accounts, prepared in accordance with Accounting Standard 21. In view of the general exemption granted by the Ministry of Corporate Affairs, the report and accounts of subsidiary companies are not required to be attached to your Companys Accounts. Shareholders desirous of obtaining the report and accounts of your Companys subsidiaries may obtain the same upon request. The report and accounts of the subsidiary companies will be kept for inspection at your Companys registered office and those of the subsidiary companies. Further, the report and accounts of the subsidiary companies will also be available under the Shareholder Value section of your Companys website, www.itcportal.com, in a downloadable format.

ITC Global Holdings Pte. Limited, Singapore (Global), a subsidiary of your Company, is under winding up in terms of the Order of the High Court of the Republic of Singapore dated 30th November, 2007. Consequently, your Company is not in a position to consolidate the accounts of Global for the financial year ended 31st December, 2012 or to make available copy of the same for inspection by shareholders.

Surya Nepal Private Limited

During the year the operating environment in Nepal continued to remain uncertain with the Constituent Assembly being dissolved in May 2012. The caretaker Government has since made way for a new Council of Ministers headed by the Chief Justice of Nepal, entrusted with the mandate of conducting the Constituent Assembly elections.

On the economic front, the GDP for the year ended 15th July 12 grew by 4.6% against 3.8% in the previous year on the strength of increased agricultural production and growth in the services sector. However, there was a marked slowdown in industrial production which decelerated to 1.6% from 2.9% in the previous year. The company continues to engage with policy makers for a pragmatic and purposeful policy and regulatory framework that will fuel long-term investment and growth in the countrys industrial sector including the operating segments of the company.

Despite these challenging circumstances, the company continued to make good progress and deliver superior performance. In the twelve-month period ended 13th March 2013 (30th Falgun 2069), the company recorded a 15% growth in sales with Gross Turnover (net of VAT) increasing to Nepalese Rupees (NRs.) 1665 crores from NRs. 1443 crores in the previous year. Profit after Tax at NRs 370 crores increased by 29% over the previous year. The company continues to be one of the largest contributors to the exchequer accounting for about 16% of excise collections and 3.3% of the total revenues of the Government of Nepal.

The company further consolidated its leadership position in the cigarette market through continued investment in product quality and value addition to its product portfolio. Its focus on remaining contemporary through the induction of new generation technology platforms and the enhancement of internal capabilities has strengthened the competitiveness of the business and reinforced market standing. A Long Term Agreement with employees of the Simara factory, premised on the companys philosophy of harmonious employee relations management, was concluded during the year. The second cigarette factory near Pokhara is in an advanced stage of construction and will improve market servicing in the long-term.

In the branded apparels business, the company focused on enhancing its market standing, distribution infrastructure and supply chain of John Players and Springwood. In the safety matches business, the companys brand Tir continued to gain consumer franchise.

The company remains committed to supporting and investing in endeavours that augment social and economic capital in alignment with the stated priorities of the Government of Nepal. Consistent with such commitment, several initiatives that are expected to provide long-term multiplier benefits have been initiated and sustained during the year. Accordingly, the company:

(a) Continued to partner with Tobacco farmers in Nepal to ensure higher productivity and quality enhancement at the farm level through the induction of agricultural best practices. The adoption of such practices and other inputs provided by the company has led to a consistent improvement in quality of domestic grades of tobacco thereby improving marketability of the crop and farmer returns.

(b) Initiated a programme to assist village farmers, proximate to the Simara factory, in the plantation of high quality Poplar saplings to improve farmer earnings.

(c) Supported an initiative in the animal husbandry sector by providing extension services that will drive yield improvement and higher returns for underprivileged farmers.

(d) Partnered with Nepal Tourism Board in hosting Nepals premier professional golf tournament - the Surya Nepal Private Limited Masters, with the objective of promoting Nepal as an attractive golfing destination.

(e) Continued to sponsor the Surya Nepal Private Limited Asha Social Entrepreneurship Awards, to recognize entrepreneurs who have created employment opportunities amongst local communities.

The company declared a dividend of NRs. 139/- per equity share of NRs. 100/- each for the year ended 15th July 2012 (31st Ashad 2069).

ITC Infotech India Limited

A weak global economic scenario, particularly in the US and Europe, continued to impact technology spends during the year. Although growth of the Indian IT industry has slowed down in recent years given the economic uncertainties, favourable exchange rates and market share gains during the year enabled it to grow ahead of earlier estimates.

The companys consolidated Total Revenue grew well above the industry average, clocking a growth of 23% to Rs. 1017.80 crores while its Net Profit grew by 33% to Rs. 66.93 crores. This robust performance is an outcome of the successful strategies adopted by the company in

(i) building world-class capabilities in each of its service lines, (ii) investing in new technologies, (iii) building solutions and capabilities around the products of global software vendors and partnering with them to take the products to the market, and (iv) rapidly growing the high potential accounts by putting in place geographical and technological expansion plans.

For the year under review:

(a) ITC Infotech India Limited registered a Total Revenue of Rs. 706.65 crores (previous year Rs. 566.23 crores) and a Net Profit of Rs. 68.73 crores (previous year Rs. 28.69 crores);

(b) ITC Infotech Limited, UK, (I2B) a wholly owned subsidiary of the company, registered a Total Revenue of GBP 25.03 million (previous year GBP 24.35 million) and a Net Profit of GBP 1.86 million (previous year GBP 2.13 million). During the year, I2B paid an Interim Dividend of GBP 3 (previous year : Nil) per Ordinary Share of GBP 1 each on 685,815 shares, amounting to GBP 2,057,445 (previous year: Nil) to the company;

(c) ITC Infotech (USA), Inc., (I2A) a wholly owned subsidiary of the company, together with its wholly owned subsidiary Pyxis Solutions LLC, registered Total Revenues of US$ 63.20 million (previous year US$ 49.85 million) and a Net Profit of US$ 0.91 million (previous year US$ 0.30 million).

During the year, the company achieved an all-time high and best-in-class Customer Satisfaction Score based on a survey conducted by a reputed external agency. Such a rating validates the companys world-class quality of service and stands testimony to its commitment to continuously raise the levels of service to meet growing market expectations.

Apart from expanding the companys existing in-house domain solution capabilities, specific development programmes were implemented to embrace disruptive technologies such as cloud computing, social media and mobile computing.

The company continued to enhance and strengthen its partnerships with leading Independent Software Vendors (ISVs) by building niche solutions to address white spaces and joint go-to-market initiatives. In this regard, a number of initiatives were progressed during the year including the launch of operations in new geographies, offering of turnkey services - from licence sales to implementation, becoming Authorised Training Partner in India and a consortium partner in Customer Experience and Comprehensive Trade Management area.

During the year the companys renewed focus on Middle- East, Africa, India and the larger Asia-Pacific region resulted in significant traction in new customer acquisition, particularly in India and Middle-East. The company has set up a branch office in Dubai to increase market penetration in the region. The company is also extending its service lines to specific markets in Western Europe.

In addition, as an important milestone in the evolution of its delivery capability, the company commissioned a new Development Centre at Trivandrum during the year.

The service delivery capability of the company continued to earn global recognition. The company has featured for the 7th consecutive year amongst the Leaders Category in the 2012 Global Outsourcing Top 100 by the International Association of Outsourcing Professionals (IAOP). The company also featured for the 8th consecutive year in the Global Services 100 survey, conducted by Global Services and Neo Advisory.

The company achieved ISO 9001:2008 re-certification for all its locations with its Pune centre getting certified within six months of its commissioning.

On the talent management front, the approach and strategy were continuously refined, realigned and revitalised in line with changing business dynamics and the enhanced global operating footprint of the company. Employee engagement, in particular, continues to receive the necessary thrust and impetus to enable an interactive and knowledge pooling environment. The company also embarked on development of new centres in the country with a view to accessing specific skills and talent and driving efficiencies in service delivery.

Going forward, the company will continue to review and reinforce its strategies and action plans to rapidly scale up its global footprint. Building additional technology niches remains a key focus area, and SMAC (Social media, Mobility, Analytics and Cloud computing) is currently at the forefront of this technology ecosystem. The company, accordingly, continues to invest in SMAC technologies and in a new industry leading Testing Framework.

While the outlook for the IT industry remains soft in the near term, the company is poised for significantly superior growth in the coming years aided by its strategies to expand to new markets, offer a portfolio of differentiated solutions, provide superior customer experience and deliver through strong project management capabilities, knowledge management, solution accelerators and a robust quality system.

Russell Credit Limited

During the year, the company registered a Total Revenue of Rs. 69.66 crores (previous year Rs. 40.58 crores) and a Net Profit of Rs. 58.96 crores (previous year Rs. 31.43 crores).

As stated in the Report of the Directors of the previous years, a petition was filed by an individual in the High Court at Calcutta, seeking an injunction against the companys counter offer to the shareholders of VST Industries Limited, made in accordance with the Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997, as a competitive bid to a Public Offer made by an Acquirer in 2001.

During the year, the High Court at Calcutta, vide Order dated 22nd June, 2012, dismissed the aforesaid petition. Similar petitions filed in the High Court of Delhi at New Delhi and High Court of Judicature of Andhra Pradesh at Hyderabad had earlier been dismissed by the respective High Courts.

The company, post dismissal of the aforesaid petition by the High Court at Calcutta, sold its entire holding in VST Industries Limited to your Company.

Wimco Limited

The company achieved a Net Revenue of Rs. 165.62 crores during the year (previous year Rs. 169.70 crores) and posted a Net Profit for the year of Rs. 1.90 crores against Rs. 45.99 crores loss in the previous year which included a one-time cost of Rs. 36.87 crores primarily towards restructuring its operations. During the year, the company allotted to Russell Credit Limited the unsubscribed portion of the Rights Issue of shares made in the previous year, thereby raising Rs. 1.69 crores.

Margins in the Safety Matches business continued to remain under pressure mainly due to escalation in prices of raw materials like wood, splints, paperboard, key chemicals and the continuing high tax differential between the mechanised and non-mechanised sector. The company continues to focus on cost rationalisation and margin improvement.

During the year, the Agri (Forestry) business revenues grew by around 25%. Availability of critical raw materials like wood at competitive prices remain crucial for the success of the Safety Matches business. Towards this end, the Agri (Forestry) business supplied high quality poplar ETPs (Entire Transplants) and eucalyptus saplings to farmers in northern India to enhance availability at competitive prices. Apart from creating a long-term sustainable supply of a critical raw material, the companys initiative is helping create employment and livelihood opportunities while improving the green cover in the region.

The Engineering business revenues grew by 6% during the year driven mainly by improved value capture through continuous product development in packaging machinery. The company plans to leverage new and improved product design to offer superior packaging solutions to its customers.

The initiatives taken by the company during the past few years to restructure its operations are expected to enhance operating performance in the years to come.

Srinivasa Resorts Limited

During the financial year ended 31st March, 2013, the company recorded a Total Revenue of Rs. 50.62 crores (previous year Rs. 57.66 crores) and a Profit Before Tax of Rs. 5.54 crores (previous year Rs. 11.89 crores). Net Profit for the year stood at Rs. 4.44 crores (previous year Rs. 9.40 crores).

The challenging environment in the State of Andhra Pradesh continues to have an adverse impact on the performance of the companys hotel ITC Kakatiya, Hyderabad. The hotel continued to focus on superior guest experience and strategic cost management to sustain market standing and protect margins.

For the fourth time in a row, the hotel received the Times Food Guide awards for Kebabs & Kurries (Best North Indian) and Dakshin (Best South Indian) - with both being rated as the best restaurants in their respective categories. During the year, the hotel also received the Best Landscaping Management Award from the Department of Horticulture, Andhra Pradesh.

The Board of Directors of the company has recommended a dividend of Rs. 1.00 per equity share of Rs. 10/- each for the year ended 31st March, 2013.

Fortune Park Hotels Limited

During the financial year ended 31st March, 2013, the company recorded a Total Revenue of Rs. 23.22 crores (previous year Rs. 20.78 crores) and earned a Net Profit of Rs. 5.97 crores (previous year Rs. 4.96 crores).

The companys Fortune hotel chain that caters to the mid-market to upscale segment continued its expansion by forging new alliances, taking the total number of hotels in its fold to 69 with an aggregate room inventory of over 5,000. The Fortune brand now has 39 operating hotels and another 3 hotels are slated to be commissioned in the next financial year. The remaining 27 hotel projects are under various stages of development. The brand remains a frontrunner in its operating segment and is well positioned to sustain its leadership position in the industry.

The company is well known for providing quality products and services which have helped position Fortune as the premier value brand in the Indian hospitality sector. The My Fortune brand, representing a stylish lifestyle with efficient personalised service, is the latest addition to the bouquet of brands offered by Fortune Hotels.

During the year, the company bagged the Best First Class Business Hotel Chain award at the Todays Traveller Awards 2012, SATTE Award for leading Mid Market Hotel Chain and Best First Class Full Service Business Hotel Chain in India by PATWA, ITB Berlin.

The Board of Directors of the company has recommended a dividend of Rs. 12.50 per equity share of Rs. 10/- each for the year ended 31st March, 2013.

Bay Islands Hotels Limited

During the financial year ended 31st March, 2013, the company recorded a Total Revenue of Rs. 1.52 crores (previous year Rs. 1.37 crores) and Net Profit of Rs. 0.97 crores (previous year Rs. 0.92 crores).

The companys hotel, Fortune Resort Bay Island in Port Blair, commands patronage in the city primarily due to its fabulous location, excellent architectural design and superior service quality. The company is in the process of undertaking a comprehensive renovation and expansion programme with a view to enhancing the market standing of the hotel.

The Board of Directors of the company has recommended a dividend of Rs. 70.00 per equity share of Rs. 100/- each for the year ended 31st March, 2013.

Landbase India Limited

The company owns and operates the Classic Golf Resort, a Jack Nicklaus Signature Course, near Gurgaon. As reported in the previous years, golf based resorts present attractive long-term prospects in view of their growing popularity all over the world. The work towards creating a destination luxury resort hotel at the Classic Golf Resort is now underway and the project is progressing satisfactorily.

During the financial year ended 31st March, 2013, the company recorded a Total Revenue of Rs. 11.82 crores (previous year Rs. 10.57 crores) and Net Loss of Rs. 3.81 crores (previous year Rs. 3.22 crores). During the year, the company issued and allotted to your Company, 30,00,000 Redeemable Preference Shares of Rs. 100/- each for cash at par, aggregating Rs. 30 crores. The proceeds from the Preference Share issue are being utilised by the company for the construction of the destination luxury resort.

WelcomHotels Lanka (Private) Limited

During the year, WelcomHotels Lanka (Private) Limited (WLPL) was incorporated in Sri Lanka as a wholly-owned subsidiary of your Company with the objective of constructing, building and operating a mixed-use development project (Project) including a luxury hotel at Colombo. The Board of Investment of Sri Lanka provided about 5.86 acres of prime sea facing land in Colombo to the company on a 99-year lease for this purpose. The Project has been declared as a Strategic Development Project under the Strategic Development Projects Act No. 14 of 2008 of Sri Lanka.

