ITC -Annual Director's Report - 2008-2009

ITC LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Your Directors submit their Report for the financial year ended 31st March,
2009.

SOCIO-ECONOMIC ENVIRONMENT

Fiscal 2008-09 commenced with the Indian economy sliding into a cyclical
slowdown after a five year record of extraordinary growth. High oil prices
and rising domestic inflation were a source of concern, as was the
possibility of a worsening of the American financial crisis which had
surfaced in 2007. The financial crisis exploded post September 2008 into a
global phenomenon. Spreading quickly across Europe and Japan, it has
already pushed most developed economies into a prolonged recession that
could extend well beyond 2009. The failure of some of the biggest and most
well-known financial institutions has led to risk aversion on a global
scale, eroding confidence in financial markets and systems. Thanks to the
concerted and timely response of governments across the world, a total
meltdown of the global economy was avoided. There is still uncertainty on
whether the recession has hit the bottom. Historic analysis seems to
suggest that financial crises tend to be prolonged, especially if they are
a result of asset market collapse.

In India, the cyclical downturn was aggravated by huge inflationary
pressures in the economy in the first half of FY 2008-09. By the middle of
the second Quarter of the year, inflation had reached an alarming level of
13%. While inflation in developed markets had also risen, the problem was
particularly acute in emerging markets where food articles, which
constitute a much larger portion of consumer price indices, had suffered a
sharper rise in inflation. In the last Quarter of the financial year,
inflation began to dissipate. A sharp decline was witnessed in the prices
of commodities, including crude which dropped to a four year low of sub US
$ 50 per barrel.

The two aggregate demand growth drivers, namely investment and private
consumption have moderated in India. The sectoral growth drivers, i.e.
manufacturing, agriculture, construction and communication have all
experienced reduced growth rates. The Indian equity and foreign exchange
markets were adversely impacted in the wake of withdrawal by the Foreign
Institutional Investors (FIIs), triggered by their need for liquidity
support in other markets. The money, debt and credit markets too were
impacted. Thus, while the Indian banking sector remained largely unscathed
by the global financial crisis, it could not escape a liquidity crisis, in
turn impacting investment and consumption in the real economy. The
government had no option but to introduce stimulus packages estimated at
2.9% of the GDP. Combined with the loan waivers and the hikes granted by
the Sixth Pay Commission, the pump priming of the economy has worsened the
fiscal deficit. The Reserve Bank of India on its part attempted to inject
liquidity through a series of policy interventions. Unfortunately, despite
enhanced liquidity, credit flow to kick-start the economy remains
inadequate since the banking system continues to be risk averse in this
weak economic environment. The RBI seems to be determined to not allow the
increasing levels of Government borrowing to diminish the availability of
credit for the private sector. Simultaneously, it is persuading the banking
sector to pay heed to policy signals and reduce their lending rates to
stimulate investments.

The latest World Economic Outlook brought out by the IMF expects global
output to register a degrowth of 1.3% in 2009, its first fall in 60 years.
Real GDP growth in advanced economies is likely to be a negative 4%. In
emerging and developing economies, growth is likely to be sluggish at 1.6%,
down from the 7-8% witnessed from 2004 onwards. World trade is expected to
shrink by as much as 11%. Even though Governments across the world have
pumped in billions of dollars of liquidity to ease credit flow and have
undertaken tax cuts to stimulate demand, it is too early to predict the
eventual outcome conclusively. India is bracketed with China and other
emerging countries that are less likely to enter contraction on account of
their large domestic economies, which continue to show buoyancy.

India is expected to clock a GDP growth of 6% in FY 2009-10. Against the
backdrop of an improving macro environment, a green shoots' theory is
emerging. While there are fragile signs of a pick-up, it is still too early
to call it a recovery. Incremental data in India is veering towards the
positive (cement shipments, port traffic, telecom subscribers, auto and
retail sales, etc.). However, that is not the full story. Real estate and
exports still remain deep in the red, adversely impacting employment. One
of the key obstacles in the way of export recovery will be the recent
tendency on the part of mature economies to resort to protectionism. While
the members of the G-20 have pledged to work against protectionism, it
remains to be seen whether they can deliver their promise in the face of
political and social pressures in their home territories.

Relative to other emerging economies, the inherent strengths of India will
help it better withstand the adverse effects of the global financial crisis
and the aftermath of the downturn in developed countries. With a fairly
young population, skilled manpower, a tradition of saving reflected in the
rising savings and investment rates, a vibrant service sector, a
potentially large source of domestic demand (particularly rural) and the
emergence of globally competitive firms, India has multiple growth drivers
which hold out the promise of stable and sustained future growth. These
strengths will get further augmented by the planned investments in
infrastructure development envisaged in the Eleventh Five Year Plan.

The impressive performance of the UPA in the recently concluded election
augurs well for the country. It holds the promise of a stable government,
continuity of policies and a rapid pace of reforms. Unfettered by the
compulsions of coalition politics, the Congress party now has the mandate
and the opportunity to boldly move forward with its reforms agenda,
creating in the process, an enabling climate for a faster and wider
economic recovery.

The challenge for India is to sustain high growth rates even while
addressing the problems of inequitable income distribution and over
exploitation of environmental resources. It is here that unique business
models like the ones forged by your Company can supplement the efforts of
the government in creating societal value and enhancing societal capital.
It is an essential pre-requisite of rural development that markets are co-
created with local communities and in a constructive public-privatepeople
partnership. Your Company's e-Choupal network is a close replica of this
model. It provides the farming community with value added services such as
crop advisories, advance weather forecasts, output price discovery, direct
communication tools and distribution of un-adulterated agri inputs. The
footprint of this network is well established to source all requirements of
your Company's Branded Packaged Foods business and is poised to grow in
line with entry into newer categories.


Similarly, your Company's unique and path-breaking Choupal Pradarshan
Khet' (CPK) initiative, a paid extension service aimed towards enhancing
farm productivity with emphasis on adoption of agricultural best practices,
continues to attract the interest of both farmers and partnering companies.

The demonstration plots under CPK provide additional yield of 28% on an
average as compared to control plots. This network is focused on building
competencies at the farm gate level, which will go a long way in enhancing
the competitiveness of India's agricultural sector and agri-based industry.

Notwithstanding the present global crisis, India's growing economic clout
is leading to a more pro-active and meaningful global engagement,
particularly in areas like global warming and climate change. It is today
widely acknowledged that future economic growth will be 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 pro-actively 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 to
fulfill the consumer and societal demands of tomorrow.

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 delivered another year of steady performance despite very
difficult trading conditions, characterized by extremely volatile
financial, commodity and consumer markets. The unprecedented increase in
excise duties on non-filter cigarettes, coming close on the heels of the
un-paralleled levy of VAT on cigarettes in the preceding year, posed
exceptional challenges for the cigarettes business. Decline in hotel
revenues consequent to the economic slowdown and the unfortunate terror
strikes in Mumbai, the overhang of the impact of high commodity prices and
high store rentals, the brand building costs of the new Personal Care
portfolio and the significant investments in augmenting distribution
infrastructure combined to exert intense pressure on the financial
performance of the Company. Aggressive cost management measures were
pursued across all businesses to enhance cost competitiveness and cushion
the impact of the economic slowdown.

Gross Turnover for the year grew by 8.4% to Rs.23143.53 crores. Net
Turnover at Rs.15388.11 crores grew by 10.3% driven by a robust 20% growth
in the non-cigarette FMCG businesses and despite the subdued performance of
the Hotels business. The non-cigarette portfolio accounted for 51% of the
Company's Net Turnover. Pre-tax profits increased by 5.6% to Rs.4825.74
crores, while Post-tax profit at Rs.3263.59 crores registered a growth of
4.6%. Earnings Per Share for the year stood at Rs.8.66. Cash flows from
Operations touched an all time high of Rs.4706 crores.

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.3.70 per share (previous year Rs.3.50 per share) for the year ended 31st
March, 2009. The cash outflow in this regard will be Rs.1633.87 crores
(previous year Rs.1543.18 crores) including Dividend Distribution Tax of
Rs.237.34 crores (previous year Rs.224.17 crores).

Your Board further recommends a transfer to General Reserve of Rs.1500
crores (previous year Rs.1500 crores). Consequently, your Board recommends
leaving an unappropriated balance in the Profit and Loss Account of
Rs.858.14 crores (previous year Rs.724.45 crores).

Your Company continues to view foreign exchange earnings as a priority.
During the year, the direct foreign exchange earned by your Company
amounted to Rs.2226 crores (Rs.2168 crores in 2007-08).

PROFITS, DIVIDENDS AND RETENTION

(Rs. in Crores)
2009 2008

a) Profit before Tax 4825.74 4571.77
b) Income Tax 1562.15 1451.67
c) Profit after Tax 3263.59 3120.10
d) Add: Profit brought forward
from previous year 724.45 647.53
e) Surplus available for
Appropriation 3988.04 3767.63
f) Transfer to General Reserve 1500.00 1500.00
g) Proposed Dividend for the financial
year at the rate of Rs.3.70 per 1396.53 1319.01
ordinary share of Re. 1/- each
(previous year Rs. 3.50 per share)
Income Tax on proposed dividend 237.34 224.17
h) Earlier year's provision no longer
required (3.97) -
i) Retained Profit carried forward to
the following year 858.14 724.45
3988.04 3767.63
BUSINESS SEGMENTS

A. FAST MOVING CONSUMER GOODS

FMCG - Cigarettes

The cigarette industry in India continues to operate in an environment of
rapidly escalating challenges, particularly in the areas of taxation and
regulations. The spate of regulations, influenced by trends that are more
relevant in developed markets, together with prolonged punitive taxation
targeted exclusively at the cigarette industry, have stifled cigarette
consumption in India in comparison with other forms of tobacco consumption.

While the intent has been to reduce the aggregate consumption of tobacco,
the discriminatory taxation and regulations on cigarettes has only served
to constrict demand for cigarettes, even as the total consumption of
tobacco in the country continues to grow. Unlike international markets, it
is a serious misconception to equate tobacco consumption with cigarettes in
India. On an average, cigarettes account for about 90% of tobacco
consumption globally, with an even higher share of almost 100% in large
markets like China. In sharp contrast, in India consumption of tobacco in
cigarette form has steadily declined from 23% of total tobacco consumption
in 1971/72 to less than 15% currently. That the structure of the tobacco
industry in India has progressively become even more skewed over time, with
the share of cigarettes declining, is evidenced by the chart given below.

Being one of the smallest constituents of tobacco consumption in India, the
per capita consumption of cigarettes is among the lowest in the world -
just about 10% of the world average.

This disparity in taxation on tobacco products compels consumers of
cigarettes to contribute more than 85% of the total revenue collections
from the tobacco industry, besides causing a progressive migration from
cigarettes to other lower value forms of tobacco consumption. As a
consequence, the share of cigarettes in total tobacco consumption has
reduced, even though the aggregate tobacco consumption has increased over
the years.

(Tobacco Consumption in million kgs)

Year Cigarettes Others Total

1981-82 86 320 406
2008/09 (est) 74 421 495
Difference -12 +101 +89

This situation has been further aggravated by the extraordinary increase in
the rates of Central Excise Duty (CED) of the order of 140% and 390%
respectively on regular and micro-sized non-filter cigarettes with effect
from March 2008. This hike in rates, coming on the heels of a 30%
equivalent increase in tax incidence due to the levy of VAT in April 2007,
has forced the organised cigarette industry to substantially vacate this
category. This, in turn, has caused a section of consumers to move to
revenue-inefficient tobacco products, including smuggled and tax-evaded
cigarettes, resulting in a sharp decline in volumes for the highly taxed
legitimate sector of the cigarette industry.

The vacuum created by the exit of the popular low priced micros and plain
non-filter cigarettes has been occupied by duty-evaded regular size filter
cigarettes which are sold to consumers at Rs.10/- per packet of 10
cigarettes. These low priced tax-evaded illegal cigarettes are a growing
threat to the legitimate industry, Government revenue, market stability and
the social objective of regulating tobacco consumption. It is imperative
that the authorities strengthen enforcement to eliminate this fast growing
illegal industry. In addition, the Government could also consider the
introduction of a new tax slab that would enable the legitimate industry to
offer the consumer tax paid cigarettes at this price point.

The industry has been subjected to further stress with the implementation
of smoking ban in public places. This will propel consumers to switch to
inferior and revenue inefficient forms of non-smoking tobacco consumption.
The objective of this regulation to protect against passive smoking can be
well met by segregating space at public places, as is the practice
internationally. It is apprehended that switching to cheaper tobacco
products will have a significant adverse impact on the earnings of
thousands of tobacco farmers, who gain the maximum realization from
cultivating cigarette type tobaccos.

This adverse impact on the farmers will become further acute with the
imposition of graphic health warnings on tobacco products, which will be
more impactful on cigarettes than other forms of tobacco products due to
design specifications. At the same time it will provide a fillip to the
growth of the smuggled contraband trade as these cigarette packs will not
carry the specified graphic warnings.

The high taxation regime on cigarettes, together with the other adverse
circumstances discussed earlier in this section have resulted in shrinking
the tax base without any beneficial impact on tobacco control and health.
Your Company believes that the economic potential of tobacco can be
maximised through moderation of taxes on tobacco, minimisation of
discriminatory taxes between different classes of tobacco products and a
regulatory framework that addresses the genuine concerns of all the
stakeholders of the tobacco industry. The need, therefore, is for a
balanced, non-discriminatory agenda on tobacco, both fiscal and regulatory.
Your Company continues to engage with the policy-makers in this regard.

Despite these stressful circumstances, the Company's relentless efforts to
create value through international quality products, significant
investments in technology and product development and a strong portfolio of
brands have resulted in migration of consumers to the filter segments. Some
of the strategic initiatives of the year include the launch of Classic
Verve in the king size filter segment and Navy Cut in the regular size
filter segment, limited edition pack offerings for Gold Flake Kings and
Classic and commemorative packs for most of the other filter brands. Your
Company continues to maintain its leadership position in terms of market
standing and share, despite upheavals in the market place.

Notwithstanding the logistical complexities thrown up by the sudden
stoppage of manufacture of non-filter cigarettes coupled with the need to
significantly ramp up the filter volumes, new productivity and quality
records were established. Induction of new technology continued apace at
all the manufacturing facilities. Ongoing investments in the primary
manufacturing process at the Munger factory will standardise the technology
platform across all facilities of your Company. Concurrently, the induction
of additional high-speed makers and packers across the factories will lead
to further improvements in quality and productivity. Additionally,
sustainable improvements in key operating metrics and internal processes
have been achieved by using leading edge structured problem solving
techniques such as Lean Manufacturing' and Six Sigma'.

