Post Session Commentary - July 16 2008

The domestic market lost all its strength and finally slipped to close on weak note on the back of profit booking in key stocks, which dragged the market to new 2008 lows. The Indian market opened significantly higher on crude oil’s support, which dropped $6.44 to settle at $138.74 on the New York Mercantile Exchange. Market maintained the momentum till afternoon but further lost ground due to decline in European Markets which led huge sell off over the counter and dragged market to the negative territory. The BSE Sensex slipped below 12,600 level and NSE Nifty below 3,900. From the sectoral front, Reality index were completely beaten down to close with deep cut of more than 7% as most selling was reported from this basket. Along with this, Metal, Oil & Gas, Bank, Capital Goods and Consumer Durables stocks witnessed the selling pressure. The market breadth was negative as 810 stocks closed in green while 1803 stocks closed in red and 79 stocks remained unchanged.

The BSE Sensex closed lower by 100.39 points at 12,575.80 and NSE Nifty ended down by 44.40 points at 3,816.70. The BSE Mid Caps and Small Cap closed with losses of 75.23 points and 106.45 points 5,088.28 and 6,324.45 respectively. The BSE Sensex touched intraday high of 12,935.25 and intraday low of 12,514.02.

Losers from the BSE are DLF Ltd (7.73%), JP Associates (6.09%), Mahindra & Mahindra Ltd (5.42%), HDFC (4.43%), SBI (3.32%), Tata Steel (3.29%), TCS Ltd (2.98%), TCS Ltd (2.26%), Tata Motors (2.13%) and ICIC Bank Ltd (1.83%).

Gainers from the BSE are Ranbaxy Lab (15.02%), Bharti Airtel (2.87%), ONGC (2.52%), HUL (1.77%), Ambuja Cement 1.37%), ITC Ltd (1.25%) and BHEL (0.56%).

The Metal index closed down by 289.72 points at 11,935.92. Lossers are Gujarat Nre C (7.22%), Nalco (5.71%), Jindal Saw (5.17%), Sesa Goa Ltd (5.05%), Ispat Industries (4.69%), Welspan Gujarat Sr (4.46%) and Steel Authority (3.85%).

The Reality index ended down by 284.33 points at 4,219.12. As Unitech (10.48%), DLF Ltd (7.73%), Purvankara (5.80%), Omaxe Ltd (5.25%), Sobha Dev (4.51%), and Parsvnath (4.48%) closed in negative territory.

The Banking index closed lower by 107.76 points at 5,400.24. Major losers are Union Bank (3.61%), Kotak Bank (3.60%), SBI (3.32%), Karnataka Bank (2.09%), Axis Bank (2.03%), Yes Bank (1.96%), and ICIC Bank Ltd (1.83%).

The Oil & Gas index ended down by 89.31 points at 8,588.39. As Aban Offshore (5.35%), Cairn India (4.88%), Reliance Petroleum (4.80%), Reliance Natural Resources (1.99%) and Reliance (1.59%) closed in negative territory.

The Auto Index closed lower by 82.79 points at 3,394.49. Lossers are Ashok Leyland (5.84%) along with Mahindra & Mahindra Ltd (5.42%), Bosch Ltd (3.21), Apollo Tyre (3.18%),MRF Ltd (3.09%) and TVS Motor Ltd (2.33%).

The Pharma index gained 62.16 points to close at 3,971.41. Major gainers are Ranbaxy Lab (15.02%), Divi’s Lab (2.44%), Orchid Chem (1.40%), Sterl Biotec (0.63) and Cipla Ltd (0.53%).

NSE Bulk Deals to Watch - July 16 2008

Date,Symbol,Security Name,Client Name,Buy/Sell,Quantity Traded,Trade Price / Wght. Avg. Price,Remarks
16-JUL-2008,ALOKTEXT,Alok Industries Limited,MARWADI SHARES AND FINANCE LIMITED,BUY,1710280,37.91,-
16-JUL-2008,AMTEKINDIA,Amtek India Limited,WARHOL LIMITED,BUY,3019052,82.50,-
16-JUL-2008,ASTRAMICRO,Astra Microwave Products,RELIANCE MUTUAL FUND,BUY,535000,38.00,-
16-JUL-2008,FIRSTWIN,First Winner Industries L,PATEL SREYASHKUMAR MAHESHBHAI,BUY,138773,102.80,-
16-JUL-2008,FIRSTWIN,First Winner Industries L,TIRUPATI ONLINE,BUY,132693,99.78,-
16-JUL-2008,GKW,GKW Ltd,BRICS SECURITIES LTD.,BUY,497425,70.15,-
16-JUL-2008,IFCI,IFCI Ltd.,CLEAN FINANCE & INVESTMENT LTD,BUY,4784300,37.38,-
16-JUL-2008,ISPATIND,Ispat Industries Limited,JAYPEE CAPITAL SERVICES LTD.,BUY,7821473,22.21,-
16-JUL-2008,LICHSGFIN,LIC Housing Finance Ltd,CREDIT SUISSE (SINGAPORE) LIMITED A/C CREDIT SUISSE (SINGAPO,BUY,460000,229.49,-
16-JUL-2008,LOTUSEYE,Lotus Eye Care Hospital L,SHAH RUPAK KUMUDBHAI,BUY,123500,35.28,-
16-JUL-2008,MAXWELL,Maxwell Industries Ltd.,KAPIL JAYKUMAR PATHARE,BUY,956050,13.60,-
16-JUL-2008,MAXWELL,Maxwell Industries Ltd.,SUNIL JAYKUMAR PATHARE,BUY,500250,13.60,-
16-JUL-2008,RALLIS,Rallis India Ltd.,RELIANCE CAPITAL ASSET MANAGEMENT LIMITED A/C. PMS,BUY,118000,412.50,-
16-JUL-2008,SASKEN,Sasken Commu Techno Ltd,MBL & COMPANY LTD.,BUY,268399,130.45,-
16-JUL-2008,ALOKTEXT,Alok Industries Limited,MARWADI SHARES AND FINANCE LIMITED,SELL,79280,37.67,-
16-JUL-2008,AMTEKINDIA,Amtek India Limited,CITIGROUP GLOBAL MKTS MAURITIUS PVT LTD- SELL CODE,SELL,3019052,82.50,-
16-JUL-2008,ASTRAMICRO,Astra Microwave Products,STATE STREET TRUSTEES LIMITED AS DEPOSITARY OF UBS INVESTMEN,SELL,564966,38.10,-
16-JUL-2008,BAJAJHIND,Bajaj Hindusthan Ltd,FIDELITY TRUSTEE COMPANY PRIVATE LIMITED A/C FIDELITY EQUITY,SELL,817290,153.73,-
16-JUL-2008,FIRSTWIN,First Winner Industries L,SOPHIA GROWTH - A SHARE CLASS OF SOMERSET INDIA FUND,SELL,100000,100.00,-
16-JUL-2008,FIRSTWIN,First Winner Industries L,TIRUPATI ONLINE,SELL,132693,102.80,-
16-JUL-2008,GKW,GKW Ltd,PANKAJA TANEJA,SELL,377425,70.15,-
16-JUL-2008,IFCI,IFCI Ltd.,CLEAN FINANCE & INVESTMENT LTD,SELL,4784300,37.41,-
16-JUL-2008,ISPATIND,Ispat Industries Limited,JAYPEE CAPITAL SERVICES LTD.,SELL,7858550,22.25,-
16-JUL-2008,LOTUSEYE,Lotus Eye Care Hospital L,SHAH RUPAK KUMUDBHAI,SELL,500,34.65,-
16-JUL-2008,MAXWELL,Maxwell Industries Ltd.,PRASHANT JAIPAL REDDY,SELL,1456300,13.60,-
16-JUL-2008,SASKEN,Sasken Commu Techno Ltd,MBL & COMPANY LTD.,SELL,266613,130.57,-

Sensex sheds 100 points

After clocking gains of over 250 points in early morning session, Sensex resumed 65 points higher at 12,741 and surged above 12,900 on sustained buying. However, the market soon turned negative on emergence of selling and touched an intra-day below 12,550, with the index falling sharply in noon trades to touch the day's low of 12,514. The index pared losses to a considerable extend and ended the session with a loss of 100 points at 12,576, while the Nifty declined 44 points at 3,816.

The breadth of the market was weak. Of the 2,692 stocks traded on the BSE, 1,803 stocks declined, 810 stocks advanced and 79 stocks ended unchanged. Barring the BSE HC and the BSE FMCG, rest of the sectoral indices ended in negative territory. The BSE Realty index declined 6.31% at 4,219, while the BSE Auto, the BSE Metal index, the BSE CD index and the BSE Bankex indexes ended lower around 2% each.

Among the losers in heavyweights, DLF dropped 7.73% at Rs393.95, Jaiprakash fell 6.09% at Rs136.50, Mahindra & Mahindra shed 5.42% at Rs493.65, HDFC declined 4.43% at Rs1,720.50 and SBI slipped 3.32% at Rs1,138.75. Other losers like Tata Steel, Tata Consultancy Services, ACC, Tata Motors and ICICI Bank were down around 2-3% each. However, Ranbaxy Laboratories bucked the downtrend and jumped 15.02% at Rs470.70, Bharti Airtel gained 2.87% at Rs730.35, ONGC advanced 2.52% at Rs866.30, Hindustan Unilever scaled up 1.77% at Rs215.40 and Gujarat Ambuja Cements added 1.37% at Rs81.30.

Realty stocks were the major losers. Unitech dropped 10.68% at Rs137.15, Puravankara shed 5.80% at Rs155.90, Omaxe lost 5.25% at Rs115.55, Sobha Developers declined 4.51% at Rs229.55 and Parsvnath fell 4.48% at Rs103.35. Peninsula land, Ansal Infrastructure, HDIL, Anant Raj and Phoenix Mill were down over 1-4% each.

Over 1.80 crore Reliance Petroleum shares changed hands on the BSE followed by Reliance Natural Resources (1.76 crore shares), IFCI (1.34 crore shares), Chambal Fertilisers (1 crore shares) and Ranbaxy Laboratories (70.47 lakh shares).

Realty, auto, metal shares drag indices lower for fourth straight day

The key benchmark indices suffered losses for the fourth straight day on unabated selling pressure in blue-chip stocks. This was despite a firm start triggered by a sharp fall in crude oil prices yesterday, 15 July 2008. Both the barometer indices BSE Sensex and S&P CNX Nifty registered fresh 15-month low. Volatility was the hallmark of today�s trade. The market breadth was weak. Real estate stocks crashed. Ranbaxy Labs was the star of the day, galloping over 15% on high volumes.

As per provisional data, foreign funds sold shares worth a net Rs 229 crore while domestic funds bought shares worth a net Rs 14.12 crore today, 16 July 2008.

Global cues were mixed. European markets, which opened after Indian market, slipped after firm start. Asian markets, which opened before Indian market, were mixed.

Crude oil prices declined sharply on Tuesday, 15 July 2008. On the New York Mercantile Exchange, August crude settled down $6.44, or 4.44%, at $138.74 a barrel yesterday, 15 July 2008.

Political uncertainty will continue to weight on the Indian market in the near term. The government is holding a two-day special session of parliament on 21 July 2008 and 22 July 2008 to seek vote of confidence after it was reduced to minority following withdrawal of support by Left parties on 8 July 2008. The government hopes to retain power due to backing from Samajwadi Party, a regional party in Uttar Pradesh.

The 30-share BSE Sensex was down 100.39 points or 0.79% to 12,575.80. It touched a fresh 15-month low of 12,514.02 in mid-afternoon trade. At the day�s low the Sensex lost 162.17 points. The Sensex opened with 133.74 point upward gap at 12,809.93 and advanced further to touch a high of 12,935.25 in mid-morning trade. At the day's high, the Sensex rose 259.06 points.

The broader based S&P CNX Nifty was down 44.4 points or 1.15% at 3816.70. Nifty hit a 15-month low of 3,790.20 in intra-day trade. Nifty July 2008 futures were at 3821.20, at a premium of 4.50 points as compared to spot closing.

The BSE Sensex is down 7711.19 points or 38.01% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2007. It is 8630.97 points or 40.69% away from its all-time high of 21,206.77 struck on 10 January 2008.

BSE clocked a tunover of Rs 4557 crore today as compared to Rs 4,304.08 crore on Tuesday, 15 July 2008. NSE's futures & options (F&O) segment turnover was Rs 45,738.28 crore, which was higher than Rs 44,122.92 crore on Tuesday, 15 July 2008.

The BSE Mid-Cap index slipped 1.46% to 5,088.28 and the BSE Small-Cap index fell 1.66% to 6,324.45. Both these indices underperformed the Sensex.

The market breadth was weak on BSE with 1788 shares declining as compared to 827 that advanced. 75 remained unchanged.

Most sectoral indices on BSE settled with losses. The BSE Realty index (down 6.31% at 4,219.12), BSE Auto (down 2.38% at 3,394.49), BSE Oil & Gas index (down 1.03% to 8,588.39), BSE PSU index (down 1.19% to 5,752.70), BSE Consumer Durables index (down 2.23% to 3,391.23), BSE Health Care index (up 1.59% at 3,971.41), BSE Metal index (down 2.37% to 11,935.92), BSE Bankex (down 1.96% at 5,400.24), underperformed the Sensex.

The BSE Capital Goods index (down 0.15% at 10,160.53), BSE Power (down 0.65% to 2,209.88), BSE TecK index (down 0.17% to 2,784.50), BSE FMCG index (up 0.85% to 1,897.46), and BSE IT index (down 0.63% to 3,566.98), outperformed the Sensex.

Among the 30-member Sensex pack, 18 declined while the rest them gained.

India�s largest pharma company in terms of sales Ranbaxy Laboratories was the star of the day�s trading session. The stock galloped 15.10% to Rs 471.05 on high volumes of 69.90 lakh shares after the company's chief executive Malvinder Singh said in a televised conference that the deal with Japan's Daiichi Sankyo remains on track. He also said that the firm would provide all information required for a probe by the US authorities within the next month. It was the top gainer from Sensex pack.

Ranbaxy shares tumbled nearly 23% in last two trading sessions to Rs 409.25 on 15 July 2008 from Rs 531.45 on 11 July 2008 on concerns a US probe may impact Ranbaxy's latest deal with Daiichi Sankyo. US government has filed a motion, seeking certain documents from Ranbaxy over doubts of it indulging in alleged malpractices like concealing and forging crucial data to get marketing approval for its products in the US.

Telecom duo saw divergent trend. While India�s largest cellular services provider in terms of market capitalisation Bharati Airtel advanced 2.68% to Rs 729, Reliance Communications, the country�s second largest cellular services provider in terms of market capitalisation lost 1.13% to Rs 401.50.

Two oil exploration heavyweights saw divergent trend. Oil & Natural Gas Corporation (ONGC) gained 2.60% to Rs 867 while Cairn India lost 3.96% to Rs 226.50

India�s largest cigarette manufacturer in terms of sales ITC gained 2.43% to Rs 164.05. As per reports Amar Singh, whose Samajwadi Party is the key to the survival of the ruling Congress-led UPA Government wants the Unit Trust of India (UTI) and other public financial institutions to divest their stake in ITC in favour of British American Tobacco (BAT). Public financial institutions have a combined 37.62% (as at end March 2008) holding in ITC, which includes 11.90% of UTI and 13.65% of Life Insurance Corporation of India.

India�s largest engineering and construction company in terms of order book Larsen & Toubro (L&T) gained 0.51% to Rs 2291.10 on reports the company plans to form a Rs 2000-crore forging venture with Nuclear Power Corporation of India (NPCIL).

Bharat Heavy Electricals, the country�s largest power equipment maker in terms of sales, was up 1.31% to Rs 1390 on reports the company is in talks with Reliance Industries and Oil & Natural Gas Corporation to build offshore oil rigs.

Hindustan Unilever (up 2.53% to Rs 217), Ambuja Cements (up 1.43% to Rs 81.35), and Reliance Infrastructure (up 1.05% to Rs 755.50), edged higher from Sensex pack.

India�s largest private sector firm by market capitalization and oil refiner Reliance Industries shed 1.10% at Rs 1955.10 on 15.51 lakh shares. The stock moved in a range of Rs 2024.90 and Rs 1922.50 during the day.

Real estate stocks cracked on renewed selling pressure. India�s largest real estate developer DLF lost 7.48% to Rs 395 on 22.13 lakh shares. It was the top loser from Sensex pack.

Unitech (down 10.68% to Rs 137.15), Sobha Developers (down 4.51% to Rs 229.55), Omaxe (down 5.55% to Rs 115.55), Ansal Infrastructures (down 4.16% to Rs 82.35), and Anant Raj Industries (down 2.95% to Rs 119), were the other losers from the realty pack.

India's largest software services provider TCS lost 3.16% to Rs 726 ahead of its Q1 June 2008 results due today. The stock had hit a high of Rs 769 in early trade. The stock also hit an all time low of Rs 719.10 in intra-day trade.

Other IT pivotals were mixed. Satyam Computer Services (down 0.49% to Rs 396.25), and Wipro (down 1.16% to Rs 373.55) fell.

However India's second largest software services provider Infosys staged a solid recovery from day�s low of Rs 1527.35 to settle 0.65% at Rs 1554.10

Auto stocks dropped despite a sharp fall in crude oil yesterday, 15 July 2008. Tata Motors (down 1.72% to Rs 397.05), Mahindra & Mahindra (down 5.55% to Rs 493), Hero Honda Motors (down 2.38% to Rs 638), and Bajaj Auto (down 5.16% to Rs 455), slipped from auto pack.

Among the metal pack, National Aluminium Company (down 5.55% to Rs 354), Hindalco Industries (down 0.55% to Rs 137.15), Sesa Goa (down 5.25% to Rs 2746.25), Sail (down 2.87% to Rs 128.50), and Tata Steel (down 2.08% to Rs 633.55), slipped.

India's largest dedicated housing finance company in terms of operating income HDFC fell 3.92% to Rs 1729.70 after the company reported 25.56% rise in net profit to Rs 468.11 crore on a 26.67% increase in total income to Rs 2318.62 in Q1 June 2008 over Q1 June 2007. The stock hit a low of 1690, a 52-week low.

Banking shares extended yesterday�s losses. HDFC Bank (down 0.70% to Rs 910), ICICI Bank (down 1.81% to Rs 519.65), and State Bank of India (down 3.21% to Rs 1140), slipped.

Fears over the solvency of major Western banks rattled finacial stocks across the globe on Tuesday, 15 July 2008, after the US Federal Reserve and Treasury Department mounted a rescue plan to help support top mortgage lenders Fannie Mae and Freddie Mac following the sharp fall last week in their stock prices.

Jaiprakash Associates (down 5.88% to Rs 136.80), and ACC (down 2.35% to Rs 514), were the other losers from Sensex pack.

Ranbaxy Laboratories was the top traded counter on BSE with turnover of Rs 319.50 crore followed by Reliance Industries (Rs 308.53 crore), Reliance Capital (Rs 294.84 crore), Reliance Petroleum (Rs 285.18 crore), and Reliance Infrastructure (Rs 114.47 crore), in that order.

Reliance Petroleum led the volumes chart notching volumes of 1.81 crore shares followed by Reliance Natural Resources (1.75 crore shares), IFCI (1.35 crore shares), Ispat Industries (1.29 crore shares) and Chambal Fertilisers (1 crore shares), in that order

S Kumar Nationwide swung wildly in choppy trade. The stock which was down around 23% at day�s low of Rs 52.55 staged a solid rebound. It ended 5.43% lower at Rs 64.50 on volumes of 14.78 lakh shares. The company today reported 37.03% fall in net profit to Rs 26.86 crore on 1.2% rise in total income to Rs 383.91 crore in Q1 June 2008 over Q1 June 2007. The company announced the results during trading hours today, 16 July 2008.

Sugar shares surged on reports sugar price may rise as India�s sugar output is likely to fall as much as 25% to 20 million metric tonne in the year ended September 2009. Shree Renuka Sugars (up 7.65% to Rs 112.65), Balrampur Chini Mills (up 3.63% to Rs 75.75), Uttam Sugars (up 2.08% to Rs 51.50), and Dhampur Sugar (up 5.08% to Rs 45.50), surged.