Your Company has invested about US$ 75 million in WLPL by way of equity and loan and WLPL is in the process of finalizing the design and product configuration of the proposed Project.

Technico Pty Limited

The company continued to focus on upgradation and commercialisation of TECHNITUBER® Technology and field multiplication through its wholly owned subsidiaries in different geographies. The company is also engaged in the marketing of TECHNITUBER® seeds to global customers from the production facilities of its subsidiaries in India, China and Canada.

The companys leadership in the production of early generation seed potatoes and strength in agronomy continue to be leveraged by your Company not only for sourcing chip stock for the Bingo! brand of your Companys Branded Packaged Foods businesses but also for servicing the seed potato requirements of the farmer base of your Companys Other Agri Commodities business.

For the year under review:

a) Technico Pty Limited, Australia registered a Turnover of Australian Dollar (A$) 1.39 million (previous year A$ 1.13 million) and a Net Profit of A$ 0.14 million (previous year A$ 0.11 million). Turnover and Net Profit have improved due to higher TECHNITUBER® seed volumes and better price realization.

b) Technico Agri Sciences Limited, India registered a Net Revenue of Rs. 64.04 crores (previous year Rs. 48.20 crores) and a Net Profit of Rs. 17.48 crores (previous year Rs. 7.83 crores). Strong demand and firm prices coupled with the strength of the companys brand, product quality, on field performance and trade and customer relationships drove a 33% increase in Net Revenue and 75% improvement in Profit Before Tax. The company has taken credit for deferred tax assets of Rs. 3.80 crores in the year under review (previous year : Nil).

c) Technico Asia Holdings Pty Limited, Australia, Technico Technologies Inc., Canada and Technico Horticultural (Kunming) Co. Limited, China - There were no significant events to report with respect to the above companies.

King Maker Marketing, Inc.

King Maker Marketing Inc. (KMM) is a wholly owned subsidiary of your Company registered in the State of New Jersey, USA. It is engaged in the distribution of your Companys tobacco products in the US market.

During the year, the cigarette industry in the US continued to witness persistent volume decline compounded by tax increases and the continuing growth of Other Tobacco Products, several of which are as yet unregulated by the US Food and Drug Administration (FDA). A larger thrust by major cigarette manufacturers into the value segment coupled with increase in illicit sales driven by tax differentials between the States, contributed further to an extremely challenging business environment for the company. During the year, the company maintained steady volumes through enhanced sales and marketing inputs while Revenue declined by 2% due to pricing pressure. The resultant higher costs of sales and marketing were offset by lower contributions under the Master Settlement Agreement (MSA). Further, a favourable Arbitral Award, memorializing a Partial Settlement between certain states and the Participating Manufacturers to the MSA, on payments disputed in previous years, increased the companys earnings during this year.

As a result, the company recorded Net Sales of US$ 26.37 million (previous year US$ 26.95 million) and earned a Net Income of US$ 1.20 million (previous year US$ 0.48 million) during the financial year ended 31st March 2013. During the year, KMM paid a Dividend of US$ 1.0 million to your Company.

Government regulations in the tobacco sector continue to take shape and it is expected that the industry will consolidate further as US Food and Drug Administration regulations evolve, including in the Other Tobacco Product categories like Pipe Tobaccos and Cigars.

The company will continue to customise its strategies based on emerging regulations in the market.

ITC Global Holdings Pte. Limited

The Judicial Managers had been conducting the affairs of ITC Global Holdings Pte. Limited (Global) since 8th November, 1996 under the authority of the High Court of Singapore. Pursuant to the application of the Judicial Managers, the Singapore Court on 30th November, 2007 ordered the winding up of Global, appointed a Liquidator and discharged the Judicial Managers.

As stated in the previous years Reports, the Judicial Managers of Global had filed a Writ against your Company in November 2002 before the Singapore High Court claiming approximately US$ 18.10 million. Based on legal advice, your Company filed an appropriate application for setting aside the said Writ. On 2nd March, 2006 the Assistant Registrar of the Singapore High Court set aside the service of Writ of Summons on your Company and some individuals. Subsequently in November 2006, your Company received a set of papers purportedly sent by Global including what appeared to be a copy of the earlier Writ of Summons. Your Company filed a fresh Motion in the Singapore High Court praying for setting aside the said Writ of Summons, which was upheld by the Assistant Registrar of the Singapore Court on 13th August, 2007. Global filed an Appeal against this Order before the High Court of Singapore, which on 30th January, 2009, set aside the order giving leave to Global to serve the Writ out of Singapore against your Company and also dismissed the said appeal. Thereafter on 14th December, 2009, your Company received a binder purportedly sent by Global including what appeared to be a copy of the same old Writ of Summons. Based on legal advice, your Company again filed a Motion in the Singapore High Court praying for setting aside the said Writ of Summons. On 18th November, 2010, the Assistant Registrar of the Singapore High Court passed an order dismissing your Companys motion to set aside the Writ of Summons. Your Company filed an appeal against the Assistant Registrars decision which appeal was dismissed by the Singapore High Court. Pursuant to legal advice, your Company has since filed its defence in the trial proceedings.

BFIL Finance Limited

The company continues to focus its efforts on recoveries through negotiated settlements including property settlements and pursuit of legal cases against various defaulters. The company has no external liabilities outside the ITC group. The company will examine options for further business opportunities at the appropriate time.

Gold Flake Corporation Limited, Wills Corporation Limited, Greenacre Holdings Limited, ITC Investments & Holdings Limited and MRR Trading & Investment Company Limited

There were no major events to report with respect to the above companies.

NOTES ON JOINT VENTURES ITC Filtrona Limited

For the year ended 31st December 2012, ITC Filtrona Limited recorded a Gross Revenue of Rs. 229.40 crores (Rs. 180.99 crores in 2011) and Pre-tax profits of Rs. 19.39 crores (Rs. 15.63 crores in 2011). While the Cigarette Filter industry had to contend with a steep hike in raw material prices and adverse foreign exchange rates, the company saw an overall improvement in sales volume along with a better product mix. Continuous investment in filter making technology has enabled the company maintain its leadership position, enhance its technological edge over competition and cater to growth both in terms of product mix and volumes.

In continuation with its philosophy of balancing the need to scale up capacity and capability to service the growing demand and the return expectation of shareholders, the Directors of the company have recommended a dividend of Rs. 9.00 per ordinary share of Rs. 10/- each for the year ended 31st December, 2012.

The company strives to be the quality benchmark in cigarette filters, offer superior filter solutions to its customers and be the most preferred supplier to its customers. With excellent product and market development support from its joint venture partners, the company is well positioned for the future.

Maharaja Heritage Resorts Limited

Maharaja Heritage Resorts Limited, a joint venture of your Company with Jodhana Heritage Resorts Private Limited, currently operates 39 heritage properties across 13 States in India. The companys brand portfolio comprising Legend, WelcomHeritage Hotels and Nature Resorts, provides uniquely differentiated propositions to guests in the cultural, heritage and adventure tourism segments respectively.

During the financial year ended 31st March, 2013, the company recorded a Total Revenue of Rs. 3.86 crores (previous year Rs. 3.36 crores) and Net Profit of Rs. 0.44 crores (previous year Net Loss Rs. 0.26 crores).

The company has 9 properties under the upmarket Legend brand which has carved a niche for itself on the basis of superior service delivery and brand standards. The company also has 11 properties under the Nature Resorts brand and 19 properties under the WelcomHeritage Hotels brand which was recently awarded the Best Heritage Hotel Chain by Todays Traveller Awards 2012.

Espirit Hotels Private Limited

In July 2010, your Company had entered into a joint venture for developing a luxury hotel complex at Begumpet, Hyderabad. Under the terms of the Joint Venture Agreement, your Company acquired 26% equity stake in the joint venture company, Espirit Hotels Private Ltd. (EHPL) and will, inter-alia, provide hotel operating services to EHPL under an Operating Services Agreement upon commissioning of the hotel. Your Companys investment in EHPL stood at Rs. 46.51 crores as at 31st March, 2013.

While the site preparatory activity is underway, the company is in the process of finalising the design and product configuration of the proposed development.

Logix Developers Private Limited

In September 2011, your Company entered into a joint venture for developing a luxury hotel-cum-service apartment complex at Sector 105 in NOIDA. Under the terms of the Joint Venture Agreement, your Company acquired 26% equity stake in the joint venture company, Logix Developers Private Ltd. (LDPL) at an initial investment of Rs. 36.84 crores. Your Company will, inter-alia, provide hotel operating services to LDPL under an Operating Services Agreement, upon commissioning of the hotel.

The company is in the process of finalising the design and product configuration of the proposed development.

RISK MANAGEMENT

As a diversified enterprise, your Company has always had a system-based approach to business risk management. Backed by strong internal control systems, the current risk management framework consists of the following elements:

- The Corporate Governance Policy clearly lays down the roles and responsibilities of the various entities in relation to risk management. A range of responsibilities, from the strategic to the operational, is specified in the Governance Policy. These role definitions, inter-alia, are aimed at ensuring formulation of appropriate risk management policies and procedures, their effective implementation and independent monitoring and reporting by Internal Audit.

- The Corporate Risk Management Cell works with the businesses to establish and monitor the specific profiles including both strategic risks and operational risks. The process includes the prioritisation of risks, selection of appropriate mitigation strategies and periodic reviews of the progress on the management of risks.

- A combination of centrally issued policies and divisionally-evolved procedures brings robustness to the process of ensuring business risks are effectively addressed.

- Appropriate structures have been put in place to proactively monitor and manage the inherent risks in businesses with unique / relatively high risk profiles.

- A strong and independent Internal Audit function at the Corporate level carries out risk focused audits across all businesses, enabling identification of areas where risk management processes may need to be improved. The Audit Committee of the Board reviews Internal Audit findings, and provides strategic guidance on internal controls. The Audit Compliance and Review Committee closely monitors the internal control environment within your Company and ensures that Internal Audit recommendations are effectively implemented.

- At the business level, Divisional Auditors continuously verify compliance with laid down policies and procedures, and help plug control gaps by assisting operating management in the formulation of control procedures for new areas of operations.

- A robust and comprehensive framework of strategic planning and performance management ensures realisation of business objectives based on effective strategy implementation. The annual planning exercise requires all businesses to clearly identify their top risks and set out a mitigation plan with agreed timelines and accountability. Businesses are required to confirm periodically that all relevant risks have been identified, assessed, evaluated and that appropriate mitigation systems have been implemented.

The combination of policies and processes as outlined above adequately addresses the various risks associated with your Companys businesses. The senior management of your Company periodically reviews the risk management framework to maintain its contemporariness so as to effectively address the emerging challenges in a dynamic business environment.

AUDIT AND SYSTEMS

Your Company believes that internal control is a necessary concomitant of the principle of governance that freedom of management should be exercised within a framework of appropriate checks and balances. Your Company remains committed to ensuring an effective internal control environment that provides assurance on the efficiency of operations and security of assets.

Well established and robust internal audit processes, both at business and corporate levels, continuously monitor the adequacy and effectiveness of the internal control environment across your Company and the status of compliance with operating systems, internal policies and regulatory requirements. In the networked IT environment of your Company, validation of IT security continues to receive focused attention of the internal audit team which includes IT specialists.

The Internal Audit function consisting of professionally qualified accountants, engineers and IT specialists reviews the quality of planning and execution of all ongoing projects involving significant expenditure to ensure that project management controls are adequate to yield value for money.

Your Companys Internal Audit function is certified as complying with ISO 9001:2008 quality standards in its processes.

The Audit Committee of your Board met nine times during the year. It reviewed, inter-alia, the adequacy and effectiveness of the internal control environment and monitored implementation of internal audit recommendations including those relating to strengthening of your Companys risk management policies and systems. It also engaged in overseeing financial disclosures.

HUMAN RESOURCE DEVELOPMENT

Your Companys unique talent brand - Building Winning Businesses. Building Business Leaders. Creating Value for India - backed by its strong corporate equity, has enabled the attraction and retention of high quality talent. This talent pool and its strong alignment with your Companys Vision, has contributed to enhancing your Companys standing as one of Indias most valuable corporations. The innovative engagement initiatives with premier campuses and effective use of social media has enabled your Company showcase the career and leadership opportunities available and has attracted both high quality entry-level talent from premier technology and management institutes as well as talent from the market for middle and senior-level opportunities. Your Companys unique Management Trainee programme has over the years, developed a robust talent and leadership pipeline that has enabled rapid growth of existing businesses and entry into new businesses as well. In addition, your Companys comprehensive talent development strategy has enabled the enhancement of the competitive capability of each business.

Your Company believes that the achievement of its growth objectives will depend largely on the ability to innovate continuously, connect closely with the customer, and create and deliver superior and unmatched customer value. Towards this end, your Company has assiduously built a culture of continuous learning, innovation and collaboration across the organisation by providing cutting-edge learning and development inputs to its employees, along with a judicious blend of coaching, mentoring and on the job training. Your Company has been able to galvanise its human resource to become more agile, leverage change, stay ahead of competition and win in the market.

Your Companys human resource management systems and processes are designed to empower employees and enable them adopt innovative approaches to creating enduring value. These processes aim to create a responsive, customer-centric and market-focused culture that enhances organisational capability and vitality, so that each business is internationally competitive and equipped to exploit emerging market opportunities.

The strategy of organisation lays great emphasis on developing and supporting distributed leadership and this has ensured that each of your Companys businesses is managed by a team of competent, passionate and inspiring leaders, capable of building an organisation anchored in a culture of learning, innovation and world-class execution. Your Companys performance management system has been instrumental in creating a strong performance culture.

Your Company firmly believes that alignment of all employees to a shared vision and purpose is vital to win in the market. Your Company also recognizes the mutuality of interests of key stakeholders and is committed to building harmonious employee relations. During the year under review, your Company successfully concluded long-term agreements at several of its manufacturing units and hotel properties and also ensured smooth commencement of operations at greenfield locations. The collaborative spirit across all sections of employees has resulted in significant enhancement in quality and productivity, further bolstered by continuous investment in contemporary management practices and manufacturing systems.

Your Companys human resource believes that the drive for progress is in being never satisfied with the status quo. Your Company is confident that every one of its over 25,900 employees will relentlessly strive to deliver world-class performance, innovate newer and better ways of doing things, uphold human dignity and foster team spirit and discharge their role as trustees of all stakeholders with true faith and allegiance. Your Company is committed to perpetuate this vitality of ITC - its growth in physical terms and also its growth as a great institution - so that your Company will continue to grow and succeed in its never-ending pursuit of value creation.