On the Environment, Health and Safety (EHS) front, your Company's cigarette
factories continue to be 100% solid waste recycling units. They have also
achieved further reduction in specific consumption of energy and water per
cigarette produced. It is a matter of pride that all the cigarette
factories have, yet again, been rated at the 5 star level by the British
Safety Council for both Health and Safety Award' and Environment Audit
Award' and have been awarded the RoSPA Gold Medal for Occupational Health
and Safety'. Saharanpur factory was accorded the CII National Award for
Excellence in Energy Management' while the CII National Award for
Excellence in Water Management' was conferred on the Munger factory.
Additionally, the Munger, Saharanpur and Bengaluru factories won the Golden
Peacock Award for Occupational Health and Safety while the Kidderpore and
Saharanpur factories won the Greentech Environment Excellence Gold Award.
The Kidderpore factory was also awarded the Prashansa Patra Award by the
National Safety Council and the CII Eastern Region Safety, Health and
Environment Award. The Munger factory won the CII Eastern Region Energy
Conservation Award and the CII Eastern Region Safety, Health and
Environment Award.

Whilst the menace of contraband and illegal domestic production coupled
with the discriminatory tax framework are cause for concern, your Company
is confident that the robustness of its strategies and the continuing trust
of consumers and stakeholders will enable it to sustain and strengthen its

leadership position.

FMCG - Others

It is well-known that the Indian economy is driven by domestic consumption
and growth across all sectors, namely agriculture, industry and services.
As a consequence of low per-capita income and wide disparities in income
distribution, India has had very low penetration of consumer goods and
services. However it is clear that the economy is changing, fundamentally
triggered by far reaching changes in socio-economic variables. These
variables (discussed below) will have significant impact on economic
growth, savings rates, consumption patterns and product and services
penetration.

In contrast to world trends, the mix of the Indian population is changing
in favour of the working age group. The United Nations Population Division
(UNPD) estimates that India's working age (15-64 years) population
proportion, which was lowest at 55.3% in 1965, has increased steadily to
reach 63% today. Going forward, the demographic transition is likely to be
even sharper, with the proportion of working age population likely to reach
69% by 2035 - an increase of 0.23% every year. This demographic dividend
will have a positive impact on India's average income levels and
consumption patterns as allocation of incomes on staples will be
supplemented by larger spends on discretionaries. The increase in affluence
is likely to be quite remarkable over the next six years. It is estimated
by the National Council of Applied Economic Research (NCAER) that the
proportions of the two lowest income category households i.e. Low income
households ($ 0-3000) and Aspirants ($ 3000-6000) will drop from 14.6% and
41% to 6.4% and 25% respectively. Effectively, by 2016, NCAER estimates
that 68% of Indian households are likely to be middle class or high-income
households. This change in income distribution will appreciably boost
consumption of branded consumer goods.

Similarly the pace of India's urbanisation is expected to be faster than
that of the rest of the world. The mix of urban population is expected to
increase from ~29% currently to ~44% by 2035 as per estimates of the UNPD.
This will lead to increased nuclearisation of families and increase in the
proportion of working women, which in turn will provide a fillip to the
growth of branded consumer goods.

Given these positive fundamentals, your Company continued to rapidly scale
up the new FMCG businesses comprising Branded Packaged Foods, Lifestyle
Retailing, Education and Stationery Products, Safety Matches & Incense
Sticks (Agarbattis) and Personal Care Products.

As reported last year your Company continues to make significant
investments in scaling up its Trade Marketing and Distribution
infrastructure. Its strategic re-organisation during the year under review
has begun to drive down transit times, thereby enhancing the competitive
freshness of your Company's products. Superior channel management, backed
by state-of-the-art technology solutions, and sustained investments in
training and development of the frontline sales team have significantly
enhanced your Company's competitive capabilities.

The Segment Report set out in Schedule 20 to the Accounts reflects the
outcome of this rapid scaling up. While segment revenues grew by 20% over
2007-08 to touch Rs.3014 crores during the year, this segment has clocked a
CAGR of 74% in revenues in the last seven years. 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. Margins during the year were impacted by the sharp
increase in commodity prices and steep store rentals. Highlights of
progress in each category are set out below.

Branded Packaged Foods

Notwithstanding tough trading conditions, the Branded Packaged Foods
business continued to expand with sales growing 13% over the previous year.
The range of offerings now comprises more than 170 distinct products under
6 brands. The Company's unflinching pursuit of providing benchmarked
quality products backed by deep consumer insights has enabled it to build a
significant market presence. During the year, the business was adversely
impacted due to economic slowdown and the severe price increases across all
input commodities. Having acquired appreciable scale in a relatively short
span of time, the business is progressively focusing on driving consumer
franchise, consolidating the portfolio in select high margin categories,
improving market servicing and driving supply chain efficiencies.

In the Staples business, Aashirvaad' atta continued its leadership
position with a market share of 54% among branded national players.
Aashirvaad' Spices grew by 40%, leveraging the brand's strong association
with superior quality and consistency.

The biscuits business continued on its growth trajectory with sales
improving by 14%. Sunfeast with a current market share of ~10% is now
clearly established as a credible third brand. The Sunfeast' range of
biscuits witnessed continued enrichment in product mix with higher sales of
value added products like Creams, Cookies, etc. The year however witnessed
high input cost pressures in commodities like wheat flour, edible oil,
skimmed milk powder, sugar and packaging materials. The business focused on
supply chain efficiencies to enhance product freshness and improve logistic
costs.

Candyman' is now the established No.1 brand in its segment of hard boiled
candies. During the year, the business saw the successful launch of Lacto
and Toffichoo, which received enthusiastic response from consumers. Within
the Ready To Eat' group, Sunfeast PastaTreat' has emerged as a unique
product with a loyal consumer base. Research among trialists has thrown up
very encouraging data, pointing to optimistic promise of future sales.

Bingo!' penetrated further into newer markets, gaining customer franchise.
The product portfolio was enhanced with the launch of the new format Hatke
Jhatke. The wave shaped snack, with two exciting flavours - Funky Masala &
Tomato Twist has been received positively by consumers. The finger snack
segment led by Mad Angles continues to grow in strength. Bingol's'
positioning as a youthful and innovative snack has got significantly
reinforced. The Bingo!' marketing campaign has been impactful and
effective with its high energy clutter breaking advertisements.

The Foods business is being supported with investments in manufacturing and
distribution infrastructure capable of handling larger scale to derive
benefits of growing business volumes as envisaged in the future. Supply
chain logistics for competitive freshness and cost efficiencies is critical
to this business. Till requisite scale is achieved, the business will have
to bear a high cost base in the interim, as the benefits of distributed
manufacture to service proximal markets are yet to be fully exploited. The
business is building its competitiveness by scaling up whilst enhancing
process and supply chain efficiencies.

The year ahead promises to be challenging for the business. Brand building
will assume center stage to drive sales and enhance consumer recall.
Innovative campaigns with high buzz factors, supported by focused consumer
activation, will be essential for building strong consumer franchise and
trade loyalty. Well researched and robust product development processes
will be key for the launch of differentiated offerings across segments. The
product platforms of taste, energy, health and wellness are expected to
provide the next level momentum in sales growth.

Affordability will be a key determinant of the growth of the branded foods
business in India. This objective can be achieved by removing excise duty
on all food products and by standardizing the VAT rate at 4%. This will
also be in line with international practice.

Lifestyle Retailing

The Lifestyle Retailing business has consolidated its market presence in
the branded apparel market by establishing Wills Lifestyle' as the premier
lifestyle brand in the country and John Players' as a leading fashion
brand for the youth.

Wills Lifestyle' continues to be a leader in the top end of the branded
apparel market with a range that reflects high fashion imagery,
aspirational aura and brand premiums in line with international trends. It
has established product leadership through constant innovation in designs,
styling, fabrics and finishes embellished with accessories. Sales grew by a
robust 19% over the previous year. The high stature and premium imagery of
Wills Lifestyle' brand was further reinforced through association with
Wills Lifestyle India Fashion Week', the country's most prestigious
lifestyle event. Under its Ramp to Racks' initiative the brand has
exclusive tie ups with leading designers of the country such as Rohit Bal,
Rohit Gandhi-Rahul Khanna, Rajesh Pratap Singh, JJ Valaya and Manish Arora
to create Wills Signature range of designer-wear. This exclusive line has
further enhanced the brand's premium imagery, investing it with a designer
aura.

The customer privileges programme Club Wills', with over 60,000 loyal
members comprising of premium and discerning customers, has led to higher
visit frequency and transaction size.

The business has leveraged synergies within the ITC group to successfully
launch a boutique store at the ITC Maurya. The Essenza Di Wills' and
Fiama Di Wills' range of personal care products continue to augment the
lifestyle portfolio. The brand received high recognition during the year
when it was accredited a Superbrand' and declared the Most Fashion
Forward Brand' at the India Fashion Awards. Wills Lifestyle is now
available at 50 exclusive stores in 30 cities and in more than 150 shop-
in-shops' in leading departmental stores.

In the popular Youth' segment, the John Players' brand has established a
strong presence in the mind of the consumer and has become a leading brand
in the segment, with youthful products such as denims, knits, suits, and
jackets. However, the economic slowdown has impacted consumer sentiment and
limited the growth in this mid-segment. John Players' has now established
a strong pan India presence with over 200 Flagship Stores and 1300 Multi
Brand Outlets. In the coming months its presence will be enhanced in
Departmental Stores.

The business achieved a robust growth of 31% in exports despite tough
economic conditions in the target US and European markets. The growth came
on the back of improved product mix through the offer of high value
embellished garments and addition of premium fashion customers. The
business strengthened its existing customer engagement by offering design,
product development and flexible manufacturing capabilities.

The business has responded effectively to the economic slowdown and weak
consumer sentiment. Renegotiation of rentals and rationalization of
unviable stores have helped improve store margins. Cost management actions
and business process streamlining are being vigorously pursued to enhance
retail and manufacturing productivity. Investments in Information
Technology have enhanced real-time information visibility across segments
leading to improvement in operational effectiveness. Investments are also
being made in store design, visual merchandising and customer service to
sustain the international shopping experience.

The business will continue to focus on increasing the fashion quotient of
its offerings on the basis of deeper understanding of consumer preferences,
enhanced operational effectiveness and world-class quality.

Education & Stationery Products

The Education & Stationery Products business registered an impressive sales
growth of 60% over the previous year, underscoring the minimal impact of
the economic slowdown on this buoyant sector. The growth was powered by
brand Classmate' which continued to consolidate its leadership position in
student notebooks.

Education is the foundation for a vibrant democracy, growth in
productivity, income and employment opportunities. Presently, the country
has about 300 million illiterate adults. The current enrolment rate for
primary education is around 77 per cent and for secondary education about
60 per cent. The government has accorded top priority to resolving this
national crisis, doubling the resource allocation from the current levels
of ~4% of GNP. This impetus is bound to fuel demand for education products
in the immediate future.

The market for notebooks in India is highly fragmented and dominated by
regional and local players. These players have traditionally invested very
little in quality up-gradation, brand building and distribution. With the
advent of branded national players led by Classmate', there has been a
marked improvement in product quality which has in turn fuelled demand from
a growing section of discerning consumers.

The business has systematically invested in supporting small scale
manufacturers through superior brand building, robust trade marketing
initiatives, product development and efficient demand and supply side
networks. Product superiority comes from leveraging your Company's world-
class fibre line at Bhadrachalam which is India's first Ozone treated
elemental chlorine free facility. Besides superior physical
characteristics, the paper is environmentally friendly and amongst the
greenest' in the Indian market. The Classmate' brand equity has been
enhanced through imaginative point of sale communication, contemporary
cover designs and trivia pages that seek to inspire young minds'. The
coverage in this inspirational series includes relevant and contemporary
topics such as Global warming, Climate change, National Leaders,
Inventions, Incredible India etc. On the supply side, the business sourced
notebooks from over 15 small scale manufacturers, 9 of whom are ISO
9001:2000 certified with the assistance of the business, a first for the
stationery industry. The demand side saw a significant increase in the
customer base resulting in market coverage going up from 2000 to 2600
markets.

During the year, the business launched a slew of new complementary
categories under the Classmate' brand. These included Geometry Boxes,
Children's Books, and Gel and Ball Pens. On the anvil are a range of
scholastic products targeted at the Classmate' notebook consumer. With the
expansion of categories under the Classmate' Brand, the business expects
to consolidate the market standing of Classmate' as the most trusted
student stationery brand.

The business entered the office supplies segment with the launch of
Paperkraft' Premium Business Paper in multiple grammage and pack size
variants. Paperkraft' is a superior and environmentally friendly multi-
purpose paper for print-copy-fax-scan applications. Multi-purpose paper is
India's fastest growing paper products category. Paperkraft' is a physical
manifestation of ITC's sustainability programme and leverages the Ozone
Treated Elemental Chlorine Free' technology introduced in India for the
first time by the Company's Paperboards, Specialty Papers & Packaging
business. A proprietary chemical treatment renders it eco-friendly with a
higher archival life. Importantly, Paperkraft', with its impressive green
credentials enables customers to exercise their power to Go Green' and
partner the Company's efforts to mitigate the adverse impact of climate
change and create a positive environmental footprint.

During the year, the business went live with its ERP. This has enabled
information visibility across the growing collaborative supply chain,
resulting in timely and effective decision making.

With its two flagship brands Classmate' & Paperkraft' gaining widespread
consumer acceptance, the business is well poised to grow significantly in
the coming year.

Safety Matches

In the Safety matches business, the Company's brands along-with those of
Wimco continued to enjoy strong consumer preference resulting in enhanced
market standing. The portfolio approach adopted by the business addresses
demands of individual markets at appropriate price points. Synergies from
the earlier acquisition of Wimco by the Company's subsidiary Russell Credit
Ltd are being fully realised to gain enhanced levels of flexibility in
operations, resulting in supply chain efficiencies. The business has also
increased its presence in the international markets through growing exports
of value-added products, particularly to Africa and the Middle East.

Steep escalation in the cost of key input materials like wood, splints and
many chemicals compelled your Company to increase consumer prices during
the year, resulting in a temporary drop in volumes which are now on the way
to recovery and stabilisation. Your Company continues to partner with the
small scale sector by sourcing a significant portion of its requirement
from multiple units in this sector and by working closely with them in
augmenting their competitive ability by raising their quality and process
standards.

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)

Market standing of the Company's Mangaldeep' brand of incense sticks
(Agarbattis) stood further strengthened with sales recording a robust
growth of 20% over the previous year. The business focused on product
differentiation and ensuring consistently superior quality products. During
the year, the business launched hand rolled Durbar Battis' under the brand
name Mangaldeep Durbar Gold' in coastal Andhra Pradesh. This introduction
has received wide consumer acceptance.