This figure is less than the 22 million tonne forecast by the London-based International Sugar Organisation earlier this month. India is the second largest sugar producer in the world after Brazil.

State run oil-marketing companies were mixed after a sharp fall in crude oil prices yesterday, 15 July 2008. Hindustan Petroleum Corporation (up 2.16% to Rs 198.40), Bharat Petroleum Corporation (up 3.66% to Rs 254) rose. However Indian Oil Corporation slipped 0.19% to Rs 342.

Gammon India was up 0.95% to Rs 214 on reports the company is in talks to acquire more than 50% stake in Italy-based power firm Sofinter in a deal valued at more than $70 million.

Novartis India gained 3.22% to Rs 281.90 on reporting 29.8% surge in net profit to Rs 29.64 crore on 10.70% rise in net sales to Rs 153.68 crore in Q1 June 2008 over Q1 June 2007. The company announced the results after trading hours on Tuesday, 15 July 2008.

BGR Energy Systems spurted 13.38% to Rs 248.80 after the company said it has won a contract worth Rs 4900 crore for engineering, procurement and construction of a thermal power project in Rajasthan. The company made this announcement during trading hours today, 16 July 2008.

Sintex Industries rose 2.70% to Rs 289 on reports the company is set to acquire US-based industrial composite moulder, Continental Structural Plastics.

Thermax gained 2.98% to Rs 145 after the company said it has bagged an order worth Rs 820 crore from a major refiner to supply pulverized coal fired boilers for its captive cogeneration plant. The company made this announcement during trading hours today, 16 July 2008.

Sentiment may continue to remain cautious after the Fed Chairman Ben Bernanke yesterday, 15 July 2008 said that while the likelihood is high that the US economy would slow further, the outlook for inflation had also intensified, providing little comfort for investors and consumers struggling in stagflationary conditions.

European markets, which opened after Indian market, were in the red. Key benchmark indices in UK, Germany and France were down by between 0.45% and 0.94%.

Asian markets, which opened after Indian markets, were trading mixed today, 16 July 2008. Key benchmark indices in Japan, Singapore and Hong Kong were up by between 0.05% and 0.23%. However indices from Taiwan, China, Singapore and South Korea were down by between 0.13% and 2.65% respectively.

US markets settled mixed yesterday, 15 July 2008, on worries about the success of the government plan to rescue mortgage finance companies Freddie Mac and Fannie Mae and to stabilise the financial sector. The Dow Jones industrial average declined 92.65 points, or 0.84%, to 10,962.54. The Standard & Poor's 500 index lost 13.39 points, or 1.09%, to 1,214.91, while the Nasdaq Composite gained 2.84 points, or 0.13%, to 2,215.71.

Daily Call - July 16 2008

The markets are likely to see short covering in the morning as Crude posted its worst fall since the first Gulf war. On the corporate front, Intel posted better than expected results after the markets closed and upped it’s revenue guidance for the next quarter, making the markets wonder, whether to discount earlier stories of a corporate slow down in IT expenditure. Cisco had said earlier that it saw recovery only by Q1CY09.



With our own volatility Index showing a reading of 49.5%, it may be time for the volatility to cool. IT stocks should provide the much needed lead. Autos, could also join the bandwagon. At the time of writing it is not known, how Asia will open. But I guess, it should reflect some change in the sentiment. Technically, a new low has been made. But the sentiment could be better today, though we are not yet putting the bears to sleep.

Trading Call - YES Bank

We recommend a sell in YES Bank from a short-term perspective. It is clearly evident from the charts of YES Bank that it has been on an intermediate-term downtrend from its all-time high of Rs 277 recorded in January 2008, forming lower peaks and lower troughs.

On June 30, the stock decisively penetrated the significant support level of Rs 120 by tumbling 8 per cent. The intermediate-term downtrend is still in place. After encountering twin resistance at Rs 120 (a resistance and the downtrendline), the stock resumed its downtrend by plummeting 9 per cent on July 15, reinforcing the bearish view.

The daily and weekly relative strength indices are featuring in the bearish zone. The stock is trading well-below its 21- and 50-day moving averages. Considering that the intermediate-term down trendline is intact, we are bearish on this stock in the short-term.

We expect the stock to decline until it hits our target price of Rs 95 in the upcoming trading sessions. Traders with short-term perspective can sell the stock, while maintaining stop-loss at Rs 113.

Tanla Solutions

Tanla Solutions

Morning Notes - July 16 2008

Morning Notes - July 16 2008

Market Outlook - July 16 2008

Market Outlook - July 16 2008

Daily Technicals - July 16 2008

Daily Technicals - July 16 2008

Grey Market Premiums - Somi Conveyor Beltings

Somi Conveyor Belting 35 3 to 5

Birla Cotsyn (India) 12 to 14 Discount

Weak global cues may trigger lower opening

Local equities are geared to extend their losses for the fourth straight day today, 16 July 2008 amid weak global cues. However the sharp fall in crude oil may sooth some nerves. On the New York Mercantile Exchange, August crude settled down $6.44, or 4.44%, at $138.74 a barrel yesterday, 15 July 2008.

Sentiment may continue to remain cautious after the Fed Chairman Ben Bernanke yesterday, 16 July 2008 said that while the likelihood is high that the US economy would slow further, the outlook for inflation had also intensified, providing little comfort for investors and consumers struggling in stagflationary conditions.

Political uncertainty will also continue to take its toll on the market. The government is holding a two-day special session of parliament on 21 July 2008 and 22 July 2008 to seek vote of confidence after it was reduced to minority following withdrawal of support by Left parties on 8 July 2008. The government hopes to retain power due to backing from Samajwadi Party, a regional party in Uttar Pradesh.

Asian markets were trading lower today, 16 July 2008, mirroring Wall Street losses. Shanghai Composite was down 0.85% or 23.68 points at 2,755.77, Japan's Nikkei slipped 0.58% or 73.39 points at 12,681.17, Hong Kong's Hang Seng fell 0.33% or 69.62 points at 21,105.15, Taiwan Weighted plunged 0.67% or 45.49 points at 6,788.75, Singapore's Straits Times lost 0.20% or 5.61 points at 2,825.14 and South Korea's Seoul Composite declined 0.83% or 12.56 points at 1,496.77

US markets settled mixed yesterday, 15 July 2008, on worries about the success of the government plan to rescue mortgage finance companies Freddie Mac and Fannie Mae and to stabilise the financial sector. The Dow Jones industrial average declined 92.65 points, or 0.84%, to 10,962.54. The Standard & Poor's 500 index lost 13.39 points, or 1.09%, to 1,214.91, while the Nasdaq Composite gained 2.84 points, or 0.13%, to 2,215.71.

Back home, markets extended losses for the third straight day yesterday, 15 July 2008, after rumours of large-scale loan defaults by leading corporates sparked a sell-off. The 30-share BSE Sensex plunged 654.32 points or 4.91% to 12,676.19 and also registered a 15-month low, and the broader based S&P CNX Nifty tumbled 178.60 points or 4.42% at 3861.10, yesterday, 15 July 2008.

The BSE Sensex is down 7610.80 points or 37.51% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2007. It is 8530.58 points or 40.22% away from its all-time high of 21,206.77 struck on 10 January 2008.

As per provisional data, foreign funds sold shares worth a net Rs 702.70 crore while domestic funds bought shares worth a net Rs 283.40 crore yesterday, 15 July 2008.

Foreign institutional investors (FIIs) were net sellers of Rs 2250.15 crore in the futures & options segment on 15 July 2008. They were net sellers of index futures to the tune of Rs 2268.45 crore and sold index options worth Rs 83.84 crore. They were net sellers of stock futures to the tune of Rs 165.57 crore and sold stock options worth Rs 32.28 crore.

Pre Session Commentary - July 16 2008

The Indian Market is expected to have negative opening on the back of unfavorable global cues as US market closed mixed and Asian markets are trading in red. On Tuesday, the Indian market closed with huge losses as heavy selling was evident across all sectors under the combined weight of weak global markets and domestic political uncertainties. The domestic market yesterday opened on back foot, tracking weak cues from the global market along with domestic political and inflation worries. Further, market traded completely on the negative territory without showing any sign of recovery and landed in extremely negative territory. The BSE Sensex closed at 15 months low that below 12,700 level and NSE Nifty below 3,900. From the sectoral front, Bank index were completely crushed to close with deep cut of more than 7% as most selling was reported from this basket. Followed this Capital Goods, Metal and Reality stocks also closed with cut of more than 5%. The BSE Sensex closed lower by 654.32 points at 12,676.19 and NSE Nifty ended down by 178.60 points at 3,861.10. We expect that market may lose some grounds during the trading session.

Selling pressure gathered momentum after reports of international rating agency Fitch downgrading the country''s debt outlook and currency. Negative sentiment on the market was also added by the international rating agency Standard & Poor’s (S&P) raising concerns over India’s sovereign ratings outlook, and revision by global agency, Fitch, on India’s domestic credit outlook to negative. The agency expects fiscal deficit on account of bond issuances to oil and fertiliser companies to account for least 2% of GDP this year, indicating an implicit deficit of 6.5% of GDP.

On Tuesday, the US market was closed mixed as oil dropped by almost $7 a barrel, giving investors hope that lower energy prices could help revive the flagging economy. Oil price dropped $6.44 to settle at $138.74 on the New York Mercantile Exchange.

The NASDAQ ended marginally higher by 2.84 points at 2215.71, while the Dow Jones Industrial Average (DJIA) closed lower by 92.65 points at 10,962.54 along with S&P 500 ended down by 13.39 points at 1,214.91.

Indian ADRs ended down. In technology sector, Patni Computers ended up by (3.35%) while Satyam closed down by (5.28%), Wipro by (1.59%) and Infosys dropped by (0.35%). In banking sector, ICICI bank and HDFC bank lost (7.11%) and (4.23%) respectively. In telecommunication sector, Tata Communication ended up by (1.50%) and MTNL ended down by (0.23%). Sterlite industries decreased by (4.20%).

Today the major stock markets in Asia are trading in red on worries for US financial health. Japan’s Nikkei is trading lower by 73.39 points at 12,681.17 along with Hang Seng index trading down by 69.62 points at 21,105.15 and Taiwan Weighted trading at 6,788.75 dropped by 45.49 points.

The FIIs on Tuesday stood as net seller in equity. The gross equity purchased was Rs2,020.10 Crore and the gross debt purchased was Rs0.00 Crore while the gross equity sold stood at Rs2,232.30 Crore and gross debt sold stood at Rs0.00 Crore. Therefore, the net investment of equity reported was (Rs212.30) Crore and net debt was Rs0.00 Crore.

Today, Nifty has support at 3,773 and resistance at 3,928 and BSE Sensex has support at 12,358 and resistance at 12,940.

A volatile US Market ends day in the red

Traders turn cautious as Ben Bernanke says that the U.S. economy is facing "significant" risks to growth

After kicking off the day in the red, US Market made an entry into the green during the mid-day hours but a sell-off in the final hours brought it back into red today, Tuesday, 15 July, 2008. Finally it ended the day with losses. Trading was volatile as the day was packed with reports and events. Federal Chairman, Ben Bernanke, Treasure Secretary Henry Paulson testified before senate banking committee today. But financials once again played the spoilsport. Six economic sectors finished with a loss. Energy finished markedly lower, reflecting the drop in oil prices followed by the financial sector.

After being down by almost 200 points earlier during the day, The Dow Jones industrial Average inched up in the green during the lunch hours. But finally it ended the day with a loss of 92.65 points at 10,962.54. The Nasdaq Composite Index, finished higher by 2.84 points at 2,215.71. S&P 500 finished lower by 13.39 points at 1,214.91.

In the Wall Street today, Federal Reserve Chairman Ben Bernanke said that the U.S. economy is facing "significant" risks to growth. As per him, rising energy prices, reduced access to credit and a further deepening in the U.S. housing slump have created significant downside risks to the outlook for growth.

Bernanke also said today that the weakening dollar has contributed to the rise in crude prices. He said it is too difficult to assess how much of an impact it has. Bernanke feels the trade deficit is largely to blame for the dollar's decline.

Financials were once again in focus after Fannie Mae and Freddie Mac shares slipped after their rating cut at Moody�s. Also, disappointment over US Bancorp's earnings and an Oppenheimer downgrade of Wachovia started taking a toll on the sector. US Bancorp reported a 12% drop in earnings.

On the economic front, the June Producer Price Index (PPI)- an inflation reading came in mixed. Total June PPI rose above expectations as higher energy and food prices drove up costs, while core PPI, which excludes food and energy prices, increased by a lower than expected amount. On monthly basis, total PPI rose 1.8% (consensus 1.4%) and core PPI increased 0.2% (consensus 0.3%). On a yearly basis total PPI is up 9.2%, while core PPI came a more tame 3%.

Also, June retail sales were disappointing, falling short of expectations. Retail sales rose 0.1% (against expected 0.4%) and retail sales ex-autos rose 0.8% (expected 0.9%).

Technology was one of the mains sectors that was a winner today as Microsoft supported the sector and helped Nasdaq end in the green.

Barring Patni Computers and VSNL, all the Indian ADRs ended in the red. ICICI Bank and HDFC Bank were the largest losers shedding 7.3% and 4.2% respectively.

Crude oil prices witnessed the maximum one day fall in seventeen years today, Tuesday, 15 July, 2008. Prices plunged among overall concerns regarding growth in US and worldwide. Also, the Organization of the Petroleum Exporting Countries lowered its forecast for world oil-demand growth for 2008 and 2009 today. Prices witnessed considerable volatility throughout the day.

Crude-oil futures for light sweet crude for August delivery today closed at $138.74/barrel (lower by $6.44/barrel or 4.4%) on the New York Mercantile Exchange. It rose by $1 earlier in the day but then fell $9.3 to an intraday low of $135.92 in overnight electronic trading. Last week, prices gained $0.21 (0.2%).

OPEC issued its monthly report today, lowering its forecast for world oil-demand growth for 2008 to 1.03 million barrels a day, which represents a decline of 70,000 barrels from its previous estimate. Global oil demand this year is expected to average 86.81 million barrels a day. Earlier this month, the Energy Information Administration projected that U.S. petroleum consumption will shrink by 400,000 barrels a day in 2008, 38% more than EIA's June projection of a decline of 290,000 barrels.

At the currency markets on Tuesday, the dollar got some support from falling crude-oil futures but remained under pressure retreating after Bernanke cited downside risks to economic growth in a speech that followed a spate of lackluster data. The dollar dropped to a new low against the euro earlier, before Bernanke spoke on Capitol Hill. The dollar index which measures the greenback against a basket of six major currencies, fell 0.4% to 71.73.

For tomorrow, Fed Chairman Bernanke will appear before the Senate Banking Committee for his second day of monetary policy testimony. Consumer Price Index (CPI) data for June and the Industrial Production Index for June are due shortly before trading begins.

Morning Call - July 16 2008

Market Grape Wine :

In House :

Nifty at a support of 3810 and 3753 levels with resistance at 3895 and 3960 levels .

Buy : RIL above 1977 target 2040 s/l of 1950

Buy : IOC above 341.5 target 354 s/l of 336

Sell : in F&O : IciciBank below 550 target 520 s/l of 565

Sell : in F&O : RELCAP below 989 target 940 s/l of 1030

Out House:

Markets at a support of 12543 & 12354 resistance at 12786 & 12929 levels .

Markets to be choppy and volatile maintain strict stop loss .

Buy : Tisco at dips

Buy : RPL at dips

Buy : Coreproject at dips

Buy : LT at dips

Buy : Ranbaxy at dips

Buy : RIL at dips

Dark Horse : Tisco , Ranbaxy , ITC , HLL , RIL & Core

Trading Calls - July 16 2008

Nifty (3861) Sup 3780 Res 3950

Sell RIL (1977) SL 2005
Target 1930, 1920

Sell Sesa Goa (2895) SL 2920 Target 2840, 2820

Sell Divis Labs (1275)

SL 1295 Target 1237, 1227

Buy NDTV (389) SL 384
Target 401, 403

Buy R Com (406)
SL 401 Target 417, 422

Anything but calm...

Sometimes God calms the storm, sometimes He calms the sailor

The Gods may be on a vacation because neither the storm of bad news nor the nerves of the sailor (read market participants at sea) appear to calm down. How else does one explain Tuesday’s torrent which hit the market. Downgrades were more or less anticipated and Fitch revised the outlook on India’s Long-term local currency Issuer Default Rating (IDR) to Negative from Stable. Be prepared for more downgrades. The optimist may think by the time further downgrades come, it may be time for a reversal in fortunes.

After closing at its lowest level in 15 months, few are willing to bet their money at current declines. Those who get in will at best do so for some short term gains if any. Most people expect the pain to continue for a while.

For the day, we expect a flat to lower opening. The usual short-term pullback may be seen. Stay away even if there is a bounce. Nifty could test levels of 3,650 in the near term.

Parsvanath could see some short term gains as the company is set to make some announcement later in the day.

HDFC Bank, ICICI Bank and Axis Bank were among others, which achieved our lower targets.

Among the major bulk deals, Citigroup bought 90,000 shares of Educomp at an average price of Rs2,733. Fidelity sold over 1mn shares of ANG Auto at an average price of Rs75.

On the political front the drama continues with reports suggesting the UPA is banking on independents while regional parties are looking to strike some bargains. More action will be known especially over the weekend.

Meanwhile, Federal Reserve Chairman Ben Bernanke said growth and inflation risks are increasing adding that the economy is facing numerous strains resulting from the housing and financial markets, dollar weakness and surge in crude oil prices.

Asian Stocks fell yet again for a third day. The Nikkei was more or less flat at around 12,725.51 levels after being in the green. In the US market, stocks ended mostly lower despite oil crashing by the second-largest margin.

Investors feared a further decline in US demand after Bernanke said that high energy prices have helped to limit the purchasing power of U.S. households. He warned that High energy costs will remain a drag on the U.S. economy for the rest of the year. Following Bernanke's speech, prices fell over $9 from its high to below $136 a barrel. Light, sweet crude settle at $138.74 a barrel in trading on the New York Mercantile Exchange, down around US$6.

The Dow, which was down more than 225 points early in the session lost 0.8% and closed at its lowest point since July 21, 2006. The Standard & Poor's 500 index lost 1.1% and closed at its lowest point since Nov. 2, 2005. The tech-heavy Nasdaq composite gained 0.1%.

The dollar recovered after falling to a new low versus the euro. The dollar also fell against the yen.

We thought Ranbaxy could get some support at lower levels. Though few local punters are going long, looks like the money bags have been aggressively dumping the stock assuming its deal could run into real rough weather. Ranbaxy is to file all relevant information within a month after which the legal case initiated by the US Government is likely to be withdrawn, reports state.

Among other news, RIL to set to raise US$1bn for investing in the oil and gas business.

Tuesday thud… this was how the Indian bourses crashed hitting new 2008 lows extending losses to fourth straight trading session. Unabated selling in scrips across the sectors dragged the key indices to 15 month low. The Nifty Index breached its previous low of 3,848.25. The huge slide was led by intensified selling in the index heavyweight Reliance Industries, the stock was down 3.5%.

Apart from selling pressure, another dampener hit markets after Fitch Ratings revised the outlook on India’s Long-term local currency Issuer Default Rating (IDR) to Negative from Stable, while affirming the rating at ‘BBB-’ (BBB minus).

"The revision to the local currency Outlook is based on a considerable deterioration in the central government’s fiscal position in 2008-09 (FY09), combined with a notable increase in government debt issuance to finance subsidies not captured in the budget," said James McCormack, Head of Asia Sovereign ratings.

IFCI bounced back from its intra-day low, the stock gained by a percent to close at Rs37. The company is planning to buy non-performing assets (NPAs) of the IIBI Ltd, according to a report also plans to revive these assets and recover money from them to add to its net profit. The scrip touched an intra-day high of Rs38.5 and a low of Rs35 and recorded volumes of over 1,00,00,000 shares on BSE.

After hitting an intra-day high of Rs80.50 shares of ANG Auto pared its gains on back of heavy selling, the scrip ended at Rs74.05 losing 4%. ANG Auto had surged after 8.9% of equity changed hands on BSE. The scrip touched an intra-day high of Rs80.50 and a low of Rs74.05 and recorded volumes of over 11,000 shares on BSE.