SUSTAINABILITY - CONTRIBUTION TO THE TRIPLE BOTTOM LINE

Your Companys Vision to subserve larger national priorities and create enduring societal value is the inspiration for its multi-dimensional sustainability initiatives that are today acknowledged as global exemplars. Your Companys sustainability strategy aims to significantly enhance national wealth through superior Triple Bottom Line performance that builds and enriches the countrys economic, environmental and societal capital. It is premised on the belief that the transformational capacity of business can be very effectively leveraged to create significant societal value through a spirit of innovation and enterprise. Your Companys Triple Bottom Line contribution is manifest in the creation of innovative business models that not only generate new sources of competitive advantage for its businesses, but also in the process enables the replenishment of natural capital and augmentation of sustainable livelihoods.

It is a matter of humble pride that your Companys sustainable business models and value chains have supported the creation of 5 million sustainable livelihoods, a majority of them for the weakest in society. It has sustained its position as the only company in the world to have achieved the global environmental distinctions of being carbon positive (for 8 consecutive years), water positive (for 11 years in a row) and solid waste recycling positive (for 6 years successively). Your Companys renewable energy portfolio enables over 41% of its power requirements to be met from such clean sources - a significant achievement given the large manufacturing base of your Company. Further, all the premium luxury hotels and several factories of your Company are LEED (Leadership in Energy & Environmental Design) certified at the highest Platinum level by the US Green Building Council / Indian Green Building Council.

Your Company published its 9th consecutive Sustainability Report during the year that detailed the progress made across all dimensions of the Triple Bottom Line for the year 2011-12. The report which is independently assured by Ernst & Young, is in accordance with the G3 Guidelines of the Global Reporting Initiative (GRI) and is validated by GRI at the highest A+ level. The 10th Sustainability Report covering the sustainability performance of your Company for the year 2012-13 is in an advanced stage of finalisation and will be available to you shortly. This report also supports your Companys first Securities Exchange Board of India (SEBI) mandated Business Responsibility Report, which forms part of this Report and Accounts.

Social Investments/Corporate Social Responsibility (CSR)

Your Company believes that Corporate Social Responsibility delivered in the context of its businesses makes it more effective, impactful, scalable and sustainable. Your Companys overarching aspiration to create meaningful societal value is manifest in your Companys strategy to enhance the competitiveness of value chains of which it is a part. It is therefore a conscious strategy to design and implement Social Investments / CSR programmes in the context of your Companys businesses, by enriching value chains that encompass the most disadvantaged sections of society, especially those residing in rural India, through economic empowerment based on grass-roots capacity building.

It is your Companys policy:

- To pursue a corporate strategy that enables realisation of the twin goals of shareholder value enhancement and societal value creation in a mutually reinforcing and synergistic manner.

- To align and integrate Social Investments / CSR programmes with the business value chains of your Company and make them outcome oriented. To support creation of on and off-farm sustainable livelihood sources thereby empowering stakeholder communities to conserve and manage their resources.

- To implement Social Investments / CSR programmes primarily in the economic vicinity of your Companys operations with a view to ensuring the long-term sustainability of such interventions.

- To contribute to sustainable development in areas of strategic interest through initiatives designed in a manner that addresses the challenges faced by the Indian society especially in rural India.

- To collaborate with communities and institutions to contribute to the national mission of eradicating poverty and hunger, especially in rural areas, through agricultural research and knowledge sharing, superior farm and agri-extension practices, soil and moisture conservation and watershed management, conservation and development of forest resources, empowering women economically, supplementing primary education and participating in rural capacity building programmes and such other initiatives.

- To align your Companys operations with the national objective of inclusive growth and employment generation by leveraging your Companys diversified portfolio, manufacturing bases, supply chains and distribution channels, to infuse an appropriate mix of capital and technology to further social business initiatives such as e-Choupal, animal husbandry, agarbatti rolling etc. and support organisations / institutions engaged in building linkages with local, regional and urban communities and markets.

- To sustain and continuously improve standards of Environment, Health and Safety through the collective endeavour of your Company and its employees at all levels towards attaining world-class standards and support other programmes and initiatives, internal or external, for the prevention of illness and combating of diseases as may be considered appropriate from time to time.

- To encourage the development of human capital of the Nation by expanding human capabilities through skills development, vocational training etc. and by promoting excellence in identified cultural fields.

In the social sector, the two most important stakeholders for your Company are: (a) the rural communities with whom your Companys agri-businesses have forged a long and enduring partnership through their crop development and procurement activities. These households operate in rain-fed conditions in some of the most moisture-stressed regions of the country; and

(b) the communities residing in close proximity of your Companys production units, who are unable to realise their full potential due to poor social infrastructure in the areas of education and health.

In line with the stakeholder needs, the thrust of your Companys social sector investment is on the following:

(a) Diversification of farming systems of the rural communities by broad-basing the farm and off-farm based livelihoods portfolio of the poor through an integrated approach that includes the development of wastelands, watersheds, agriculture and animal husbandry, and

(b) In the catchment habitations of manufacturing units, the focus is on the economic empowerment of women and developing social capital to prepare the beneficiaries for relevant and contemporary skills.

The footprints of your Companys Social Investments Programme now extends to 60 districts in the States of Andhra Pradesh, Bihar, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal.

Your Companys pioneering initiative of wasteland development through the Social Forestry Programme currently covers 33,448 hectares in 1,717 villages, impacting nearly 40,000 poor households. This is an integral part of your Companys overall Social & Farm Forestry initiative that covers a total of over 142,000 hectares today. This initiative is aligned to the pulpwood supply chain to create a sustainable source of raw material for your Company and also to meet the energy requirements of rural households. The highlight of this year was the incorporation of bio-diversity conservation as an integral part of the Social Forestry programme, which aims for in situ conservation of the local flora and fauna by protecting and improving production conditions in the selected plots.

The coverage of your Companys Soil and Moisture Conservation programme, designed to assist farmers in identified moisture-stressed districts, increased by an additional 26,637 hectares. 470 water-bodies were created during the year. The total area covered under the watershed programme cumulatively stands at 116,127 hectares. Your Company signed three new MOUs with the Government of Rajasthan for promoting sustainable livelihoods through watershed development in the districts of Bundi, Jhalawar and Pratapgarh under the governments Integrated Watershed Management Programme. With this, the total area to be brought under soil and moisture conservation through public-private-partnership projects has increased to over 144,000 hectares.

With the objective of providing a major thrust to creating a sustainable agricultural base, the year saw significant increases in all major interventions in this area. The number of Farmer Field Schools increased from 37 to 162. There was an almost three-fold increase in the number of farmers (5,129) and the demonstration plots (4,733) covered. The number of compost units increased nearly four-fold (503 in 2012-13) during the year.

18 new Agri Business Centres were formed during the year, taking the total to 51, to provide extension services to farmers. These centres provided agri-inputs worth Rs. 85.61 lakhs to nearly 3,211 farmers during the year.

Your Company gave equal emphasis to milch animals, the other important asset of rural households. The programme for genetic improvements of cattle through artificial insemination to produce high-yielding crossbred progenies is implemented through 303 Cattle Development Centres (CDCs) covering nearly 5,000 villages. These CDCs provided 2.75 lakh artificial inseminations during the year, thus taking the total to 10.82 lakh artificial inseminations performed till date.

Taking the next step in the development of a viable livestock economy, Dairy Development in Munger was a major focus area this year. Project Gomukh was launched in Munger to cater to the needs of veterinary services and to provide comprehensive techno- management support to dairy farmers. The overarching objectives of the Project are to achieve significant improvement in milk productivity and quality, thereby raising farm incomes. The milk procurement network was increased to 87 Milk Producer Groups (MPGs) with over 2,800 members. The average procurement in Munger was nearly 10,000 litres per day (lpd) with a peak of over 17,000 lpd. Dairy development in Saharanpur was initiated in two hubs. Comprehensive milk mapping studies have been completed at two other locations to enable planning for expansion of the dairy-led CSR in other locations.

The Womens Empowerment Programme covered over 18,791 women through 1,557 self-help groups (SHG) with total savings of Rs. 340 lakhs. Cumulatively, over 40,000 women were gainfully employed either through micro-enterprises or assisted with loans to pursue income generating activities. Agarbatti production received further impetus during the year with the introduction of 1,326 pedal machines in the states of Bihar, Uttar Pradesh, Tamil Nadu, Rajasthan, Andhra Pradesh, Madhya Pradesh and Maharashtra. This has led to high productivity gains, translating into significant increase in incomes for poor rural women. As a result, raw agarbatti production more than doubled from the previous year to 834 tonnes during 2012-13, and helped create livelihoods for more than 3,300 women. The agarbatti scenting unit located at Munger, owned and managed by women, also saw a significant increase in dispatches - up from 235 million sticks in 2011-12 to 367 million sticks in 2012-13 - thus enabling women to capture even greater value from this micro-enterprise.

Over 40,000 new students were covered through Supplementary Learning Centres and Anganwadis. Of these, 264 first generation learners were enrolled into formal schools for the first time in their lives. 964 government primary schools have so far been provided infrastructure support, which includes benches, classrooms, toilets, electrical fixtures, compound walls and gates. 627 youths were covered this year by the skills development initiative. In the area of sanitation, a total of 3,847 low cost sanitary units have been constructed cumulatively by the end of 2012-13.

The advances made towards contributing to Indias sustainable development goals have been possible, in large measure, due to your Companys partnerships with some globally renowned NGOs like BAIF, Dhan, FES, MYRADA, Pratham, SEWA, SRIJAN, DSC and WOTR amongst others. These partnerships, which bring together the best-in-class management practices of your Company and the development experience and mobilisation skills of NGOs, will continue to provide innovative grassroots solutions to some of Indias most challenging problems of development in the years to come.

Environment, Health & Safety

The strategic objective of your Companys Environment, Health & Safety programmes is to move towards greenest and safest operations across all ITC Units, optimisation of natural resource usage, sustainability measurement and monitoring as well as safety of all its people and assets. Towards this, significant efforts are targeted towards ensuring resource security through optimisation of resource-use and replenishment of natural resources, aligning strategy with the National Action Plan on Climate Change to help create sustainable livelihoods, enable adaptation and mitigation in agriculture whilst safeguarding operations and assets. Your Companys proactive processes for inculcating a safe and green culture are supported by regular audits based on EHS Audit guidelines that incorporate the latest standards and regulatory requirements.

Your Company is committed to ensuring a safe and healthy workplace for all employees, guests and visitors, by maintaining the highest levels of safety and occupational health standards. All units of your Company have best-in-class infrastructure, competent resources, management systems based on international standards as well as state-of-the-art fire and life safety measures, which are regularly monitored through rigorous audits. Your Companys approach entails consideration of safety as a value-led concept which drives behaviour change and supports the creation of a safety culture fully integrated with business improvement processes. In line with this philosophy, Behavioural Safety Culture Programs have been initiated in several of your Companys units which have already brought about tangible change in behaviour and perceptions on safety. Accordingly, this initiative will be rolled out across other business units in a progressive manner. The progress and commitment made by your Company in this vital area to protect its valued human resources have been reaffirmed by numerous national and international safety awards and certifications.

Your Company has addressed the critical area of climate change mitigation and adaptation through several innovative and pioneering initiatives. These include continuous improvement in energy conservation and efficiency, enhanced usage of renewable energy, creating a green built environment, waste reduction, maximising its reuse and recycling and increasing use of post consumer waste as raw material. Extensive integrated watershed development programmes, promotion of sustainable agricultural practices, and carbon sequestration through large-scale forestry initiatives extend these efforts down the value chain.

Several projects of your Company earn carbon credits leveraging the market-based mechanism for mitigating climate change, namely, the Clean Development Mechanism developed by United Nations Framework Convention on Climate Change (UNFCCC). Your Company is also well positioned to benefit from India specific schemes such as Perform, Achieve and Trade (PAT) and Renewable Energy Certificates (RECs) promoted by the Government of India.

In line with your Companys commitment to reduce dependence on fossil fuel based energy, significant progress has been made in enhancing the renewable energy portfolio. Improved utilisation of biomass and additional wind mills have led to over 41% of your Companys total energy requirements being met from renewable sources, compared to 38.5% during the year 2011-12. A systemic approach is being developed to ensure that your Company progressively moves towards a benchmark of utilising at least 50% of its total energy requirements from renewable sources in the near future.

Recognising that water resources will increasingly become an area of serious concern, your Company has made significant investments in water conservation and harvesting initiatives to enhance its positive water footprint. These include adopting best available technologies and benchmarked practices to achieve zero effluent discharges, providing treated wastewater for irrigation as an alternative for farmers in water stressed areas and enhancing rainwater harvesting both within units and across watershed catchment areas. All these initiatives have resulted in the creation of rainwater harvesting potential that is over two times the net water consumption of your Companys operations. Sustained efforts are made to ensure that your Company achieves the best international practices in this critical area as well as aligns itself with the National Water Policy that is presently under finalization.

Reaffirming your Companys commitment to the ethos of Responsible Luxury, all luxury Hotels of your Company are LEED Platinum certified making it the greenest luxury hotel chain in the world. ITC Grand Chola, the newly launched premium luxury hotel in Chennai, has secured a 5 Star Green Rating for Integrated Habitat Assessment (GRIHA) - the highest national rating for Green Buildings in India. The ITC Grand Chola is also the worlds largest LEED Platinum certified (Indian Green Building Council) green Hotel. All new constructions by your Company incorporate green / sustainability standards and existing buildings are also progressively implementing validated green attributes.

The Bombay Stock Exchange recently instituted 2 indices titled GREENEX & CARBONEX evaluating several green operational parameters as well as carbon performance. It is a matter of immense pride that your Company has been assigned the highest weightage in both the indices. Further, during the year, a detailed computation of greenhouse gas (GHG) inventory was carried out as per ISO 14064 standards, which was then assured at the highest Reasonable Level by Lloyds Register Quality Assurance Ltd. - a unique achievement considering the scale and spread of your Companys operations.

All units of your Company have made significant progress in achieving total recycling of waste generated by their operations, making your Company attain over 99.8% of waste recycling in 2012-13. The Paperboards and Specialty Papers business, which accounts for nearly 91% of the total waste generated in your Company, recycled 99.9% of the total waste generated by its operations. This business also recycled an additional 118,462 tonnes of externally sourced post-consumer waste paper, thereby creating yet another positive environmental footprint.

Your Companys Wealth Out of Waste (WOW) programme continues to create significant awareness amongst the public on the benefits of the Reduce- Reuse-Recycle paradigm. This initiative, which also contributes to the protection of environment, improvement in civic amenities, public health and hygiene, has received rich accolades from the Government, NGOs, commercial institutions and the public at large. Your Company thereby supports the generation of sustainable raw material inputs for its processes, whilst generating considerable livelihood opportunities for the underprivileged.