The business continues to contribute to the Company's commitment to the
Triple Bottom Line' by providing livelihood opportunities to more than
5000 persons through small scale entrepreneurs and NGOs / Self Help Groups
across India. This business initiative empowers women groups from poor
rural households by creating sustainable livelihoods. Increased incomes in
the hands of women go towards better education and health for their
children, thus improving social infrastructure in the project areas. Your
Company continues to partner with small and medium enterprises to bring out
the best of their entrepreneurial skills and facilitate in raising their
process and quality standards.

Personal Care Products

The year under review marked the first full year of the Company's presence
in the Personal Care space. The business continued to roll out its product
portfolio comprising Soaps, Shampoos, Shower Gels, etc. under the Fiama Di
Wills', Vivel Di Wills', Vivel' and Superia' brands across the country.
The launch of the Vivel Ultra Pro' Shampoo in the anti-dandruff segment
has augmented the Vivel portfolio and widened the hair benefits offered to
consumers. Consumer acceptance of the Company's products, as reflected in
market research studies, has been gratifying. These brands address
identified segments of the market with differentiated value offers.

The Personal Care industry continues to grow at around 12% per annum, and
stands at around Rs.23000 crores. In the face of a global recession, it is
commendable that the domestic industry has been able to post this growth.
The intervention by the Government, by way of lower taxes, easier credit
and interventions in the rural sector have helped protect demand. Prices of
commodities such as palm oil and surfactants which had spurted to all time
highs in the early part of the year, declined during the later half of the
year, helping the industry to improve its profitability. The general
consensus is that the price outlook for commodities will remain fairly
subdued for the rest of 2009. As a result, there would be more
opportunities to offer better value to consumers through promotional and
other initiatives.

The business added manufacturing capacity at its owned tax-exempt unit at
Haridwar and is in the process of undertaking further expansion in line
with expected market requirements. These investments will provide
advantages of superior quality, flexibility, responsiveness and
intellectual property protection.

Investments continue to be made to build a strong portfolio of products and
brands and to expand the consumer base. This includes creation of world-
class products through well-defined research and development activities at
the Company's dedicated R&D Centre, and increased engagement with consumers
through efficient deployment of media, direct contact, and promotional
activities across traditional as well as contemporary consumer connect
avenues. The business is simultaneously focusing on leveraging the
strengths in your Company's trade marketing and distribution capabilities
to drive wider availability and visibility of its products.

B. HOTELS

The strong growth witnessed by the Indian hospitality industry in the last
few years was driven by increased business traffic and leisure travel in
the wake of favourable economic conditions and higher order integration of
India with the global economy. The premium segment which accounts for 60%
of the hotel industry's revenues grew at an impressive 27% between 2003-04
and 2007-08. This growth momentum continued into the first half of this
fiscal reflected in the growth of your Company's revenues by 14%. The
effect of the economic slowdown started to impact from the middle of the
year with clampdown on domestic corporate travel and steep reduction in
international travel as a fallout of the global financial crisis. Lack of
consumer confidence adversely impacted leisure travel as well. The
situation worsened with the horrific terror strikes at Mumbai which
triggered off negative travel advisories leading to sharp degrowth in
occupancies and average room revenues. The political uncertainties of an
election year added to the dire situation of the industry. This cyclical
downturn impacted the hospitality industry, though the business has been
able to demonstrate some resilience during this challenging period.
However, the business continues to pursue an aggressive investment led
growth strategy recognising the inadequate capacity and the longer term
potential of this sector.

Foreign tourist arrivals slowed down in the second half of the year with y-
on-y degrowth as shown in the graph below:

Given such adverse circumstances, your Company's hotels business posted a
decline in revenues by 7%. Though Gross Operating Profit (PBDIT) degrew by
19% over the previous year at Rs.384 crores, the hotels business maintained
its leadership in terms of operating efficiency as measured by the ratio of
PBDIT to Net Income at 40%.

The longer term outlook for the industry however remains robust, given
India's inadequate room capacity. A number of projects poised to enter the
market have got delayed due to liquidity crunch, rising interest costs and
uncertain business environment. Occupancies are expected to rise with
economic revival by the end of financial year 2009-10. Your Company now has
over 100 hotels across 80 locations in India, operating under 4 brands.
These are ITC Hotel' at the top end, WelcomHotel' in the five star
category, Fortune' in the mid market segment and WelcomHeritage' in the
heritage leisure segment. In addition, the business has co-branding
arrangement with two international brands The Luxury Collection' and
Sheraton', franchised from Starwood. Together, these offerings make ITC-
Welcomgroup the second largest hotel chain in India.

During the year the Fortune brand, which covers mid to mid upscale
segments, experienced substantial growth. The brand now has 25 operating
properties and another 27 properties are in different stages of project
execution. The WelcomHeritage brand has now grown to 64 properties.

The recently launched Kaya Kalp - The Royal Spa' at ITC Mughal, Agra has
been adjudged the winner of Tatler's best spa by the London based Tatler
Group. The Royal Spa, which is Asia's finest, reinforces the Company's
philosophy of providing premium experiences for the discerning guest. The
business also earned the distinction of being recognized as the best
employer in Asia in the hospitality sector in a study conducted by the
global human resources consulting and outsourcing firm - Hewitt Associates
together with the Wall Street Journal and Dow Jones. This is a testimony to
your Company's commitment to its people. In view of the positive long term
outlook, the competitive strength of this business and the emerging
opportunities in this industry, your Company has maintained its aggressive
investment led growth plan. Construction activity in respect of the new
super-deluxe luxury hotels at Bengaluru and Chennai is in full swing in
line with their targeted opening dates.

The ITC-Welcomgroup chain, with its globally benchmarked levels of product
and service excellence and customer centricity is well positioned to not
only sustain its leadership position in the industry, but also 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 steady
growth in revenues and profits. Segment revenues grew by 19% over the
previous year to touch Rs.2822 crores. Segment results at Rs.509 crores
reflect a growth of 12%. Paperboards & Specialty Papers

The global Paper & Paperboards industry was adversely impacted by the
economic slowdown. Annual growth dropped to 6% against 9% in the previous
year. In the face of accumulating inventory levels, most international
players resorted to price discounting, resulting in lower unit realisation.
With recovery expected in the second half of 2009-10, the growth forecast
for the industry for the next 5 years is estimated at a CAGR of 7%.
Increasing demand in Asia is seen as the growth engine, with China and
India clearly emerging as the markets of the future.

The domestic paper and paperboards industry has a capacity of 9 million
tonnes per annum (TPA). The paperboards segment, with a capacity of 1.32
million TPA is characterized by fragmented capacities. More than 100 mills
service this market, but very few are capable of delivering products of
contemporary quality. Your Company is the market leader in the Paperboards
segment with an output close to that of the next three players combined.
The business enjoys a domestic market share of about 22% by volume and 28%
by value. Given the strength of its integrated pulping operations, the
business commands a high 77% market share in the premium value added
paperboard segment. This segment is expected to grow annually by over 15%
in the next few years, primarily driven by the need for product
differentiation, increased competition in the end-user segment, growth in
organized retailing and improvement in conversion technology.

The market for premium quality coated papers as well as the branded copier
segment is witnessing steady growth. These segments are expected to grow at
a CAGR of 9% and 15% respectively over the next 5 years. Your Company is
also the sole manufacturer of cigarette tissue in the country, accounting
for about 65% of the domestic cigarette tissue consumption. In the growing
decor segment, your Company's products have a good market standing, though
it faces steep competition from Chinese imports.

Total production of paper and paperboards during the year was 469335 MT
compared to 414714 MT during the previous year. Overall sales, including
internal transfers, increased to 462119 MT from 403063 MT, an impressive
growth of 15%. The export turnover for the year remained stable despite
adverse global market conditions in the second half of the year. The
business currently exports to 58 countries including UK, UAE, Turkey,
Greece, Sri Lanka, Bangladesh, Iran and Nigeria and plans to increasingly
focus on the export of value added products to premium markets.

During the year, the business commissioned a new paper line at its
Bhadrachalam unit with a capacity of 1 lac TPA at an investment of Rs.465
crores. This state-of-the-art paper machine will service the growing demand
for international quality printing and writing paper. Copier and writing
paper, produced by this machine, is clearly enabling higher order value
capture based on the strong forward linkages with your Company's branded
Education and Stationery business.

The per capita consumption of paper and paperboard in India is currently at
7 Kgs against a world average of 55 Kgs. and Chinese consumption of 45 Kgs.
Given the positive outlook for the long term growth of the Indian economy,
this is expected to grow significantly faster. Government schemes to
promote education such as the Sarva Siksha Abhiyan, growth of the
publishing industry, changing lifestyles and demographic profiles will fuel
a faster rate of growth in the value added printing and writing paper
segment. The Business is well positioned to tap this potential.

Your Company is engaged in addressing the twin challenges of securing the
long term fibre supply and remaining continuously cost competitive. It has,
over the years, pursued an aggressive clonal propagation strategy, which
makes available in-house developed high-yielding clones and seedlings of
the desired pulp wood species together with extension services to farmers
engaged in pulp wood plantation on their marginal wastelands. The quality
of these clones and seedlings has been very well accepted by the farming
community. This practice has been successfully adopted over the last 13
years in more than 90,000 hectares of plantations. During this year alone,
9,000 hectares were brought under this coverage. Enhanced R&D interventions
have resulted in the development of high yielding Subabul clones. Your
Company actively collaborates with the Council for Scientific and
Industrial Research to develop low-lignin high yield pulpwood species based
on biotechnology applications. This continued focus on expanding the
coverage of high yielding clonal plantations in the economic vicinity of
your Company's mill is expected to yield significant competitive advantage
in the years to come. It has also contributed to your Company achieving the
carbon positive' status for the fourth year in succession.

Your Company continues to represent to the policy makers to introduce
appropriate amendments to the Forest Conservation Act, 1980 and related
Rules to permit 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 public-private partnerships towards development of
degraded forest lands would go a long way in serving the twin objectives of
enhancing the competitiveness of the paper and paperboards industry and
creating sustainable livelihoods in rural India.

Wastepaper is a key input in the manufacture of recycled boards.
Unfortunately, mobilisation of wastepaper in India is very low at 14%
compared to 60% in developed countries. Your Company, as the market leader
in paperboards, has commenced a strategic initiative for wastepaper
recycling, designated WOW' (Wealth Out of Waste). This intervention has
established an efficient collection and recycling chain, targeting large
sources of aggregation such as schools, offices, residential colonies and
apartments. Apart from contributing to a cleaner environment, WOW' will be
an important source of long term cost competitiveness for the industry.
Even as it gets scaled up to a full blown process across multiple cities,
this initiative is winning accolades from the Government, NGOs, public
institutions and people at large.

Your Company, having pioneered environment friendly ECF bleaching in India,
has taken further steps to enhance its eco-friendly operations. The new
pulp mill with Ozone bleaching' technology commissioned in the last
quarter of the previous year has now fully stabilized, substantially
reducing the import of wood pulp and thereby enhancing the competitiveness
of the business. The business has invested significantly in contemporary
technologies for improving environmental standards of its manufacturing
operations. Such investments deploy eco-friendly technologies ahead of
legislation. Your Company would welcome policies that raise the
environmental benchmarks and suitably reward those who achieve or exceed
the parameters. The Government can play an active interventional role in
bringing about such far reaching changes in the industry.

The business is rolling out Total Productive Maintenance (TPM) processes
across all its units. These interventions are already generating
substantial cost savings and productivity improvements. It has also
commenced implementation of an end-to-end ERP system to support its large
scale integrated operations.

The business contributed to your Company's endeavour to achieve yet another
environmental milestone of being solid waste recycling positive' with its
Tribeni and Kovai units accomplishing that goal. While Bhadrachalam and
Bollaram units are close to a similar achievement, the business has been
able to achieve an overall positive solid waste recycling footprint by
procuring and recycling over 125,000 tonnes of waste paper. The business is
also actively leveraging the Clean Development Mechanism (CDM)
opportunities under the Kyoto Protocol. During the year, the business
earned Rs.10 crores through the sale of Certified Emission Reduction
(CERs). CDM projects in the pipeline include installation of a 90 tph green
boiler at the Bhadrachalam unit at an investment of Rs.86 crores. The
boiler will use biomass as fuel and substantially reduce the usage of
conventional fuel. The internally generated wood waste, arising out of
chipping and de-barking operations, will be used as an input in this eco
friendly boiler, bringing substantial cost reduction and also yielding a
significant quantum of CERs under the CDM.

During the year, the Tribeni unit was awarded the Sword of Honour' by the
British Safety Council. The Bhadrachalam unit received 5 Star Rating' from
the British Safety Council. Both the Bhadrachalam and Tribeni units were
conferred the Excellence in Energy Management' award by CII. These units
were also conferred the National Award for excellence in Water Management
2007' by CII. All units of the business have received the ISO 9001, ISO
14001 and OHSAS 18001 certifications.

In the context of weak global demand, discounted Chinese products are
threatening to impact the domestic market significantly and have the
potential to force closure of the weaker paper and paperboard
manufacturers. In view of this threat of cheap imports, the Industry has
sought an increase in the import duty rates from 10% to 50% through the
Safeguard Duty mechanism, which is WTO compliant. These higher rates of
duties can be progressively brought down in a calibrated manner as the
incidence of dumping' diminishes.

Recent strategic interventions including significant investments in
capacity and capability enhancement and continuous improvement in internal
efficiencies through contemporary TPM processes have positioned your
Company in a full state of readiness to leverage the growth opportunities
in the Indian market.

Packaging and Printing

The business continued its investment in world-class technology to provide
cost effective and superior packaging solutions to a wide range of business
and industry including the Company's Cigarette and other FMCG businesses.
The broad spectrum capability profile of the business across the carton and
flexible segments has clearly established its position as one of India's
foremost packaging houses.

The business made significant progress in capacity addition during the year
by scaling up its Flexible manufacturing facility at Haridwar to cater to
the distinct packaging needs of your Company's branded Foods and Personal
Care businesses. Investments in the backward integrated manufacturing of
key raw materials for Flexibles have ensured competitiveness in catering to
the needs of key customers. The business is driving substantial growth in
its external trade by winning the trust and confidence of key customers in
the consumer electronics and FMCG industries. The full range of
capabilities riding on multiple packaging platforms will enable the
business to strengthen its position in the domestic and international
market.

During the year, the business invested Rs.90 crores in wind energy
generation to meet the requirement of its Chennai unit. This 14 megawatt
facility is a clean energy initiative, flowing from the Company's
commitment to the Triple Bottom Line. The generation, which will be

eligible for carbon credits under the CDM of the Kyoto Protocol, will
result in substantial cost savings, even while enhancing the Company's
positive environmental footprint.