Union Bank of India dropped by over 7% to Rs103. The bank announced that it has entered into a Memorandum of Understanding with KBC Asset Management NV (KBC AM), a leading Belgian asset manager with operations around the world. The banks first step to form a joint venture Asset Management Company in India. The scrip touched an intra-day high of Rs112 and a low of Rs103 and recorded volumes of over 1,00,000 shares on BSE.

Shares of Spicejet also erased early gains, however, managed to end with 2.1% gains to close at Rs28.55. The board of directors of the company announced that it principally accepted the offer of WL Ross & Co. LLC which will make available approximately Rs3.45bn to SpiceJet. The scrip touched an intra-day high of Rs32. 45 and a low of Rs29.30 and has recorded volumes of over 86,00,000 shares on BSE.

SRF slipped by a percent to Rs120. The company announced that it has entered into an agreement for acquisition of the belting fabrics business of Industex Technical Textiles (Pty) Ltd, a South African Company for ~Rs200mn.

The business unit has an annual production capacity of approximately 3,500tons of belting fabrics with annual sales of around Rs688mn. Presently; SRF has a capacity of 7,500 TPA belting fabrics which are manufactured in its plant at Trichy. The scrip touched an intra-day high of Rs124 and a low of Rs118 and recorded volumes of over 1,00,000 shares on BSE.

BEML declined by over 6.5% to Rs627. The announced that it secured export orders worth Rs345mn from African countries. The orders comprise of 35 equipments valuing Rs215mn received from Tunisia and 18 equipments valuing Rs130mn from Malawi. The Equipments range from small size bull dozers to Back Hoe Loaders, wheel loaders, hydraulic excavators etc. The scrip touched an intra-day high of Rs660 and a low of Rs625 and recorded volumes of over 66,000 shares on BSE.

TRAI has directed all existing mobile operators to provide inter-connectivity to RCom for its GSM roll-out (BL)

- Tata Motors is considering the licensing route for mass manufacturing of Nano overseas (ET)

- Sun Pharma extends the last date for buying the outstanding shares of Taro Pharma to September 2^nd 2008 (ET)

- Essar led consortium receives final approval for the Ratna and R-series discovered oil and gas fields (ET)

- BHEL in talks with ONGC and RIL for manufacturing offshore oil rigs (DNA)

- SAIL has agreed to a three-fold increase in prices of imported coking coal from Australia (DNA)

- New shipping norms to force ONGC and RIL to shut offshore operations (BS)

- L&T plans to form a Rs20bn forging venture with NPCIL (BS)

- BEML wins export orders worth Rs340mn from African countries (BL)

- Glenmark’s pain molecule is entering phase I clinical trials (DNA)

- ACC may invest Rs1.5bn in ready-mix concrete business (ET)

- JSW Steel may look at acquiring US-based United Coal Company having reserves in excess of 165mn tons (BS)

- Wilbur Ross to invest Rs3.45bn in SpiceJet (ET)

- Gammon India is seeking a majority stake in Italian power company, Sofinter (ET)

- Sintex Industries is eying US-based industrial composite molder, Continental Structural Plastics in a deal worth US$70-80mn (ET)

- Apollo Hospitals and Lupin to create first disease management programme for bronchial asthma (BS)

- Sona Group company is in talks with PE players to raise Rs3.1bn (ET)

- Jindal India Thermal Power mulls 1,200MW power plant in Chattisgarh (DNA)

- GNFC to launch specialty fertilizers (DNA)

- UCO Bank to set-up a financial services JV (DNA)

- Ashapura Minechem bauxite exports take a hit as the Gujarat Government delays permits for exports (DNA)

- Bank of Maharashtra hikes lending rate by 25 bps (ET)

- Bank of Maharashtra plans Rs4bn FPO (DNA)

- Rohit Ferro-Tech is scouting for chrome ore and manganese mines for acquisitions (DNA)

- Fitch revises India’s domestic credit outlook to negative (ET)

- Fitch expects Centre’s deficit to rise from 2.8% of GDP in 2007-08 to 4.5% in 2008-09 (BS)

- Government clears twelve FDI proposals worth Rs3.54bn (ET)

- Government likely to make mandatory for cable operators to obtain a five-year license by paying a one-time entry fee (BS)

- Leading soda-ash makers hike prices by 12% (BS)

- Government to increase the rate of DA for PSU staff by 5% to 84.3% (ET)

- Sugar output may fall as much as 25% next year as per National Federation of Co-operative Sugar Factories Ltd (DNA)

Axis Bank, Sintex Industries, ICICI Bank

Axis Bank, Sintex Industries, ICICI Bank

ITC - 2007-2008 Annual Report

ITC LIMITED

ANNUAL REPORT 2007-2008

DIRECTOR'S REPORT

Report of Directors & Management Discussion Analysis for the Financial Year Ended 31st March, 2008:

Your Directors submit their Report for the financial year ended 31st March, 2008.

SOCIO-ECONOMIC ENVIRONMENT:

India sustained its pre-eminent position as one of the fastest growing economies in the world in 2007/08. Despite the relative deceleration in several sectors, real GDP notched an impressive growth of 9%, as per revised estimates of the Central Statistical Organisation. India joined the ranks of the trillion dollar economies in the world, giving us yet another moment of national pride.

The Services sector, accounting for about 56% of GDP, emerged once again as a primary driver of economic growth. Led by a continued upswing in the trade, hotel, transport and communication sub-sectors, Services posted a remarkable growth of 10.8%. The Manufacturing sector was under pressure this year from a weaker growth in consumer durables, as well as a slowdown in cement and steel that consequently impacted the construction sector as well. Despite this setback, which knocked off 3.2% from the pace attained last year, manufacturing grew by 8.8%, reinforcing India's competitive strength in diverse sectors.

The revised estimates indicate that the Agriculture sector has grown by a handsome 4.5%. While higher support prices and closely directed extension services have been the primary growth drivers, the challenge of sustaining such a growth level calls for focused attention to the sector, backed by substantial investments. Domestic demand continued to fuel economic growth, driven by Investment demand, the fastest growing component. Strong private sector investment, buoyed by surging capital inflows, easier bank credit and reinvestment of profits, resulted in strengthening the build up of Gross Fixed Capital Formation, an important pre-requisite for sustaining high rates of economic growth. Private Consumption grew by 8.3%, supported by a steady growth in real wages and remittances.

While the economic scorecard continues to record encouraging numbers, a few fundamental challenges have emerged in certain sectors, causing concern. The surge in capital inflows contributed to a sharp appreciation of the Indian Rupee, particularly against the US Dollar.

This triggered a multi-pronged impact affecting exports across the board, aggravating balance of trade and creating pressure on industry growth and margins. The basic viability of certain export-oriented industries, like textiles, was threatened, with reported job losses. The IT and BPO sectors faced pricing pressures, raising fears of cutbacks in potential employment.

A major concern during the year has been the sustained high inflationary trends. The Government initiated several policy measures to improve the

supply side and ease the pressure on consumers and industry. Measures such as the duty free import of wheat and pulses, reduction or withdrawal of import duties on cement, steel and non-ferrous metals, ban on export of rice and wheat and prohibition of futures trading in certain commodities were implemented. While these interventions temporarily softened prices, the inflationary tendency persists in the face of global demand supply mismatches, especially in food grains, metals, fuel, etc. A natural fallout of the inflationary spiral has been a gradual erosion of consumer spends.

Additionally, RBI's interventions on policy rates and liquidity, while justified in the current context, have however had an adverse impact on growth in rate-sensitive sectors.

The steep increase in the price of oil and the recent depreciation of the Rupee are bound to further accentuate inflationary pressures with consequential repercussions on economic growth.

Currently, Agriculture contributes only 17.8% of GDP, despite engaging 52% of the total workforce. Structural weaknesses stemming from small land holdings, low productivity, falling levels of public investment and steady deterioration in public institutions that provide credit, inputs, research and extension services have resulted in this sector performing far below its potential. The Green Revolution that transformed productivity is well behind us now and it is time that a new movement is unleashed to usher in the next wave of agricultural development. Rural India remains overwhelmingly poor and the gap between urban and rural incomes is unfortunately widening with faster growth in urban-centric industries and the services sector. The challenge of delivering stronger agricultural growth to boost the rural economy, reinforce food security and secure inclusiveness demands a multi-pronged approach to:

(a) Promote Public-Private and People Partnerships in rural India to enhance productivity, strengthen market linkages and create additional income avenues through efficient non-farm livelihoods;

(b) Enable consolidation of fragmented rural land parcels to permit the deployment of technology for improving agricultural productivity, given the future scenario of fewer people being dependent on agriculture as the single source of livelihood;

(c) Rapidly scale up rural infrastructure to eliminate wastages, ensure last mile connectivity and build efficiencies for adding value to agricultural produce;

(d) Promote engagement in rural services which can be employment intensive and remunerative;

(e) Facilitate R&D in agriculture and life sciences to support better horticultural and agricultural practices;

(f) Make available surplus land for industrial use, as a result of higher productivity in agriculture.

The opportunities arising out of a fast growing economy are yet to bring benefits to rural India due to lack of skills and education, rigidities in land and labour markets, poor infrastructure and absence of alternative livelihoods.

In such a scenario, conversion of agricultural land for industrial use has met with concerted resistance and caused significant socio-political unrest. A more innovative approach can lead to the creation of inclusive models of growth that marry the traditional strengths of the farm sector to modern technology and markets, enabling more value creation and new employment opportunities.

Towards this, the 'Integrated Strategy for Promotion of 'agri-business' approved by the Union Cabinet in June, 2007 is a positive step. With a view to trebling the size of the processed food sector, enhancing farmer incomes, generating employment opportunities and providing choice to consumers at affordable prices, the strategy document targets increasing the level of processing of perishables from 6% to 20%, value addition from 20% to 35% and share in global food trade from about 1.5% to 3%. Accordingly, the strategy document calls for: (a) Detailed mapping of the food cluster in the country; (b) Clusterisation of farming in the shape of contract farming or other formal / informal arrangements; (c) Strengthening backward & forward linkages and developing supply chains with cold storage facilities; (d) Establishment of Mega Food Parks in identified Small Scale Industries like horticulture, meat, dairy and marine products.

Your Company's e-Choupal network, created to source agricultural inputs directly from farmers, is totally compatible with the Government's strategy described above. The throughput of this value chain is growing rapidly as consumer franchise for your Company's branded food products get increasingly established. Entry into newer categories of food products will progressively increase sourcing through this channel in the years ahead. This is well poised to deliver long term shareholder value even as it increasingly contributes to the larger societal purpose.

The e-Choupal system has played an important role in catalysing rural transformation. The ITC 'Choupal Pradarshan Khet', a collaborative and paid agri extension service, aimed at enhancing farm productivity through adoption of best practices in agriculture, grew exponentially by 210% during the year covering 43,500 hectares.

In the light of the encouraging response received from farmers, your Company intends to further scale-up this activity in the coming years. Your Company has also taken up a project jointly with the Government of Madhya Pradesh under the Agriculture Technology Management Agency (ATMA) initiative, wherein both classroom and on-field training would be provided to farmers by experts from various areas of agriculture including lead farmers.

We are confident that these initiatives will contribute increasingly to build the competitiveness and productivity of India's agricultural sector.

India's growing economic clout is leading to a more proactive and meaningful global engagement, particularly in areas like global warming and climate change. It is today widely acknowledged that future generations will be more secure and economic growth more sustainable only if national and corporate strategies embrace the need to enhance environmental and social capital. In line with this philosophy, your Company is proactively engaged in enlarging its contribution across the three dimensions of the 'triple bottom line' - economic, environmental and social - through a conscious strategy of investment and operations that enhances the competitiveness of the value chains we are engaged in.

Highlights of your Company's progress in the pursuit of the 'triple bottom line' objectives are discussed in the sections that follow.

COMPANY PERFORMANCE:

Your Company posted yet another year of impressive performance with healthy topline growth and high quality earnings testifying to the robustness of the corporate strategy of creating multiple drivers of growth. This performance is even more satisfying since it has been achieved despite the imposition of VAT on cigarettes, the incubation costs of the new FMCG businesses including the recently launched personal care portfolio, the upfront costs of rural marketing initiatives and the gestation costs of fresh investments in the paperboards and hotels businesses.

Gross Turnover for the year grew by 10.7% to Rs.21355.94 crores. Net Turnover at Rs.13947.53 crores grew by 14.7% driven by a robust 48.6% growth in the non-cigarette FMCG businesses, and a healthy performance by the Hotels and Paperboards, Paper & Packaging segments. The non-cigarette portfolio now accounts for 52.4% of the Company's Net Turnover. Pre-tax profits increased by 16.4% to Rs.4571.77 crores, while Post-tax profit at Rs.3120.10 crores registered a growth of 15.6%. Earnings Per Share for the year stands at Rs.8.29. Cash flows from Operations stood at Rs.4136 crores during the year.

In order to strike a balance between the need to sustain strategic investments for a secure future and the annual expectation of shareholders for growing income, your Directors are pleased to recommend a dividend of Rs.3.50 per share (previous year: Rs.3.10 per share) for the year ended 31st March, 2008. The cash outflow in this regard will be Rs.1543.18 crores (previous year Rs.1364.50 crores) including Dividend Distribution Tax of Rs.224.17 crores (previous year Rs.198.21 crores). Your Board further recommends a transfer to General Reserve of Rs.1500 crores (previous year Rs.1250 crores). Consequently, your Board recommends leaving an unappropriated balance in the Profit and Loss Account of Rs.724.45 crores (previous year Rs.647.53 crores).

PROFITS, DIVIDENDS AND RETENTION:

(Rs. in Crores) 2008 2007

a) Profit Before Tax 4571.77 3926.70

b) Income Tax 1451.67 1226.73

c) Profit After Taxation 3120.10 2699.97

d) Add : Profit brought forward from previous year 647.53 562.06

e) Surplus available for Appropriation 3767.63 3262.03

f) Transfer to General Reserve 1500.00 1250.00

g) Proposed dividend for the financial 1319.01 1166.29year at the rate of Rs.3.50 per Ordinary Share of Re.1/- each (previous year : Rs.3.10 per Share)

Income Tax on proposed dividend 224.17 198.21

h) Retained profit carried forward to 724.45 647.53the following year

3767.63 3262.03

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 USD 3.2 billion, of which agri exports constituted 60%. 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 2007/08, your Company, its subsidiaries and the ITC Welcomgroup hotel chain together earned Rs.2361 crores in foreign exchange. The direct foreign exchange earned by your Company amounting to Rs.2168 crores (Rs.2283 crores in 2006/07) was adversely impacted by restrictions imposed by the government during the year on exports of major agri-commodities. Your Company's expenditure in foreign currency amounted to Rs.1159 crores, comprising purchase of raw materials, spares and other expenses at Rs.706 crores, and import of capital goods at Rs.453 crores.

Details of foreign exchange earnings and outgo are provided in Schedule 19 to the Accounts.

BUSINESS SEGMENTS:

A. FAST MOVING CONSUMER GOODS:

FMCG - Cigarettes:

The year under review witnessed an unprecedented increase in taxation on cigarettes. The combined impact of the increase in the rate of excise duty by more than 6% and imposition of VAT @ 12.5% ad-valorem - without a corresponding reduction of excise duties collected in lieu of State level sales tax - resulted in a total increase in tax incidence of about 30%.

It is deeply gratifying to report that not only did your Company meet the consequential challenges successfully, but also retained its leadership position in the market and improved its market standing in the consumer mind-space in key competitive markets across the country evidencing the resilience of its brands and the superiority of its competitive strategies. On the export front, your Company is pleased to report a volume growth of more than 16% over the previous year.

As reported last year, your Company uses a unique IT-enabled 'Six Sigma' based product development process. This product development process and the deep consumer insights nurtured by your Company were leveraged during the year under review for a series of key initiatives such as contemporary, internationalised packaging for 'India Kings' and 'Gold Flake Kings', multiple limited Edition Packs and flavour variants for 'Classic', etc. These initiatives have resulted in considerable fortification of your Company's strong position in the premium, value-plus segment of the market.

Your Company's pursuit of creating global standards across the value chain saw major investments in its manufacturing facilities. In addition to the induction of state-of-the-art high speed making and packing machines reported last year, significant investments were made during the year under review in upgrading technology across all the cigarette factories. These include modernisation of Primary Manufacturing in Munger, introduction of sophisticated material handling systems at Bengaluru and implementation of cutting edge Norwegian technology - Cold Plasma Odour Abatement Systems - at the Bengaluru and Saharanpur primary manufacturing departments. In fact, your Company's one of the first in the world to adopt this technology in tobacco-manufacturing.

The re-certification of the tobacco research laboratories under ISO / IEC 17025 Standards of the National Accreditation Board for Testing and Calibration Laboratories (NABL) has ensured continuing international recognition for your Company's R&D capabilities from the scientific and regulatory communities.

The focus on manufacturing excellence has resulted in your Company achieving the highest ever level of productivity in the year under review. The concurrent commitment to maintenance of impeccable Environment, Health and Safety (EHS) standards has borne fruit by way of lowest ever levels of power and water consumption per cigarette produced. Additionally, all the manufacturing facilities have achieved 100% solid waste recycling.

It is a matter of deep satisfaction that in recognition of its excellence in EHS standard, several awards were conferred on your Company during the year. All the 4 cigarette factories won the '5-Star rating' from the British Safety Council, UK. The Bengaluru, Saharanpur and Kidderpore factories won the 'Occupational Health and Safety Gold Medal Award' from the Royal Society for Prevention of Accidents (ROSPA), U.K. and the 'Greentech Gold Award for Excellence in Safety Management' from the Greentech Foundation, New Delhi. The Bengaluru, Kidderpore and Munger factories won the 'Greentech Gold Award for Excellence in Environment Management' from the Greentech Foundation, New Delhi. Additionally, the Bengaluru factory won the 'Safety Innovation Award' from the Institution of Engineers, New Delhi and the Munger factory won the 'Occupational Health and Safety Gold Award' from the ROSPA, U.K., the Winners Trophy - 'Safety Health and Environment Award', CII, Eastern Region, the 'National Award for Excellence in Water Management', CII and the 'Innovative Project Award for Energy Conservation Initiatives', CII, whilst the Kidderpore factory won the 'Award for Outstanding Performance in Environment Health and Safety', CII, the 'Suraksha Puraskar Award' from The National Safety Council, Mumbai and the 'Golden Peacock Gold Award for Occupational Health and Safety' from Institute of Directors, New Delhi.

The discriminatory taxation regime on cigarettes within the overall tobacco industry remains the biggest challenge faced by the domestic cigarette industry. The extremely high rates of excise duties coupled with VAT renders cigarettes unaffordable to the common man and drives the growing consumption of tobacco in the form of lightly taxed products like bidis, guthka, chewing tobacco, zarda, etc.

The steep imposition of taxes increases the arbitrage opportunity not only for smugglers of international brands, but also for clandestine domestic players who produce and sell cheap cigarettes by evading Excise and VAT. It is estimated that consequent to the 30% equivalent increase in tax rates on cigarettes during the year under review, the volume of these illegal cigarettes has doubled from around 150 million per month to nearly 300 million per month.

The unprecedented increase in the rates of excise duties on non-filter cigarettes in the 2008 Union Budget will only further induce consumers to move to cheaper and revenue-inefficient tobacco products, including smuggled and tax evaded cigarettes.

Your Company believes that the economic potential of tobacco can be maximised through moderation 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. This is borne by the experience of countries like Brazil and China where moderate taxes and pragmatic policies have combined to serve the twin objectives of tobacco control and Exchequer revenue. As the 3rd largest tobacco grower and the 2nd largest tobacco consumer in the world, India can also reap a rich economic harvest from tobacco even while implementing tobacco control policies. The need, however, is for a balanced agenda on tobacco, both fiscal and regulatory. Your Company continues to engage with the policy-makers in this regard.

As mentioned in earlier years, the Honourable 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 the 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 crore towards luxury tax, and a further sum of about Rs.261.97 crore 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 State's contention is baseless, contrary to facts and is also contrary to the assessment orders passed by the State luxury tax authorities consistently holding that the Company, right from 1st March, 1997, did not charge or collect any amount towards luxury tax from its customers. Accordingly, the State's petition is being contested.