During the year, an Integrated Sustainability Data Management System was implemented for effective monitoring & review of business specific Key Performance Indicators whilst providing a single platform across your Company for all reporting requirements such as Global Reporting Initiative, SEBI Business Responsibility Report and Carbon Disclosure Project. This System will improve management of sustainability issues and drive increasing efficiencies across your Companys business units.

Creating Thought Leadership in Sustainability

The CII - ITC Centre of Excellence for Sustainable Development, set up by your Company jointly with the apex national chamber Confederation of Indian Industry (CII) in 2006, continues its endeavours to promote sustainable business practices amongst corporates across the country. During the year, the Centre trained and raised awareness of over 2,000 business managers on various sustainability issues. It has expanded its gamut of activities to meet the core objectives of creating awareness, promoting thought leadership and building capacity amongst Indian enterprises in their quest for sustainable growth and business solutions. The 7th Sustainability Summit, held in October 2012, continued its legacy of bringing together thought provoking leaders to share the challenges, long-term strategies and best practices for sustainable and inclusive development.

It featured senior politicians, bureaucrats, best brains of Indian industry and MNCs around the globe. The Summit and Exhibition were attended by over 300 participants. The CII - ITC Sustainability Awards, instituted to recognise excellence in sustainability performance, have honoured a large number of leading Indian companies and provided encouragement to many others. The winners of the Sustainability Awards 2012 were announced at an imposing function in Vigyan Bhawan, New Delhi on January 14, 2013 amongst an audience of 1,500 people. The occasion was graced by the Honble President of India Shri Pranab Mukherjee as the Chief Guest.

The Centre is today playing a major role in engaging with policy makers to create an environment that encourages the adoption of sustainable business practices. The Centre has been engaged with various stakeholders for advocacy on Clause 135 of the new Companies Bill 2012, which refers to the CSR activities of a company. The Centre is a consulting partner in several policy interventions such as Green Guidelines for Public Procurement, Low Carbon Expert Group of the Planning Commission, National Innovation Council, Ministry of Corporate Affairs on CSR Policy, National Awards for Prevention of Pollution, Rajiv Gandhi Environment Awards for Clean Technology and Technology and Finance Committee under the Montreal Protocol. It is also represented on the Board of the Central Pollution Control Board and other bodies.

Societal Capacity Enhancement

In line with its core value of trusteeship, your Company supports various initiatives that build the capability of Indias rich human resource pool thereby empowering the nations fast growing working-age population. It also helps preserve Indias rich cultural heritage, enhancing the spirit embodied in its credo of Lets Put India First.

To cater to the need for professionally trained human resources in the fast growing hospitality industry, your Company contributed to setting up the Welcomgroup Graduate School of Hotel Administration (WGSHA) together with the Dr. TMA Pai Foundation in 1987. WGSHAs training and development activities are recognised by the International Hotel Association, Paris. The college has been ranked amongst the top educational institutions in the sector over the years. Graduates of the college are today part of several leading hotel chains of the world. WGSHAs mission is to mould young men and women into competent and responsible professionals with the potential to emerge as future leaders in the hospitality industry. As part of its efforts to remain contemporary, WGSHA faculty members are positioned in ITC Hotels to understand Best Practices employed at the hotels. A significant number of WGSHA students are sent for 6-month internships to various ITC Hotels. The college started with an annual intake of 30 students which has increased to 100 students over the years.

The ITC Sangeet Research Academy (ITC SRA) is a true embodiment of sustained corporate commitment to a priceless national heritage. It is a unique institution recognised for being the finest repository of Hindustani classical music. With a commitment that has remained consistent for over 35 years, ITC SRA is the worlds first and only professionally managed modern Gurukul, blending modern day research methods with the purity of the age old "Guru-Shishya" tradition. ITC SRA has as its mission the preservation and propagation of Hindustani Classical Music. With a galaxy of 9 pre- eminent Gurus and 50 scholars, the Academy is presently engaged in carrying the message of Hindustani Classical Music across our country from the metros to rural India. Recent forays into neighbouring Bangladesh have brought home another dimension of the shared sub- continental heritage.

Your Company also supports a number of initiatives for vocational training within the catchment areas of its operations that have proven to be effective in empowering youth with requisite skills to increase their employability in the market. Employment opportunities have also been created for differently-abled people suited to their capabilities.

R&D, QUALITY AND PRODUCT DEVELOPMENT

Your Company continues to invest in a comprehensive Research & Development programme leveraging its world-class infrastructure, benchmarked processes, state-of-the-art technology and a business-focused R&D strategy.

As your Company moves into its second century, your Company seeks not only to create world-class products but also improve the quality of life and deliver care and wellness to consumers. In order to reflect this change your Companys erstwhile ITC R&D Centre has been transformed into ITC Life Sciences & Technology Centre.

ITC Life Sciences & Technology Centre (LSTC) has a mandate to develop unique sources of competitive advantage and build future readiness by harnessing contemporary advances in several relevant areas of science and technology and blending the same with classical concepts of product development and leveraging cross business synergies. This challenging task of driving science-led product innovation has been carefully addressed by appropriately identifying the required set of core competency areas of science such as Plant Breeding and Genetics, Agronomy, Microbiology, Cell Biology, Genomics, Proteomics, Silviculture and several disciplines of Chemistry. Presently, the LSTC team has evolved with over 250 world-class scientists and is creating Centres of Excellence in these areas. LSTC is carrying out research and securing proprietary technologies for your Companys businesses.

The Agrisciences R&D team has continued its efforts in evaluating and introducing several germplasm lines of identified crops including Casuarina and Eucalyptus to increase the genetic and trait diversities in these species, towards developing new varieties with higher yields, better quality and other relevant traits for your Companys businesses. LSTC has initiated several research collaborations with globally recognized Centres of Excellence to remain contemporary and fast track its journey towards demonstrating multiple proofs of concept. These collaborations, covering identified species, are designed in a manner that enables your Company in gaining fundamental insights into several technical aspects of plant breeding and genetics and the influence of agro-climatic conditions on the growth of these species. Such interventions will accelerate LSTCs efforts in creating future generations of these crops with greater genetic and trait diversities and leading to significant benefits for your Companys businesses. Further, these outcomes have a strong potential to contribute towards augmenting the nations ecological capital as well.

Recognising the unique construct of your Company in terms of its strong presence in agriculture, food and personal care businesses, a convergence of R&D capabilities is being leveraged to deliver future products aimed at nutrition, health and well-being. Advances in biosciences are creating a convergence of these areas and it is likely that several future developments in these businesses and their products are heavily influenced by convergence. In this context, LSTC has created a Biosciences R&D team to design and develop several long-term research platforms evolving multi-generation product concepts and associated claims that are fully backed by scientific evidence for the Foods and Personal Care businesses. In addition, LSTC has evolved a strategy in building a new value chain called, Nutrition with a special focus on Indianness and health and well-being founded on the basis of value added agriculture (VAA). The initial activities related to VAA have already commenced with a focus on Soya.

LSTC has a clear vision and a road map for long-term R&D, to ensure an outstanding journey in to the next century backed by a well-crafted Intellectual Property Strategy. With scale, speed, science and sustainability considerations, LSTC is poised to deliver long-term competitive advantage and play a lead role in creating significant business impact for your Company.

Pursuing your Companys relentless commitment to quality, each business is mandated to continuously innovate on processes and systems to deliver superior competitive capabilities. During the year, your Companys Hotels business leveraged its Lean and Six Sigma programmes to improve business process efficiencies. This will further enhance capability to create superior customer value through a service excellence framework. The Paperboards, Paper & Packaging business continued to pursue Total Productive Maintenance (TPM) programmes in all units, resulting in substantial cost savings and productivity improvements.

All manufacturing units of your Company have ISO quality certification. All manufacturing units of the Branded Packaged Foods businesses (including contract manufacturing units) and hotels have stringent food safety and quality systems. All Company owned units / hotels and almost all contract manufacturing units of the Branded Packaged Foods businesses are certified by an accredited third party in accordance with Hazard Analysis Critical Control Points (HACCP) methodology. Additionally, the quality of all FMCG products of your Company is regularly monitored through Product Quality Ratings Systems (PQRS).

EXCISE

As mentioned in the previous years Report of the Directors, a demand for Rs. 27.58 crores made by Central Excise Department, Bengaluru, in respect of a period prior to March 1983, was set aside by the Commissioner (Appeals), Bengaluru, by his Order dated 22nd November, 1999, which order was confirmed by the CEGAT, Chennai vide its order dated 18th December, 2003. The Department has filed an appeal before Supreme Court, which is pending.

With respect to the Munger factory, proceedings for finalisation of assessments for the period prior to March 1983 resulted in the Deputy Commissioners Orders dated 29th August, 2002 and 8th October, 2002 demanding Rs. 13.09 crores and Rs. 1.73 crores for clearances of cigarettes and smoking mixtures respectively. These were confirmed by the Commissioner (Appeals), Patna vide his orders dated 22nd December, 2004, against which your Company has preferred appeals before CESTAT, Kolkata, which are pending. Your Company had made pre-deposits of Rs. 2 crores and Rs. 0.55 crores against the aforesaid demands at the stage when its appeals were pending before Commissioner (Appeals), Patna.

Although your Company, in a spirit of settlement, paid the differential Excise Duty that arose out of an Order of the Director General dated 10th April, 1986, as early as in March, 1987, and although the Excise Departments aforesaid Demands had either been quashed or stayed, the Collectorates in Meerut, Patna and Bengaluru, during the year 1995, filed criminal complaints in the Special Court for Economic Offences at Kanpur, Patna and Bengaluru, charging your Company and some of its Directors and employees who were employed with your Company during the period 1975 to 1983 with offences under the Central Excises & Salt Act, 1944, purportedly on the basis of the Order of the Director General dated 10th April, 1986. Your Directors are advised that no prosecution would lie on the basis of the aforesaid Order of the Director General dated 10th April, 1986. As earlier reported, the criminal case in respect of the Bengaluru factory was quashed by the Court. In the proceedings relating to Saharanpur and Munger factories, the individuals concerned have been discharged.

In all the above instances, your Directors are of the view that your Company has a strong case and the Demands and the Complaints are not sustainable.

Since your Company is contesting the above cases and contending that the Show Cause, the Demand Notices and the Complaints are not sustainable, it does not accept any liability in this behalf. Your attention is drawn to the Note 31(iv) in the Notes to the Financial Statements and Note 28(iv) in the Notes to the Consolidated Financial Statements.

LUXURY TAX

As mentioned in earlier years, the Honble Supreme Court declared the various State luxury tax levies on cigarettes and other goods as unconstitutional. The Court further directed that if any party, after obtaining a stay order from the Court, had collected any amount towards luxury tax from its customers / consumers, such amounts should be paid to the respective State governments. Since your Company had not charged or collected any amounts towards luxury tax during the relevant period, there is no liability on your Company in this regard. However, the State of Andhra Pradesh has filed a contempt petition in the Supreme Court claiming a sum of about Rs. 323.25 crores towards luxury tax, and a further sum of about Rs. 261.97 crores towards interest, on the allegation that your Company had charged and collected luxury tax from its customers, but in view of a stay order passed by the Court on 1st April, 1999, did not pay the tax to the government. The States contention is baseless, contrary to facts and is also contrary to the assessment orders passed by the State luxury tax authorities consistently holding that your Company, right from 1st March, 1997, did not charge or collect any amount towards luxury tax from its customers. Accordingly, the States petition is being contested.

RECOVERY OF DUES FROM THE CHITALIAS AND PROCEEDINGS INITIATED BY THE ENFORCEMENT DIRECTORATE

You are aware that your Company had secured from the District Court of New Jersey, U.S.A, a decree for US$ 12.19 million together with interest and costs against Suresh and Devang Chitalia of U.S.A and their companies, and that the Chitalias had filed Bankruptcy Petitions before the Bankruptcy Court, Orlando, Florida, which are yet to be determined.

As explained in the previous reports of the Directors, though your Company has written off the export dues in foreign exchange from the Chitalias with the approval of the Reserve Bank of India, your Company continues with its recovery efforts in the Indian suit against the Chitalia associates. The suit is in progress.

In the proceedings initiated by the Enforcement Directorate, in respect of some of the show cause memoranda issued by the Directorate, after hearing arguments on behalf of your Company, the appropriate authority has passed orders in favour of your Company, and dropped those memoranda.

Meanwhile, some of the prosecutions launched by the Enforcement Directorate have been quashed by the Calcutta High Court while others are pending.

TREASURY OPERATIONS

During the year, your Companys treasury operations continued to focus on deployment of temporary surplus liquidity and manage the foreign exchange exposures within a well-defined risk management framework.

The year under review was characterized by falling interest rates with the Reserve Bank of India reducing Policy rates by a cumulative 100 basis points. However, tight liquidity conditions in the Banking system brought about intermittent spikes in money market interest rates. In this environment your Company, by appropriately managing portfolio duration continued to improve its treasury performance.

All investment decisions in deployment of temporary surplus liquidity continued to be guided by the tenets of Safety, Liquidity and Return. The portfolio mix during the year was constantly rebalanced in line with changing interest rate scenario which helped enhance yields. Further, by the year end, in line with expectations of lower interest rates, the portfolio was rebalanced with exposures in long-dated Fixed Maturity Plans and Bank Fixed Deposits. Your Companys risk management processes ensured that all deployments were made with proper evaluation of underlying risk while remaining focused on capturing market opportunities.

In the foreign exchange market, the Indian Rupee depreciated during the year and was witness to bouts of high volatility. In a scenario where Rupee was under continuous pressure, your Company adopted an appropriate forex management strategy, which included use of foreign exchange forward contracts and plain vanilla options, to protect business margins and reduce risks / costs.

As in earlier years, commensurate with the large size of the temporary surplus liquidity under management, treasury operations continue to be supported by appropriate control mechanisms, including an independent check of 100% of transactions, by your Companys Internal Audit department.

TAXATION

As mentioned in the Report of the Directors of earlier years, your Company had obtained Stay Orders from the Honble Calcutta High Court in respect of the Income Tax notices for re-opening the past assessments for the period 1st July, 1983 to 30th June, 1986. This status remains unchanged.

As stated in the Report of the Directors of earlier years, in respect of similar Income Tax notices for re-opening the past assessments for the period 1st April, 1990 to 31st March, 1993, the Honble Calcutta High Court had admitted the Writ Petitions and ordered that no final assessment orders be passed without the leave of the Court. This status also remains unchanged.

PUBLIC DEPOSITS

Your Companys Public Deposit Scheme closed in the year 2000. As at 31st March, 2013, there were no deposits due for repayment except in respect of 2 deposit holders totalling Rs. 20,000 which have been withheld on the directives received from government agencies.

There was no failure to make repayments of Fixed Deposits on maturity and the interest due thereon in terms of the conditions of your Companys erstwhile Schemes.