During the year, the business won the prestigious BMJ Golden Leaf Award
from the international publication Tobacco Reporter' in the category most
committed to quality'. It also received several India Star National awards,
awards from the Indian Printing Packaging and Allied Machinery
Manufacturers' Association (IPAMA), awards from the Printers Film and Foil
Converters' Association for excellence in Packaging and the Capexil Special
Exports Award for Exports.

With its investments in world-class technology, multilocation units and a
diversified product portfolio, the business is fully poised to service all
the requirements of your Company's Cigarette and other FMCG businesses and
to rapidly grow its external trade, including exports.

D. AGRI BUSINESS

Cigarette Leaf Tobacco

During the year, the demand surge to replenish depleting inventory levels
coupled with supply constraints led to rapid escalation of global tobacco
prices. Decline in production was witnessed in China and Europe. The other
major producing countries were unable to bridge the supply gap. Apart from
major international cigarette manufacturers, regional manufacturers from
the Asia-Pacific region also sourced incremental volumes from India. The
demand surge led to increased exports from India and enhanced farm as well
as trade prices. The Indian cigarette tobacco production continued to grow
in the face of increasing farm prices, making it one of the most
remunerative commercial crops. However, issues of labour and fertilizer
shortage and the absence of pragmatic production policies continue to be a
threat for future growth.

In 2009, the global supply-demand situation is expected to approach near
equilibrium due to incremental production in key tobacco producing
geographies. However, sustained focus on crop quality and productivity
coupled with favourable policy initiatives and focused marketing strategies
can help India retain its position as a preferred destination for key
buyers.

Leveraging the growing demand for the Indian crop, your Company further
cemented its position as the foremost supplier of quality Indian tobaccos
in the global market, achieving a record export growth of 51% over last
year. Your Company won the First Best Performance in Export of Un-
manufactured tobacco (Manufacturer category)' from the Tobacco Board of
India for the 5th consecutive year. This stellar performance was achieved
through a robust combination of new business development and customised
product and service offerings to both existing and new customers. Though
India's share in the global tobacco trade has increased from 7% to 10% in
the last 4 years, its share continues to be small despite being one of the
largest producers of tobacco in the world. As highlighted in last year's
Report of the Directors, a stable, fair and equitable cigarette taxation
policy would be imperative to provide a strong domestic demand base to the
Indian farmer to insulate him from the volatilities of international
markets. Such a taxation policy would be the key catalyst in realising the
full economic potential of the tobacco sector in India.

The business continued to provide strategic sourcing support to your
Company's cigarette business.

Your Company's pioneering R&D efforts on varietal improvement have resulted
in the successful development of Flue Cured Virginia hybrids for the first
time in India. The overwhelming response during farm trials from the
tobacco growers for these hybrids stands testimony to the virtues of higher
productivity and superior quality traits. Your Company seeks to propagate
the new hybrids in collaboration with the Central Tobacco Research
Institute and the Tobacco Board of India. Additionally, an innovative
process for pelleting of tobacco seed has been designed and developed in-
house, paving the way for efficiency in seed utilization and deployment of
Tray Nursery system for improved productivity. Introduction of Burley and
Oriental tobaccos into new areas of Andhra Pradesh and Orissa has not only
helped improve the socio-economic status of small/tribal farmers, but has
also improved the product offering to discerning global buyers. These
successes provide impetus to your Company to continue its pioneering work
in enhancing quality and farm productivity to improve the competitiveness
of Indian tobaccos.

During the year, the Quality Control laboratories at the Anaparti and
Chirala tobacco processing units were accredited by National Accreditation
Board for Testing and Calibration Laboratories (NABL) in the field of
Chemical Testing. Chirala and Anaparti units achieved Level 4 (Highest
Level) in Social Responsibility in Tobacco Production (SRTP) audit. The
Chirala unit won the Greentech Environment Excellence Gold Award in
Manufacturing Sector from Greentech Foundation, New Delhi.

Your Company continues to focus on maintaining the highest safety standards
in the factories. During the year, the Anaparti and Chirala units received
the prestigious Sword of Honour' from the British Safety Council (the 14th
consecutive Sword of Honour' for Chirala). The Chirala unit also won the
Five Star rating (Safety & Environment) from the British Safety Council.

In order to meet the increasing requirements for additional tobacco
processing capacities, your Company will set up a green leaf processing
plant near Mysore for which acquisition of 102 acres of land has been
completed. Your Company with its outstanding R&D capability, unique crop
development and extension expertise, modern processing facilities, and deep
understanding of customer and farmer needs is poised to leverage the
emerging opportunities for the Indian leaf tobacco industry.

Agri Commodities

The peak commodity prices witnessed in the global market during the
previous year (2007-08) continued well into the first half of this year
before declining in the second half owing to the global economic recession.
Reduction in crude oil prices due to weak global demand coupled with a
shift from production of bio-fuel to food grains and oil seeds contributed
to the decline in commodity prices. In India however, the ban on export of
rice and higher support prices for wheat, despite a record bumper crop
ensured continued buoyancy in food grain prices. Stock control limits
continued to be imposed for most part of the year. Edible oil prices,
however, witnessed sharp declines with the Government of India scrapping
import duties on edible oils, particularly on palm oil as an anti-
inflationary measure. In the wake of Government interventions such as ban
on exports, market actions at subsidized prices and continued imposition of
stock controls, your Company exited several commodities in which trading
had become extremely risky. Accordingly, the existing e-Choupal network was
restructured by aligning it to the continuing portfolio of commodities.

In line with its strategy of operating in high value segments, the business
continued its focus on processed fruit pulp, frozen foods, organic purees,
spices and other niche products and expanded its reach by acquiring
customers in the demanding Japanese market. Backward linkages were
strengthened to provide assurance of full traceability of its products.
Eleven vendor farms supplying high quality fruits were awarded Global GAP
(Good Agricultural Practices) certification.

Your Company continued to source identity preserved, specific high quality
wheat through its e-Choupal channel for your Company's branded Foods
business. Strategic cost and quality advantages were realized by multi-
sourcing across geographies based on price optimisation. Significant
operational improvements were achieved to bring down freight, warehousing
and other logistics costs. In sourcing chipstock potato for your Company's
Bingo!' potato chips, new varieties of potatoes with longer storage life
were deployed, optimising season and off-season buy to deliver significant
cost advantage. Last year's acquisition of potato seed company, Technico
has brought strong synergies to the potato based value chain, enhancing
farmer capabilities through access to high quality seeds and
internationally benchmarked practices in agronomy. The business is actively
working on progressively increasing the share of locally sourced potatoes
(closer to manufacturing plants) to lower freight costs.

Fifty new e-Choupals were launched in Tamil Nadu supported by the Tamil
version of echoupal.com with over 250 web pages. Your Company's expertise
in the agri sector is now available to farmers in Tamil Nadu, giving them
an opportunity to leverage the power of information technology. They will
also have access to high quality extension services which will help
increase the productivity of crops such as paddy.

During the year, your Company extended its collaboration with the
Government of Madhya Pradesh under the Agriculture Technology Management
Agency (ATMA) project. This programme aims at providing live training to
farmers on scientific agricultural practices for selected crops. Both
classroom and on-field training were provided to the farmers by experts
from various areas of agriculture. Encouraged by its success in MP, where
190 farmer schools have already been opened to impart training, the project
was extended to the State of Rajasthan by setting up 49 farmer schools.
During the year, your Company introduced a novel concept of evaluating the
soil organic carbon status at farm level through Soil Organic Carbon Kits
developed by Acharya NG Ranga Agricultural University, Hyderabad. Your
Company is in the process of taking up R&D activities to develop crop and
market specific eco-friendly inputs based on biological and natural
products.

The agri-inputs part of the business grew its topline by a robust 28%. The
neem-based Organic manures, Wellgro Soil and Wellgro Crops have gained wide
acceptance amongst the farming community and corporate houses engaged in
contract farming. These products have won the confidence of customers for
their superior efficacy and integrity. They are endorsed by Control Union
(European agency for certifying organic status) as Organic inputs under the
stringent quality specifications of EEC 2092-91 Annex II. During the year,
the business introduced a new organic manure, Wellgro Grains', in pelleted
form for food crops such as Rice, Wheat, Maize and Sugarcane. This product
has quickly acquired acceptance among the farming community in the states
of Andhra Pradesh, Karnataka and Uttar Pradesh. Your Company's product
Wellgro Crops' has been empanelled under the National Horticulture Mission
as part of the Organic Farming and Integrated Nutrient & Pest Management
programs.

During the year, the business provided strategic sourcing support to your
Company's growing Aashirvaad' brand of spices. It also made rapid strides
in the export of spices to value markets' such as Japan, USA and the
European Union, growing export revenues by 46%. In an endeavour to provide
quality differentiation across the value chain, the business has developed
a reliable farm-to-factory spices supply chain, guaranteeing superior
specifications and quality attributes. Additionally, the commissioning of
the state-of-the-art grinding cum sterilization facility has imparted a new
dimension to quality. The future focus would be on strengthening farm
interventions and developing value added products to garner a larger share
of growth in the spices and derivatives markets.

Marketing of Kisan Credit Cards on behalf of the State Bank of India
continued to receive a very positive response from the farmers. The quantum
of farmer loans facilitated by your Company grew by 31%. This was achieved
despite slower loan sanctions during the crucial kharif season in the wake
of the farm loan waiver scheme announced by the Government of India. Four
tele-caller centres were established during the year to assist rural
customers with appropriate solutions to their financial needs.

Your Company's rural retailing initiative was expanded further with the
addition of three more Choupal Saagar malls during the year, taking the
coverage to 24 rural malls across three states. With retail sales growing
by 34% over the previous year, these unique infrastructure points continue
to be one-stop shops for the farming community with a host of services like
sourcing, training, soil testing, cafeteria and health clinic. The creation
of a distribution centre in Madhya Pradesh has facilitated reduction in
inventory levels and improved margins of the retail stores in the state.

Distribution of FMCG products in the rural markets through the e-Choupal
network gained traction with the addition of your Company's personal care
products to the portfolio. These products have been well received by the
rural community. The e-Choupals will continue to supplement the efforts of
the regular trade marketing channels.

The long term success of the e-Choupal network will depend on the
capabilities of the extended organization of Sanchalaks and Samyojaks, and
the ability of the internal staff to translate leadership skills and
process knowledge into execution excellence. Considerable management
attention is being directed to build this foundation to serve as a future
source of competitive advantage.

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, 2008 or to make available copies of
the same for inspection by shareholders.

Surya Nepal Pvt. Ltd.

The year under review saw Nepal undergo momentous political transformation
after a decade of civil unrest. Constituent Assembly elections were held in
April 2008. The President and Prime Minister were elected, and a coalition
government was formed. The new Parliament formally declared Nepal a
federal, democratic republic' in May 2008. The coalition government, led
by Communist Party of Nepal Maoist {CPN (Maoist)} under the leadership of
its Chairman, Pushpa Kamal Dahal as the Prime Minister faces a very
challenging agenda. Although CPN (Maoist) won an overwhelming majority in
the April 2008 elections, they are faced with the task of establishing over
time greater political legitimacy on the basis of demonstrated good
governance. An interim constitution agreed on 15th January, 2007 presently
serves as the framework for governance.

Amidst the political upheaval, the economy registered a GDP growth of 5.3%
in the financial year ended mid July 2008, up from 2.3% in the previous
year. However, recognizing the combined impact of long standing structural
weaknesses and labour unrest, the revised GDP forecast for the next
financial year 2008-09 stands at 3.5%.

Despite the challenging socio-economic and political scenario, the
company's growth continues on an upward trajectory. In the twelve-month
period ended 13th March 2009, the company's sales grew 21% to Nepalese
Rupees 772 crores (Net of VAT). Profit after tax at Nepalese Rupees 144
crores represents an increase of 58% over last year. The company's Sales
(Net of VAT) accounts for almost 1% of the country's GDP, while the
company's contribution to the Exchequer accounts for about 4% of total
revenues of the Government of Nepal. The company continues to retain its
status as the single largest contributor to the Government Exchequer.

During the year, the company signed a Long Term Agreement for 3 years with
the Workers' Union of the Simra factory. Frequent strikes and blockades
continued in the Terai region worsening the pressure on the supply chain.
Despite the difficult operating conditions, the company's pro-active
resource and supply chain management minimized the impact of such
disruptions, enabling achievement of both volume and value growth in
Cigarettes.

The company successfully met the challenge of rising input prices,
including manpower costs, by focusing on the premium end of the market and
capturing a larger value share. Surya 24 Carat' and Surya Classic', the
new brands launched last year in the super premium segment grew
satisfactorily, capturing consumer franchise in the face of competing
international brands. Pilot', the brand launched last year in the regular
size filter segment, has captured significant volume and value share. As
part of its commitment to sustain superior and consistent product quality,
the company made further investments in upgrading process and packaging
technology in the cigarettes business.

The company's domestic leaf operations in the Terai region, created to
develop a sustainable and competitive source of supply for the cigarette
business, grew in volume by almost 100% and will account for almost 15% of
next year's leaf consumption. The company's continuous guidance to the
farmers from the stage of seed development to crop harvesting led to
improved productivity and quality at farm level which in turn ensured a
better return to the farmers. This intervention has increased the farmer
base and the acreage under leaf cultivation.

The new state-of-the-art garment manufacturing facility of the company at
Biratnagar became operational this year. This has reinforced the company's
capacity to cater to the domestic demand and also meet export orders for
the Wills Lifestyle' and John Players' range of apparel. The company also
made a foray into apparel exports to third countries, particularly the
European Union (EU) and the United States (US), notching up a turnover of
Nepalese Rupees 8.6 crores. With the company's increasing focus on third
country exports and the encouraging response from these markets, the
company is hopeful that the expected gradual revival of the global economy
and consequent increase in consumption led demand will lead to increased
export sales of the company's products to the EU & US markets.

In the domestic garments market, John Players' and Miss Players'
consolidated their position in the branded apparel segment. Springwood',
the company's mass market brand, has delivered a 53% volume increase over
last year and is being rolled out to more markets. Positioned as an
alternative to low priced imports from China and South East Asia, the Brand
has so far shown satisfactory consumer response in the low priced value
for money' segment.

The company entered the Matches business last year with its brand Tir',
which is being rolled out nationally. On the back of extremely encouraging
market response, the business clocked sales of Nepalese Rupees 5 crores.

The company continues to remain committed to its role as a responsible
corporate citizen. As part of its commitment to promote Sports and Tourism,
the company sponsored the country's most premier professional Golf
Tournament - the Surya Nepal Masters'.