The year ahead is fraught with extreme uncertainties, since for the first time in the history of the industry, manufacturers will not be able to position viable offers for consumers of non-filter cigarettes in view of the massive increase in excise duty rates in this segment. This challenge coupled with the harsh regulatory climate presents a daunting operating environment that will, undoubtedly, test the resilience of all legitimate players in the industry. Your Company is, however, confident that the trust reposed on it by consumers together with its robust strategic initiatives - based on excellence in product quality and innovation in manufacturing and operations - will enable it to retain its leadership position in the market.

FMCG - Others:

In the short to medium term, over half of India's population will remain below the age of 25 and according to the United Nations, India's working age population (i.e. 15-64 year olds) is projected to surge by 150 million to a total of 854 million over the decade from 2005 to 2015. In 2020, the average Indian will be only 29 years old, compared with the average age of 37 in China and US, 45 in Western Europe and 48 in Japan. This 'demographic dividend' underlines India's growth story.

The spurt in India's per capita GDP to about Rs.32,000 is resulting in a rapidly growing middle class. According to one recent study by McKinsey and Co., India's middle class -defined as those with annual incomes between Rs.1.8 lacs nd Rs.8.9 lacs - has increased to 13 million households for about 50 million people.

Further, as is well known, urbanisation increases with rising per capita

GDP in a 'hockey stick' fashion with cities providing large economies of agglomeration for individual activity. If India's per capita GDP were to grow at a double-digit rate, as is being targeted by the government, over 40% of Indians could be living in cities in the next decade against the 30% living in urban areas today. (Source: World Bank and Lehman Bros)

Your Company's bullishness on the future prospects of the FMCG industry is anchored on the interplay of demographic dividend, rising incomes and increasing urbanisation.

The low penetration of many FMCG products and the growing population of working women also augur extremely well for the sector's growth. Your Company is uniquely positioned to tap the emerging opportunities in this sector by blending and synergising the diverse pool of competencies residing in its various businesses.

Accordingly, during the year under review, your Company continued to rapidly scale up the new FMCG businesses comprising Branded Packaged Foods, Lifestyle Retailing, Education and Stationery Products and Safety Matches & Incense Sticks (Agarbattis). Your Company's presence in this sector was further enhanced with the launch of a portfolio of Personal Care Products under a carefully designed brand architecture. It is a matter of immense satisfaction that the Trade Marketing and Distribution initiatives of your Company continue to deliver high value. Your Directors are happy to report that the significant investments made in scaling up the Trade Marketing and Distribution infrastructure, backed by focused channel management, have substantially enhanced the market standing of your Company's FMCG products. The Segment Report set out in Schedule 20 to the Accounts reflects the outcome of this rapid scaling up. Segment Revenues grew by 49% over 2006/07 to touch Rs.2511 crores during the year.

The table below illustrates the rapid growth of these businesses over the last few years:

Segment Results reflect the gestation costs of these businesses largely comprising costs associated with brand building, product development and infrastructure creation. Highlights of progress in each category are set out below.

Year Sales (Rs. Crs.)

2002-03 1092003-04 3042004-05 5032005-06 10132006-07 16892007-08 2511

Branded Packaged Foods:

The Branded Packaged Foods business continued to expand rapidly with sales growing by 57% over the previous year. The impressive scale up spanned all categories, attesting the market standing and consumer franchise of your Company's brands. Relentless focus on providing consumers well-differentiated best-in-class products, supported by significant investments in product development, innovation, manufacturing technology and unmatched distribution infrastructure have dramatically enhanced brand equity of this business. It is a matter of pride and satisfaction that both 'Aashirvaad' and 'Sunfeast' command consumer spends of nearly Rs.1,000 crore each in a short span of time.

Enthusiastic consumer response has enabled the 'Bingo!' range of potato chips and finger snack foods to acquire a double-digit market share within just one year of launch. Consumer acceptance of this order is rare and evidences your Company's ability to leverage its deep consumer insights, exploit the cuisine expertise of its Hotels Division and unleash its superior brand building capabilities.

The 'Bingo!' launch received wide commendation for its width of portfolio and the high-energy clutter breaking marketing campaign. The business drew on the strong agri-sourcing linkages of your Company. It will progressively leverage its access to potato tuber technology arising out of the acquisition, during the year under review, of Technico Pty Ltd., Australia, by Russell Credit Ltd., a wholly owned subsidiary of your Company, to ensure security of supply and achieve critical buying efficiencies in cost and quality.

The biscuit category continued its growth momentum with sales growing by 53%. The 'Sunfeast' range of biscuits was further expanded with the launch of 'Coconut' and 'Nice' variants as well as 'Sunfeast Benne Vita' flaxseed biscuits, Special Edition of 'Sachin's Fitkit' multi grain biscuits and 'Golden Bakery' premium cookies. The excise relief accorded in the budget to low and mid-priced biscuits, consistent with the government's stated intention to promote the food processing industry, has given a fillip to the sector. It is hoped that the government would respond favourably to the industry's representation and extend the relief to the entire category.

In the staples category, 'Aashirvaad' further built on its leadership position with revenues growing by 43%. It continues to draw upon the agri sourcing strengths of your Company's e-Choupal network to gain competitive advantage by obtaining superior quality wheat at competitive costs. The business has successfully segmented the market through an expanded product range at appropriate price points. 'Aashirvaad Select' was positioned as a premium offering. 'Aashirvaad MP Chakki' atta was launched in target markets. 'Aashirvaad' spices grew by 49% leveraging the in-house agri-sourcing and crop development skills.

The confectionery category recorded robust sales with revenues growing by 40% over last year mainly driven by 'Deposited Mint' and 'Eclairs'. New variants in the 'Mint-o' and 'Candyman' range were launched during the year to expand consumer choice. A combination of effective distribution and aggressive trade marketing supported by a strong supply chain have helped the business to overtake incumbent market leaders and establish 'Candyman' and 'Mint-o' as the top brands in their respective segments.

In the Ready-to-Eat (RTE) group, 'Sunfeast PastaTreat' and 'Aashirvaad Instant Mixes' have grown by more than Wills Lifestyle was rated amongst the top 5 Luxury brands in the country in a Global Luxury Survey conducted by TIME Magazine.

100%. 'PastaTreat' has created a new category to address the snacking habits of urban consumers. Export of ambient stable products under the 'Kitchens of India' banner has shown a robust growth and is now well established in the US market for Ready-to-Eat Indian food. These products are already available in more than 4,500 stores across the US. They also enjoy a strong position in Canada.

During the year, the business received accolades from reputed organisations such as NDTV Profit, Business Standard, Business Today and Avaya Global Connect for a range of accomplishments: the successful launch of 'Bingo!', superior consumer relations and reponsiveness, leadership in the foods sector and the best managed FMCG business in India.

The year ahead presents a unique challenge to the business in the shape of an unprecedented rise in commodity prices across the board, including wheat, vegetable oil, maize and skimmed milk powder. Coupled with the soaring fuel prices, the task of growing volumes without adversely impacting margins has been rendered extremely challenging. However, the economic growth momentum in the country is likely to lend support. Only a sustained supply side correction can ease inflationary pressures. In the interim, the Government should consider removal of Excise Duty and standardisation of the VAT rate at 4% for all food products to provide relief to the consumers and sustain growth in this sector.

Lifestyle Retailing:

Your Company's Lifestyle Retailing business continued to enjoy a high brand salience in the minds of consumers, both in the premium and popular segments of the branded apparel market. Domestic sales grew by 26% over the previous year, while exports registered a growth of 17%. In the premium segment, 'Wills Lifestyle' continues to be a leader with a range that provides a classy expression of contemporary trends, styled and accessorised to give discerning customers the look of the season, in tune with the international fashion mood. The stature and premium imagery of the 'Wills Lifestyle' brand was further reinforced during the year through its association with the 'Wills Lifestyle India Fashion Week', the country's most prestigious lifestyle event. In a 'Ramp to Racks' initiative, the brand teamed up with the leading designers of the country to create the 'Wills Signature' range of designer-wear, which has been very well received by the consumers. The introduction of the 'Essenza Di Wills' and 'Fiama Di Wills' range of personal care products has helped augment the lifestyle portfolio. These products have met with encouraging response at the 'Wills Lifestyle' outlets. The business relaunched its customer privileges programme, 'Club Wills', by incorporating a Platinum category, which offers more personalised services to enhance the shopping experience. During the year the company also launched the new concept 'Wills Lifestyle' stores designed by a well known US based design firm specialising in retail.

The 'Wills Lifestyle' brands are now available nationwide in your Company's exclusive stores, as well as in leading departmental stores. The chain of 'Wills Lifestyle' stores offers a complete fashion wardrobe comprising 'Wills Classic' formal wear, 'Wills Sport' relaxed wear, and 'Wills Clublife' evening wear, along with accessories for both men and women. The soaring rental costs have hampered the pace of store expansion, as it has for the rest of the industry.

The business is taking early positions in key malls and considering selective ownership of stores to mitigate the impact of rising rental costs and maintain its growth trajectory. 'Wills Lifestyle' was rated amongst the top 5 Luxury brands in the country in a Global Luxury Survey conducted by TIME Magazine. 'Wills Lifestyle' was also voted as the 'Retailer of the Year' in 'Fashion & Lifestyle' category at the Asia Retail Congress, 2008.

In the popular 'Youth' segment, 'John Players' delivered a strong performance, generating high buzz through its vibrant imagery, youthful product portfolio and association with youth icon, Hrithik Roshan. The brand has established a strong leadership presence in this segment. The vibrant portfolio comprising youthful products such as cargoes, denims, suits and jackets helped enhance brand appeal, while the 'Signature Line' a range of glamour wear incorporating the fashion preferences of the brand ambassador, gave the brand portfolio its edgy face. 'John Players' now enjoys a strong pan India presence. The business will continue to aggressively expand its retail presence.

During the year, the business launched its new brand 'Miss Players'. The brand, positioned to make a lively and playful statement, brings to the market trendy fashion wear for young women. It offers a vibrant wardrobe of cool casualwear, exciting party-wear and chic work-wear. The wellknown film actor Amrita Rao is the face of the brand. She brings life to the brand philosophy of 'playing it cool'. 'Miss Players' is now widely available in 'Miss Players' exclusive stores, select 'John Players' stores, leading large-format retail chains and key multi brand outlets across the country. In the area of apparel exports, the growth in turnover was healthy despite the depreciation of the US dollar against the rupee. However, margins were under serious pressure.

Nevertheless manufacturing capacities were augmented to offer a wider product portfolio, the existing customer base was consolidated and relationships established with potential high value customers.

The business leveraged the expertise of leading global consultants to strengthen its product design and engineering capability. New dedicated high quality supply sources were added to further support the robustness of the supply chain. The business also made significant investments in Information Technology to augment real time data visibility. These strategic initiatives will enable the business to substantially increase the fashion quotient of its product range, improve operational effectiveness and enhance customer intimacy.

Education & Stationery Products:

The Stationery business recorded an impressive sales growth of 72% over the previous year, positioning your Company as the largest marketer of notebooks in India. Its two flagship brands, namely 'Classmate' for the student community and 'Paperkraft' for the discerning working executives, have established a strong beachhead in the Indian stationery market in a short span of time. This success has clearly been achieved on the strength of quality and innovation, which have yielded a growing consumer franchise, particularly among students.

The market for notebooks in India is highly fragmented and dominated by regional and local players. There has been little investment in product quality, brand building and national distribution. The business has played a pioneering role in partnering over 15 small-scale units to upgrade their quality, delivery capability and business processes. 8 of these units were awarded the ISO 9001:2000 certificate, which is a first for the stationery industry. This accomplishment underscores the mutual benefits of a marketing partnership between a large marketing company and small scale manufacturers.

The business has systematically invested in product superiority, brand building and the creation of robust demand and supply side networks. These strategic initiatives have positioned 'Classmate' as the top notebook brand in India.

The business has effectively leveraged your Company's world class paper manufacturing capability to impart unmatched quality to its product range. Apart from superior physical characterstics, the paper used in 'Classmate' notebooks is also environment friendly, being free from elemental chlorine. The business has painstakingly built brand equity through innovative cover designs, trivia pages and impactful point of sales communication. Consumer preference and brand loyalty have been created by leveraging the power of your Company's 'Citizen First' philosophy by which a committed contribution is made to rural development for every Classmate notebook bought by the consumer.

During the year, the business enlarged the size and scale of its school contact programme, the 'Classmate Young Author & Artist Contest', which drew participation from over 5,000 schools and a million students across 34 cities. This has led to deeper engagements with all stakeholders viz. students, teachers and academicians. The distribution infrastructure was strengthened by expanding the network of specialist distributors and stockists to service 2,000 markets.

Buoyed by the success of 'Classmate', your Company plans to introduce a slew of complementary education & stationery products by further leveraging the investment in the new paper machine at the Paperboards & Specialty Papers Division. With the macro economic indicators for education being extremely positive, your company's stationery brands are well poised to lend their equity to a wider assortment of products, which will exploit its demand and supply side capabilities.

During the year, the business launched 'Classmate Fun N Learn' children's books for the pre-school segment. These have been extremely well received and consequently distribution is being extended to more markets.

In view of the quantum growth opportunities presented by the education & stationery products market, your Company has decided to scale down its greeting cards business which has been adversely impacted by the rapid emergence of e-technology. Accordingly, your Board of Directors has approved re-naming the business as 'Education & Stationery Products Business'.

Safety Matches:

The brand portfolio of your Company combined with that of Wimco Ltd. continues to enjoy a strong consumer franchise in almost all markets in India. Continuous product development and new product introductions based on deep consumer insights have sustained the vitality of the business's brand portfolio. Consequently, growth has been driven by value added products, with the combined portfolio delivering a topline growth of 8%. In the continuing pursuit of this strategy, the business launched new value added offers such as 'Aim Mega' and 'Aim Metro' during the year. Driven by wide availability, these brands are steadily gaining market share.

The business continued to take advantage of the synergy benefits accruing from the acquisition of Wimco Ltd. two years ago by Russell Credit Ltd., a wholly owned subsidiary of your Company. The business strengthened its foothold in the international market by enhancing its presence in the key markets of Middle East and Africa. The business continues to source significantly from the small scale sector, working closely with these units to improve their competitive capability through the induction of technology and best practices.

The steep escalation in the cost of key input materials like wood and chemicals has subjected the industry to extreme financial pressures. Your Company has responded to this scenario with renewed focus on product development and operational efficiencies.

The long term sustainability of this industry hinges crucially on technology induction. Introduction of a uniform taxation policy aimed at providing a level playing field to all manufacturers would trigger investments towards modernisation of this industry. The Government should seriously consider creating such an enabling environment which will not only help the industry improve its global competitiveness, but will also provide a safer working environment for the large population of workers engaged in this industry.

Incense sticks (Agarbattis):

The Agarbatti business recorded an impressive 25% growth in revenues, primarily driven by increasing consumer franchise for the 'Mangaldeep' brand combined with improved distribution reach. 'Mangaldeep' is already the second largest national brand in the industry, riding on the success of two key sub-brands, namely 'Madhur 100' and 'Yantra'. Launched last year, 'Yantra' has received wide consumer acceptance on the strength of its unique fragrance which evokes a temple ambience. It is expected to become a national drive brand.

In line with the Company's commitment to the 'triple bottom line', the Agarbatti business indirectly provides livelihood opportunities to 5000 people. The business continues to work in conjunction with NGOs and Self Help Groups in Tripura, Bihar, Andhra Pradesh, Tamil Nadu etc., extending support to them by training village women in rolling agarbattis, thereby creating income streams for women from poor rural households. The business continues to collaborate with small and medium enterprises to harness the best of their entrepreneurial skills and raise their process and quality standards. Specific and well directed inputs from your Company have enabled 7 out of 10 agarbatti manufacturing units to receive ISO 9001: 2000 certification. In order to exploit other opportunities in the 'air care' segment, the business has commenced export of premium perfumed candles to the US. The business has also launched a range of premium aromatic candles in the Indian market under the brand 'Expressions'. Given the growing popularity of aroma therapy and the changing gifting habits in India, these products are expected to do well across segments.

Personal Care Products:

In line with your Company's stated strategy of aggressively scaling up the FMCG initiatives through portfolio expansion, the Personal Care business was commenced during the year with the launch of a range of shampoos, soaps, shower gels and conditioners under the brand names of 'Fiama Di Wills', 'Vivel Di Wills', 'Vivel' and 'Superia'. Anchored on meticulous consumer research, these products have been formulated to bring a unique blend of nature and science to discerning consumers. Each of these brands addresses an identified segment of the market with differentiated value benefits.

The initial market response to your Company's products under the 'Fiama Di Wills', 'Vivel Di Wills', 'Vivel' and 'Superia' brands has been encouraging. The range is being progressively extended nationally. The 'Di Wills' family, strongly endorsed by the 'Wills Lifestyle India Fashion Week', the country's premier fashion event, provides an opportunity for the business to engage with consumers at the luxury end. The business has unleashed an aggressive communication strategy with appropriate celebrity association. The combined quality of promise and performance is expected to speedily build an appreciable consumer franchise for these brands.

At a total size of Rs.20,000 crores, the Personal Care industry in India continues to grow at a healthy 10-12% per annum due to the interplay of economic, demographic and sociological factors discussed earlier in this report. The sector holds immense appeal for your Company on account of its scale and growth potential, given the low market penetration in these categories, other than soaps.

A rapidly growing luxury segment adds to the appeal. This arena of opportunity fits well with your Company's established strengths in brand building, trade marketing and lifestyle retailing, all of which can be leveraged to build a successful business.

B. HOTELS:

The hotel industry witnessed yet another year of robust growth aided by India's economic momentum and its increasing attractiveness as a business and tourist destination. Foreign tourist arrivals were buoyant, touching 5 million in 2007, representing a growth of 12% over the previous year. Estimates of foreign exchange earnings from tourism of US Dollar 10 billion during 2007/08 reflect an increase of 32% over the previous year. Domestic tourism posted a handsome growth of about 20% in 2007 to touch 500 million travellers. India has 27 properties on the World Heritage List, the second highest in Asia after China's 34. The World Travel and Tourism Council has, quite rightly, identified India as one of the world's foremost tourist growth centres in the coming decade. India's comparative cost advantage in specific niches such as medical and adventure tourism can significantly synergise and enhance the country's traditional tourism potential premised on its rich history and cultural heritage. Despite such enormous potential, India's share in the world travel & tourism demand remains extremely low. India's travel and tourism economy, as a share of GDP, is estimated at only 6.1% which is well below the world average of 9.9%.

India's tourism infrastructure including airport facilities, hotels and roads to tourist destinations, needs to be upgraded to international standards. The number of hotel rooms in India, including approved projects, is estimated at 110,000 of which, around 30% is in the 5 Star / Luxury segment - a woefully inadequate capacity, lower than even some of the much smaller South-East Asian countries like Singapore, Malaysia and Thailand. It is estimated that India would need an additional 50,000 rooms in the next 2 to 3 years to cater to the projected tourist arrivals into the country. However, the astronomical price of land remains the key hurdle in the realisation of this objective.

During the year under review, the hotels business performed well with revenues growing by 12% to touch Rs.1100 crores driven by better room rates and higher food & beverage sales. Gross Operating Profit (PBDIT) grew 15% over the previous year to touch Rs.475 crores, while segment results (PBIT) at Rs.411 crores grew by 17%. The results would have been even more impressive but for the adverse impact of the strengthening rupee in the first half of fiscal 2007/08. The business resorted to rupee billing from September 2007 onwards as an insurance against rupee appreciation. The business maintained its leadership in terms of operating efficiency as measured by the ratio of PBDIT to Net Income.

Consequent to the exclusive tie-up with its partner Starwood, 7 of ITC's finest properties were repositioned and associated with the premium 'Luxury Collection' franchise with effect from 15th May, 2007. Globally, only a limited number of exclusive properties carry the 'Luxury Collection' endorsement, offering unique experiences indigenous to their destination. In India, your Company's 'Luxury Collection' properties stand for the true essence of Indian hospitality.

This exclusive franchise acknowledges ITC's leadership in the premium segment and positions it amongst the world's finest hotel chains.