INVESTOR SERVICE CENTRE

The Investor Service Centre (ISC) of your Company, accredited with ISO 9001:2008 certification, provides best-in-class investor services through an experienced team of professionals. ISC continues to upgrade its infrastructure, systems and processes to provide exemplary services to the shareholders and investors of the Company. The level 5 rating, the highest possible rating, accorded by Messrs. Det Norske Veritas for the fourth consecutive year, stands testimony to the excellence achieved by ISC in providing quality investor services.

ISC, in its constant endeavour to further improve its services, requests feedback on your experience as a shareholder or investor. The Shareholder Satisfaction Survey questionnaire for this purpose is being sent to the Members. This questionnaire can also be accessed from the Companys corporate website www.itcportal.com under the section Investor Relations and can be submitted online.

DIRECTORS

Mr. Kurush Noshir Grant, a Wholetime Director of your Company since 20th March, 2010, completed his term on 19th March, 2013. The Board of Directors of your Company (the Board) at its meeting held on 18th January, 2013, appointed Mr. Grant as Additional Director with effect from 20th March, 2013, and subject to the approval of the Members, also as Wholetime Director for a period of five years from 20th March, 2013.

Ms. Meera Shankar and Mr. Sahibzada Syed Habib-ur- Rehman were appointed by the Board at its meeting held on 27th July, 2012 as Additional Non-Executive Directors of your Company with effect from 6th September, 2012 and 27th July, 2012, respectively.

By virtue of the provisions of Article 96 of the Articles of Association of your Company and Section 260 of the Companies Act, 1956, Ms. Shankar and Mr. Rehman will vacate office at the ensuing Annual General Meeting (AGM) of your Company.

Your Board at its meeting held on 17th May, 2013, recommended for the approval of the Members the appointment of Ms. Shankar and Mr. Rehman as Non- Executive Directors of the Company, liable to retire by rotation, with effect from the date of the ensuing AGM of your Company.

Mr. Dinesh Kumar Mehrotra, Mr. Sunil Behari Mathur and Mr. Pillappakkam Bahukutumbi Ramanujam were appointed as Non-Executive Directors of your Company with effect from 30th July, 2008 and their present term will expire on 29th July, 2013. Your Board at its meeting held on 17th May, 2013 recommended for the approval of the Members the re-appointment of Messrs. Mehrotra, Mathur and Ramanujam as Non-Executive Directors of the Company, liable to retire by rotation, with effect from 30th July, 2013.

Notices, under Section 257 of the Companies Act, 1956, have been received from Members of the Company for the appointment / re-appointment of Ms. Shankar, Messrs. Grant, Rehman, Mehrotra, Mathur and Ramanujam, who have filed their consents to act as Directors of the Company, if appointed.

Appropriate resolutions seeking your approval to the aforesaid appointments / re-appointments are appearing in the Notice convening the 102nd AGM of your Company.

In accordance with the provisions of Article 91 of the Articles of Association of the Company, Mr. Shilabhadra Banerjee, Mr. Angara Venkata Girija Kumar, Mr. Hugo Geoffrey Powell, Dr. Basudeb Sen and Mr. Balakrishnan Vijayaraghavan will retire by rotation at the ensuing AGM of your Company and being eligible, offer themselves for re-election. The Board has recommended their re-election.

AUDITORS

Statutory Auditors

Your Companys Auditors, Messrs. Deloitte Haskins & Sells, retire at the ensuing AGM and, being eligible, offer themselves for re-appointment. Since not less than 25% of the Subscribed Share Capital of your Company is held collectively by Public Financial Institutions, the re-appointment of Auditors is being proposed as a Special Resolution in accordance with Section 224A of the Companies Act, 1956.

Cost Auditors

Your Company had appointed (i) Mr. P. Raju Iyer, Cost Accountant, Chennai, as Cost Auditor for audit of cost records maintained by the Paperboards and Specialty Papers business and (ii) Messrs. Shome & Banerjee, Cost Accountants, Kolkata, for cost records in respect of Paper products other than the cost records maintained by the Paperboards and Specialty Papers business for the financial year ended 31st March, 2012. The Cost Audit Report was filed by the Cost Auditor on 23rd January 2013 within the due date of 28th February 2013.

In respect of the financial year ended 31st March, 2013, your Company, has appointed (i) Mr. P. Raju Iyer, Cost Accountant, Chennai, as Cost Auditor for audit of cost records maintained by the Paperboards and Specialty Papers business (ii) Messrs. Shome & Banerjee, Cost Accountants, Kolkata, for cost records in respect of Paper products other than the cost records maintained by the Paperboards and Specialty Papers business. They were also appointed as the Cost Auditors in respect of Plastics & Polymers, Apparel, Edible Oil Seeds & Oil, and Plantation products. (iii) Messrs.

S.Mahadevan & Co., Cost Accountants, Chennai, were appointed as the Cost Auditors for Packaged Food products. The due date for filing the Cost Audit Reports is 27th September, 2013.

EMPLOYEE STOCK OPTION SCHEME

Under your Companys Employee Stock Option Schemes, 8,34,08,810 Ordinary Shares of Rs. 1/- each, were issued and allotted during the year upon exercise of 83,40,881 Options; such shares rank pari passu with the existing Ordinary Shares of your Company. Consequently, the Issued and Subscribed Share Capital of your Company as at 31st March, 2013 stands increased to Rs. 790,18,33,110/- divided into 790,18,33,110 Ordinary Shares of Rs. 1/- each.

Details of the Options granted up to 31st March, 2013 and other disclosures as required under Clause 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (the SEBI Guidelines) are set out in the Annexure to this Report.

Your Companys Auditors, Messrs. Deloitte Haskins & Sells, have certified that your Companys Employee Stock Option Schemes have been implemented in accordance with the SEBI Guidelines and the resolutions passed by the Members in this regard.

DIRECTORS RESPONSIBILITY STATEMENT

As required under Section 217 (2AA) of the Companies Act, 1956, your Directors confirm having:

a) followed in the preparation of the Annual Accounts, the applicable accounting standards with proper explanation relating to material departures if any;

b) selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company at the end of the financial year and of the profit of your Company for that period;

c) taken proper and sufficient care 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; and

d) prepared the Annual Accounts on a going concern basis.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial Statements, ITC Group Accounts form part of this Report & Accounts.

These Group Accounts also incorporate the Accounting Standard 23 - Accounting for Investments in Associates in Consolidated Financial Statements and Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures as notified under the Companies (Accounting Standards) Rules, 2006. These Group accounts have been prepared on the basis of audited financial statements received from Subsidiary, Associate and Joint Venture Companies, as approved by their respective Boards.

OTHER INFORMATION

The total number of employees as on 31st March, 2013 stood at 25,959.

The certificate of the Auditors, Messrs. Deloitte Haskins & Sells confirming compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is annexed.

Particulars as required under Section 217(1)(e) of the Companies Act, 1956 relating to Conservation of Energy and Technology Absorption are also provided in the Annexure to this Report.

There were 83 employees, who were employed throughout the year and were in receipt of remuneration aggregating Rs. 60 lakhs or more or were employed for part of the year and were in receipt of remuneration aggregating Rs. 5 lakhs per month or more during the financial year ended 31st March, 2013. The information required under Section 217(2A) of the Companies Act, 1956 and the Rules thereunder, in respect of the aforesaid employees, is provided in the Annexure forming part of this Report.

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements that involve risks and uncertainties. When used in this Report, the words anticipate, believe, estimate, expect, intend, will and other similar expressions as they relate to the Company and/or its businesses are intended to identify such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of their dates. This Report should be read in conjunction with the financial statements included herein and the notes thereto.

CONCLUSION

Your Companys Board and employees are inspired by the Vision of sustaining ITCs position as one of Indias most admired and valuable companies, creating enduring value for all stakeholders, including the shareholders and the Indian society. Your Company has created multiple drivers of growth by developing a portfolio of world-class businesses which have synergised to deliver Total Shareholder Returns at a compound annual growth rate of over 26% during the 17 year period from 1996 to 2013. Each business within the portfolio is continuously engaged in upgrading strategic capability to effectively address the challenge of growth in an increasingly competitive market scenario. Effective management of diversity enhances your Companys adaptive capability and provides the intrinsic ability to effectively manage business risk. The vision of enlarging your Companys contribution to the Indian economy is manifest in the creation of unique business models that foster international competitiveness of not only its businesses but also the entire value chain of which they are a part.

Inspired by this Vision, driven by Values and powered by internal Vitality, your Directors and employees look forward to the future with confidence and stand committed to creating an even brighter future for all stakeholders.

17th May, 2013 On behalf of the Board

Virginia House

37 J L Nehru Road

Kolkata 700071 Y. C. DEVESHWAR Chairman

India P. V. DHOBALE Director


Mar 31, 2012

The Directors submit their Report for the financial year ended 31st March, 2012.

The following sections outline your Company's progress in pursuit of the 'Triple Bottom Line' objectives.

FINANCIAL PERFORMANCE

Your Company posted yet another year of impressive results with strong topline growth and high quality earnings, reflecting the robustness of its corporate strategy of creating multiple drivers of growth. This performance is particularly remarkable when viewed against the backdrop of the extremely challenging business context in which it was achieved, namely, a slowdown in the economy, high levels of inflation and the continuing cascading impact of arbitrary increases in VAT on cigarettes.

Gross Revenue for the year grew by 14.2% to Rs 34871.86 crores. Net Revenue at Rs 24798.43 crores grew by 17.2% primarily driven by a 23.6% growth in the non-cigarette FMCG businesses, 20.0% growth in Agri business and 16.6% growth in the Cigarettes segment. Profit before tax increased by 22.4% to Rs 8897.53 crores while Net Profits at Rs 6162.37 crores registered a growth of 23.6%. Earnings Per Share for the year stands at Rs 7.93 (previous year Rs 6.49). Cash flows from Operations aggregated Rs 8334 crores compared to Rs 7528 crores in the previous year.

Continuing with your Company's chosen strategy of creating multiple drivers of growth, your Company is today, the leading FMCG marketer in India, the second largest Hotel chain, the clear market leader in the Indian Paperboard and Packaging industry and the country's foremost Agri business player. Your Company's wholly owned subsidiary, ITC Infotech India Limited, is one of India's fast growing Information Technology companies in the mid-tier segment. Additionally, over the last sixteen years, your Company's Gross Revenues and Net Profits recorded an impressive compounded growth of 12.7% and 21.8% per annum respectively. During this period, Return on Capital Employed improved substantially from 28.4% to 45.4% while Total Shareholder Returns, measured in terms of increase in market capitalisation and dividends, grew at a compounded annual growth rate of 25.7% during this period, placing your Company amongst the foremost in the country in terms of efficiency of servicing financial capital. Your Company today is one of India's most admired and valuable corporations with a market capitalisation of nearly Rs 180000 crores and has consistently featured, over the last sixteen years, amongst the top 10 private sector companies in terms of market capitalisation and profits.

Your Directors are pleased to recommend a Dividend of Rs 4.50 per share (previous year - Rs 4.45 per share including a Special Dividend Rs 1.65 per share) for the year ended 31st March, 2012. Total cash outflow in this regard will be Rs 4089.04 crores (previous year Rs 4002.09 crores) including Dividend Distribution Tax of Rs 570.75 crores (previous year Rs 558.62 crores) representing an increase in the payout over last year that included Rs 1484 crores as Special Dividend, including Dividend Distribution Tax, declared to commemorate your Company's 100th AGM.

Your Board further recommends a transfer to General Reserve of Rs 650.00 crores (previous year Rs 498.76 crores). Consequently, your Board recommends leaving a surplus in Statement of Profit and Loss of Rs 1972.59 crores (previous year Rs 548.67 crores).

FOREIGN EXCHANGE EARNINGS

Your Company continues to view foreign exchange earnings as a priority. All businesses in the ITC portfolio are mandated to engage with overseas markets with a view to testing and demonstrating international competitiveness and seeking profitable opportunities for growth. The ITC group's contribution to foreign exchange earnings over the last ten years amounted to nearly US$ 4.9 billion, of which agri exports constituted 56%. Earnings from agri exports are an indicator of your Company's contribution to the rural economy through effectively linking small farmers with international markets.

During the financial year 2011/12, your Company and its subsidiaries earned Rs 3072 crores in foreign exchange. The direct foreign exchange earned by your Company amounted to Rs 2621 crores, mainly on account of exports of agri-commodities. Your Company's expenditure in foreign currency amounted to Rs 1859 crores, comprising purchase of raw materials, spares and other expenses of Rs 1153 crores and import of capital goods at Rs 706 crores. Details of foreign exchange earnings and outgo are provided in Note 28 to the Financial Statements.

PROFITS, DIVIDENDS AND SURPLUS

(Rs in Crores)

PROFITS 2012 2011

a) Profit Before Tax 8897.53 7268.16

b) Tax Expense

- Current Tax 2664.29 2263.71

- Deferred Tax 70.87 16.84

c) Profit for the year 6162.37 4987.61

SURPLUS IN STATEMENT OF PROFIT AND LOSS

a) At the beginning of the year 548.67 61.31

b) Add : Profit for the year 6162.37 4987.61

c) Less:

-Transfer to General Reserve 650.00 498.76

- Proposed Dividend for the financial year

- Ordinary Dividend of Rs 4.50 per ordinary share of Rs 1/- each (previous year - Rs 2.80 per share) 3518.29 2166.68

- Special Dividend of Nil per ordinary share of Rs 1/- each

(previous year - Rs 1.65 per share) - 1276.79

- Income Tax on Proposed Dividends

- Current Year 570.75 558.62

- Earlier year's provision no (0.59) (0.60) longer required

d) At the end of the year 1972.59 548.67

BUSINESS SEGMENTS

A. FAST MOVING CONSUMER GOODS FMCG

- Cigarettes

The cigarette industry in India continues to be impacted by a discriminatory taxation and regulatory policy framework. The steep increase in the tax rates on cigarettes, both at the Central and at the State level, has led to the undesirable consequence of shifting consumption to lightly taxed or tax evaded tobacco products like Bidi, Khaini, Chewing Tobacco and Gutkha which are the most dominant forms of tobacco consumption in India and constitute as much as 85% of total usage. The twin objectives of revenue maximisation and tobacco control have been severely compromised by this lopsided tax policy on cigarettes which now contributes over 74% of tax revenue, whilst accounting for less than 15% of tobacco consumption. Further, the tax arbitrage opportunities have fuelled the rampant growth of illegal cigarettes.

The steep hike in Excise Duty rates announced in the Union Budget 2012 will further exacerbate the problem of discriminatory and high taxation on cigarettes within the tobacco industry.