During the year, the Authorised Share Capital of the company was increased
from Nepalese Rupees 100 crores to Nepalese Rupees 650 crores and bonus
shares, in the ratio of 5 shares for every 1 share held, were allotted. The
company declared a dividend of Nepalese Rupees 260/- per equity share of
Nepalese Rupees 100/- each for the year ended 31st Ashad, 2065.

Srinivasa Resorts Limited

During the financial year ended 31st March, 2009, the company recorded
income of Rs.62.27 crores (previous year Rs.69.08 crores) and a Profit
Before Tax of Rs.18.53 crores (previous year Rs.21.57 crores). Net Profit
stood at Rs.12.66 crores (previous year Rs.14.41 crores) after providing

for income tax of Rs.5.87 crores (previous year Rs.7.16 crores).

The financial performance of the company's hotel, ITC Kakatiya, was
adversely impacted due to the economic slowdown and the aftermath terrorist
attacks in Mumbai. The hotel has initiated various measures to contain
costs and improve profitability without compromising on the quality of its
superior guest experience.

Despite the slowdown, the company continues to make investments in
maintaining the contemporariness of its hotel property. During the year
under review, a luxury Spa was commissioned at the hotel, to meet the
wellness needs of its discerning guests. The hotel received the Greentech
Gold Award' from the Greentech Foundation for its outstanding achievement
in Environment Management. The hotel also received the ISO 14001 : 2004 re-
certification.

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, 2009.

Fortune Park Hotels Ltd.

During the financial year ended 31st March, 2009, the company recorded
income of Rs.1290.47 lacs (previous year Rs.1019.85 lacs) and earned a Net
Profit of Rs.143.37 lacs (previous year Rs.157.54 lacs) after providing for
income tax of Rs.89.33 lacs (previous year Rs.94.35 lacs).

The company, which caters to the mid market to upscale' segment, forged
new alliances during the year taking the total number of properties under
the Fortune' brand to 52, with a total room count of 4235. Of these, 25
properties are operating hotels. Another 6 hotels are slated to be
commissioned during the course of the financial year 2009-10. The remaining
21 hotel projects are under various stages of development. 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.

The Board of Directors of the company has recommended a dividend of Rs.5/-
per equity share of Rs.10/- each for the year ended 31st March, 2009.

Bay Islands Hotels Limited

During the year 2008-09, the company earned an income of Rs.96.75 lacs
(previous year Rs.83.16 lacs) and a Net Profit of Rs.63.85 lacs (previous
year Rs.54.14 lacs) after providing for income tax of Rs.26.99 lacs
(previous year Rs.23.60 lacs).

The Board of Directors of the company has recommended a dividend of Rs.50/-
per equity share of Rs.100/- each for the year ended 31st March, 2009.

King Maker Marketing Inc.

King Maker Marketing Inc. (KMM) is a wholly owned subsidiary of your
Company registered in the State of New Jersey, USA. It is engaged in the
distribution of your Company's tobacco products in the US market. It also
provides your Company market research services related to the US markets
for Tobacco and other FMCG products.

During the year under review KMM expanded its distribution infrastructure
considerably to leverage your Company's initiatives to significantly grow
its exports to the US. KMM has also set up operations in the garments
district of New York City to develop and nurture the US customer base for
your Company's apparels and accessories. This business is projected to
generate revenues from next year.

The company's tobacco business witnessed a strong revenue growth during the
year. Whilst unit sales of both Cigarettes and Roll Your Own (RYO) tobacco
grew in double digits (11% and 23% respectively), sales revenue grew by 22%
based on strong price realisations.

Despite higher marketing expenditure to support the
expanded distribution base and the legislation-induced higher cost of Low
Ignition Propensity (LIP) cigarettes, post tax profits grew by about 10%.

The coming year will be extremely challenging with the steep increase in
Federal Tobacco tax for cigarettes and RYO tobaccos taking effect from
April 1, 2009. This is expected to substantially impact the company's sales
and fuel growth of illicit trade. The legislation to grant jurisdiction to
the Food and Drug Administration (FDA) for Tobacco products, pending before
the US Congress, is likely to become law in the coming year. The final
shape of the legislation and its impact on the company remains a source of
concern that will need to be addressed going forward.

Russell Credit Ltd.

During the year, the company earned a total income of Rs.33.40 crores and
Profit After Tax of Rs.26.65 crores. The company paid dividend of 6.18%
aggregating Rs.40 crores for the year ended 31st March, 2009.

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 of VST, 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. It is actively engaged in
pursuing legal action against various defaulters. During the year some
negotiated settlements were concluded and the company effected collections
aggregating Rs.91.88 lakhs. The company has no external liabilities outside
the ITC Group. The company is closely monitoring developments in the NBFC
sector and will examine options for further 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.

Gold Flake Corporation Limited paid dividend of 31.25% aggregating Rs.5
crores for the year ended 31st March, 2009.

Wimco Limited

The company's turnover which stood at Rs.181 crores registered a degrowth
of 8.6% mainly due to loss of volumes in the matches business in the wake
of the increase in consumer price effected to compensate for the steep
increases in input costs. Given the early signs of recovery, this volume
loss is expected to be temporary. The net profit for the year stood at
Rs.1.12 crores. The Chennai and Bareilly units of the company witnessed
industrial relations problems during the year, but these were resolved
amicably. The Engineering business faced a tough environment during the
year as many customers postponed their investment plans on the back of the
economic slowdown in their respective industries. The Agro Forestry
business of the company witnessed an appreciable expansion. The high
yielding ETP (Entire Trans Plant) sales to farmers in North India showed a
growth of 28% to 3.2 Million ETPs. Apart from creating a source of long
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.

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 the
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
progressing. The initial permissions required for the commencement of the
project were obtained during the year.

ITC Infotech India Limited

During the year under review, the global economic downturn considerably
dented the IT industry's optimism borne over years of a virtuous economic
cycle. The developments in the US, commencing with the sub-prime crisis
last year, have had far reaching ramifications for businesses across the
globe, putting the Indian IT industry under severe pressure.

Despite the challenges created by adverse market conditions, the company
delivered another year of good performance with total income growing by
33%. Accelerated customer acquisition and renewed thrust on scaling up
existing account engagements formed the foundation of the company's growth
strategy. ITC Infotech continued to focus on gaining competitive advantage
and strengthening market standing by developing deep and differentiated
capabilities in specific industry domains, solution areas and focus
technologies.

In line with its inorganic growth strategy aimed at deepening capabilities,
ITC Infotech (USA), Inc., a wholly owned subsidiary of the company,
acquired Pyxis Solutions, LLC, a New York based limited liability company
and a leading Testing and Quality Assurance player in the BFSI (Banking &
Financial Services Industry) segment in the US. This strategic acquisition,
an important milestone, further consolidated your company's position in
North America. Synergies between the two companies will create large
opportunities for cross selling by leveraging their existing customer
relationships.

For the year under review:

(a) ITC Infotech India Ltd. registered a total income of Rs.349.72 crores
(previous year Rs.262.72 crores) and a PAT of Rs.3.04 crores (previous year
Rs.6.91 crores); your Company invested a further sum of Rs.60 crores in the
equity share capital of the company by subscribing to 6,00,00,000 Equity
Shares of Rs.10/- each for cash at par.

(b) ITC Infotech Limited, UK, a wholly owned subsidiary of the company,
registered a Turnover of GBP 20.61 million (previous year GBP 17.87
million) and a Net Profit of GBP 1.02 million (previous year GBP 0.29
million).

(c) ITC Infotech (USA), Inc., a wholly owned subsidiary of the company
(I2A), registered Total Revenues of US$ 26.17 million (previous year US$
18.09 million) and a Net Profit of US$ 1.05 million (previous year US$ 0.43
million). ITC Infotech India investeda further sum of US$ 13.5 million in
the equity share capital of I2A by subscribing to 135,000 Common Shares
without par value for cash at US$ 100 per share.

(d) Pyxis Solutions, LLC, a wholly owned subsidiary of ITC Infotech (USA)
Inc. (I2A), registered, for the fifteen month period ended 31st March,
2009, Total Revenues of US$ 14.17 million (previous year - 12 months - US$
14.46 million) and a Net Profit of US$ 0.19 million (previous year - 12
months - US$ 2.51 million); I2A made a capital contribution of US$ 2.5
million into the company in terms of the Membership Interest Purchase
Agreement dated 1st August, 2008 entered into between erstwhile owners of
the company, I2A, and the company.

While the economic slowdown has led to reduced IT budgets, it is expected
to lead to an increase in offshore outsourcing in the future. According to
a recent Forrester report, a large number of firms are interested in
ramping up, piloting or actively tracking new developments in offshore
outsourcing. Currently, only about 9% of the organizations, globally, have
leveraged off-shoring.

The company intends to leverage this opportunity by offering a compelling
value proposition, demonstrating leadership in the chosen industry domains
and deepening capabilities to offer accelerated off-shoring benefits.
Capability building will thus continue to be a critical component of the
company's growth strategy and will be further aligned with customer needs
of reduction in the total cost of ownership through quick off shoring as
well as optimization of operations.

The company continued to focus on offering business solutions and during
the year under review a number of such solutions were launched which
included a suite of mobility solutions geared to address critical processes
like CRM, direct store delivery (DSD) and route accounting across the
consumer goods and life sciences segments in partnership with a renowned
Singapore based entity. It has also entered into a partnership with a
leading Digital Asset Management company to provide services around the
Digital Asset Management platform.

During the year under review, the company was certified by SAP as a global
provider of application management services. The company received this
certification after successful completion of an audit process that included
capability assessment of more than 300 aspects, spanning across multiple
facets of SAPr solutions.

Customer interface processes have been strengthened with the creation of a
Large Account Management team which will enhance relationship touch points
besides providing a greater thrust to identification of opportunities
within the customer organization. Geographical presence was strengthened
with the opening of a branch in Sweden.

The company was placed among the Top 100 service providers across four
continents, in terms of operations, service offerings, client relationships
and human capital, in a survey conducted by Global Services and neoIT. ITC
Infotech ranked eighth among the Top 10 Indian outsourcing companies', in
the 2008 Global Outsourcing 100 survey conducted by the International
Association of Outsourcing Professionals (IAOP).

The company was also ranked fourth among mid-tier infrastructure vendors
globally and featured among the top ITO Infrastructure Vendors' in the
2008 Black Book of Outsourcing where the Brown Wilson Group had evaluated
leading global outsourcing service providers across 18 operational
excellence key performance indicators based on the perspective of client
experience. The Black Book of Outsourcing 2008 Green Report placed the
company among one of the top twenty green vendors who have delivered on the
triple bottom line milestones of economic gains, environmental stewardship
and social improvements.

Your company is committed towards sustainability and has signed the CII
code on Ecological Sustainable Growth. The objective of the mission is to
promote and champion sustainable growth in the Indian industry, without
compromising on high and accelerated growth. CII will partner and work with
signatory companies in realizing the objectives of the mission.

With geographic diversity, focus on select industry domains, a strong sales
pipeline built last year and differentiated value proposition backed by
delivery excellence, the company is optimistic in meeting its deliverables
in what will be a difficult year ahead.

Technico Pty Limited

During the year under review, the company continued to focus on its
proprietary TECHNITUBERr technology for Potato Seeds, particularly on its
downstream implementation and commercialisation. The company operates in
several global markets on commercialisation of such technology and
subsequent field multiplication through its wholly owned subsidiaries in
different geographies. The company is also engaged in the marketing of
TECHNITUBERr' seeds to global customers from the production facilities of
its subsidiaries in India, China and Canada.

During the year the company brought considerable synergistic benefits to
your Company's potato chips business under the Bingo!' brand. The
company's proven supply chain of high quality Potato seed and its strong
agronomy skills provided strong support to the Bingo!' chipstock sourcing
team. 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.

For the year under review:

a) Technico Pty Ltd., Australia registered a net loss of Australian Dollar
(A$) 0.39 million (previous year profit of A$ 4.59 million) The previous
year's profit included an element of one time write back of a provision of
A$ 4.69 million created in earlier years towards diminution in value of its
investments in its Indian subsidiary, Technico Agri Sciences Limited
(formerly known as Chambal Agritech Ltd).

b) Technico Asia Holdings Pty 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) Technico ISC Pty Ltd., Australia continued to be dormant during the
year.

d) Technico Technologies Inc., Canada registered sales of Canadian Dollar
(C$) 0.16 million (previous year C$ 0.18 million) and posted a net profit
of C$ 0.54 million (previous year loss of C$ 0.28 million). The Province of
New Brunswick which has been a strong supporter of this project has repaid
loans of C$ 0.93 million owed by the company to the Royal Bank of Canada in
consideration of C$ 0.20 million in Class A preferred shares issued by the
company. The resulting gain of C$ 0.73 million represents government
assistance to the project.

e) Technico Agri Sciences Limited (formerly known as Chambal Agritech
Ltd.), India registered a turnover of Rs.27.66 crores (previous year
Rs.30.84 crores) and a Profit After Tax of Rs.3.02 crores (previous year
Rs.6.15 crores). The performance during the year was impacted by a
significant reduction in the average sale realisation for seed potatoes
owing to a record potato production and the resultant glut in the market.
However, volumes grew handsomely by 80% from 14,581 MT to 26,292 MT.

f) For the year ended 31st December, 2008 - Technico Horticultural
(Kunming) Co. Ltd., China registered a turnover of Chinese Yuan (CNY) 11.68
million (previous year CNY 14.31 million) and posted a net loss of CNY 2.86
million (previous year profit of CNY 0.82 million) as the company exited
the field seed program to focus exclusively on Technituberr Seed exports.

ITC Global Holdings Pte. Ltd.

The Judicial Managers have been conducting the affairs of ITC Global
Holdings Pte. Ltd. (Global') since 8th November, 1996 under the authority
of the High Court of Singapore. As already reported, pursuant to the
application of the Judicial Managers, the Singapore Court on 30th November,
2007 ordered the winding up of Global, appointed a liquidator and
discharged the Judicial Managers.

As stated in the previous years' Reports, the Judicial Managers of Global
had filed a Writ against your Company in November 2002 before the Singapore
High Court claiming approximately 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 filed an Appeal against this Order before the High Court of
Singapore, which on 30th January, 2009, set aside the order giving leave to
Global to serve the Writ out of Singapore against the Company and also
dismissed the said appeal.

NOTES ON JOINT VENTURES

ITC Filtrona Limited

ITC Filtrona concluded another year of robust business performance with
Gross sales at Rs.114 crores growing by 17% over the previous year. Pre-tax
profit stood at Rs.14.7 crores, an increase of 24% over the previous year.

ITC Filtrona continued to maintain its market leadership in the Indian
cigarette filter industry with 60% value share. The Board of Directors of
the company recommended a dividend of 90% for the year against 80% in the
previous year.