ITC-Welcomgroup has emerged as the country's 2nd largest hotel chain offering a choice of over 90 hotels across 77 destinations in India under 4 different brand propositions - 'ITC Hotels', 'Welcom Hotel', 'Fortune' and 'Welcom Heritage' and 4 properties carrying the Sheraton franchise, aggregating to an inventory of 6,000 plus rooms. About half of this room inventory is at the premium end, owned between your Company and its subsidiaries. The balance consists of third party owned properties operating under the 'WelcomHotel', 'Fortune' and 'WelcomHeritage' brands.

Comprehensive renovation and product upgradation programmes were completed at 4 properties including the premium Towers Block at ITC Maurya, New Delhi. In keeping with the Company's strategy of maintaining the contemporariness and premium positioning of its properties, considerable investments will continue to be made in renovation and upgradation plans.

Buoyed by the continuing impressive performance of this sector, your Company, as reported last year, has embarked on an aggressive investment led growth strategy.

Construction activity in respect of the super deluxe luxury hotel projects at Bengaluru and Chennai is progressing on schedule and several new projects entailing substantial investments are in various stages of implementation.

The ITC-Welcomgroup chain, with its globally benchmarked levels of product and service excellence and customer centricity is not only well positioned to sustain its leadership position in the industry, but is also poised to emerge as the largest hotel chain in the country over the next few years.

C. PAPERBOARDS, PAPER AND PACKAGING:

The Paperboards, Specialty 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.2364 crores. Segment results at Rs.453 crores reflect a growth of 9%.

Paperboards & Specialty Papers:

While the global paper & paperboard industry grew by about 2%, the industry in India witnessed a 9% growth during the year under review. The domestic paperboards industry, sized at 1.24 million TPA, is characterised by fragmented capacities, with over 100 mills servicing the market. The top five manufacturers account for over 45% of the domestic supplies. Your Company is the market leader and the only significant player in the premium value added paperboard segment with integrated pulping operations.

Driven by macro economic factors, the outlook for the industry in India remains positive on the demand side. The per capita consumption of paper and paperboard in India at 7 Kgs. is exceptionally low compared to the world average of about 55 Kgs. and the Chinese average of 45 Kgs. Sustained economic growth will progressively bridge this gap, resulting in a consequent surge in demand. Accelerated growth of the FMCG sector, driven by consumer spending, is expected to boost demand for sophisticated packaging for branded products. Your Company, with its high quality value added paperboards, is well poised to exploit this opportunity.

Production during the year touched 4,14,714 MT as compared to 3,90,458 MT in the previous year. Total sales increased to 4,03,063 MT from 3,85,005 MT, a volume growth of 5%. Sales of Value Added Paperboards grew by 15% driving revenue growth and market standing. Major planned upgrade programmes, involving complex rebuild and stabilisation of certain machines, adversely affected production volumes during the year.

The year witnessed a continuing trend of steep inflation in the cost of fuel and major raw materials. Globally, pulp and waste paper prices spiralled, mainly due to the widening demand supply gap. China, as the largest importer of input raw materials, influences the international prices of fibrous inputs. Uncompetitive cost structures have forced many North American and European mills to shut down operations, some of them permanently. Notwithstanding this high cost scenario, your Company succeeded in partially neutralising cost pressures by optimising opportunity buying and increasing sales realisations.

Addressing the challenge of securing the long-term supply of fibre at competitive prices is critical for the business. Given the downward trend in import duties on paperboards, cost competitiveness will be of vital importance. Your Company's operating strategies, centered on expanding pulp capacities, improving energy management and enhancing internal efficiencies, are robust enough to yield sustainable cost advantages.

Building on its pioneering 'Elemental Chlorine Free' bleaching process, the business has successfully commissioned a new pulp mill at its Bhadrachalam unit. The new line, which is in the process of stabilising, will enable the business to mitigate the impact of cost escalations in hardwood pulp. The new 'Ozone bleached' Pulp mill, the first of its kind in the country, meets world-class environmental standards - a testimony to your Company's commitment to the 'triple bottom line'. This differentiated capability will enable the business to expand the market for superior value added paper and boards on the strength of cost competitiveness.

As reported in previous years, the business has consistently pursued an aggressive clonal propagation strategy. It makes available high-yielding clones and seedlings of the desired pulp wood species to farmers engaged in plantation on their marginal wastelands. It also provides extension services to such farmers to improve productivity and output quality. The quality of these clones and seedlings, products of the biotechnology-based R&D programme of the business, has been tested for its effectiveness in more than 80,000 hectares of plantations, including 15,000 hectares planted during the year under review. The business continues to collaborate with the Council for Scientific and Industrial Research (CSIR) to leverage contemporary bio-technology applications to develop high yielding pulpwood species with low lignin content.

Your Company continues to represent to policy makers to introduce appropriate amendments to the Forest Conservation Act, 1980 and related Rules with a view to permitting the industry to use degraded forest land for afforestation linked to the end-use of such wood. An enabling Policy framework, which would inter alia promote publicprivate partnerships for the development of degraded forest lands, would go a long way in serving the twin objectives of securing wood supply for the domestic paper and paperboards industry and creating sustained livelihood providing economic activity in rural India. Waste paper is a key input in the manufacture of recycled boards. Unfortunately, mobilisation of waste paper in India is very low at 14% compared to 60% in developed countries. The business has therefore commenced an initiative for efficient collection and recycling of waste paper, targeting large sources of aggregation such as schools, offices, residential colonies and apartment blocks. This initiative, widely appreciated, will contribute to a cleaner environment while enhancing the long term cost competitiveness of the business.

The business is well on its course to achieve 'zero solid waste' discharge status, with the units at Tribeni and Kovai having already achieved 100% compliance, and the units at Bhadrachalam and Bollaram being very close to achieving the same. The business has initiated a slew of projects that qualify for carbon credit in terms of the Clean Development Mechanism (CDM) under the Kyoto Protocol. The robust growth in the value added printing and writing paper segment in India presents an attractive opportunity, which the business plans to leverage by tapping your Company's institutional strengths in distribution. The Indian market is witnessing a robust growth in demand for fine printing paper, premium quality coated paper and branded copier paper. The business is at an advanced stage of commissioning a new paper machine at its Bhadrachalam unit with a capacity of 1 lac ton per annum, to service this demand effective middle of 2008 when this machine is expected to commence commercial production.

During the year, the British Safety Council awarded the 'Sword of Honour' to the Tribeni unit and the '5 Star Rating' to the Kovai and Bollaram units. The Bhadrachalam unit was recognised for 'Excellence in Energy Management' by CII. The Bhadrachalam and Kovai units were conferred with the 'National Award for excellence in Water Management 2007' by CII. The Bhadrachalam unit received recognition for practicing 'Cleaner Production Technology and Climate Change Mitigation Measures' from the Andhra Pradesh Pollution Control Board.

The business with its augmented capacity and capability, backed by the strength of its research and development team and an all-pervasive culture of innovation and excellence is well poised to become a major player in the Afro-Asian region.

Packaging and Printing:

The Packaging and Printing business of your Company continued to invest in world class technology and skills. It expanded its range of offerings to consolidate its position as a leading provider of high quality paperboard and flexibles packaging in the country. The business provided strategic support to your Company's cigarette and other FMCG businesses by ensuring security of supplies and sustaining international quality at competitive prices.

Deliveries from the flexibles and carton lines, commissioned at Haridwar and Chennai respectively during the year, are being scaled up to cater to the distinctive and innovative packaging requirements of your Company's Branded Packaged Foods and Personal Care businesses. The business also built up critical volumes in the supply of value added packaging to the consumer electronics industry from its Chennai facility.

The in-house capability to deliver best-in-class packaging has enabled your Company to crash time in the launch of new products by the Branded Foods and Personal Care businesses, while simultaneously contributing to significant enhancement of brand image. Capacities are being augmented further at both Haridwar and Chennai to cater to the increasing packaging requirements of your Company's FMCG businesses.

The business won several national awards for excellence in printing, as well as 'Star' awards from the Paper, Film and Foil Converters' Association (PFFCA). The Chennai unit was certified at Level 8 of the International Quality Rating System (IQRS) as audited by Det Norske Veritas (DNV), becoming the first in India to receive this rating. All three units, at Chennai, Munger and Haridwar, received the '5 Star Rating' for Safety from the British Safety Council. The Chennai Packaging unit was awarded the 'Appreciation Award for Safety' by the Government of Tamil Nadu for the second year in succession. The Munger unit received the 'Greentech Gold Award for Safety Management and Environmental Excellence' and the 'ROSPA Gold Award'. With substantial investments in technology, quality management systems and manufacturing practices, the business is well poised for rapid growth.

D. AGRI BUSINESS:

Cigarette Leaf Tobacco:

Global production of burley and oriental tobaccos declined sharply in 2007 in Greece and the major producing countries of East Europe consequent to the decoupling of subsidies in the European Union. The constrained supply chain for such tobaccos increased farm and trade prices. The increase in the production of flue-cured tobaccos in Brazil, Zimbabwe, Argentina and the US was too moderate to mitigate the demand supply mismatch.

In India, the size of the tobacco crop has been increasing in the past four years despite rising labour and input costs, largely due to the fact that cigarette tobacco farmers have been consistently well remunerated. Global supply shortages have spurred demand for Indian tobaccos, considerably raising prices from their traditional lows. Resultantly, Indian farmers have been insulated from the bargaining power of large buyers in the wake of global consolidation, which has led to the top five cigarette majors (including China) controlling 85% of world cigarette production.

During the year under review, the business achieved a new high in tobacco exports for the 3rd consecutive year, and despite the sharp appreciation of the rupee, recorded a 21% increase in export revenues over the previous year. In volume terms, exports for the year grew at 27%. Your Company won the 'Golden Leaf Awards' in the TABEXPO 2007 held in Paris in the categories of 'Most Committed to Quality' and 'Most Impressive Public Service Initiative'. The business continued to provide strategic sourcing support to your Company's cigarette business.

The R&D teams of the business focused on development of desired styles of leaf and appropriate production practices for maximising productivity in the Flue Cured Virginia and Burley growing regions. Trials on Advanced Breeding Lines (ABL) and hybrid seeds continued during the year in close collaboration with the Central Tobacco Research Institute (CTRI). Results indicate the potential for increase in farm productivity. Micro irrigation trials conducted in nurseries yielded superior quality seedlings at a lower cost of production, besides conserving ground water to the tune of 30% to 40%. The full benefits of the investments made in the modernisation of the plants at Chirala and Anaparti were realised during the year. In-house processing was maximised with significant improvement in asset utilisation. In view of the accelerated growth of the Mysore crop, your Company has decided to establish a green leaf processing plant at a location near Mysore. Land acquisition for this project is in progress.

Your company continues to focus on maintaining the highest safety standards in its factories. During the year, the Units at Anaparti and Chirala received the prestigious 'Sword of Honour' award from the British Safety Council. These Units also received the '5 star Rating' (Health, Safety & Environment) from the British Safety Council. The Chirala Unit also received the 'Safety Innovation Award' from the Institution of Engineers, New Delhi.

The global supply situation continues to be tight in 2008. Consequently, the demand for Indian tobaccos has increased considerably with sharp increases in the auction prices. In the absence of structural interventions to improve farm productivity and develop and scale up the right types of tobacco in alignment with demand, such short term opportunity as the present one would moderate quickly as other countries step up production to bridge the supply gap.

On the domestic front, fresh challenges have emerged. As explained in an earlier section of this Report, Indian cigarette manufacturers will not be able to position viable offers for consumers of non-filter cigarettes in view of the massive increase in excise duties in this segment. This will adversely impact domestic demand with severe consequences for tobacco farmers and all others who depend on the tobacco value chain for their livelihood. An equitable and balanced approach to cigarette taxation is needed to de-risk the tobacco dependants from such large taxation induced discontinuities.

In order to strengthen your Company's competitive standing, several R&D initiatives were launched including some that provide insight into genetic compositions in Flue Cured Virginia tobaccos. These initiatives will enable the business to align R&D inputs with customer requirements and other market opportunities.

Your Company with its strong R&D capability, modern processing facilities, crop development and extension expertise and deep understanding of customer and farmer needs is in a position to leverage opportunities and address challenges that lie ahead for the Indian leaf tobacco industry. The business will continue to extend strategic sourcing support to the cigarette business even as it sustains its leadership position as a major exporter of quality Indian tobaccos, thereby catalysing the multiplier impact of increased farmer incomes to benefit the rural economy.

Agri Commodities:

The year under review witnessed substantial turbulence in agri commodities trading. Rising crude prices and concerns over climate change are driving most countries to develop bio-fuels as alternatives. The shift to bio-fuel cultivation coupled with steadily increasing demand and all time low inventory levels resulted in a major spurt in commodity prices worldwide. In India, growing inflationary pressures compelled the Government to take drastic measures such as ban on exports, imports at nil duty, market intervention at subsidised prices and imposition of limits on inventory holding.

These challenging circumstances adversely impacted the performance of the business during the first half of the year. The business was left with no option but to liquidate its agri commodity inventories at prices lower than the remunerative procurement prices paid to the farmers through its e-Choupal network. The appreciating Rupee aggravated the situation. Subsequently, in the second half of the year, with the restoration of market dynamics in the agri sector, the business regained its growth momentum with a fine-tuned portfolio mix. As a result, your Company retained its position as a prime player in agri business, with strong performance in Soyabean trading driving revenues to a new high. The value added segment of frozen foods, IQF (individually quick frozen) fruits, niche products like baby food, quality purees, high brix pulp and organic purees registered a strong sales growth of 41% over last year. Such a performance revalidates your Company's strategy of focusing on the value added segment to capture better margins in products where India has a natural agro climatic advantage.

During the year, your Company's commodity trading operation was accredited with ISO 9001:2000 certification, testifying to the high quality process standards resident in the system. The business is progressively aligning its commodity portfolio with the sourcing needs of your Company's Foods business to generate higher order value from its agri procurement infrastructure.

The e-Choupal model continued to provide strategic competitive advantage to your Company's Foods business by enabling purchase of large quantities of identity preserved, high quality wheat at competitive prices. During the year the business commenced procurement of chipstock potatoes, one of the critical raw materials in the manufacture of the Company's 'Bingo!' brand of potato chips. A judicious blend of sourcing from different growth zones, and optimisation through in-season and off-season purchases helped in competitively meeting the requirement of chipstock potatoes despite a significant price increase in the wake of high demand and adverse growing conditions.

The acquisition of Technico, an Australian company with technology leadership in the production of early generation seed potatoes, helped your Company access a ready pipeline of new high-yielding varieties of chipstock potato seeds. In order to ensure uninterrupted supply of chipstock potato, the business proposes to undertake initiatives like varietal and regional crop development.

The horticulture pilot through 'Choupal Fresh' stores is progressing as per plans. The business intends to further strengthen its farmer linkages and its expertise in the management of perishables before scaling up this business. The spices business was scaled up to provide supply chain support for the growing spice powder sales of your Company's Foods business. In order to ensure sustainable growth, the business is working closely with farmers, NGOs and Self Help Groups for developing a reliable farm-to-factory spices supply chain. Focus on special growing programs for organic spices and Integrated Pest Management (IPM) chillies have helped the business access premium export markets like Japan, US and the European Union. The business has entered into a unique tripartite agreement with the Spices Board and the State Government of Nagaland for developing the 'Naga Chilli' crop. The business is setting up a state-of-the-art spices grinding and sterilisation facility to support growth in the domestic and export markets. The business is well positioned to expand the product range to include value added products such as oleoresins.

The agri-inputs part of the business grew its topline by a handsome 49%. Its core product, 'Wellgro Soil', a neem-based organic manure, is gaining increasing acceptance amongst the farming community in Andhra Pradesh, Karnataka and Maharashtra. A mobile based Dealer Ordering System was deployed during the year to strengthen distribution. The business has developed a cost effective neem-based organic fertiliser, 'Wellgro Grains' for field crops. Initial results of large scale commercial trials on paddy crops have been very encouraging in terms of higher yields. Usage of Hybrids and BT seeds require application of specialty fertilisers. The business has launched a range of such fertilisers.

Your Company's rural servicing initiative under the 'Choupal Saagar' banner now encompasses 21 centres across 3 states. These centres continue to be a one-stop shop for the farming community with a host of services like sourcing, training soil testing, cafeteria and health clinic being provided in the same complex. Apart from the doubling of turnover, the year witnessed improvement across the key performance drivers of footfalls, conversion, average realisation and product mix, with consequent expansion of margins. Acquisition of suitable land however remains a key challenge.

The throughput of the rural marketing businesses throughthe e-Choupal network experienced robust growth during the year. Channel productivity improved through focus on capability building of both internal staff and the extended organisation of Sanchalaks / Sanyojaks. Distribution of FMCG and Financial Services products through the network witnessed a growth of 36% and 335% respectively. The channel maintained its leadership in the distribution of life insurance and weather insurance products. The marketing of Kisan Credit Cards on behalf of State Bank of India was initiated in 4 States after a successful pilot. The channel, having earned the trust of customers, is now poised for a major expansion in the distribution of banking products.

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. Your Company has been exempt from the provisions of Section 212(1) of the Companies Act, 1956 relating to the attachment of the accounts of its subsidiaries to its Accounts. Shareholders desirous of obtaining the annual accounts of your Company's subsidiaries may obtain the same upon request. The report and accounts of the subsidiary companies will be kept for inspection at your Company's registered office and those of the subsidiary companies. Further, the report and accounts of the subsidiary companies will also be available at the 'Shareholder Value' section of your Company's website www.itcportal.com, in a user friendly, downloadable format.

ITC Global Holdings Pte. Ltd., Singapore ('ITC Global') was placed under liquidation on 30th November, 2007 by the High Court of the Republic of Singapore vide its Order dated 30th November, 2007, on an application of the Judicial Managers of ITC Global. ITC Global has been under Judicial Management since 8th November, 1996. Consequently, your Company is not in a position to consolidate the accounts of ITC Global and its subsidiaries for the financial year ended 31st December, 2007 or to make available copies of the same for inspection by shareholders.

Surya Nepal Pvt. Ltd.:

The year under review has been a landmark year in the history of Nepal. After a prolonged period of political uncertainty and economic blockades, the twice postponed Constituent Assembly elections finally took place on 10th April, 2008, transitioning Nepal from a monarchy to a parliamentary republic. The resultant overwhelming victory gained by the Communist party of Nepal (Maoist) has hopefully ended the protracted civil war.

The disturbed socio-political environment reflected in a lower GDP growth of 2.3% for the year ended 16th July, 2007 against 3.1% in the previous year. However, with a politically settled democratic scenario, it is expected that the economy will be back on a growth trajectory during 2008/09.

Notwithstanding the challenging socio-political environment, the twelve-month period ended 13th March, 2008, witnessed Sales growth of 16% to Nepalese Rupees 637 crores (net of VAT), while Profit After Tax stood at Nepalese Rupees 92 crores representing an increase of 33% over the previous year. The company continues to be the single largest contributor to the Exchequer accounting for about 3.7% of total revenues of the Government of Nepal. During the year, labour unrest at the company's Simra factory resulted in a stoppage of operations for 20 days. A Terai blockade from 13th February, 2008 for 15 days worsened the pressure on the supply chain. Despite the difficult operating conditions, the company's proactive supply chain and inventory management minimised the impact of such disruptions.

The company's cigarette business continued to make satisfactory progress with focus on improving value share. New brands were launched to strengthen the portfolio, consolidating its position in key product segments and channels. During the year, the company launched 'Surya 24 CARAT Lights' and 'Kings' in an international bevel edge pack at the super-premium end of the market and 'Pilot Filter' at the lower end of the regular size filter segment. The new brands reflecting the well researched consumer insight have been well received by consumers. The cigarette factory at Simra was accredited with 'OHSAS 18001:1999 Certification'. The Employee's Housing Colony in Simra was accredited with 'OHSAS 18001:1999' and 'ISO 14001:2004' certification during the year.

The company's garments business continued to fulfil export orders for the 'Wills Lifestyle' and 'John Players' range of apparel from the Lifestyle Retailing Business of your Company. The continued imposition of Additional Customs Duty of 4% on all garment imports into India is a cause of concern for the company. The company continues to make representations to the appropriate authorities in this regard and is hopeful that this issue will be redressed soon. The company's state-of-the-art garment manufacturing facility at Biratnagar is expected to commence production shortly.