The year under review also witnessed arbitrary and steep hikes in VAT rates on cigarettes by many States. This is a complete departure from the principles of uniform VAT rates enunciated by the Empowered Committee in its White Paper on State level Value Added Tax. Further, several States continued to levy discriminatory and higher rates of VAT on cigarettes compared to other tobacco products, thereby widening the tax gap amongst tobacco products. A plethora of 29 different tax rates are currently applicable on cigarettes across States in India which has forced manufacturers to adopt State specific pricing. Not only will this result in unproductive costs in managing supply chain complexities but also lead to potential disputes in the assessment of ad-valorem taxes. The imposition of non-uniform VAT rates by States also goes against the tenets of the draft National Competition Policy, which recommends a 'single national market' in line with the principle that fragmented markets impede competition. In addition, the resultant attractive tax arbitrage opportunity promotes illegal inter-State diversion of stocks by unscrupulous elements thus depriving the Government of revenue and diverting trade away from legitimate distribution channels.

The findings reported in the Global Adult Tobacco Survey (GATS) India, 2009-10 study, conducted under the aegis of the Ministry of Health & Family Welfare, shows that whilst the consumer base of tobacco in India stands at 34.6% of all adults, the cigarette share is only 5.7%. About 75% of Indian tobacco consumers consume non- smoking tobacco products mainly in the form of oral chewing products which constitutes the single largest consumer base for tobacco products in India. It may be noted that India, with 17% of the world population, accounts for 89% of global tobacco consumption in smokeless form. Cigarette consumption in India, on the other hand, constitutes only 1.9% of global consumption. This pattern of tobacco consumption is contrary to global trends, including that of our neighbouring countries, where cigarettes are the dominant form of tobacco consumption.

The domestic legal cigarette industry is faced with the growing menace of illegal cigarettes. Independent research indicates that, in India, whilst there is a fall in volumes of 'duty paid' cigarettes by 4.4% during the period 2005 to 2010, the 'duty-not-paid' volumes grew by 49.3% during the same period. India has now been recognised as one of the leading destinations for illegal cigarettes.

Attractive tax arbitrage opportunities, as a result of high level of taxes on the legal domestic cigarette industry in India, incentivises illegal flow of cigarettes into the country, especially of internationally advertised and known brands.

Another dangerous outcome of the increasing volume of illicit trade is that it encourages the entry of organised criminal syndicates, which can have serious law and order consequences for the country. Internationally, it has been reported that illegal profits from cigarette smuggling have been used to fund terrorist activities.

Coupled with our porous borders, cigarette imports under Open General License (OGL) make it extremely difficult to monitor and regulate the inflow of illegal stocks. Further, with the domestic cigarette industry being strictly regulated, including compulsory licensing under the Industrial (Development & Regulation) Act, 1951, a liberal import policy is contrary to the Government's tobacco control policies. This is also detrimental to the interests of Indian tobacco farmers, as it directly impacts the demand for indigenous tobacco by the domestic industry.

The demographic construct of India's population calls for multiple price points to meet the needs of the country's diverse consumer segments. The growth of illegal cigarettes is also aided by the vacuum created at lower price points, where legal industry has been unable to operate, due to a disproportionately high tax burden. Further, the lacunae in the provisions of the Industrial (Development & Regulation) Act, 1951 encourages 'fly by night' operators to manufacture illegal cigarettes without obtaining requisite licenses and clandestinely clear them without payment of taxes.

The industry had recommended that the Excise Duty rate at the entry level segment be reduced to Rs 200 per thousand cigarettes to enable the domestic legal industry to effectively counter illegal cigarettes with competitively priced products. Whilst, the length prescribed for the filter cigarette segment at the lowest end has been revised from 'length < 60mm' to 'length < 65mm', the Excise Duty on the segment has been retained at Rs 689 per thousand cigarettes. Coupled with alarmingly high State VAT and local taxes, the legitimate, duty paid, industry will still be unable to match the prices of product offers of the illegal industry, at the current Excise Duty level.

The implementation of Goods and Services Tax (GST) with a unitary standard rate of tax across the Indian common market will be an important milestone in the near future. As stated earlier, cigarettes, by virtue of being very highly taxed, offers a lucrative tax arbitrage opportunity and is vulnerable to large scale smuggling. Consequently, it is imperative that GST on cigarettes is levied in an appropriate manner i.e. at the uniform standard rate applicable to the general category of goods across the country, with availability of input tax credit. Central Excise Duty should continue to be levied only at specific rates. It is critical to note that any increase in the overall tax rate on cigarettes, will widen the arbitrage opportunity between legitimate cigarettes and illegal, tax evaded cigarettes. It is, therefore, critical that the combined incidence of Excise Duty and GST on cigarettes remains revenue neutral (i.e., kept at current levels).

Your Company, along with other stakeholders and industry bodies continues to represent to the regulatory authorities seeking a non-discriminatory tax and regulatory policy on tobacco products in the interest of the Government exchequer, domestic farmer community and industry.

Despite a difficult operating environment in the market place, it is gratifying to report that your Company further improved its market standing during the year. Your Company's uncompromising commitment to continuous and consistent offerings of value-added, world class products has been reinforced through innovations in product development and launch of differentiated offers. The portfolio continues to be strengthened through strategic investments in product quality and technology.

A premium line of hand-rolled cigars launched by your Company in 2010 under the brand name 'Armenteros' has gained significant consumer franchise, competing against world renowned Cuban and other cigar brands. The Armenteros range of cigars is now available in premium outlets across key cigar markets and is expected to further consolidate and grow its franchise.

During the year, a state-of-the-art, flexible, Primary Plant designed to cater to future product development requirements was successfully commissioned at Ranjangaon, Pune. The uncompromising focus on quality, investments in best-in-class technology and embedding of best practices has ensured the continued delivery of products of international quality. Structured problem solving methodologies like Six Sigma and several initiatives that foster innovation have been deployed to ensure sustained improvements in quality and productivity of all resources.

In line with your Company's commitment to building sustainable environmental capital, the business continues to invest in renewable sources of energy. A 6.3 megawatts (MW) wind energy facility has been commissioned in Maharashtra during the year. Solar panels have been installed for boiler feed water and furnace oil preheating systems at Bengaluru and Munger factories respectively. All units also maintained the highest standards of Environment Health and Safety (EHS) and won recognition by way of numerous awards. Saharanpur and Bengaluru factories were the first in India to obtain Platinum Green Factory Building Rating from the Indian Green Building Council as part of a holistic approach towards sustainability. Munger, Bengaluru, Saharanpur and Kidderpore factories have won the RoSPA Gold Award for Occupational Health and Safety. Munger factory was awarded the 'Shreshtha Suraksha Puraskar' from National Safety Council of India under Safety Award scheme 2010 (Manufacturing sector), and Certificate of Appreciation at the CII Eastern Region Energy Conservation Awards. The Bengaluru factory won the Energy Efficient Unit award under CII National Energy Award 2011, Energy Conservation Initiative Award by Centre for Sustainable Development, Innovative Rainwater Harvesting Project in the National Awards for Excellence in Water Management by CII, 'Unnatha Suraksha Puraskara' by National Safety Council- Karnataka Chapter, Karnataka Renewable Energy Development Limited (KREDL) award for achievements in Energy Conservation and Certificate of Appreciation under CII Southern Region Excellence Award in Environment, Health & Safety. The Kidderpore factory won the Water Efficient Unit Award under CII National Award for Excellence in Water Management 2011 and Certificate of Appreciation under CII Eastern Region Safety, Health and Environment (SHE) Award.

Your Company's Cigarettes business faces the daunting challenges of an unprecedented high incidence of taxation, complex tax structure, rising illegal trade and a discriminatory regulatory climate. Despite these challenges, the relentless pursuit of excellence in building robust, world class brands, innovation in processes and investment in world class technologies will enable your Company to further consolidate its market standing. Your Company believes that both the objectives of maximisation of the economic potential of tobacco and the tobacco control can be achieved through rationalisation of taxes on cigarettes, minimisation of discriminatory taxes between different classes of tobacco products and a regulatory framework that addresses the genuine concerns of all the stakeholders of the tobacco industry. The need is for a balanced agenda on tobacco, both fiscal and regulatory.

FMCG - Others

The Indian FMCG industry is estimated to be over Rs 160000 crores in size and accounts for nearly 2.2% of the GDP of the country. The industry has tripled in size over the last 10 years and has grown at approximately 17% CAGR in the last 5 years, driven by robust economic growth, rising income levels, increasing urbanisation and favourable demographic trends. These growth drivers are expected to continue to favourably impact the industry which is estimated to reach Rs 400000 crores by 2020 (Source: CII, FMCG Roadmap to 2020). According to a recent study by the consultancy firm Boston Consultancy Group, the Indian consumer market is poised to grow at a compounded annual growth rate of 15% between 2010 and 2020, faster than most other emerging markets.

Given these positive fundamentals, your Company has been rapidly scaling up its new FMCG businesses comprising Branded Packaged Foods, Personal Care Products, Education and Stationery Products, Lifestyle Retailing, Incense Sticks (Agarbattis) and Safety Matches with Segment Revenues growing at an impressive compound annual growth rate of nearly 40% since 2005-06.

Within a relatively short span of time, your Company has established several strong consumer brands in the Indian FMCG market. Segment Results reflect the gestation costs of these businesses largely comprising costs associated with brand building, product development, R&D and infrastructure creation. The year under review saw a 24% growth in Segment Revenues and a significant improvement in Segment Results which recorded a positive swing of Rs 102 crores at the PBIT level.

Your Company's unwavering focus on quality, innovation and differentiation backed by deep consumer insights, world class R&D and an efficient and responsive supply chain will further strengthen its leadership position in the Indian FMCG industry.

Highlights of progress in each category are set out below.

Branded Packaged Foods

Your Company's Branded Packaged Foods business grew significantly during the year, recording growth in market shares and enhanced market standing across segments. A robust range of well-differentiated products, supported by significant investments in product development, innovation, manufacturing technology and unmatched distribution infrastructure continue to enhance the market standing and consumer franchise of your Company's brands. Continuing investments in R&D and product development have enabled your Company launch successful and innovative products. The quality of your Company's products continues to be 'best-in- class' in the industry across all segments. Value capture was improved through cost optimisation across the supply chain and optimal capital deployment.

During the year, the business witnessed inflationary pressures on input costs. Supply side constraints coupled with growing demand caused prices of edible oil, packaging material and industrial fuel to remain at inflated levels. These cost pressures were mitigated through a combination of improvements in product and process efficiencies, smart sourcing and supply chain initiatives.

Your Company ventured into the Instant Noodles category towards the end of 2010. The product has been well received by consumers and is already the second largest Instant Noodle brand in the country. Focused market research, deep consumer insights and innovative product formats under the 'Sunfeast Yippee!' brand is expected to further strengthen consumer traction in a fast growing and highly competitive industry segment.

In the Staples category, 'Aashirvaad' atta consolidated its leadership position aided by the strong performance of Aashirvaad 'Multi-grain' atta. Premium offerings of Aashirvaad 'Multi-grain' and 'Select' brands continued to grow rapidly aided by an increasing proportion of consumers shifting to these value-added propositions.

The Biscuits industry witnessed impressive growth during the year and your Company's 'Sunfeast' brand continued to do well across product platforms. Portfolio enrichment was driven through the launch of Sunfeast Dark Fantasy Choco Fills and Sunfeast 'Dual' Dream Cream. These two innovative, 'first to market' flavours created excitement amongst consumers and significantly enhanced the consumer franchise of the 'Sunfeast' brand.

In the Confectionery category, 'Candyman' and 'mint-o' continued to register strong growth during the year. The category witnessed two launches with mint-o GOL Green and mint-o Strong. The continued success of Toffichoo, Lacto and Choco-Double eclairs provided further impetus to the overall growth of the Confectionery business.

In the Savoury Snacks segment, the market standing of your Company's 'Bingo!' brand has significantly improved through enhanced brand building efforts. Use of digital media, word of mouth and clutter breaking advertisements improved brand salience. The product portfolio was further strengthened during the year with the launch of a new product format - 'Tangles' and a new innovative variant - 'Mad Angles Masti Chaat'.

The business continues to invest in manufacturing and distribution infrastructure to support larger scale and improve reach and availability. Supply Chain improvements to enhance product freshness, optimal servicing of proximal markets and margin expansion continue to receive significant attention.

Buoyed by increasing consumer franchise for your Company's brands, it is expected that the accelerated growth of the Branded Packaged Foods business will be sustained in the years ahead. The growth momentum of the Foods business will continue to be driven by focus on product quality, innovative product development, multi-point contact with consumers and high quality of service to all segments of trade.

Personal Care Products

Your Company's Personal Care Products business continued to make significant strides in strengthening its portfolio through a slew of new launches and extensions in the Soaps, Shampoos and Skin Care categories. The business continues to roll out its product offerings under the 'Essenza Di Wills', 'Fiama Di Wills', 'Vivel' and 'Superia' brands across new geographies and is focused on addressing various consumer benefits with the introduction of new variants.

The year saw the successful introduction of a new range of soaps under the 'Vivel' franchise with the launch of 'Vivel Luxury Creme' variant and a new offering 'Vivel Clear 3-in-1' in the transparent soap segment. Your Company continues to receive accolades for its product innovation initiatives. In continuation of previous years' trends, this year, the 'Vivel Clear 3-in-1' transparent soap was voted 'Product of the Year' in the soaps category.

The business entered the Talcum Powder category during the year with the launch of 3 variants under the Fiama Di Wills brand. During the year, the business also made a foray into the fast growing Face Wash category with offerings under the Fiama Di Wills and Vivel brands. The fairness cream portfolio was augmented with the introduction of a new variant under the Superia brand. The new product launches as aforementioned have received encouraging consumer response and are being rolled out across target markets.

The business continued to grow at a healthy rate despite the high degree of competitive intensity especially from entrenched players. The strategy of developing products on the basis of deep consumer insights and superior quality has helped your Company gain market standing in a short span of time.

The year under review witnessed sharp escalation and volatility in the prices of key inputs. Your Company used a mix of smart sourcing strategies, value engineering and cost control measures to mitigate the impact thereof and enhance margins.

During the year, the factory at Manpura received certifications for ISO 9001 (Quality Management System), ISO 14001 (Environment Management System) and OHSAS 18001 (Occupational Health & Safety Assessment System) from Messrs. Det Norske Veritas (DNV). With this, the main production units of the business are certified for their quality management systems. A business-wide programme using 'Lean' and 'Six Sigma' methodologies, which was launched last year, was further broad-based during the current year in pursuit of process excellence.

Sustained investment in R&D over the years has resulted in a healthy pipeline of new and innovative products. Product innovation and quality continue to be focus areas that are expected to provide the requisite competitive advantage and impetus for growth in the near future. These interventions, together with investments in world class manufacturing processes and technology will enable the business to further strengthen its portfolio of value-added products.

The Personal Care industry in India continues to be on a long term growth path, with rising disposable incomes and changing consumer preference for enhanced personal grooming. The business is well poised to actively participate in the emerging growth opportunities in this sector and continues to leverage its strengths in the rapidly transforming landscape of beauty and personal care products in India.