During the year, the company augmented production capacity by 20% and
invested in technology upgradation and improvement of infrastructure. The
company's relentless focus in enhancing product and process quality and
supporting product development has strengthened its partnerships with the
Indian cigarette manufacturers, further reinforcing its status as their
preferred supplier.

Maharaja Heritage Resorts Limited

During the year under review, Marudhar Hotels Pvt. Ltd., the joint venture
partner of your Company in Maharaja Heritage Resorts Ltd., transferred its
entire 50% shareholding in the company, to its group company Jodhana
Heritage Resorts Pvt. Ltd. (Jodhana) in accordance with the provisions of
the shareholders agreement.

During the year, the company issued and allotted 1,80,000 equity shares of
Rs.100/- each at par on Rights' basis in the ratio of 1: 1. Your Company
renounced its offer to subscribe for 90,000 equity shares of Rs.100/- each,
arising out of the said Rights Issue, in favour of Russell Credit Limited,
a wholly owned subsidiary of your Company.

The company's footprint, which currently operates 52 properties under the
WelcomHeritage' brand continues to grow with 12 properties under
development.

RISK MANAGEMENT

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

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

- The Corporate Risk Management Cell works with the businesses to identify
and establish the respective risk profiles. The risk profiles include both
strategic risks and operational risks.

- A combination of centrally issued policies and divisionally-evolved
procedures brings robustness to the process of ensuring business risks are
effectively addressed. - Appropriate structures have been put in place to
proactively monitor and manage the inherent risks in businesses with unique
/ relatively high risk profiles.

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

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

- A robust and comprehensive framework of strategic planning and
performance management ensures realization of business objectives based on
effective strategy implementation. The annual planning exercise requires
all businesses to clearly identify their top risks and set out a mitigation
plan with agreed timelines and accountability. Businesses have confirmed
that all relevant 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 contemporariness so as to effectively address the
emerging challenges in a dynamic business environment.

AUDIT AND SYSTEMS

Your Company believes that internal control is a necessary concomitant of
the principle of governance that freedom of management should be exercised
within a framework of appropriate checks and balances. Your Company remains
committed to ensuring an effective internal control environment that
provides assurance on the efficiency of operations and security of assets.
Well established and robust internal audit processes, both at business and
corporate levels, continuously monitor the adequacy and effectiveness of
the internal control environment across 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 internal audit
team which includes IT specialists.

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: 2008 quality standards in its
processes.

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

HUMAN RESOURCE DEVELOPMENT

Your Company's most valuable asset, it's human resource, confronted the
economic shocks and rapid changes in the business environment over the past
year with resolve and determination to ensure that every business of your
Company continued to enhance value creation. Your Company's employees have
played a defining role in accelerating its growth and transformation,
thereby enabling it to retain its position as one of India's most valuable
corporations.

Your Company's human resource management systems and processes are geared
towards creating a responsive, customer-centric and market-focused culture
that enhances organisational vitality and delivers winning performance. The
uniqueness of your Company's culture is that it blends responsibility and
accountability' with care and concern' in a harmonious manner. The ability
to appeal to both the heart and the mind constitutes the cultural DNA of
your Company.

The Strategy of Organisation and its ongoing emphasis on building
distributed leadership has ensured that each of your Company's businesses
is managed by a team of competent and inspired leaders, capable of building
a culture of learning and innovation and excellence in execution. Your
Company's holistic approach to human resource management ensured the active
engagement of employees in providing innovative solutions to improve
systems and processes, focused on productivity, cost, quality, and
delivery. Your Company continued to invest substantially in learning and
development. This is best reflected in the fact that over five lac person
hours were spent on formal learning and development, supplemented with on-
the-job learning, e-learning and coaching.

Affirming its philosophy of mutuality of interests and a commitment to
fostering healthy relationships with key stakeholders, your Company, during
the year under review, concluded long term agreements at several of its
manufacturing units and hotel properties.

It is the collective spirit of partnership across all sections of employees
and their sense of ownership and commitment that has helped deliver
superior customer and shareholder value. Your Company salutes the
unflinching commitment of its dedicated team of employees.

SUSTAINABILITY - CONTRIBUTION TO THE TRIPLE BOTTOM LINE'

Inspired by a larger societal purpose, it has been your Company's endeavour
to achieve higher levels of Triple Bottom Line performance as its
contribution to creating an inclusive and sustainable future for India. It
is indeed a matter of pride that your Company is today acknowledged as an
exemplar in Sustainability and Corporate Citizenship.

In order to provide strategic direction to this aspiration, your Company
has constituted a Board Committee for Sustainability. The Committee,
comprising of the Chairman and some Non-Executive Directors, will review
and monitor the Company's sustainability practices. Details of the role of
this Committee are provided in the Report on Corporate Governance.

The Company's 5th Sustainability Report, published during the year,
conforms to the highest level A+' for reporting Sustainability
performance. Independently assured by M/s Ernst & Young, the report
encapsulates the triple bottom line performance and achievements of the
Company in accordance with the stringent G3' guidelines of the Global
Reporting Initiative (GRI).

Your Company's Carbon Positive', Water Positive' and Solid Waste
Recycling Positive' status gives it the distinction of being the only
Company in the world with positive footprints in the three major global
environmental concerns.

The resolve to pursue sustainability objectives has enabled your Company to
significantly augment natural and scarce resources. ITC's Social and Farm
Forestry initiative has greened over 90,000 hectares and its Integrated
Watershed Programmes contribute to irrigating nearly 44,000 hectares of
water-stressed land. In the process, your Company contributed progressively
to creating significant sustainable livelihoods.

During the year, several of the Company's units joined their peers in
achieving nearly 100% solid waste recycling. The manufacturing and hotel
businesses recycled 98.8% of the solid wastes generated. The Paper business
recycled 98.7% of the wastes in its operations, and in addition, recycled
125,337 tonnes of waste paper, thereby turning this environmental footprint
also positive.

Your Company's WOW - Wealth out of Waste' programme continues to make
significant progress. It has created considerable awareness among the
public on the benefits of the Reduce-Reuse-Recycle' process. The WOW
initiative has been acclaimed by Municipal Authorities, Environmental
Agencies and others as a unique effort with multiple benefits to society.
Apart from preserving and protecting the environment, improving civic
amenities, as well as public health and hygiene, it also generates
sustainable raw material for paper and other industries at competitive
prices, thereby helping conserve scarce environmental resources. The total
waste paper collected though this programme amounted to 6000 tonnes during
the year. The WOW initiative has also been able to contribute to the
creation of employment opportunities and a heightened spirit of civic
responsibility.

The irreversible consequences of unmitigated climate change are of concern
to businesses worldwide. Your Company has adopted decisive strategies to
combat global warming and move towards an adaptation and mitigation
framework through a multidimensional approach that includes energy
conservation and efficiency, increased use of renewable energy sources, and
large scale clonal propagation for plantations. Your Company has registered
7 Clean Development Mechanism projects that have already earned carbon
credits. A number of other CDM projects are in various stages of the
registration process. ITC Hotel The Sonar is today the only hotel in the
world to earn carbon credits. The United Nations Environment Program (UNEP)
has highlighted in its Report on Sustainable Buildings & Construction
Initiative' that 'as of May 2008, only six projects out of the more than
3000 projects in CDM pipeline are related to energy efficiency in
buildings. Within these six projects, only one, ITC Hotel The Sonar', is
generating certified emission reduction (CERs)'. This mention of
international repute gives your Company immense encouragement.

Your Company is committed to technology upgradation that not only builds
competitiveness but also enhances its positive environmental footprint. The
Bhadrachalam mill, already a pioneer in the manufacture of Elemental
Chlorine Free' (ECF) pulp and paperboards in India, has now moved even
further ahead with the implementation of Ozone bleaching' technology -
giving your Company yet another first in India', much ahead of regulations
in this sector and bringing with it significant reduction in the
environmental load.

Providing leadership in positive environmental action, the ITC Green
Centre' in Gurgaon, certified by the US Green Building Council for
Leadership in Energy & Environmental Design (USGBC - LEED) is one of the
first largest commercial Platinum Rated' buildings in the world and
continues to provide inspiration to the greener buildings' movement in
India.

Your Company continued with its commitment to ensure a healthy and safe
workplace for all by maintaining the highest levels of safety, occupational
health and environmental standards across all its units. The Environment,
Occupational Health and Safety Management Systems in all manufacturing
units and hotels conform to the requirements of the International Standards
Organisation and are certified by independent, accredited third parties.
These along with several other certifications and awards, stated elsewhere
in the report, bear testimony to your Company's commitment to augmenting
economic, environmental and social capital for the nation.

The CII - ITC Centre of Excellence for Sustainable Development', set up by
your Company and CII in 2006, to create awareness, promote thought
leadership and build capacity amongst Indian enterprises in their quest for
Sustainable solutions, made useful contributions to business and industry
across the country. The CII - ITC Sustainability Awards', instituted to
recognize exemplars, have recognized a large number of leading Indian
companies and provided encouragement to many others including the growing
number of aspirants for the Award. The Centre's flagship annual event
Sustainability Summit: Asia' provides an important platform to stimulate
dialogue, share experiences, engage with experts and policy makers to
arrive at policy recommendations and strategies to help meet the emerging
sustainability challenges facing business. Over 400 delegates from all over
Asia attended the 2008 Summit in Delhi. The Centre's annual Business
Leaders Programme', led by Prof Stuart Hart, in partnership with Cornell
University has been very successful in providing thought leadership and
strategic skills to senior business executives from a cross section of
business and industry. Your Company continued to enlarge its footprint in
the social sector by expanding to newer districts during the year. It
persevered with its proven strategy of concentrating on three main areas of
interventions under Mission Sunehra Kal: (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
spearheading social development projects in 50 districts spread over the
states of Andhra Pradesh, Kerala, Karnataka, Tamil Nadu, Orissa, West
Bengal, Bihar, Uttar Pradesh, Maharashtra, Madhya Pradesh and Rajasthan.

Your Company's pioneering initiative in rejuvenating wastelands through the
Social Forestry Programme has so far promoted plantations in over 14360
hectares in 454 villages, covering 16061 poor households. The collaboration
between ITC and the Government of Andhra Pradesh for wasteland development,
under Indira Kranti Patham, touched new milestones during the year, with
this public-private partnership adding 624 hectares of plantations, taking
the total to 3,596 hectares. The beneficiary households covered under the
Social Forestry Programme continue to gain significantly from cut
plantations. Total income generated to date is Rs.774 lakhs from harvesting
wood on 1,894 hectares. In addition to improving their earnings per acre,
most beneficiaries have also ensured that the contribution to the Village
Development Fund continues apace, with a growing fund of nearly Rs.78 lakhs
as of date. In addition, their own incomes have been invested wisely in
productive assets to ensure a long-term virtuous cycle of development.

The Soil & Moisture Conservation programme initiatied by your Company to
assist farmers in identified moisturestressed districts recorded a futher
increase in coverage during the year. This year, 357 large and small water
harvesting structures were created taking the cumulative total to 2,535
structures todate. These structures provide critical irrigation security to
nearly 21,492 hectares.

In addition, 22,349 hectares of land has also been treated for erosion
resulting in preservation of precious topsoil for agriculture. In total,
the integrated watershed development programme today covers 43,841
hectares. Your Company's successful initiatives in this sector have also
led to several partnerships with State Governments and other Government
agencies. In addition to several collaborative projects with NABARD, your
Company has also signed public-private-partnership MoUs with the
Governments of Rajasthan and Maharashtra for implementing watershed
programmes in the districts of Bhilwara and Jalna respectively.

It is encouraging that the beneficiary stakeholders are actively
participating in ensuring sustainable long-term maintenance of these
structures. Direct employment created on such physical activities is around
8.96 lakh person-days till date. Presently 540 active Water User Groups,
with nearly 12,000 members, play an important role in ensuring water
distribution and collection of charges.

To ensure the provision of integrated solutions for promoting sustainable
water management systems, your Company adopts a multidimensional approach
which includes efficient water usage through interventions aimed at
improving farm productivity, promotion of group irrigation projects and
demonstration of agricultural implements including sprinkler sets. During
2008-09, 65 group irrigation projects and sprinkler sets covering 299
farmers were installed. Sustainable agricultural practices, promoted by
your Company under Mission Sunehra Kal, received a major boost with the
promotion of 550 Organic Fertiliser Units through vermi-composting and
NADEP technologies during the year. Several varieties of paddy, gram and
wheat have been tested in 898 field demonstrations leading to participative
selection of higher productive strains by farmers.

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 highyielding crossbred progenies, has been given
special emphasis not only because it reaches out to the most Report of the
Directors ITC Report and Accounts 2009 62 impoverished, but more so because
it has the potential to create significant non-farm incomes for the
poorest. Till date, 121 cattle development centres cover more than 2,400
villages providing artificial insemination to more than 1 lakh milch
animals. Integrated animal husbandry services, including vaccines, feed
additives and awareness drives were also provided to nearly 43,000 milch
animals during the year. The initiative for the Economic Empowerment of
Women also continued apace. To date, 18,032 women have been organised under
1,296 self-help groups (SHG) with total savings of Rs.135 lakhs. Overall,
22,685 women were gainfully employed either through micro-enterprises or
encouraged to be self-employed through income generation loans.

The advances made towards contributing to India's sustainable development
goals have been possible, in large measure, to your Company's partnerships
with several globally renowned NGOs including BAIF Development Research
Foundation, Dhan, FES, MYRADA, Pratham, SEWA, SRIJAN, and WOTR. These
partnerships, which synergise the best in class management practices of
your Company with the development experience and mobilisation skills of the
NGOs, will continue to bring innovative grass-roots solutions to
constructively address some of India's most challenging problems of
development in the years to come.

R&D, QUALITY AND PRODUCT DEVELOPMENT

In the current competitive business environment, innovation and process
improvement clearly aligned with business strategy through quality Research
and Development (R&D) is the key driver of break-through growth. This
assumes critical significance since your Company's competitive landscape is
marked with worldclass companies with a strong R&D focus. In this context,
your Company pursues an R&D strategy premised on best-in-class benchmark
research processes backed by world-class infrastructure to secure
sustainable and long-term competitiveness for all its businesses.

Your Company consolidated its R&D operations in Hyderabad by relocating to
the Genome Valley of Andhra Pradesh situated at Shamirpet. The centre is
equipped with state-of-the-art equipment for carrying out research in
frontier areas of Genomics and Proteomics to secure proprietary
technologies for its businesses in Agriculture, Foods and Personal Care.