In the domestic market, 'John Players' has consolidated its position in the branded apparel segment. 'Springwood', the company's mass-market brand, which offers an alternative to low price imports from China and South East Asia, was successfully launched across the country. Sales and consumer response have been extremely encouraging.

The company remains committed to its role as a responsible corporate citizen As pan of its commitment to promote Sports and Tourism in the country under the Surya Nepal Khelparyatan initiative, the company in association with the Nepal Tourism Board sponsored the country's most premier professional Golf tournament- the'Surya Nepal Masters' The company also sponsored the'SuryaNepal 9th SAARC Golf Championship', which was held for the first time in Nepal under the aegis of the Nepal Golf Association During the year, the company was conferred with the prestigious 'Federation of Nepalese Chambers of Commerce and Industry National Excellence Award' in recognition of the highest standards achieved in professional management

The company declared a Dividend of Nepalese Rs 120/per equity share of Nepalese Rs 100/- each for the year ended 32nd Ashad, 2064.

Srinivasa Resorts Ltd.:

During the financial year ended 31st March, 2008, the company recorded net revenues of Rs 68.97 crores (previous year- Rs 77 62 crores) and a Profit Before Tax of Rs.21.57 crores (previous year- Rs.31 crores) Net Profit stood at Rs.14.41 crores (previous year- Rs.20.69 crores) after providing for income tax of Rs.7.16 crores (previous year- Rs.10.31 crores).

In order to sustain contemporariness and bolster the premium positioning of the hotel, 38 guest rooms were renovated during the year under review The non availability of these rooms, coupled with the additional supply of new hotel rooms in Hyderabad, adversely impacted the occupancy of the hotel, leading to a temporary drop in revenues and profitability.

The Board of Directors of the company has recommended a dividend of Rs 2/-per equity share of Rs 10% each for the year ended 31st March, 2008.

Fortune Park Hotels Ltd.:

During the financial year ended 31st March, 2008, the company recorded net revenues of Rs.1019.85 lacs (previous year- Rs.724.57 lacs) and earned a Net Profit of Rs 157.41acs Previous year- Rs.138.26 lacs) after providing for income tax of Rs.94.35 lacs (previous year- Rs.78.79 lacs).

The Board of Directors of the company has recommended a dividend of Rs.4/-per equity share of Rs.10/- each for the year ended 31st March, 2008.

The company, which caters to the mid range to upscale segment, signed up nine alliances during the year for hotel properties situated at various locations, taking the total number of properties under the 'Fortune' brand to 42, with a total room count of 3,281 Of these, 23 are operating hotels, while 5 hotels are slated to be commissioned during the course of the financial year 2008/09 The company seeks to be a dominant player in the mid / upper scale segment, providing quality services that would position 'Fortune' as the premier 'value' brand in the Indian hospitality sector

Bay Islands Hotels Ltd.:

During the year 2007/08, the company earned an income of Rs.83.16 lacs (previous year -Rs.63.75 lacs) and a Net Profit of Rs.54.14 lacs (previous year -Rs.41.38 lacs) after providing for income tax of Rs.23.60 lacs (previous year Rs.16.87 lacs).

The Board of Directors of the company has recommended a dividend of Rs.40/- per equity share of Rs.100/- each for the year ended 31st March, 2008.

King Maker Marketing:

King Maker Marketing Inc (KMM), a company registered in the State of New York, USA, became a wholly-owned subsidiary of your Company in May 2007 During the year KMM expanded its distribution capability to facilitate your Company's export initiatives in the US Tobacco market It continues to provide to your Company market research services relating to the US Tobacco and FMCG markets.

The year witnessed an increase in the customer base by nearly a third, leading to an equivalent increase in Net Sales over last year, despite falling industry volumes Growth was driven by the strong performance of 'Ace' launched in 2006 and increase in the sales of Roll Your Own Tobaccos (RYO).

Operating profit margins were adversely impacted by the higher manufacturing costs of Low Ignition Propensity Cigarettes (LIP) whose share in the product mix is progressively increasing in the wake of more States legislating LIPasmandatory Profitability was also eroded by higher Master Settlement Agreement (MSA) contributions resulting from KMM's higher relative tobacco market share.

As reported last year, legislation to grant jurisdiction to the Federal Drug Administration (FDA) for Tobacco products is pending before the US Congress The final shape of the legislation and its impact are likely to be known only in the coming year.

Russell Credit Ltd.:

During the year, the company earned a total income of Rs 90 crores and a Profit After Tax of Rs 86 crores. The company paid a dividend of 11.6% aggregating Rs 75 crores for the year ended 31st March 2008.

In line with its objective of making long-term investments in areas of strategic interest for the ITC Group, the company acquired the entire shareholding of Technico Pty Ltd , Australia (Technico) on 17th August, 2007 Upon such acquisition, Technico and its subsidiaries Technico ISC Pty Ltd , Australia, Technico Asia Holdings Ply Ltd , Australia, TechnicoTechnologies Inc, Canada, Technico Group America Inc, USA, Technico Horticultural (Kunming) Co Ltd , China and Chambal Agrifech Ltd , India have become subsidiaries of the company The US subsidiary has since been wound up.

The wholly owned subsidiaries of Wimco Ltd namely Wimco Boards Ltd and Wimco Seedlings Ltd have amalgamated with the parent company with effect from 1st April, 2007 Consequent to such amalgamation, the shareholding of the company in Wumco Ltd has increased from 94.25% to 96.82%.

In order to consolidate strategic investments and streamline the investment operations, 3 associate companies namely Newdeal Finance and Investment Ltd., Megatop Financial Services and Leasing Ltd and Peninsular Investments Ltd., amalgamated with the company with effect from 1st April, 2007.

As stated in earlier Reports, a petition was filed by an individual in the High Court at Calcutta, seeking an injunction against the company's Counter Offer to the shareholders of VST Industries Ltd , made in accordance with the Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997, as a competitive bid, pursuant to a Public Offer made by an Acquirer, which closed on 13th June, 2001 The High Court at Calcutta, while refusing to grant such an injunction, instructed that the acquisition of shares pursuant to the Counter Offer by the company and the other Acquirer would be subject to the final Order of the High Court, which is still awaited Similar suits filed by an individual and two shareholders, in the High Courts of Delhi at New Delhi and Andhra Pradesh at Hyderabad, had earlier been dismissed by the respective High Courts

BFIL Finance Limited:

The company continues to focus its efforts on recoveries through negotiated settlements, including property settlements Legal cases against various defaulters are being pursued During the year, some negotiated settlements were concluded and the company effected collections aggregating Rs 1441acs As at 31st March 2008, the company had no liabilities outside the ITC Group The company plans to intensify its efforts for collection of dues through negotiated settlements in the coming year The company will examine options for further business opportunities at the appropriate time

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

There were no major events to report with respect to these companies.

Wimco Limited:

The company achieved a turnover of Rs.220.71 crores during the year recording a growth of 14% over the previous year The match business grew by 10% to Rs.201.68 crores and the Engineering business grew by 33% to Rs.13.18 crores during the year Net profit of the company stood at Rs.6.33 crores.

The agro forestry activity of the company witnessed appreciable expansion 25 million high quality ETPs (Entire transplants or saplings) were sold to farmers in North India Apart from creating along term sustainable supply of a critical raw material, the agro forestry mission of the company is directly contributing to improving the green cover in the region.

The scheme of amalgamation of subsidiary companies, Wimco Boards Ltd (WBL) and Wimco Seedlings Ltd (WSL) with the company has been sanctioned by the Hon'ble High Court of Bombay Judicature and the order of the High Court has been filed with the Registrar of Companies, thereby making the scheme effective from 22nd February, 2008, although operative from 1st April, 2007 and accordingly, WBL and WSL have been dissolved without winding up with effect from 22nd February, 2008.

Landbase India Limited:

Landbase India Ltd (Landbase) owns and operates 'The Classic Golf Resort', a Jack Nicklaus Signature Course, 45 kms from Delhi As reported in previous years, golf based resorts present attractive long-term prospects in view of their growing popularity all over the world The company proposes to set up a destination luxury golf resort The preparatory work towards developing a resort hotel at the Classic Golf Resort is at an advanced stage Consultants were appointed during the year Permissions required for the commencement of the project are awaited from the concerned authorities.

In accordance with the directions of the Haryana Government, the lockout declared in October 2006 at the Classic Golf Resort was lifted in August 2007 Subsequently, the company settled the disputes with the workmen under the supervision of the Labour Department of Haryana in January 2008 and simultaneously reopened the golf course Operations at the Classic Golf Resort have resumed since then.

ITC Infotech India Limited:

The underlying drivers of the long term trend towards outsourcing remain unimpaired Nevertheless, the global outsourcing market, dominated by the US, is expected to take a slight pause consequent to the slowdown in the US economy and the fallouts of the sub-prime crisis. In main land Europe and the Nordics, the shortage of skills continued to drive outsourcing The Asia Pacific, India and Middle East markets remained on the growth track.

India continued to be the dominant location for offshore based ITservices, despite the growing challenge from certain locations in East Europe, Latin America and closer home from the Philippines Indian companies operating in this sector have grown on the strength of their ability to scale up, quality of talent and maturity of processes, all of which will remain sources of competitive advantage in the foreseeable future However, the cost advantage of Indian companies in the ITservices space was considerably eroded by the spiralling wage increases in the last few years, worsened by the sharp appreciation of the Rupee during the year under review Consequently, growth and profitability were under pressure for a large number of industry players.

In these circumstances, the encouraging results achieved by the company during the year under review ale a matter of satisfaction The company, together with its subsidiaries in the US and UK successfully acquired over 25 new customers in the US and Europe and posted a47% increase in total income.

Customer acquisition was driven by the development of new capabilities, differentiated offerings and pioneering solutions The focus on the Nordic markets of Denmark, Finland, Sweden and Norway, and the opening of branches at Finland and Norway during the year in addition to the Denmark branch yielded excellent results and accounted for a significant portion of the revenue growth.

Consequently, the underlying profitability, adjusted for the profit on sale of investments of Rs.36 crores recorded in the previous year, improved significantly.

For the year under review:

(a) ITC Infotech India Ltd registered a total income of Rs.263.95 crones (previous year Rs 205.18 crores) and a PAT of Rs.6.91 crores (previous year Rs 20.67 crores).

(b) ITC Infotech Ltd , UK, a wholly owned subsidiary of the company, registered a Turnover of GBP 17.87 million (previous year GBP 16.81 million) and a Net Profit of GBP 0.29 million (previous year GBP 012 million).

(c) ITC Infotech (USA), Inc, a wholly owned subsidiary of the company, registered total revenues of USD 18.09 million (previous year USD 9.31 million) and a Net Profit of USD 0.43 million (previous year Net Profit USD 0.18 million).

As reported last year, the company had restructured its organisation into 3 business clusters each focused on specific business verticals and supported with technical capabilities aligned to the target vertical This strategy of organisation has clearly yielded results, especially in capability building, 'go to market' strategy formulation, aggressive customer acquisition and building a global delivery model.

In a survey conducted by Global Services in association with neoIT, the company was placed among the Top 100 service providers across four continents, in terms of operations, service offerings, client relationships and human capital The company has been ranked in the 'Leaders Category for 2008 Global Outsourcing 100' by the International Association of Outsourcing Professionals (IAOP) for the second year in a row The customer satisfaction survey carried out on behalf of the company clearly points to an increasing trend of satisfied customers.

In the course of the year, the company added a new vertical, Media and Entertainment, to the existing collection of verticals, namely Banking, Financial Services & Insurance, Travel, Hospitality & Transportation, Manufacturing and Consumer Packaged Goods & Retail The company has built up a sizable funnel across incumbent verticals In line with your Company's focus on the 'triple bottom line', the company has devised a holistic approach to deliver value to its customers through greener solutions including those aimed at increasing efficiency of clients' data centres.

The company is further strengthening its sales organisation with the opening of an office in Sweden to enhance its presence in the Nordic region It continues to focus on deepening its capabilities to move up the value chain It will also aggressively pursue inorganic growth opportunities to rapidly scale up its operations.

The company has reinforced its holistic approach to talent management, significantly focusing on training, development, engagement and retention of talent It is constantly strategising to strengthen the value proposition for its employees The company has recently migrated to a higher version of its ERP system to improve resource management and drive operational excellence.

The government's decision to extend tax holiday for export oriented Software Technology Parks of India (STPI) by one year till March 2010, is a favourable and supportive development.

In the light of its stronger customer relationships, deeper capabilities, differentiated offerings and solutions and greater sales bandwidth and wider geographic presence, the company is optimistic about its rapid future growth.

In the ITES segment, CLI3L e-Services Ltd (CLI3L), a joint venture company of ITC Infotech India Ltd and Sitel Operating Corporation, USA posted a total income of Rs.107.02 crores (previous year Rs.124.43 crores) with post tax profits of Rs.16.44 crores (previous year Rs.29.89 crores). The company has decided to exit from the Joint Venture and exercise its Put Options in a staggered manner under the Shareholders Agreement dated 28th May, 2003 As reported last year, your Company, in accordance with Article 16 of the Articles of Association of CLI3L, now holds the shares of the company in CLI3L and these shares shall be sold in line with the company's decision.

Technico Ply Limited:

As stated in the earlier pan of this Report, Russell Credit Ltd acquired the entire shareholding in Technico Pty Ltd (Technico), Australia effective 17th August, 2007. The principal activities of the company are anchored on the ownership of a unique horticulture technology and its downstream implementation and commercialisation. The company owns the proprietary TECHNIFFUBER(R) technology for potatoes and has commercialised it through its wholly owned subsidiaries indifferent geographies, namely Chambal Agritech Ltd.,India,Technico Asia Holdings Pty Ltd, Australia (TAHL), Technico ISC Ply Ltd, Australia, Technico Horticultural (Kunming) Co Ltd , China (100% subsidiary of TAHL), andTechnico Technologies Inc Canada The company is also engaged in the marketing of 'TECHNITUBER(R) seeds to global customers from the production facilities of its subsidiaries in India and China.

The acquisition of Technico Pty Ltd will bring strong synergies to the potato value chain, enhancing farmer capabilities through access to high quality seeds and internationally benchmarked best practices in agronomy Technico's leadership in the production of early generation seed potatoes will create significant value for your Company's Foods business by bringing distinctive product and quality advantages to the 'Bingo' brand of potato chips.

Acquisition of Technico will also support your Company's abiding philosophy of contributing to the development of the agriculture-based rural economy and secure the competitiveness of the value chains created through its Agri and Foods businesses.

For the year under review:

a) Technico Pty Ltd , Australia registered a PAT of Australian Dollar (A$) 4.59 million (previous year loss of A$ 1.27 million) after writing back the provision of A$ 4.69 million created in earlier years towards diminution in value of its investments in its Indian subsidiary, Chambal Agritech Ltd.

b) TechnicoAsia Holdings Ply Ltd, Australia did not engage in any activity, other than holding the entire shareholding of Technico Horticultural (Kunming) Co Ltd., China The company had no earnings or costs.

c) TechnicoISC Pty Ltd., Australia continued to be dormant during the year.

d) Technico Technologies Inc, Canada registered sales of Canadian Dollar (C$) 0.18 million (previous year C$ 0.10 million) and posted a net loss of C$ 0.28 million (previous year C$ 0.25 million).

e) Chambal Agritech Ltd ,India registered a turnover of Rs 30.84 crones (previous year Rs 21.68 crores) and a Profit After Tax of Rs 6.15 crones (previous year Rs 3.08 cores). The Company's field seed program has been successfully demonstrated in the Indian market The company has developed a robust contract farming network backed by a specialist team.

For the year ended 31st December, 2007-Technico Horticultural (Kunming) Co Ltd, China registered a turnover of Chinese Yuan (CNY) 14.31 million (previous year CNY 14.18 million) and posted a net profit of CNY 0.82 million (previous year CNY 2.16 million) ITC Global Holdings Pte. Ltd.

The Judicial Managers have been conducting the affairs of ITC Global Holdings Pte Ltd ('Global') since Sth November, 1996 under the authority of the High Court of Singapore.

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 USD 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 the 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 has since filed an Appeal against this Order, which is awaiting hearing.

Meanwhile, 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.

NOTES ON JOINT VENTURES:

ITC Filtrora Limited:

The company completed yet another year of sustained good performance and maintained its market leadership in the Indian cigarette filter industry with a 60% value share Gross Sales for the year ended 31st December, 2007 at Rs 97.09 crores represents a growth of 3.8% over the previous year Pre-tax Profit increased by 8.7% to Rs.11.84 crores The Board of Directors of the company recommended a dividend of 80% for the year, in line with that of the previous year.

While quality continues to be its prime focus, innovation and support to customers for product development has resulted in the company attaining the status of a preferred supplier In a clear demonstration of this position, the company secured an export order for 370 million filter rods from the Taiwan Monopoly The company is in the process of acquiring new machinery to augment production capacities and upgrade existing technology. Its superior productivity standards and operating parameters have enabled the company to rank among the best operating units in the Filtrona Group.

Maharaja Heritage Resorts Limited:

Maharaja Heritage Resorts Ltd , a joint venture of your Company with Marudhar Hotels Private Ltd , currently operates 51 properties under the 'Welcomfentage' brand 6 more properties are under development.

During the year, for the third consecutive time, 'Welcomfentage'recerved the'Galileo-Express Award for Travel Tourism, 2007' for the Best Heritage Hotels Chain in India.

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 cilia, are aimed at ensuring formulation of appropriate risk management policies and procedures, their effective implementation and independent monitoring and reporting by Internal Audit.

- 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 effectively address 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 the Company and ensures that Internal Audit recommendations are effectively implemented.

- At the Business level, Divisional Auditors continuously verily 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 business planning and performance management ensures realisation of business objectives based on effective strategy implementation The annual business planning exercise requires all businesses to clearly identify their top risks and set out a mitigation plan with agreed timelines and accountability All businesses have confirmed that relevant business risks have been identified, assessed, evaluated and appropriate mitigation systems implemented.

The combination of policies and processes as outlined above adequately addresses the various risks associated with your Company's businesses The senior management of the Company periodically reviews the risk management framework to maintain its contemporaneous 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 the 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 infernal audit team, which includes IT specialisis.

The Internal Audit function consisting of professionally qualified accountants, engineers and IT specialists, also 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 Company's Internal Audit function is certified as complying to ISO 9001 2000 quality standards in its processes.

The Audit Committee of your Board met 8 times during the year It reviewed, inter cilia, the adequacy and effectiveness of the internal control environment and monitored implementation of internal audit recommendations including those relating to strengthening of the Company's risk management policies and systems. It also engaged in overseeing financial disclosures.

HUMAN RESOURCE DEVELOPMENT:

Your Company's multi-business context poses unique challenges to the human resource function Over the years, the Company has fashioned human resource management systems and processes, which aim to create a responsive, customer-centric and market focused culture that enhances organisational capability and vitality. These systems and processes, operating in an enabling and empowering work environment, support winning performance.

The competitive context has made Talent Management a strategic priority Your Company's unique employee value proposition backed by strong corporate equity has enabled attraction and retention of quality talent in a buoyant market Your Company's conscious strategy of developing and supporting distributed leadership has ensured that each of your Company's businesses are managed by a team of competent and passionate leaders, capable of enhancing your Company's standing in the competitive market. The enduring success of your Company rests on a unique culture that blends 'accountability' with 'care and concern'. This ability to simultaneously appeal to the heart and the mind represents the cultural DNA of your Company

During the year under review, your Company's commitment to building harmonious employee relations was evident in the successful conclusion of long term agreements at its manufacturing units and hotel properties, and the smooth start of operations at greenfield locations.

The collaborative spirit of partnership across all sections of employees and their sense of ownership and commitment has sustained the culture of excellence, learning and readiness to change. The collective dedication of over 22,000 employees is helping your Company deliver superior customer and shareholder value.

Your Company's employees have a defining role in significantly accelerating its growth and transformation, thereby enhancing its position as one of India's most valuable corporations Your Company salutes the unflinching commitment of its dedicated team of employees.

SUSTAINABILITY-CONTRIBUTION TO THE TRIPLE BOTTOM LINE':

Your Company's triple bottom line performance continued to improve across all the three dimensions, namely economic, environmental and social.