Education & Stationery Products

Your Company is the leading and fastest growing player in the Indian stationery market. The flagship brand 'Classmate' is India's leading student notebook brand with a distribution footprint of over 75,000 stationery retail outlets across the country. Besides notebooks, the 'Classmate' brand offers a wide range of products that includes ball and gel pens, wood cased and mechanical pencils, mathematical instruments, erasers, sharpeners and scales. 'Classmate' also endorses 'Colour Crew', an art stationery brand, with a range of wax crayons, colour pencils and sketch pens for children.

The Classmate range of products is sourced from small scale manufacturers, who have over the years continuously improved their delivery and quality capabilities. A majority of them, with your Company's assistance, are ISO 9001:2008 certified. Paper and recycled board are sourced from your Company's mills at Bhadrachalam and Kovai respectively. The paper used in Classmate notebooks leverages your Company's world class fibre line at Bhadrachalam which is India's first ozone treated elemental chlorine free facility. Every Classmate notebook also carries a powerful social message that reflects your Company's commitment to improving the quality of primary education in rural India.

During the year, the business took significant steps to strengthen 'Paperkraft', its executive and office supplies stationery brand. Working in tandem with the Paperboards & Specialty Paper business, your Company has positioned 'Paperkraft' as the finest green paper for business applications viz. copy-scan-print-fax. Paperkraft's green credentials are supported, among other factors, by your Company's membership of the prestigious Global Forest & Trade Network.

The education and stationery products industry continues to grow on the back of massive government and private investments in the education sector. The government's flagship Sarva Shiksha Abhiyan programme coupled with the mid-day meals initiative is successfully enhancing enrolment and reducing dropouts at the primary school level. Likewise, it is expected that enrolment ratios at the secondary and tertiary levels will also improve. Progressive reforms will enable flow of private sector investments into capacity building and quality enhancement in education delivery. Further, the Right of Children to Free and Compulsory Education Act, 2009, will further accelerate growth in the education and stationery supplies sectors. Your Company's strong brands - 'Classmate' and 'Paperkraft' - with increasing consumer franchise, widening high quality product range and excellent distribution infrastructure is advantageously positioned to respond to this opportunity.

Lifestyle Retailing

During the year, your Company's Lifestyle Retailing business posted strong growth in revenues and continued to strengthen its position in the branded apparel market. After a buoyant first half, industry growth moderated in the second half due to the slowing down of the domestic economy and price increases effected by most industry players consequent to the introduction of Excise Duty on branded apparel in the Union Budget 2011 and rising input costs. The business's focus on strategic cost management actions and improvements in operational efficiencies helped to partly offset the adverse impact of tax and cost increases.

In the Premium segment, Wills Lifestyle with its superior product variety and richer product mix continued to enjoy strong consumer franchise. The retail footprint of the brand was expanded to 86 exclusive stores across 40 cities and more than 300 'shop-in-shops' in leading departmental stores and multi-brand outlets. Significant improvements were achieved during the year in terms of product range, enhanced availability and impactful visibility resulting in volume growth across channels.

Product appeal was enhanced through the introduction of differentiated offerings across several premium product platforms - 'Wonderpress' wrinkle free fabrics, 'Ecostyle' organic collection and 'Creme de Cotton' supersoft cottons. The 'Luxuria' range of Men's super-premium formals, finely crafted from luxurious Egyptian cotton with high-end trims and superior garmenting continued to receive positive consumer response. The Women's range was energised by offering an extensive, high-end designer wear range, stylised formals, a variety of trendy silhouettes and a premium range of accessories.

In the Popular segment, 'John Players' has established a strong pan-India presence with over 340 flagship stores and 1,100 multi brand outlets and departmental stores. During the year, the retail footprint was expanded significantly, with nearly 100 new stores being launched, increasing brand reach, penetrating more markets and acquiring new franchise. The denims category registered strong growth as a result of an enhanced range, premium differentiated washes and contemporary fits while continuing to receive positive consumer and trade response.

Wills Lifestyle continued to receive recognition from the industry, including the 'Superbrand' certification, and is the first Indian brand to receive the prestigious 'Oeko-Tex Standard 100 Certification'.

Business processes for creation of winning designs and efficient supply chain were strengthened during the year.

Improving retail and manufacturing productivity were pursued vigorously with continued focus on strengthening capability through training, knowledge and skill inputs.

The business will continue to increase the premium quotient of its offerings on the basis of deeper understanding of consumer preferences, and delivering products benchmarked to world class quality standards. Further investments are planned to enhance range vitality, supply chain responsiveness and superior customer service to delight the customer with an international shopping experience.

Incense sticks (Agarbattis)

Your Company's Agarbatti business recorded an impressive growth in revenues and enhanced market standing during the year, driven by increasing consumer franchise for the 'Mangaldeep' brand combined with deeper distribution reach and innovative consumer offerings. Mangaldeep is the second largest national brand in the industry.

During the year, the business launched several new variants under the umbrella brand 'Mangaldeep'. These variants have received wide consumer acceptance and are being rolled out across India.

The business continues to contribute to your Company's commitment to the 'Triple Bottom Line' by providing livelihood opportunities to more than 12,000 people through small and medium scale entrepreneurs and NGOs / Self Help Groups across India. Business initiatives of introducing enabling tools and technology in the rural communities continue to enhance product quality and increase the earning potential of agarbatti rollers. These initiatives, along with the continuing association with various State Governments for setting up sourcing centres, are creating sustainable livelihood opportunities for rural women through agarbatti rolling.

Safety Matches

Your Company's Safety Matches business maintained its market leadership aided by continued consumer preference for its strong brand portfolio across all market segments.

With sustained escalation in the prices of raw materials like wood, paperboard and key chemicals, industry margins remained under severe pressure during the year. Your Company mitigated the adverse impact of these input costs through a series of strategic cost management actions. Your Company continues to focus on enhancing market standing through the launch of high quality and value-added products.

Your Company continues to partner the small scale sector by sourcing a significant portion of its requirement from multiple units in this sector. Your Company is helping to improve the competitive ability of these units by providing technical inputs to strengthen their systems and processes.

Technology induction in manufacturing is crucial for the long term sustainability of this industry. A uniform taxation framework which provides a level playing field to all manufacturers is necessary to enable the required investments for modernising this industry. This would not only help the industry in improving its competitiveness but also provide a safer working environment for the large number of people employed in this industry.

B. HOTELS

The hospitality industry in India continued to be impacted by the slowdown in the domestic economy and adverse economic environment in the international feeder markets of the US and Europe. While the US market appears to be on the path of slow recovery, the European market is yet to come out of its debt problems and recession. As a result, both international and domestic business segments for the luxury hotels remained muted.

In the backdrop of these challenging circumstances, your Company's Hotels business registered a marginal growth in revenues and profits, while maintaining its leadership position in terms of operating margins.

Your Company's Hotels business continues to be rated amongst the fastest growing hospitality chains with 94 properties at 67 locations in India operating under 4 brands - 'ITC Hotel' at the luxury end, 'WelcomHotel' in the 5 star segment, 'Fortune' in the mid market to upscale segment and 'WelcomHeritage' in the heritage leisure segment. In addition, the business has licensing and franchising agreements for two brands - 'The Luxury Collection' and 'Sheraton' with the Starwood Hotels & Resorts.

Recognising the changing preferences of the business traveller, your Company launched a new brand under the 'Fortune' brand this year viz. 'My Fortune' which is designed to cater to the upscale business traveller. The first 'My Fortune' hotel was launched in Chennai during the year and further expansion is on the anvil.

During the year, your Company's premier hotel at Jaipur has been upgraded to an 'ITC Hotel' with 'The Luxury Collection' co-branding. The hotel is now known as 'ITC Rajputana' in line with other luxury properties of the chain.

Food and Beverage (F&B) remains a major strength of your Company and its iconic brands 'Bukhara', 'Dum Pukht' and 'Dakshin' continue to garner coveted international awards and accolades. The renovated Dum Pukht Restaurants at ITC Maurya and ITC Maratha have been highly appreciated by its patrons and generated healthy business during the year. Other signature F&B brands viz. 'West View', 'Kebabs & Kurries' and 'Pan Asian' have firmly established themselves and continue to sustain leadership position in their respective cities. The business's first Japanese cuisine brand 'Edo' has established itself as the benchmark for traditional Japanese cuisine in Bengaluru and is fast gaining recognition.

In pursuit of your Company's 'Triple Bottom Line' commitment, investments have been made in renewable energy to provide clean power to your Company's hotels in Bengaluru (ITC Windsor and ITC Gardenia), Mumbai (ITC Maratha) and Jaipur (ITC Rajputana). During the year, further investments in wind energy were made in Tamil Nadu to cater to the needs of the newly built ITC Grand Chola at Chennai. With these investments, your Company's Hotels business will meet nearly two-thirds of its energy requirements from clean and renewable sources.

Your Company remains committed to its 'Responsible Luxury' ethos and is the greenest luxury hotel chain in the world. With ITC Rajputana having obtained the 'Leadership in Energy and Environment Design' (LEED) Platinum rating during the year, all premium ITC Hotels now have this coveted rating.

During the year, your Company launched a unique pan-ITC consumer loyalty programme - 'Club ITC' - targeted at the premium clientele of 'Wills Lifestyle' and 'ITC Hotels'.

In view of the positive long term outlook for the Indian Hotel industry, your Company continues to sustain its investment-led growth strategy. Construction of the new super luxury property, ITC Grand Chola, at Chennai is now complete and slated to open in early 2012-13. The hotel is part of the 'ITC Hotel' brand and has 522 plush hotel rooms and suites, 78 service apartments, 60,000 sq. ft. of conference and banqueting facilities, 10 Food and Beverage outlets and the award-winning spa brand 'Kaya Kalp'. Construction activity of two new luxury properties at Kolkata and at Classic Golf Resort near Gurgaon is progressing satisfactorily. In addition, several new projects, including joint ventures and management contracts, are on the anvil to rapidly scale up the business across all brands.

The 'Fortune' brand which caters to the mid market to upscale segment continued its expansion by forging new alliances, taking the total number of hotels in its fold to 67 with an aggregate room inventory of over 5,000. Of these, 27 properties are under various stages of development. The 'WelcomHeritage' brand continues to be the country's most successful and largest chain of heritage hotels with 40 operating properties, spread across 13 States in India.

Your Company's Hotels business, with its globally benchmarked levels of product and service excellence and customer centricity, represented by its four brands is well positioned to sustain its leadership status in the industry and poised to emerge as the largest hotel chain in the country over the next few years.

C. PAPERBOARDS, PAPER AND PACKAGING

The Paperboards, Paper and Packaging segment recorded yet another year of steady growth in revenues and profits. Segment Revenues grew by 13% over the previous year to touch Rs 4130 crores. Segment Results at Rs 937 crores reflect a growth of 14%.

Paperboards & Specialty Papers

The global demand for paper & paperboard slowed down to 1% in 2011 as against a 6% growth in 2010. Even in India, demand decelerated to around 6.5% during 2011-12 against 7.1% in the previous year.

The global paper market continued to witness a structural shift with emerging economies, particularly in Asia such as China and India, driving the demand growth.

Though India has 17% of the world's population, it consumes only about 2% of global paper production. Per capita consumption in India is very low at only 9 kgs compared to a global average of 55 kgs, 65 kgs in China and 215 kgs in Japan.

Shift in demand to Asia and the low levels of per capita consumption in India offers Indian paper manufacturers exciting opportunities in the years to come. Though there is considerable scope for growth in the Indian paper market, competition, including from key global players, has also increased and the industry is witnessing large capital investments. Though growth in demand is expected to absorb the increased capacity, increasing and maintaining market share as well as protecting margins will be challenging.

Further, reduction of import duties under various Regional Free Trade Agreements especially with ASEAN has started impacting the profitability of the domestic paper industry. In line with the representations made by the Indian Paper Manufacturers Association, it is imperative that the current duty structures are kept unchanged.

The domestic paper and paperboard industry is currently estimated at 11.6 million tonnes per annum, out of which paperboards is 2.2 million tonnes per annum which is expected to grow at around 8% per annum aided by value-added paperboard at 12% per annum. The growth potential of the paperboard industry is anchored on expectations of higher GDP growth, increase in demand from rural markets, branded packaged products and organised retail. Further, the need for differentiated packaging coupled with change in lifestyles will continue to drive demand for paperboard. Your Company is the market leader in the paperboard segment with focus on the value-added products. To further consolidate its pre-eminent position in the industry, the business has invested in a state-of-the-art machine which is expected to be operational by early 2013.

The 'Writing and Printing' paper segment, estimated at 3.1 million tonnes, grew by 6.2% in the year under review. This segment produces papers for use in copiers, desktop printers, advertising and promotional materials, notebooks, books and annual reports. The growth in the value-added writing and printing paper segment will continue to be fuelled by initiatives like Sarva Shiksha Abhiyan and Right of Children to Free and Compulsory Education Act, 2009 as well as by increasing literacy levels, changing demographic profiles and GDP growth. This segment is expected to grow at around 8% per annum during the next 5 years, with higher growth expected in the Copier and Fine Paper categories at 16% per annum. The business with its strong forward linkages with your Company's Education and Stationery Products business has emerged as a leading player in the segment.

Specialty papers, with an estimated market size of 4.7 lakh tonnes, is expected to grow at 9.4% per annum over the next 5 years, with increased spends on infrastructure and construction driving demand for quality decor and insulating grades. Your Company is a market leader in decor grades and is the largest manufacturer of cigarette tissue in India.

Given that pulpwood availability is a major challenge for the paper industry, your Company continues with its policy of promoting social forestry plantations for pulpwood. During the year, over 57 million high quality saplings were sold/distributed to farmers. Research on clonal development has resulted in the introduction of high yielding and disease resistant clones which are adaptable to a wide variety of agro-climatic conditions.

This initiative, besides securing the long term supply of fibre at competitive costs, also assists in generating farm incomes through utilisation of marginal wastelands. Enhanced R&D activity has resulted in the development of high yielding eucalyptus and subabul clones and your Company's continued focus on clonal plantations in core areas is expected to yield significant competitive advantage in the years to come. Your Company's R&D team is actively collaborating with several expert agencies to further leverage bio-technology for enhancing farm productivity and wood yields.

In the last 15 years, your Company's bio-technology based research initiatives have resulted in the planting of about 545 million saplings covering nearly 1,25,000 hectares of plantations, including around 11,000 hectares planted during the year. These pioneering initiatives have generated over 56 million person days of employment opportunities over this period for small farmers and poor tribals. Your Company plans to accelerate the plantation activity and is in the process of setting up a new state-of-the-art clonal saplings production capacity in Bhadrachalam to facilitate the same.