During the year, your Company's scientists developed two technologies for
applications in the Agri and Paperboard, Paper & Packaging businesses. One
of them is a replacement of the conventional nursery management practices
by a novel technology that ensures significant time reduction in raising
Eucalyptus saplings while increasing the survival rate of the saplings at
the nursery. This new nursery management technique, which is being scaled
up for large-scale implementation will improve the quality of fibre supply
chain in the Paper and Paperboard business. It has also identified strains
of beneficial micro organism, which has produced promising results when
tested on turmeric plants to protect the crop against fungal diseases. The
strain is now being taken up by the Company's Agri-inputs team for further
development of a commercial product.

Your Company's R&D Centre has introduced several germplasm lines of tobacco
and eucalyptus to increase the genetic diversities in these crops, which in
turn will strengthen the research programs for developing new varieties
with higher yields and better quality.

The University of Agricultural Sciences (UAS), Bengaluru has recognized
your Company's R&D Centre by signing a Memorandum of Understanding (MOU)
with your Company. The MOU will help in collaborating with the University
in the frontier areas of agriculture. In addition, the ITC R&D Centre will
be recognized as an Institution for conducting research for thesis
requirements of the postgraduate and Ph.D degrees of UAS. The R&D Centre's
scientists will gain recognition as Post Graduate Teachers/Guides/Advisory
Committee members for teaching and guiding students working for M.Sc and
Ph.D degrees. In pursuit of its mission to take Biosciences R&D' to a
higher platform, the R&D Centre is creating new capabilities which will
eventually enable your Company's Agri, Foods and Personal Care businesses
to launch next generation products. The Hotels business continued to
implement the Six Sigma Quality Process' supported by trained teams of
black / green belts. The attempt is to create superior customer value
through a service excellence framework. The Paperboard, Paper & Packaging
businesses have implemented the Total Productive Maintenance (TPM)
technique in all their units, resulting in substantial cost savings and
productivity improvements.

All manufacturing units of your Company have ISO quality certification.
Almost all contract manufacturing units in the Foods business and all large
hotels have food safety and quality systems certified 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).

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 DG's 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, Chennai vide its order dated 18th December, 2003. The department has
filed an appeal before Supreme Court, which is pending. As already
reported, the proceedings relating to the Saharanpur and Munger demands
stand concluded in favour of your Company.

As mentioned in the Report of the Directors for 1987 and thereafter, the
Excise Department, during 1987 and 1988, again re-opened 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 crores (for Kidderpore
factory), Rs.41.51 crores (for Parel factory) and Rs.26.43 crores (for
Saharanpur factory). As already reported, the proceedings relating to the
Bangalore, Kidderpore, 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.

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 afore-said 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
earlier reported, 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 (iii) in the Schedules to the Consolidated Financial
Statements.

LUXURY TAX

As mentioned in earlier years, the Hon'ble 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 crores towards luxury tax, and a further sum of about
Rs.261.97 crores towards interest, on the allegation that your Company had
charged and collected luxury tax from its customers, but in view of a stay
order passed by the Court on 1st April, 1999, did not pay the tax to the
Government.

The 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.

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 Chitalias had filed Bankruptcy Petitions before the Bankruptcy
Court, Orlando, Florida, which are yet to be determined.

As explained in the previous reports of the Directors, though 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. Meanwhile, the
prosecutions launched by the Enforcement Directorate are pending.

TREASURY OPERATIONS

During the year, your Company's treasury operations continued to remain
focused on proactive management of temporary surplus liquidity and foreign
exchange exposures within a well defined risk management framework. Despite
the increased volatility and risk aversion in the financial markets, your
Company continued to improve its treasury performance on the back of its
strong risk management processes.

The deployment of temporary surplus liquidity remained guided by the twin
objectives of capital protection and return optimisation. Investments were
made in Liquid Plus, Floating Rate, Income funds and Fixed Maturity Plans
of Debt Mutual Funds. The portfolio mix continued to be rebalanced
appropriately during the year in line with the changing interest rate
scenario. Further, by the year end, in line with expectations of lower
interest rates, the portfolio was rebalanced with exposures in long dated
Fixed Maturity Plans and Bank Fixed Deposits. The Company's risk management
processes ensured that all deployments were made with proper evaluation of
underlying risk while remaining focused on capturing market opportunities.

In the foreign exchange market, the Rupee depreciated sharply, on the back
of FII outflows. In a scenario, where Rupee was under continuous pressure,
the Company adopted an appropriate forex management strategy, including use
of simple options to manage heightened volatility. However, it refrained
from entering into any exotic derivative structure.

The Company availed the benefit of cheaper export credit to reduce the cost
of working capital for its exporting businesses.

As in earlier years, commensurate with the large size of the temporary
surplus liquidity under management, treasury operations were supported by
appropriate control mechanisms, 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 Stay 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 2009, 17 deposit holders had not claimed fixed deposits amounting to
Rs.2.42 lacs. 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, accredited with ISO
9001:2000 certification, is focused on improving the standards it has set
in providing quality investor services. ISC has a trained and dedicated
team of professionals supported by contemporary infrastructure and systems.

The Investor Relations' section in your Company's corporate website serves
as a user friendly online reference for investors in respect of share
related matters.

DIRECTORS

Mr. Sahibzada Syed Habib-ur-Rehman, Wholetime Director, retired from the
services of the Company with effect from close of business on 20th March,
2009, on completion of his term.

Dr. Ram S. Tarneja ceased to be Non-Executive Director of the Company with
effect from close of business on 26th August, 2008, on completion of his
term. Mr. John Patrick Daly resigned as Non-Executive Director of the
Company effective 8th January, 2009. Your Directors would like to record
their appreciation of the services rendered by Messrs. Rehman, Daly and Dr.
Tarneja.

Mr. Anthony Ruys was appointed by the Board of Directors (the Board') as
Additional Non-Executive Director of your Company with effect from 20th
January, 2009.

By virtue of the provisions of Article 96 of the Articles of Association of
the Company and Section 260 of the Companies Act, 1956, Mr. Ruys will
vacate office at the ensuing Annual General Meeting (AGM') of your Company
and has filed his consent to act as Director of the Company, if appointed.
Your Board at its meeting held on 22nd May, 2009 recommended for the
approval of the Members the appointment of Mr. Ruys as Non-Executive
Director of your Company, liable to retire by rotation, with effect from
the date of the ensuing AGM of the Company.

Notice has been received from a Member of the Company under Section 257 of
the Companies Act, 1956 for the appointment of Mr. Ruys as Director.
Appropriate resolution seeking your approval to his appointment is
appearing in the Notice convening the 98th AGM of the Company.

In accordance with the provisions of Article 91 of the Articles of
Association of the Company, Mr. Anup Singh, Mr. Krishnamoorthy Vaidyanath,
Mr. Serajul Haq Khan and Mr. Anil Baijal will retire by rotation at the
ensuing AGM of the Company and, being eligible, offer themselves for re-
election. The Board has recommended their re-election.

AUDITORS

The Company's Auditors, Messrs. A. F. Ferguson & Co., Chartered
Accountants, who retire at the ensuing AGM, have expressed that they would
not like to offer themselves for re-appointment as Auditors of the Company.

In accordance with your Company's corporate governance policy of
periodically rotating its statutory Auditors, your Board, on the advice of
the Audit Committee, has recommended the appointment of Messrs. Deloitte
Haskins & Sells, Chartered Accountants, as Auditors of the Company from the
conclusion of the ensuing AGM. Messrs. Deloitte Haskins & Sells have
confirmed their eligibility under Section 224 of the Companies Act, 1956
for appointment as Auditors of the Company.

Since not less than 25% of the subscribed Share Capital of your Company is
held collectively by Public Financial Institutions, the appointment of
Messrs. Deloitte Haskins & Sells as Auditors is being proposed as a Special
Resolution in accordance with Section 224A of the Companies Act, 1956.
Appropriate resolution seeking your approval to their appointment is
appearing in the Notice convening the 98th AGM of the Company.

EMPLOYEE STOCK OPTION SCHEME

Under the Company's Employee Stock Option Schemes, 57,89,510 Ordinary
Shares of Re.1/- each, were issued and allotted during the year upon
exercise of 5,78,951 Options; such shares rank pari passu with the existing
Ordinary Shares of your Company. Consequently, the Issued and Subscribed
Share Capital of your Company as at 31st March, 2009 stands increased to
Rs.3,77,43,99,560/- divided into 3,77,43,99,560 Ordinary Shares of Re.1/-
each.

Details of the Options granted up to 31st March, 2009, and other
disclosures as required under Clause 12 of the Securities and Exchange
Board of India (Employee Stock Option Scheme and Employee Stock Purchase
Scheme) Guidelines, 1999 (the SEBI Guidelines') are set out in the
Annexure to this Report.

The Company's Auditors, Messrs. A. F. Ferguson & Co., have certified that
the Company's Employee Stock Option Schemes have been implemented in
accordance with the SEBI Guidelines and the resolutions passed by the
Members in this regard.

DIRECTORS' RESPONSIBILITY STATEMENT

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

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

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

c) taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act,
1956 for safeguarding the assets of your Company and for preventing and
detecting fraud and other irregularities; and

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

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial
Statements, ITC Group Accounts form part of this Report & Accounts. These
Group Accounts also incorporate the Accounting Standard 23 - Accounting for
Investments in Associates in Consolidated Financial Statements and
Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures
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 316 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, 2009.
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 at the Registered Office of the Company during
business hours on working days up to the date of the ensuing AGM, 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 its businesses are intended to identify
such forward-looking statements. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. Actual results,
performances or achievements could differ materially from those expressed
or implied in such forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak only as
of their dates. This Report should be read in conjunction with the
financial statements included herein and the notes thereto.

CONCLUSION

Your Company's Board and employees are inspired by 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. Your Company has created
multiple drivers of growth by developing a portfolio of world class
businesses which have synergised to deliver Total Shareholder Returns' at
a CAGR of 23% over the 13 year period from 1996 to 2009. 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 its businesses but also of the entire value chain of which it is a
part.

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

On behalf of the Board

22nd May, 2009 Y.C. DEVESHWAR Chairman
Virginia House K. VAIDYANATH Director
37 JL Nehru Road
Kolkata 700071
India

ANNEXURE TO THE REPORT OF THE DIRECTORS

Statement as at 31st March, 2009, 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.


a) Total number of Options granted / allocated*:


ITC Employee Stock Option Scheme
2001 2002 2003 2004 2005 2006 Total

3,39,119 6,27,070 11,82,616 11,43,195 14,48,071 60,95,625 1,08,35,696

ITC Employee Stock Option Scheme - 2006
2007 2008

55,77,343 59,69,437 1,15,46,780
2,23,82,476

b) (i) Pricing Formula:

The Pricing Formula, as approved by the Shareholders of the Company, shall
be such price which is no lower than the closing 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, 1999, as determined by the
Compensation Committee.

(ii) Exercise Price / Adjusted Exercise Price** per Option, as applicable
(Rs.) (Each Option represents 10 Ordinary Shares of Re.1/- each)

ITC Employee Stock Option Scheme

2001 2002 2003 2004 2005 2006

779.95 617.90 679.90/ 880.45/ 1,531.65/ 1,814.00
453.27 586.97 1,021.10

ITC Employee Stock Option Scheme - 2006
2007 2008

1661.00 1896.00

ITC Employee ITC Employee Total
Stock Option Stock Option
Scheme Scheme-2006
(i) (ii) (i) + (ii)

c) Total number of Options vested : 77,97,649 15,23,826 93,21,475
d) Total number of Options exercised: 35,35,341 8,753 35,44,094
e) Total number of Ordinary
Shares of Re.1/- each: 3,53,53,410 87,530 3,54,40,940
arising as a result of exercise
of Options
f) Total number of Options lapsed : 12,22,391 11,68,476 23,90,867

g) Variation of terms of Options : Nil

h) Money realised by
exercise of Options: 244.78 1.45 246.23

i) Total number of Options in force: 6077964 10369551 16447515

j) Details of Options granted to

(i) Senior managerial personnel: As provided below

Sl. Name No. of Options granted
No. during the financial year

1 Y. C. Deveshwar 1,35,000
2 A. Singh 67,500
3 K. Vaidyanath 67,500
4 S. H. Khan 10,000
5 S. B. Mathur 10,000
6 P. B. Ramanujam 10,000
7 B. Sen 10,000
8 B. Vijayaraghavan 10,000
9 S. M. Ahmad 6,750
10 N. Anand 20,250
11 P. Banerjea 9,000
12 S. Basu 12,000
13 S. Chandrasekhar 12,000
14 B. B. Chatterjee 13,800
15 P. Chatterjee 12,000
16 C. Dar 13,800
17 P. V. Dhobale 20,250
18 K. N. Grant 28,125
19 D. Haksar 9,775
20 R. G. Jacob 20,250
21 U. Lall 13,800
22 A. K. Mukerji 8,500
23 R. S. Naware 10,125
24 A. Nayak 20,250
25 A. R. Noronha 13,800
26 R. Parasuram 8,500
27 S. Puri 13,800
28 A. Rajput 13,800
29 T. V. Ramaswamy 13,800
30 S. Janardhana Reddy 13,800
31 S. C. Rustagi 13,800
32 S. K. Singh 12,000
33 S. Sivakumar 20,250
34 R. Srinivasan 28,125
35 K. S. Suresh 13,800
36 R. Tandon 13,800
37 P. K. Verma 12,000

(ii) Any other employee who received a : None
grant in any one year of Options
amounting to 5% or more of the
Options granted during that year.

(iii) Identified employees who were : None
granted Options during any one year,
equal to or exceeding 1% of the
issued capital (excluding outstanding
warrants and conversions) of the
Company at the time of grant.

k) Diluted Earnings Per Share: Rs. 8.64
pursuant to issue of Ordinary Shares on
exercise of Options calculated in
accordance with Accounting Standard
(AS) 20 Earnings Per Share'.

l) (i) Method of calculation The employee compensation cost
of employee compensation cost. has been calculated using the
intrinsic value method 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 2008-09 is Nil.


(ii) Difference between the employee Rs. 261.73 crores
compensation cost so computed
at (i) above and the employee
compensation cost that shall have
been recognised if it had used the
fair value of the Options.

(iii) The impact of this difference on profits and on Earnings Per Share of
the Company:

The effect on the profits and earnings per share, had the fair value method
been adopted, is presented below:

Profit After Tax Rs. in Crores

As reported 3,263.59
Add: Intrinsic Value Compensation Cost Nil
Less: Fair Value Compensation Cost 261.73
(Black Scholes model)
Adjusted Profit 3,001.86
Earnings Per Share Basic (Rs.) Diluted (Rs.)