The Company's 4th Sustainability Report, published during the year under review, details the 'triple bottom line' performance and achievements of your Company in accordance with 'G3', the latest guidelines of Global Reporting Initiative (GRI) This report, independently assured by PricewaterhouseCoopers, conforms to the highest level 'A+' for reporting Sustainability performance Your Company's 5th Sustainability Report covering the year 2007-08 is already in the process of publication and will be independently assured by Ernst & Young.

It is a matter of pride that your Company's Sustainability Report received two Readers' Choice Awards from GRI at the GRI International Conference, held in Amsterdam in May 2008 The Report has received the 3rd 'Overall Award' amongst Non OECD large company reports.

Your Company, the only one in the world with positive footprints in the 3 serious global environmental concerns, has further improved its 'water positive' and 'carbon positive' status The Company, in 2007/08 not only recycled nearly 990/ of all the solid wastes, but also used 1 63,245 tonnes of external waste paper as raw material in its paperboards units, thereby achieving the 3rd positive environmental footprint.

Your Company's strategies to become 'carbon positive' have yielded rewards through significant savings in energy costs Seven Clean Development Mechanism (CDM) projects of the Company have been accepted by the CDM Executive Board set up under the 'Kyoto Protocols' A number of additional projects are in different stages of CDM registration.

The Bhadrachalam mill continues to be the only producer of Elemental Chlorine Free' (ECF) pulp and paperboards in India The 'ITC Green Centre' in Gurgaon, certified by the US Green Building Council for Leadership in Energy & Environmental Design (USGBC-LEED) as the largest commercial 'Platinum Rated' building in the world when it was commissioned, continues to provide inspiration to the 'green buildings' movement in IndiaYour Company continued ifs uncompromising dedication to maintaining the highest levels of safety, occupational health and environmental standards across all its units Environment management systems at all manufacturing units and large hotels have been certified 'ISO 14001' compliant, while all manufacturing units have received 'OHSAS 18001' certification These and several other certifications and awards, stated elsewhere in the Report, bear testimony to your Company's dedicated and uncompromising pursuit of the Triple Bottom Line.

The 'CII-ITC Centre of Excellence for Sustainable Development', set up by your Company and CII in 2006, has achieved significant milestones in creating awareness, promoting thought leadership and building capacity amongst Indian enterprises in the quest for sustainable development The Centre gave away the 2nd 'CII-ITC Sustainability Awards' in December 2007, promoting role models in the Indian industry to catalyse superior sustainable performance. The Centre conducted the '1st Business Leaders Programme' in association with the Indian Institute of Management, Bangalore Professor Sluad Had from Cornell University, John Elkinglon from 'Sustainability' and other senior leaders and experts in Sustainability helped 30 CEOs and senior managers from various Indian companies in appreciating the challenges and opportunities in sustainable development, inspiring them to start the virtuous cycle of sustainable development in their own organisations. The Centre's 2nd Sustainability Summit Asia 2007 was held in New Delhi in association with Development Alternatives The Summit, attended by more than 400 leaders from industries, NGOs and Government was supported by the Australian Government, Sustainability, World Wildlife Fund (WWF) & UN Environment Program The Summit provided a platform for debate to foster partnerships for further actions on a number of important issues e g food security, linking farmers to markets, sustainable construction, responsible mining, sustainable financing and fostering inclusive growth.

Your Company deepened its imprint on the social sector by expanding to newer disiticts during the year It continued with its proven strategy of concentrating on three main areas of interventions under Mission Sunehra Kai (a) natural resource management, which includes wasteland, watershed and agriculture development, (b) sustainable livelihoods, comprising women's economic empowerment and genetic improvement in livestock, and (c) community development, with focus on primary education and health and sanitation Your Company is currently running social development projects in 47 districts spread over the states of Andhra Pradesh, Bihar, Kerala, Karnataka, Maharashtra, Madhya Pradesh, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal.

Your Company's pioneering initiative of wasteland development through the Social Forestry programme has so far promoted plantations over 11 969 hectares in 406 villages, covering 13,492 poor households The collaboration between ITC and the Government of Andhra Pradesh for wasteland development under 'Indira Kranin Patham' continued during the year-1,180 hectares of plantations were promoted through this public-private partnership taking the total to 2,972 hectares. The households covered under the Social Forestry programme continue to reap the benefits derived from cut plantations Total income gained so far is Rs.4.36 crores from 903 hectares. Not only have their earnings per acre improved significantly from the sale of plantations, most beneficiaries have also ensured that the contribution to the Village Development Fund continues apace, which has grown to nearly Rs.68 lacs. Thus, their own incomes have been invested wisely into productive assets to ensure a long-term virtuous cycle of development.

Your Company's Social Forestry and Farm Forestry programmes have together promoted plantations over a total area of 80,000 hectares todate.

The Soil & Moisture Conservation programme, designed to assist farmers in identified moisture stressed districts, witnessed a rise in its coverage during the year 648 waterbodies were created this year taking the total to 2,178 water-harvesting structures These structures provide critical irrigation security to about 18,483 hectares Active participation of our stakeholders has ensured sustainable long-term maintenance of these structures Additionally, 16,496 hectares have also been treated for erosion resulting in preservation of precious topsoil for agriculture In total, the watershed development programme today covers 34,979 hectares During the year under review, your Company entered into a partnership with NABARD in Andhra Pradesh, Bihar and Madhya Pradesh Together, these projects will cover soil and moisture conservation work on 17 500 hectares under a 5 year programme Direct employment created by these interventions till date was 5.36 lac person-days Todate, 686 active Water User Groups (W UGs) with over 33,000 members actively manage water distribution and collection of charges.

In continuation of its policy of providing an integrated solution for promoting a sustainable water management regime, your Company lays equal emphasis on ensuring efficient usage of water through interventions aimed at improving farm productivity, promoting group irrigation projects and demonstrating the use of agricultural equipments including sprinkler sets During 2007/08, 153 group irrigation projects were initiated and sprinkler sets benefiting 369 farmers were installed.

Sustainable agricultural practices received a major boost during the year with the promotion of 3,368 organic fertiliser units through vermi-composting and NADEP technologies Farmers have tested various varieties of paddy, gram and wheat in 1,288 field demonstrations leading to participative selection of higher productive strains.

The sustainable livelihoods initiative of your Company strives to create alternative employment for surplus labour and decrease pressure on arable land by promoting non farm incomes Among many such activities, the programme for genetic improvement of cattle through artificial insemination to produce high yielding crossbred progenies has been given special emphasis because it reaches out to the most impoverished and has the potential to pull them out of poverty 95 cattle development centres already cover more than 1 900 villages providing artificial insemination to more than 80,000 milch animals Integrated animal husbandry services were provided to nearly 48,000 milch animals during the year These included addressing the needs of problem breeders, vaccines, feed additives and awareness drives The initiative for the economic empowerment of women also continued apace todate, 13 981 women have been organised under 972 self-help groups (SHG) with total savings of Us 97.7 lacs More than 9.900 women were gainfully employed either in micro-enterprises or through self-employment with the support of income generation loans.

Your Company's social sector footprint can be seen at a glance in the following chart

Intervention Areas Unit of 2007-08 Measurement (Cumulative Achievement)

Total Districts Covered Number 47

Social and Farm Forestry Hectare 80000

Soil and Moisture Conservation Hectare 34979Programme

Sustainable Agricultural Number 12706Practices Organic Fertiliser Units

Sustainable Livelihoods Initiative:

Cattle Development Centres Number 95

Animal Husbandny Services Nation Animals 128056

Economic Employment of Women:

CHO Members Persons 13981

Women Entreprenuers Persons 9900

Primary Education:

Beneficiaries Children 128000Health and Sanitation

Low Cost/Sanitary Units Number 2563

The advances made towards contributing to India's sustainable development goals have been possible, in large measure, to your Company's partnerships with some of the globally renowned NGOs like BAIF Development Research Foundation, Dhan, FES, MYRADA, Pratham, SENA, SRIJAN and WOTR etc. These partnerships, which bring together the best in class management practices of your Company and the development experience and mobilisation skills of these NGOs, have demonstrated that it is possible to create innovative grass-roots solutions to some of India's complex problems of development.

R&D, DUALITY AND PRODUCT DEVELOPMENT:

In today's dynamic business environment, innovation through a sustained process of Research & Development (R&D) is a critical growth driver R&D will need to focus on the development and speedy commercialisation of globally competitive products, processes and technologies Your Company pursues an R&D strategy premised on best-in-class benchmark research processes to secure sustainable and long-term competitiveness for all its businesses Its priorities are focused on projects with high research content and high impact.

Over the last several years, your Company has assembled a pool of world-class scientists focused on plant breeding and genetics, agronomy, biotechnology, molecular biology and silviculture At its state-of-the-art Food Technology Centre, your Company's R&D strategies have been progressed to leverage the potential of convergence between agricultural science, food science and the sceel dimensions of its personal care portfolio Your Company's R&D continues to collaborate with other centres of excellence, and currently leverages expertise from University of Agricultural Science, Bangalore, Indian Institute of Science, Bangalore, CSIOR, Australia and CSIR, South Africa.

The Hotels Business continued to implement the 'Six Sigma Quality Process' supported by trained teams of black /green belts The Paperboards, Paper & Packaging Businesses have put in place 'Total Productive Maintenance' (TPM) techniques to create and sustain international quality standards in their products and processes.

All manufacturing units of your Company have ISO quality codification Almost all contract manufacturing units in the Foods Business and all large hotels have food safety and quality systems codified by the accredited 'third party' in accordance with 'Hazard Analysis Critical Control Points' (HACCP) standards Additionally, the quality of all FMCG products of your Company is regularly monitored through 'Product Quality Ratings Systems' (PQRS).

The Leaf Tobacco and Printing & Packaging Businesses of your Company have achieved world-class ratings in the 'International Quality Rating Systems' (IQRS) for business excellence in which key processes are rated against international benchmarks and codified by accredited 'thud party' independent assurance providers.

EXCISE:

For the period prior to March, 1983, various Show Cause Notices were issued in respect of the Bangalore, Saharanpur and Munger factories of the Company between 1975 and 1985. These Show Cause Notices were assigned to the Director General of Inspection, Customs & Central Excise, New Delhi ('DG) who passed his Order on 10th April, 1986 Although the differential duty payable under the DG's Order was determined and paid by your Company on an admitted interpretation of Rule 5 of Central Excise (Valuation) Rules (which interpretation has since been upheld by the CEGAT and affirmed by the Supreme Court), the Excise Department raised doubts on such interpretation and issued revised demands under the DGs Order, in respect of Bangalore, Munger and Saharanpur factories. The Bangalore demand for Rs.27.58 crores was set aside by the Commissioner (Appeals), Bangalore, by his Order dated 22nd November, 1999, which order was confirmed by the CEGAT, Chemist vide its Order dated 18th December, 2003. The department has filed an appeal before the Supreme Court, which is pending. The Saharanpur demand of Rs 80.30 crores was confirmed by the Commissioner (Appeals) to the extent of Rs 76.03 crores, which order was set aside by the CEGAT by its Order dated 2nd August, 2002 and the Department's appeal against this order was dismissed by the Supreme Court on 18th July, 2007 As regards the Munger factory the revised demand of Rs 8.29 crores under the DG's Order was dropped by the Commissioner of Central Excise, Patna vide his Order dated 20th September, 2001.

As mentioned in the Report of the Directors for 1987 and thereafter, the Excise Department, during 1987 and 1988, again reopened some of the issues already settled by the Order of the DG, by issuing fresh Show Cause Notices in respect of the period upto 28th February, 1983 The Notices proposed to recover differential duties of Rs.43.88 crores (for Munger factory), Rs.143.22 crores (for Bangalore factory), Rs 31 05 crones (for Kidderpore factory), Rs 41 51 crones (for Parel factory) and Rs.26.43 crores (for Saharanpur factory) As already reported, the proceedings relating to the Bangalore, Parel and Munger Show Cause Notices stand concluded in favour of your Company As regards the Show Cause Notice in respect of the Saharanpur factory, your Company has filed a writ petition in the Delhi High Court, which is pending. So far as the Kidderpore factory is concerned all pre-March 1983 valuation disputes stand resolved in favour of your Company pursuant to the finalisation of the provisional assessments.

With respect to the Munger factory, proceedings for finalisation of assessments resulted in the Deputy Commissioner's 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 which was 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, has made pre-deposits of Rs.2 crores and Rs.0.55 crore against the aforesaid demands at the stage when its appeals were pending before Commissioner (Appeals), Patna.

In accordance with the law laid down by the CEGAT and upheld by the Supreme Court, the exorbitant duty demands under the aforesaid Show Cause Notices and orders on interpretation of Rule 5 of the Central Excise Valuation Rules, 1975 would stand virtually extinguished.

Although your Company in a spirit of settlement, paid the differential Excise Duty that arose out of the Order of the Director General as early as in March 1987, and although the Excise Department's aforesaid Demands had either been quashed or stayed, the Collectorates in Meerut, Patna and Bangalore, during the year 1995, filed criminal complaints in the Special Court for Economic Offences at Kanpur, Patna and Bangalore, 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 reported in the previous year Report and Accounts and even earlier, the criminal case in respect of Bangalore factory was quashed by the court and in the proceedings relating to Saharanpur factory, the Special Court in Kanpur, on applications filed by the individuals concerned, discharged them In Patna, upon applications filed by the individuals against dismissal of similar petitions by the Special Court in Patna, the High Court has stayed all further proceedings before the Special Court.

In all the above instances, your Directors are of the view that your Company has a strong case and the Show Cause, the Demand Notices 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 19 (iv) in the Schedules to the Accounts and Note 19 (in) in the Schedules to the Consolidated Financial Statements.

RECOVERY OF DUES FROM THE CHITALIAS AND ENQUIRY 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 USD 12 19 million together with interest and costs against Suresh and Devang Chitalia of U S A and their companies, and that the Chdalias had filed Bankruptcy Petitions before the Bankruptcy Court, Orlando, Honda, which are yet to be determined.

As explained in the previous reports of the Directors, though the Company has written off the exports 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, the return of non-relied documents in possession of the Enforcement Directorate, pursuant to the request of your Company, is in progress In respect of some of the show cause memoranda issued by the Directorate, after hearing arguments on behalf of the Company, the appropriate authority has passed orders in favour of the Company, and dropped those memoranda.

The prosecutions launched by the Enforcement Directorate are pending.

TREASURY OPERATIONS:

During the year, the Company's treasury operations continued to remain focused on proactively managing temporary surplus liquidity and foreign exchange exposures within the well defined risk management framework The implementation of a state-of-the-art Integrated Treasury Management System has brought efficiencies to Treasury operations, enabling better cash management and monitoring of exposures on a real time basis.

The year under review was marked by arise in volatility in all markets, including bonds, Government Securities, equities, foreign exchange etc. As markets started factoring the effects of the US sub-prime crisis, risk aversion became the dominant mood in global financial markets, resulting in pressures on liquidity Although local markets also experienced higher volatility, RBI and SEBI were proactive in their regulation of the markets Despite the volatility, your Company continued to improve its treasury performance due to its strong risk management processes and proactive monitoring of positions.

The deployment of temporary surpluses of the Company continued to be guided by the twin objectives of capital protection and return optimisation In view of the range bound interest rate scenario, investments were made in liquid plus, floating rate, fixed maturity plans, short term funds and income schemes of Debt Mutual Funds Deployments in long dated fixed deposits / fixed maturity plans were tailored in accordance with the capex and working capital needs of the Company.

In the foreign exchange markets, the Rupee appreciated sharply, threatening the competitiveness of Indian exports However, due to RBI and Government intervention, the Rupee stabilised bringing much needed relief to exporters. In a scenario, where the US Dollar was under continuous pressure, the Company adopted an appropriate forex management strategy, including the use of simple options to manage the heightened volatility. However, it refrained from entering into any exotic derivative structure.

In view of the Rupee's sharp rise during the first half of the year, RBI allowed subvention on export credit for certain eligible products The Company availed the benefit of lower cost finance to reduce the cost of working capital for its exporting businesses.

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

TAXATION:

As mentioned in the Report of the Directors of earlier years, the Company had obtained Slay Orders from the Hon'ble 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 also 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 Hon'ble Calcutta High Court had admitted the Writ Petitions and ordered that no final assessment orders be passed without the leave of the Court The status also remains unchanged.

PUBLIC DEPOSITS:

Your Company's Public Deposit Scheme closed in the year 2000. As at 31st March 2008, 42 deposit holders had not claimed fixed deposits amounting to Rs.6091acs Reminders have been sent to these deposit holders by the Fixed Deposit Service Centre of your Company.

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 continues to provide high quality service through its trained and dedicated team of professionals supported by state-of-the-art infrastructure and systems.

ISC received the Quality Management System Certification ISO 9001 2000 in the year 2005 for a period of three years This certification, which has been renewed during the year for a further period of three years, stands testimony to the exemplary standards that your Company's ISC has achieved in investor servicing.

DIRECTORS:

Mr. Dinesh Kumar Mehrotra, who represented the Specified Undertaking of the Unit Trust of India ('SUUTI'), Mr. Sunil Behan Mathur, who represented the Life Insurance Corporation of India (FIC'), and Mr. Pillappakkam Bahukutumbi Ramanulam, who represented the General Insurance Corporation of India and its erstwhile subsidiaries, resigned as Non-Executive Directors of your Company with effect from 27th July, 2007, consequent upon withdrawal of their representation by the respective Institutions Mr. Charles Richard Green ceased to be a Non-Executive Director of your Company with effect from close of business on 31st March, 2008, consequent upon completion of his term.

Your Directors would like to record their appreciation of the services rendered by Messrs. Mehrotra, Mathur, Ramanulam and Green Mr. Anil Bailal and Mr. Dinesh Kumar Mehrotra were appointed by the Board of Directors (the 'Board') as Additional Non-Executive Directors of your Company with effect from 27th July, 2007, as representative of SUUTI and LIC, respectively Dr Ravinder Kumar Kaul was appointed by the Board as Additional Non-Executive Director of your Company with effect from 7th August, 2007 as representative of the General Insurers' (Public Sector) Association of India.

Mr. Sunil Behan Mathur and Mr. Pillappakkam Bahukutumbi Ramanulam were appointed by the Board as Additional Non-Executive Directors of your Company with effect from 27th July, 2007. Mr. Hugo Geoffrey Powell was appointed by the Board as Additional Non-Executive Director of your Company with effect from 7th May, 2008.

By virtue of the provisions of Article 96 of the Articles of Association of the Company and Section 260 of the Companies Act, 1956, Messrs. Bailal, Mehrotra, Mathur, Ramanulam, Powell and Dr. Kant will vacate office at the ensuing Annual General Meeting of your Company and have filed their consents to act as Directors of the Company, if appointed Your Board at its meeting held on 23rd May, 2008 recommended for the approval of the Members the appointment of Messrs. Bailal, Mehrotra, Mathur, Ramanulam, Powell and Dr. Kant as Non-Executive Directors of your Company, liable to retire by rotation, with effect from the date of the ensuing Annual General Meeting of the Company.

Dr. Basudeb Sen and Mr. Balakrishnan Vilayaraghavan were re-appointed as Non-Executive Directors of your Company with effect from 27th August, 2003 and their present term will expire on 26th August, 2008. Your Board at its meeting held on 23rd May, 2008 recommended for the approval of the Members their re-appointment as Non-Executive Directors of your Company, liable to retire by rotation, with effect from 27th August, 2008.

Notices have been received from Members of the Company under Section 257 of the Companies Act, 1956 for the appointment / re-appointment of Messrs. Bailal, Mehrotra, Mathur, Ramanulam, Powell, Vijayaraghavan, Dr. Kant and Dr. Sen as Directors Appropriate resolutions seeking your approval to their appointment / re-appointment are appearing in the Notice convening the 97th Annual General Meeting of the Company.

In accordance with the provisions of Article 91 of the Articles of Association of the Company, Dr. Basudeb Sen, Mr. Balakrishnan Vijayaraghavan and Dr. Ram S Tanneja will retire by rotation at the ensuing Annual General Meeting of your Company and, being eligible, offer themselves for re-election The Board has recommended their re-election.

AUDITORS:

The Auditors, Messrs. A F Ferguson & Co, retire at the ensuing Annual General Meeting and, being eligible, offer themselves for re-appointment Since not less than 251. 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.