Your Company continues to promote agro-forestry in pulpwood plantations on waste land as well as on land where mono-cropping is practised. This will generate additional income to farmers, provide wood security for the industry and also help in conservation of the environment. In Andhra Pradesh, mono-cropping is currently practised in cultivation of cotton, tobacco, maize and pulses in more than 30 lakh hectares. During the year under review, your Company facilitated the introduction of agro-forestry models which incorporate inter-cropping practices where eucalyptus trees are grown adjacent to agricultural crops. By integrating tree growing with crop production, the problems of poor agricultural production, worsening wood shortages and environmental degradation can be simultaneously addressed. Furthermore, inter-cropping technologies/practices also help to take pressure off the remaining natural forests and increases the diversity of vegetation on existing farms. During the year under review, a small beginning was made by your Company by promoting agro-forestry plantations in 600 hectares and this is proposed to be substantially increased in the years to come.

Your Company continues to represent to policy makers on the need to introduce appropriate amendments to the Forest (Conservation) Act, 1980 and related Rules, to permit industry to use degraded forest land for afforestation linked to the end-use of such wood.

An enabling policy framework that encourages public- private partnerships for the development of degraded forestlands would serve the multiple objectives of enhancing the competitiveness of the Indian paper and paperboard industry, reducing import dependence, creating sustainable livelihoods in rural India and contributing to the national objective of enhancing the country's green cover.

In India only 15% of the paper consumed is recovered for recycling as against about 70% in the western countries. Your Company's collaborative initiative called 'Wealth out of Waste' (WOW) continues to promote and facilitate waste paper recycling, with a view to conserving scarce natural resources. The waste paper industry is largely unorganised and a lot of effort has gone into establishing processes and systems in the operational areas of collection, sorting and grading of waste paper as well as on accounting, compliances and controls. It is expected that this effort would assist in the availability of quality fibre on a sustained and long term basis at competitive prices.

During the year about 26,000 tonnes of waste paper was collected and with continued focus on building capability it is expected that the entire waste paper requirements of the business would be sourced through this initiative over time. The first anniversary of National Recycling Day was celebrated in Hyderabad on 1st July 2011 with large participation from school children and general public. Your Company also launched the 'Save 100000 Trees' initiative during the year.

During the year, your Company achieved the distinction of being the first paper company in India to obtain the Forest Stewardship Council - Forest Management (FSC-FM) certification covering 8,000 hectares of social forestry plantations involving about 9,000 farmers.

FSC-FM certifies that the plantation activities of an organisation are economically, socially and environmentally viable. To the extent of pulp produced from such certified plantations, your Company will be able to commit to its customers, FSC certified papers & paperboards. Environmentally conscious customers are already beginning to show keenness to source such 'green' products which in turn will further increase the competitiveness of the business.

During the year, the Tribeni and Bollaram units also obtained the FSC Chain of Custody Certification ensuring that all four paper manufacturing units of your Company now have this certification.

Your Company has made significant investments in contemporary technologies including environment-friendly Elemental Chlorine-Free (ECF) and Ozone bleaching for pulp thereby improving the environmental standards of its manufacturing operations. Such investments are expected to provide customers with sophisticated products, way ahead of legislation, thereby creating new benchmarks in environmental stewardship. The Industry would welcome policies that lay down environmental benchmarks in tune with other industries such as automotives etc. and suitably reward those who achieve or exceed such parameters.

Your Company continues to focus on recycling initiatives including solid waste recycling. While all manufacturing units have already achieved near 100% solid waste recycling by its usage for making products like lime, fly ash bricks, grey boards, egg trays etc., the procurement and recycling of about 1,10,000 tonnes of waste paper during the year has further consolidated the business's overall positive solid waste recycling footprint.

Your Company continues to work on various Clean Development Mechanism (CDM) projects. Your Company's unique social forestry project is the first of its kind in India to be registered with the United Nations Framework Convention on Climate Change (UNFCCC) as a CDM project. About 3,100 hectares of social forestry plantations involving around 3,400 farmers have already been covered and the net benefits from this project will be passed on to the partnering farming communities.

During the year, the following awards of the British Safety Council were received by respective units - The 'Sword of Honour' by Tribeni and Bollaram units, the 'Globe of Honour for Environment' by Bhadrachalam and Kovai units, 5 Star rating for Safety & Health by Kovai, Tribeni and Bollaram units and 5 Star rating for Environment by Bhadrachalam and Kovai units. In addition, Bhadrachalam unit won the CII - National Award for Excellence in Energy Management and Kovai unit won the CII - National award for Excellence in Water Management. The business also won the CII - Environmental Best Practices Award 2012 for its 'WOW' initiatives.

The above have been made possible as a result of continuous focus on various safety initiatives including induction of safety stewards, strengthening systems, spreading awareness and integrating environment, health and safety (EHS) as part of the overall Total Productive Maintenance (TPM) initiative. In addition, all units have taken proactive steps to comply with the revised norms expected to be announced by the Central Pollution Control Board for water consumption and effluent discharge. With regard to energy consumption, strategies to contain usage across units continue to be pursued. Further, the business is also investing in a new high pressure fuel efficient boiler in its Tribeni unit, which will enable use of inferior grades of coal and also significantly reduce coal consumption. Your Company is also committed to increasing the share of energy consumed from non-conventional and renewable sources and towards this has commissioned 5 windmills close to Coimbatore to generate 7.5 MW of electricity for use at the Kovai unit. It is expected that energy efficiency coupled with greater use of renewable sources of energy will enable your Company to derive benefits from sale of Renewable Energy Certificates (RECs) under the Electricity Act 2003 as well as obtain benefits from newer initiatives like Perform, Achieve and Trade (PAT) under the Energy Conservation Act 2001.

The TPM initiative has now been extended to all units and apart from yielding significant financial benefits will also help institutionalise best-in-class systems, processes and work methods. The success of this initiative is attributable to the whole hearted support and participation of all employees across the business.

The year under review witnessed steep hikes in the cost of chemicals and coal as well as curtailment in supplies of coal by the government through the reduction of allocations, forcing the industry to buy high cost coal in the open market. These factors, together with the sharp depreciation of the Indian Rupee, adversely impacted the industry. However, your Company with its integrated operations and strategic cost management actions was able to minimise the adverse impact of these cost escalations.

The integrated nature of the business model - access to high-quality fibre from the economic vicinity of the Bhadrachalam mill, in-house pulp mill and state-of-the- art manufacturing facilities, focus on value-added paperboards and a robust forward linkage with the Education and Stationery Products business strategically positions your Company to further consolidate and enhance its leadership status in the Indian paperboard and paper industry.

Packaging and Printing

Your Company's Packaging and Printing business continues to provide contemporary and superior packaging solutions facilitated by its state-of-the-art technology and processes. The business continues to provide strategic support to your Company's FMCG businesses by providing innovative packaging solutions and security of supplies in addition to delivering benchmarked international quality at competitive costs.

The business continued to leverage its multiple packaging platforms to expand business in the domestic and export markets, and grew volumes both from existing customers as well as from enlargement of its customer base. Your Company continues to be a leading supplier of value- added packaging to the Consumer Electronics and FMCG sectors.

During the year, the business continued to invest in contemporary technologies in flexibles and paperboard packaging at the Haridwar and Chennai facilities. These in-house capabilities have enabled quicker turnaround of designs, pack changes and reduced product launch timelines for your Company's FMCG businesses, thereby providing a source of competitive advantage in the market place.

Your Company undertook expansion projects at Haridwar and Chennai, during the year, to address growing opportunities in external trade and to enable manufacture of a full range of packaging solutions from both locations. The expansion programme includes the addition of a carton line for meeting the growing needs of customers based in the northern region and balancing investment in flexibles packaging for enhancing competitiveness.

The business won several awards during the year for operational excellence, innovation and creativity. These include two 'World Star Awards' from the World Packaging Organisation, three 'Asia Star Awards' from the Asian Packaging Federation and thirteen awards instituted by Indian Flexible Packaging and Carton Manufacturers Association (IFCA) for excellence in packaging solutions.

The 14.1 MW wind energy farm in Tamil Nadu, set up in 2008, continues to operate at optimum levels providing clean energy to the Chennai unit. This initiative, flowing from your Company's commitment to the 'Triple Bottom Line', is a certified project under the Clean Development Mechanism of the Kyoto Protocol. Further, this initiative is generating carbon credits and contributing to a reduction in your Company's carbon footprint.

The factories at Chennai, Haridwar and Munger continued to maintain the highest standards in Environment, Health and Safety (EHS). Also, the Munger unit won the British Safety Council's International Safety Award during the year.

Continuing investments in world class technology, best- in-class quality management systems and processes, dispersed manufacturing footprint and a diversified packaging solutions portfolio, the business is well poised to service all the requirements of your Company's FMCG businesses and to rapidly grow its external trade.

D. AGRI BUSINESS

Cigarette Leaf Tobacco

While the end of 2010 marked a significant shift in the global supply-demand scenario triggered by declining sales of major global cigarette manufacturers and excess leaf production in major origins, 2011 witnessed a further continuation of this declining trend of global cigarette production, impacted by the downturn in the global economy. The downward correction in leaf tobacco demand led to world supplies moving to a surplus situation and a rapid build up of uncommitted stocks. Consequently, farm and export prices of Indian flue- cured crop witnessed significant declines. In line with subdued trends across the globe, Indian unmanufactured leaf exports degrew by about 20% in volume terms since 2009.

The position for Indian flue-cured virginia tobaccos gets further vitiated by the decrease in domestic demand due to high differential taxes on the end use products, namely, cigarettes vis-a-vis other types of tobacco. This gets further aggravated by the large scale import of cigarettes, both legal and contraband, into India which do not use domestic flue-cured virginia tobaccos.

In the short term, supply side corrections are anticipated in key origins after a period of consecutive increases in global flue-cured leaf production driven by muted demand and manufacturers seeking to lower their inventory durations. In the medium term, demand is expected to pick up gradually with the anticipated revival of the global economy coupled with growing consumption in Asia, Middle East, parts of Europe and Africa. It is also estimated that the consumption of other forms of tobacco like Roll-Your-Own (RYO), Snus and Hubble Bubble will grow at a faster rate, albeit on a smaller base.

Despite these adverse conditions, your Company was able to sustain the demand for Indian tobaccos through focused strategies leveraging its sources of competitive advantage in crop development, product integrity, strategic sourcing and superior processing capability. Significant volumes of flue-cured tobaccos were garnered through superior understanding of customer requirements and delivering committed quality and value to the customer. Your Company continues to focus on superior quality and varietal offerings to customers in the burley segment through collaborative and customised programmes. The business also engaged with potential customers across the globe and actively explored market opportunities in the growing smokeless tobacco segment through customised offerings.

The business continued to provide strategic sourcing support to your Company's Cigarettes business.

Achieving enhanced productivity continues to be a focus area of research and crop development initiatives of the business. Substantial progress has been made in strengthening the pipeline of new hybrid combinations for deployment in growth zones. Significant milestones were achieved in the development of a new curing regime for tobacco and further experimental trials are underway to create a unique product portfolio.

Your Company's pioneering R&D efforts on varietal improvements in leaf tobacco were further fortified with the development of various burley and oriental type tobaccos. These initiatives such as improved nursery management designed for higher efficiencies in seed use, optimised usage of crop production chemicals and other agronomic practices are helping improve the potential of newly developed varieties. These efforts are not only helping secure global demand for Indian leaf tobacco by providing enhanced value to global customers but also in improving the socio-economic status of the small/tribal farmer. Capitalising on your Company's R&D efforts on varietal improvement, the area under coverage of flue-cured virginia hybrids was substantially increased in collaboration with the Central Tobacco Research Institute and the Tobacco Board of India.

Your Company continues to focus on maintaining the highest quality and safety standards at all its units. During the year, the Chirala and Anaparti factories received the International Safety Award from the British Safety Council for ensuring 'Best Safety Management' systems and the Anaparti unit was awarded the 'National Level Excellence in Water Management Award', as 'Excellent Water Efficient Unit' by CII.

To further enhance quality and improve supply chain efficiencies, your Company commissioned a new facility in Karnataka with a capacity of 35 million kgs per annum. This investment will not only enhance in-house processing capacity but is also expected to reduce supply chain costs given the factory's proximity to the tobacco growing regions in Karnataka. The business is also actively engaged in augmenting its warehousing capacities and reengineering its supply chain from a strategic cost management perspective.

Your Company with its unmatched R&D capability, state- of-the-art facilities, unique crop development and extension expertise, deep understanding of customer and farmer needs, is well poised to leverage emerging opportunities for Indian leaf tobacco and sustain its position as a world class leaf tobacco organisation.

Other Agri Commodities

The Indian food grain production for the year is estimated at a record high of over 250 million tonnes mainly on account of increase in production of rice and wheat. Wheat output estimates are at an all-time high of about 90 million tonnes. Rice production, at around 103 million tonnes, was higher than 96 million tonnes in the previous year. Overall oil seed production was also on the higher side at about 30 million tonnes. However, India still continues to import nearly 50% of its requirement of edible oil.

The international soya bean market reflected a slowdown in arrival of quantities with all major producers showing a dip in production. Overall global production was about 8% lower than the previous year. While Brazil, Argentina and the US all reported lower crop outputs, demand from China was on the upswing. Although the Indian crop grew in terms of volume, it suffered in terms of quality due to pre-monsoon showers in the growing areas and as such was not able to leverage the uptrend in global prices. Your Company's uniquely structured commodity sourcing business model with strong competencies in multi-location sourcing, logistics and supply chain management was able to leverage its strengths to improve value capture in the soya market and significantly expand business scale.

Your Company continued to source identity preserved, special varieties of wheat through its e-Choupal network channel for its Branded Packaged Foods business. The continuous focus on minimising bridging costs of wheat for Aashirvaad atta, while seeking to capitalise on geographical and varietal arbitrage opportunities, provided a competitive advantage to your Company's Foods business. The external wheat business successfully catered to a wider range of customers, such as brand owners, private labels, food processors and millers.

In the area of potato sourcing, the business continued to support the Foods business by procuring the highest quality chip stock potatoes for your Company's Bingo! brand of potato chips. The endeavour of partnering with farmers to source locally grown potatoes (closer to manufacturing units) helped minimise logistics costs. Trials for the development of new varieties and new areas continued during the year and such extension efforts helped significantly increase potato crop this year in Gujarat.

India is the world's largest producer, consumer and exporter of spices. Export of spices from India has been growing at 23% per annum over the last 5 years. The growing concerns of food safety and product integrity have increased demand for suppliers with 'end-to-end' capabilities having complete custody of the supply chain, supported by appropriate technology, quality practices and augmented with traceability management systems to provide the required product assurance. Your Company seeks to harness this opportunity by building a business model based on customised products and services with requisite crop development, state-of-the-art infrastructure and tailor-made products and processes to garner an increasing share of the fast growing domestic and export spices marke

 
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