As reported 8.66 8.64
As adjusted 7.96 7.95


m) Weighted average exercise prices and weighted average fair values of
Options granted for Options whose exercise price either equals or exceeds
or is less than the market price of the stock.:

Weighted average exercise price per Option : Rs. 1,896.00
Weighted average fair value per Option : Rs. 689.16

n) A description of the method and significant assumptions used during the
year to estimate the fair values of Options:

The fair value of each Option is estimated using the Black Scholes Option
Pricing model after applying the following key assumptions on a weighted
average basis:

(i) Risk-free interest rate 9.15%
(ii) Expected life 4.6 years
(iii) Expected volatility 33.33%
(iv) Expected dividends 1.92%
(v) The price of the underlying Rs.1,883.00
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.

On behalf of the Board

Y.C. DEVESHWAR Chairman
K. VAIDYANATH
Director
Kolkata, 22nd May, 2009.

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 THEDIRECTORS' REPORT

a) Energy conservation measures taken:

All business units continued their efforts to improve upon energy usage
efficiencies. Various key parameters such as specific energy consumption
(energy consumed per unit of production) and specific energy costs are
constantly tracked. Some of the measures adopted were:

i) Microprocessor based step control & air booster for compressed air
system and use of steam and piezo electric humidifiers in place of
conventional humidifiers in cigarette factories.

ii) Installation of new energy efficient boiler in Anaparti tobacco leaf-
threshing unit.

iii) Automation of paper machine No.5 HT refiners and addition of power
factor improvement capacitors at load centres to reduce cable losses in the
Bhadrachalam paperboards factory.

iv) Replacement of old chiller with a new high efficiency unit and multiple
air compressors with single high efficiency set in the Bollaram paperboard-
coating factory.

v) Ozone injection in washer extractors of laundry to reduce detergent &
hot water consumption and installation of heat pipes in treated fresh air
units tocontrol humidity in various hotels.

vi) Installation of dissolved oxygen sensors and VFD (Variable Frequency
Drive) regulated blowers in aeration tank of effluent treatment plant in
the Pune Foods factory.

vii) Installation of air pre heaters on potato chips line to utilize stack
heat in the Haridwar foods factory.

viii) Commissioning of 14.1 MW wind energy power plant to eliminate carbon
dioxide emissions and reduce energy costs for the Tiruvottiyur Packaging
and Printing factory.

ix) In addition, the following common measures continue to be implemented
across most business units:

- Replacement of inefficient lighting systems with higher efficiency
systems incorporating Light Emitting Diodes, T5/T8 fluorescent lamps with
electronic chokes and Compact Fluorescent Lamps.

- Replacement of existing motors with high efficiency motors.

- Use of wind driven, turbo roof top ventilators.

- Use of solar energy for hot water and outside area illumination.

- Use of variable speed drivers for various applications.

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

i) Setting up of a wind energy plant and replacement of existing air-cooled
chillers with water-cooled chillers in the Bengaluru cigarette
manufacturing unit.

ii) Installation of biomass fired boiler using plantation and agricultural
residues at the Bhadrachalam paperboards factory. This is expected to
replace 70% of coal consumption.

iii) Installation of solar pumps in effluent treatment plant in the
Bollaram paperboard-coating factory.

iv) Installation of Solar concentrators for hot water / steam generation in
ITC Maurya, New Delhi.

v) Setting up of wind energy plants in different states by various hotels.

vi) Third party energy audits and implementation of energy conservation
measures in various business units.

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 measures across the Company has
resulted in significant savings in energy costs. Apart from offsetting
rising energy prices, these measures have also contributed to reducing the
Company's carbon footprint. The Company has already registered seven CDM
projects. Efforts to generate further Certified Emission Reduction (CERs)
under the Kyoto Protocol's Clean Development Mechanism continue and a few
more projects are expected to be registered soon with the UNFCCC (United
Nations Framework Convention on Climate Change).

A) POWER AND FUEL CONSUMPTION

For the For the
Year ended Year ended
31st March, 31st March,
2009 2008

Relating to Paperboards & Paper

1. Electricity (Excluding
Consumption in Colony)

a) Purchased Units (KwH in Lacs) 399 275
Total Amount (Rs. in Lacs) 1965 1647
Rate / Unit (Rs.) 4.92 5.99

b) Own Generation

i) Through Diesel Generation

Units (KwH in Lacs) 9 27
Units / Litre of Diesel Oil 2.99 2.92
Cost / Unit (Rs.) 11.74 11.74

ii) Through Steam Turbine /
Generator Units (KwH in Lacs) 3469 3428

Units / Kg. of Coal 1.25 1.58
Cost / Unit (Rs.)
{considering all fuel types} 2.98 1.99

For the Year ended For the Year ended
31st March, 2009 31st March, 2008
Process Power Total Process Power Total

2. Coal (Specify

Quantity &
Where Used)
(Grades C
ROM & F
ROM)
Quantity (M.T.) 260625 277646 538272 233519 217433 450953
Total Cost
(Rs. in Lacs) 12221 8835
Average Rate
(Rs. per M.T.) 2270.36 1959.17

3. Furnace Oil

Quantity (KL) 13607 9621
Total Amount
(Rs. in Lacs) 3455 1871
Average Rate
(Rs. / KL) 25393.46 19448.25

4. Others/Internal Generation

(De Oiled Bran & Saw Dust, etc.)
Quantity (M.T.) 89969 95885
Total (Rs. in Lacs) 1680 1594
Rate / Unit (Rs.) 1867.21 1662.96
(LP Gas)
Quantity (M.T.) 1029 1164
Total (Rs. in Lacs) 480 450
Rate / Unit (Rs.) 46580.18 38628.68

B) CONSUMPTION PER UNIT OF PRODUCTION

For the Year ended For the Year ended
31st March, 2009 31st March, 2008

Products (Paper in M.T.) 506734 441479
Electricity (KwH) 1087 1010
Coal C/F Grade (M.T.) 0.51 0.53
Furnace Oil (Litre) 27 22
Others - De Oiled Bran / Saw Dust /
LP Gas, etc. (M.T.) 0.104 0.134

Note: Higher specific energy consumption is due to product mix change and
increased pulp production.

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, meeting regulatory
requirements, enhancing tobacco manufacturing capabilities and cost
management.

ii) Support on chemical, physical and sensory analysis for cigarette
Research and Product Development projects.

iii) Analytical support for development, testing and specification setting
of cigarette packaging materials and formats.

iv) The QA Department absorbed technology and carried out applied Research
and Development as follows:

a) Textural Analysis with added capability such as new probes enabling
textural analysis of certain specific and crucial food samples (cereal
grains, pulses and snacks).

b) Inclusion of new Microbiological parameters in the work list of Foods
Technology Centre.

v) Installation of New infrastructure in Quality Assurance laboratories at
Food Technology Centre, which will maintain wet chemistry, microbiology,
sensory evaluation, instrumentation, research and state-of-art material &
chemical stores. This new infrastructure will help in building higher
analytical capability for the Foods business including all applicable EHS
norms.

vi) Research carried out on surface value addition and innovative wash
techniques in Knits Range of Wills Lifestyle' Signature collection.

vii) Development of Linen fabric in extremely fine counts of 80's & 100's.

viii) Reengineered fabrics used in garments through benchmarking of quality
of fibres, processes etc.

ix) Anthropometric study carried out amongst targeted Wills Lifestyle
customers to give a better Feel & Fit to women customers.

x) Development of site specific clones of Eucalyptus, Casuarina and Subabul
through multi-location field trials.

xi) Development of intra and inter-specific hybrids of Eucalyptus.

xii) Project undertaken to control Eucalyptus gall insect (Leptocybe
invasa) in collaboration with Project Directorate of Biological Control,
Bengaluru.

xiii) Development of Paperboard meant for Digital Printing.

xiv) Development of board for Cold Beverage cup stock market globally.

xv) Development of region specific varietal options and design of crop
production practices in the Flue Cured Virginia, Burley and Oriental
regions for enhancing productivity and specific quality traits.

xvi) Development of Seed Pelletisation and Nursery Management technologies
for optimizing the usage of Hybrid seed for large-scale adoption.

xvii) Adoption of Bio Consortia approach towards offering Integrated Crop
Protection options and sustainable farming practices.

xviii) Development of neem based bio formulations to meet crop specific
pest management requirements.

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

i) International acceptance of the results for key tests under ISO 17025
accreditation and in collaborative studies.

ii) Cost reduction, import substitution, safer environment and strategic
resource management.

iii) Development of distinguishing print techniques, embellishments in
Wills Lifestyle' Signature line providing a distinct value proposition to
customers.

iv) Indigenous development of linen at a competitive cost resulting in
import substitution.

v) Achievement of maximum value add at different price points through
fabric reengineering.

vi) High survival and growth of clonal plantations of Eucalyptus, Casuarina
and Subabul leading to increase in productivity of wood biomass and higher
returns to farmers. Creating supply source of quality fiber indigenously
thereby reducing reliance on imports.

vii) Identification of high yielding clones (23 site specific Eucalyptus
clones) suitable for refractory sites with alkaline soils.

viii) Carbon sequestration from plantations reducing Green House Gases
thereby mitigating climate change.

ix) Improved quality of board for Cold Beverage cup stock for export
markets.

x) Improvement in productivity of Tobacco crop with superior grade out
turn.

xi) Enhancing the probability of germination with the successful
standardization of Seed Pelletisation process along-with the design of
necessary techniques to efficiently handle pelletised seeds.

Development of CMS hybrids, Pelleting technologies and contemporary nursery
practices will enable Indian tobacco farmers opportunities to adopt
globally competitive high yielding varieties and production practices.

xii) Collaborations with leading merchant organization dealing with
Oriental tobacco and lead customer specializing in Burley tobaccos are
facilitating large scale agronomy trials resulting in higher productivity
with desirable leaf styles catering to the domestic and export markets.

xiii) Standardization of Wellgro Emulsifier Concentrate - a botanical
formulation is enabling offer of unique properties with wide spectrum pest
tolerance and growth enhancing qualities.

3. Future Plan of Action:

i) Progress the identified projects on taste and flavour, manufacturability
and cost management in cigarettes business.

ii) Increase usage of environment friendly materials.

iii) Network with universities and external experts including vendors on
research projects e.g. collaborative study on improvement of processing of
stems, collaborative study on development of high performance filters, etc.

iv) Enhance the scope of the ISO 17025 accreditation by adding related
parameters.

v) Design Modification in last zone of the oven for improved thermal
efficiency in biscuit manufacturing. Evaluation of alternate fuels for
ovens.

vi) Use of renewable carbon neutral fuel (producer gas) for thermal
applications.

vii) Integration of Radio Frequency based drying technology with Baking
oven to enhance the biscuit plant capacity.

viii) Substitution of steam heated fryer with LPG direct fired fryer in
snacks manufacturing line.

ix) Research on genetic improvement of Eucalyptus, Casuarina and Subabul
and other pulp wood trees.

x) Breed Wasp insect resistant Eucalyptus trees and develop Eucalyptus Gall
wasp management protocol thereby improving fibre productivity.

xi) Institute Six sigma initiative and advance process control for
reduction of variability in porosity of cigarette paper.

xii) Develop value added paperboard products for various FMCG industry
applications.

xiii) Conduct studies on the genetic mechanisms of flavour traits in FCV
tobaccos, and Integrated Crop Management practices in Burley and Oriental
tobaccos.

xiv) Develop alternative curing regimes and fuels to optimize the use of
natural resources.

xv) Develop Botanical formulations with natural ingredients to provide crop
specific formulations for enhancing productivity and safer options for crop
protection.

xvi) Understand and isolate bio molecules for the development of effective
and differentiated products against target pests.

xvii) Enhance the efficacy of Wellgro series of botanicals with fortified
consortia of micro-organisms offering unique products with multifold farm
benefits.

For the year ended
31st March, 2009
4. Expenditure on R&D : (Rs. in Lacs)

i) Capital 5441.89
ii) Recurring 6407.67
iii) Total 11849.56
iv) Total R&D Expenditure as a % of
- Gross Turnover 0.51
- Net Turnover 0.77

Technology Absorption, Adoption and Innovation

i) Contemporary making and packing technologies across multiple speed
platforms.

ii) Hard link ups between makers and packers across multiple speed
platforms.

iii) New primary equipments like dryers, feed lines, product silos and
other conveying equipments.

iv) Augmentation of Waste Water treatment with MBR (Membrane Bio Reactor)
technology.

v) Installation of comprehensive Security Surveillance system for safety of
guests at ITC Hotels.

vi) Installation of Organic Waste converter at ITC Hotels.

vii) State of the art room control systems including Structural Cablings
for all guest rooms with fibre backbone for internet and data.

viii) Energy efficient, eco friendly Green chillers.

ix) Modification of approach flow, installation of new Head Box, new shake
unit and new pope reel in fine paper making machine for improving product
quality of cigarette paper.

x) Installation of new Head Box, third press and new shake unit in fine
paper making machine for improving product quality of writing printing
grades.

xi) Installation of Cast Poly Propylene (CPP) line.

xii) Bobst Asitrade in-line Corrugating and Laminating line installed /
commissioned.

xiii) Installation of Heidelberg offset printing presses.

xiv) Installation of Shoulder Box packaging line.

xv) Installation of Flexible Printing and converting line with value added
features / capabilities of lamination, slitter-rewinder, solvent dosing
system and tandem extrusion.

xvi) Installation of additional Equipment on Carton line consisting of Off
Line UV Coating Machine and Busch Pile Turner.

xvii) Installation of Frozen plant for different product lines with
features of Automatic filling, Sealing and Cartoning capabilities.

xviii) Installation of continuous hard and soft candy manufacturing line
and commissioning of high speed eclairs manufacturing plant.

Benefits Derived

i) International Quality Products.

ii) Improved productivity and reduced wastes.

iii) Improved productivity of primary manufacturing and tobacco yields.

iv) Improved quality of treated waste water enabling increased recycling,
which in turn will reduce fresh water intake.

v) Augmentation of guest security and enhanced guest experience.

vi) Conversion of food waste to manure - a step towards zero waste
discharge.

vii) Conservation of fuel leading to reduce emissions and a positive
environmental footprint.

viii) Improved product quality and productivity of cigarette tissue paper.

ix) Augmented paper range and improved product quality.

x) In-house capacity to produce CPP film for flexible packaging
requirements and a step towards cost reduction / product development /
backward integration.

xi) Capability to meet packaging requirements for corrugated board box
applications such as mobile phones packaging.

xii) Cost efficient increase in offset printing capacity.

xiii) Additional Shoulder box manufacturing capacity with higher
productivity levels.

xiv) Tandem Extrusion line will enhance the product range by enabling
Extrusion Packaging for Snacks and Lami Tubes.

xv) Improved productivity as addition of UV Coater will reduce multiple
pass on main printing machine.

xvi) Enhanced capacity to augment frozen business with improved
productivity.

xvii) Increased throughput of confectionery products.

On behalf of the Board

Y.C. DEVESHWAR Chairman
K. VAIDYANATH Director

Kolkata,
22nd May, 2009.