EMPLOYEE STOCK OPTION SCHEME:

Under the Company's Employee Stock Option Scheme, 63,87,270 Ordinary Shares of Re.1/- each, were issued and allotted during the year upon exercise of 6,38,727 Options, such shares rank part passu with the existing Ordinary Shares of your Company Consequently, the Issued and Subscribed Share Capital of your Company, as on 31st March, 2008, stands increased to Rs.3,76,86,10,050/- divided into 3,76,86,10,050 Ordinary Shares of Re.1/- each.

Details of the Options granted up to 31st March, 2008, 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 are set out in the Annexure to this Report.

The Company's Auditors, Messrs. A F Ferguson& Co, have certified that the Company's Employee Stack Option Schemes have been implemented in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 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 judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company of 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 defecting 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 issued by the Institute of Chartered Accountants of India 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 certificate of the Auditors, Messrs. A F Ferguson & Co 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 205 employees who were employed throughout the year and were in receipt of remuneration aggregating Rs 24 lakhs or more or were employed for part of the year and were in receipt of remuneration aggregating Rs.2 lakhs per month or more during the financial year ended 31st March, 2008 None of the said employees is a relative of any Director of the Company 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 In terms of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to the Members excluding the aforesaid Annexure. The Annexure is available for inspection by Members of the Registered Office of the Company during business hours on working days up to the date of the ensuing Annual General Meeting, and if any Member is interested in obtaining a copy thereof such Member may write to the Company Secretary whereupon a copy would be sent.

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 ifs 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 their vision of sustaining ITC's position as one of India's most valuable companies through world-class performance, creating enduring value for all stakeholders, including the shareholders and the Indian society 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 Company's adaptive capability and provides the intrinsic ability to effectively manage business risk 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 of not only ifs businesses but also the entire value chain of which if is a part.

Inspired by this Vision, driven by Values and powered by infernal Vitality, your Directors look forward to the future with confidence.

3rd June, 2008 On behalf of the BoardVirginia House37 J L Nehru RoadKolkata-700 071 Y.C. DEVESHWAR ChairmanIndia K. VAIDYANATH Director

Annexure to the Report of the Directors

Statement as at Star March, 2008, pursuant to Clause 12 (Disclosure in the Directors' Report) of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999

ITC Employee Stock Option Scheme 2001 2002 2003 2009 2005 2006 Total

a) Total number of 339119 627070 1182616 1143195 1448071 6095625 10835696Options granted/allocated*:

ITC Employee Stock Option Scheme- 2006 Total 2007

5577343 5577343

Total 16413039

b) (i) Pricing The Pricing Formula, as approved by the Shareholders of Formula: the Company shall be such price which is no lower than the dosing price of the Company's share on the National Stock Exchange of India Limited ('the NSE') on the date of grant, or the average price of the Company's share in the six months preceding the date of grant based on the daily closing price on the NSE, or the Market Price' as defined from time to time under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1888, as determined by the Compensation Committee.

ITC Employee Stock Option Scheme 2001 2002 2003 2004 2005 2006

(ii) Exercise 779.95 617.90 679.90/ 880.45/ 1531.65/ 1814.00Price/Adjusted 463.27 586.97 1201.10Exercise Price** per Option, as applicable (Rs.) (Each Option represents 10 Ordinary Shares of Re.1/- each)

ITC Employee Stock Option Scheme- 2006 2007 1661.00 ITC Employee Stock ITC Employee Stock Total Option Scheme Option Scheme-2006

c) Total number of 5653609 6625 5660234Options vested

d) Total number of 2965143 Nil 2965143Options exercised

e) Total number of 29651430 Nil 29651430Ordinary Shares of Re.1/- each arising as a result of exercise of Options

f) Total number of 1037410 498100 1535510Options lapsed

g) Variation of Nilterms of Options

h) Money realised 201.49 Nil 201.49by exercise of Options (Rs. in Crore)

i) Total number 6833143 5079243 11912386of Options in force

j) Details of As provided below:Options granted to:

I. Senior managerial personnel: Name Designation No. of Options granted during the financial year

1. V.C. Deveshwar Executive Chairman 1,35,0002. S.S.H. Rehman Executive Director 67,5003. A. Singh Executive Director 67,5004. K. Vaidyanath Executive Director 67,5005. S.H. Khan Non Executive Director 9,0006. B. Sen Non Executive Director 9,0007. Ram S. Tanneja Non Executive Director 9,0008. B. Vijayaraghavan Non Executive Director 9,0009. S.M. Annual Executive Vice President, 13,500 Marketing, IID 10. N. Anand Divisional Chief Executive, 20,250 HD 11. P. Banerjea Executive Vice President, 13,500 Risk Management & Strategic Initiatives12 S. Basu Executive Vice President, 12,000 Internal Audit 13. S. Chandrasekhar Senior Executive Vice 12,000 President, Projects, Growth & Development, HD14. B.B. Chatterlee Executive Vice President & 13,500 Company Secretary15. P. Chatterlee Chief Financial Officer 12,00016. C. Dar Divisional Chief Executive, 12,000 LRBD 17. P.V. Dhobale Divisional Chief Executive, 20,250 PSPD 18. K.N. Grant Divisional Chief Executive, 28,125 ITD 19. R.G. Jacob Group Head, Corporate 20,250 Quality, R & D and Product Development20. U. Lail Services on Loan to Tobacco 13,500 Institute of India21. R.S. Naware Divisional Chief Executive, 20,250 FD 22. A. Nayak Executive Vice President, 20,250 Corporate Human Resources23. A.R. Noronha Executive Vice President, 13,500 Technical, Projects & ENS, HD24. S. Puri Services on Loan to 13,500 Subsidiary Company 25. T.V. Ramaswamy Executive Vice President, 13,500 Technical & Human Resources, RD26. S. Janardhana Reddy Divisional Chief Executive, 13,500 ADD-ILTD 27. S.C. Rustagi Executive Vice President, 13,500 Corporate ENS 28. S.K. Singh Executive Vice President, 12,000 Manufacturing, PSPD29. S. Sivakumar Divisional Chief Executive, 20,250 ABD 30. R. Srinivasan Head, Paper and Packaging 28,125 Group 31. K.S. Suresh General Counsel 13,50032. R. Tandon Executive Vice President, 13,500 Finance & MIS, RD33. P.K. Verma Executive Vice President, 13,500 Operations, HD

II. Any other employee Nonewho received a grant in any one year of Optionsamounting to 5% or more of the Options granted during that year

III. Identified Noneemployees who were granted Options during any one year, equal to or exceeding 1% of theissued capital (excluding outstandingwarrants and conversions) of theCompany at the time of grant

k) Diluted Earnings per Rs.8.25Share FPS) pursuant to issue of Ordinary Shares on exercise of Options calculated inaccordance with Accounting Standard(AS) 20 Earnings Per Share'

l) (i) Method of The employee compensation cost has been calculation of employee calculated using the intrinsic value method compensation cost of accounting for Options issued under the Company's Employee Stock Option Schemes. The employee compensation cost as per the intrinsic value method for the financial year 2007-08 is Nil (ii) Difference between Rs.216.91 croresthe employee compensation cost so computed at (i) above and the employeecompensation cost that shall have been recognised it it had used the fair value of the Options

(iii) The impact of The effect on the net income and earnings per this difference on share, had the tan value method been adopted, is profits and on EPS presented belowof the Company Net Income Rs. in Crores

As reported 3,120.10 Add: Intrinsic Value Compensation Cost Nil Less: Fair Value Compensation Cost 216.91 (Black Scholes model) Adjusted Net Income 2903.19

Earnings Per Share Basic (Rs.) Diluted (Rs.)

As reported 8.29 8.25 As adjusted 7.71 7.67

m) Weighted average Weighted average exercise price : Rs.1,661.00exercise prices and per Option weighted average fair values of Options Weighted average fair value per : Rs. 541.93granted for Options Option whose exercise price either equals or exceeds or is less than the market price of the stock

n) A description of The fair value of each Option is estimated using the method and the Black Scholes Option Pricing model after significant assumptions applying the following key assumptions on a used during the year to weighted average basis:estimate the fair values of Options (i) Risk free interest rate 8.13% (ii) Expected life 46 years (iii) Expected volatility 29.88% (iv) Expected dividends 2.19% (v) The price of the underlying Rs.1,668.00 share in market at the time of Option grant

* Bonus Options were allocated during 2005-06 on unvested Options in the same ratio as Bonus Shares (i.e. in the ratio of 1 Bonus Share for every 2 Ordinary Shares), in accordance with the ITC Employee Stock Option Scheme read with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

** As adjusted on allocation of Bonus Options.

ITD - India Tobacco DivisionHD - Hotels DivisionPSPD - Paperboards & Specialty Pacers DivisionAPD - Agri PUI DivisionAPD-ILTD - Agri PUIDmgon-IndisnLesITobsccoDevelopmentLRPD - Lifestyle Retailing PUI DivisionFD - Foods Division

On behalf of the Poard

Y.C. DEVESHWAR ChairmanKolkata, 3rd June, 2008 K. VAIDYANATH Director

CONSERVATION OF ENERGY:

INFORMATION UNDER SECTION 217(1)(e) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988 AND FORMING PART OF THE DIRECTORS' REPORT a) Energy conservation measures taken:

All business units have continued to focus on improving their energy usage efficiencies, in line with the Company's declared commitment towards sustainable growth Some of the measures adopted were:

i) Replacing existing wet scrubber with Cold Plasma Odor Abatement System in Saharanpur cigarette manufacturing unit;

ii) Installing a Rotary Uninterrupted Power Supply System in Munger cigarette manufacturing unit and thereby optimise standby DG (Diesel Generator) set operation.

iii) Installing spray Humidifiers in place of conventional humidifiers in Munger cigarette manufacturing unit.

iv) Redesigning process flow arrangements in Anaparti tobacco leaf threshing unit to eliminate five air lift transport stages, using innovative piggyback transport arrangement.

v) Substitution of electrical heating system by oil fired steam heating system for the intermediate ingredient preparation in biscuit manufacturing units, leading to reduction of specific energy consumption.

vi) Upgrading and optimising steam, condensate and cooling water systems at Bhadrachalam, Tribeni & Kovai paper boards/paper factories.

vii) Replacement of centralised compressed air system with decentralised automated system in Tribeni specialty paper unit.

viii) Replacement of existing chillers with higher efficiency chillers in Bollaram paper board-coating factory

ix) Replacement of old DG set by a Natural Gas fired electrical generating set having waste heat recovery boiler in ITC Maurya, New Delhi.

x) Upgrading electrical grid supply voltage from11kV to 33 kV to obtain more reliable power supply thereby avoiding diesel generator running costs in Tiruvottiyur packaging & printing factory.

xi) Some of the common measures adopted in many business units include:

- Installation of higher efficiency screw chillers in place of existing chillers.

- Installing higher efficiency Air Handling Units(AHU) with enthalpy control in place of existing AHUs'.

- Replacement of existing fans and motors with higher efficiency units.

- Replacement of old boilers with higher efficiency boilers.

- Replacement of reciprocating air compressors sets with screw air compressors.

-Replacement of incandescent lamps with high efficiency discharge lamps/CFLs (Compact Fluorescent lamps).

- Use of variable speed drives for various applications.

- Installation of 'energy saver' on lighting circuits.

- Installation of thermostatic controllers for cooling towers.

- Installation of solar hot water and lighting systems.

b) Additional investments and proposals, if any, being implemented for reduction of consumption of energy:

i) New advanced cigarette making and packing technologies leading to lower specific energy consumption:

ii) Replacement of pulsating grate boiler by a higher efficiency boiler in Anaparti tobacco leaf threshing plant.

iii) Use of HE (Radio Frequency) driers in biscuit manufacturing units.

iv) Installation of mini turbine to utilise vent steam in Bhadrachalam pulp & paperboards factory.

v) Replacement of inefficient vacuum pumps by energy efficient vacuum pumps in Bhadrachalam pulp & paperboards factory.

vi) Vacuum system upgradation for a paper machine in Tribeni specialty paper factory.

vii) Use of solar pumps, lighting & water heating system in Bollaram paperboard-coating factory.

viii) Ozone based washing system in hotel laundries.

ix) Natural gas fired calendar machine and tumble dryers for hotel laundries.

x) Use of solar energy for steam and hot water generation in different hotels.

xi) Further adoption of LED (Light Emitting Diodes) and HID (High Intensity Discharge) lamps together with greater automation of lighting controls using sensors and detectors in different hotels.

c) Impact of measures of (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods:

The continued focus on energy conservation and preservation of natural resources has helped alleviate the pressures of higher fuel costs and poorer quality coal grades.

A) POWER AND FUEL CONSUMPTION:

For the For the Year ended Year ended 31st March, 31st March, 2008 2007

Relating to Paperboards & Paper:

1. Electricity (Excluding Consumption in Colony)': a) Purchased Units (KwH in Lacs) 275 240Total Amount (Rs. in Lacs) 1647 1417Rate/Unit (Rs.) 5.99 5.91b) Own Generation:i) Through Diesel Generation:Units (KwH in Lacs) 27 4Units/Litre of Diesel Oil 2.92 3.06Cost/Unit (Rs.) 11.74 11.26ii) Through Steam Turbine/Generator Units (KwH in Lacs) 3428 3231Units/Kg. of Coal 1.58 1.85Cost/Unit (Rs.) {considering all fuel types} 1.99 1.64

For the Year ended 31st For the Year ended 31st March, 2008 March, 2007 Process Power Total Process Power Total

2. Coal (SpecifyQuantity & Where Used) (Grades 'C'ROM &'F' ROM) Quantity (M.T.) 233519 217433 450953 216284 174837 391121

Total Cost (Rs. in 8835 7104Lacs)

Average Rate (Rs. 1959.17 1816.50Per M.T.)

3. Furnace OilQuantity (KL) 9621 8756 Total Amount (Rs. 1871 1437in Lacs)

Average Rate (Rs./KL) 19448.25 16416.56

4. Others/Internal Generation (De Oiled Bran & Saw Dust, etc.): Quantity (M.T.) 95885 73073 Total (Rs. in Lacs) 1594 1165Rate/Unit (Rs.) 1662.96 1594.42(LP Gas):Quantity (M.T.) 1164 964Total (Rs. in Lacs) 450 325Rate/Unit (Rs.) 38628.68 33679.35

B) CONSUMPTION PER UNIT OF PRODUCTION:

For the Year For the Year ended 31st ended 31st March, 2008 March, 2007

Products (Paper in M.T.) 441479 415064

Electricity (KwH) 1010 1006

Coal 'C/F' Grade (M.T.) 0.53 0.52

Furnace Oil (Lure) 22 21

Others- De Oiled Bran/Saw Dust/ 0.134 0.111

LP Gas, etc. (M.T.)

Note:

Higher consumption due to non-availability of superior grade of coal and higher production of Value Added' grades.

TECHNOLOGY ABSORPTION:

INFORMATION UNDER SECTION 217(1)(e) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988 AND FORMING PART OF THE DIRECTORS' REPORT:

Research & Development:

1. Specific areas in which R&D was carried out by the Company:

i) Research projects on taste and flavour enhancement and improving tobacco manufacturing processes;

ii) Development, testing and specification setting of cigarette packaging materials;

iii) Physical, chemical and low ignition propensity analysis for tobacco, cigarettes and packaging;

iv) Developments to improve productivity and leaf styles in the flue cured Virginia and Burley growth regions;

v) Development of superior tobacco Hybrids and Varieties;

vi) Development of portfolio of agriculturally beneficial micro-organisms and other biological/ natural agricultural inputs;

vii) Development of drought and pest resistant hybrids of high yielding 'Bhadrachalam' clones.

viii) Development of cultivation practices for subabul.

ix) Development of low lignin content trees. x) Development of special lightweight titanium dioxide loaded printing paper for high quality printing applications.

xi) Development of in-house Poly Film Manufacturing.

xii) Development of special Flexible Pouches.

xiii) Development of in-house Silk Screen Printing process on cartons.

xiv) Research on rheological properties of starches.

xv) Oil analysis & shelf life studies to develop food products with higher shelf life.

xvi) Development of analytical tools and protocols for food volatiles, flavours, spices, vitamins, nutritional labeling, microbial safety and textural analysis.

xvii) Development of surface value addition and innovative wash techniques for new flat knit range.

xviii) Development to achieve metallic finish on garments.

xix) Development of premium corduroy fabric, with minimum to zero pile movement.

2. Benefits derived as a result of the above R&D:

i) Enhanced capability to meet customer expectations and regulatory requirements, both in India & abroad.

ii) Achieving cost reduction and import substitution.

iii) Better quality control on cigarettes & packaging materials.

iv) Significantly higher yields from new hybrid tobacco lines. v) Superior quality tobacco seedlings at lower cost of production and30-40% reduction in water demand.

vi) Development of cost effective neem based formulation and other bio-pesticides.

vii) Enhanced fibre production and better pulp quality leading to reduced costs.

viii) Significant increase in subabul productivity.

ix) Reduction in environmental load and pulping costs.

x) Improved market share as well as value capture.

xi) Cost savings and greater control over quality in providing flexible packaging solutions.

xii) Meeting the packaging requirements of 'ready to-eat' foods segment.

xiii) Meeting new packaging requirements, such as for 'Frama Di Wills'.

xiv) The high precision chemical, physical, microbial and sensory analyses of constituents and food products have enabled optimisation of processes/ products and deliver consistent quality and superior products to our customers It has also permitted quantitative benchmarking.

xv) Ability to provide new value proposition to customers in knitwear.

xvi) Incorporation of metallic gold and silver finish in 'John Players' signature line.

xvii) Aero finish corduroys with 'no shading' performance for premium formal wear.

3. Future Plan of Action:

i) Use of environmental friendly materials for cigarette packaging:

ii) Work with academic institutions on corroborative research projects such as development of high performance cigarette filters.

iii) Develop understanding of genetic control and pathways, for accumulation of flavour compounds in flue cured Virginia tobacco.

iv) Evaluation of second series of tobacco hybrids and advanced breeding lines for region specific deployment.

v) Carry out potassium uptake studies in traditional black soils for possible enhancement in tobacco leaf quality traits.

vi) Development of superior strains of bio-fertiliser and bio-pesticides for offering differentiated products with enhanced shelf life.

vii) Evaluation of bio-molecules and naturalytes as an extended product portfolio against target pests.

viii) Continue research on improvement of eucalyptus, subabul, bamboo and other pulp wood species.

ix) Develop in house metalising capability of films for flexible packaging.

x) Development of extrusion lamination process for packaging applications. For the year ended 31st March, 2008 (Rs. in Lacs)

4. Expenditure on R&D: i) Capital 6471.53ii) Recurring 4661.25iii) Total 11132.78iv) Total R&D Expenditure as a % of: - Gross Turnover 0.52- Net Turnover 0.80

Technology Absorption, Adoption and Innovation:

i) Hard link ups between cigarette makers and packers across different speed platforms.

ii) Cold plasma odour abatement system in cigarette factories.

iii) Mechanised cut tobacco handling system for tobacco despatches to contract manufacturers.

iv) Ozone bleaching technology for pulp bleaching.

v) Installation of super batch digesters in paper pulping process.

vi) Installation of complete flexible packaging line including blown film line, laminating machines, etc.

vii) Offset printing and canon line with Mitsubishi 6 colour offset printing machine, hot foil stamping with indexing facility, etc.

viii) Energy efficient PNG (Piped Natural Gas) fired boilers for hotel steam and hot water requirements Use of gas engine generator sets for hotel stand by power requirements.

ix) Organic solid waste converter for food wastes in hotels.

Benefits Derived:

i) Improved productivity and reduced wastes

ii) More effective odour control and higher energy and water efficiencies.

iii) Reduced wastes and improved quality control.

iv) Very low AOX (Adsorbable Organic Halides) levels in effluents.

v) Reduced consumption of chemicals and greater retention of fibre strength.

vi) In-house capability to provide complete solutions in flexible packaging.

vii) Meeting packaging requirements of corrugated board box for new market segment.

viii) Reduction in energy costs and lower CO2 emissions.

ix) Value creation by converting food waste to fertiliser.

On behalf of the Board

Y.C. DEVESHWAR ChairmanKolkata, 3rd June, 2008 K. VAIDYANATH Director