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.

Exide Industries - Annual Director's Report - 2008-2009

EXIDE INDUSTRIES LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

TO
THE SHAREHOLDERS

Your Board of Directors have pleasure in presenting the 62nd Annual  Report
of  the Company together with the Audited Accounts for the year ended  31st
March, 2009.

Economic Environment:

2008-09  has  been  a watershed year in the socioeconomic  history  of  our
Nation.  Starting  with a GDP growth prediction of over  9%  like  previous
years;  a  bullish stock market with sensex gaining new  heights  month  on
month;  followed  by unprecedented rise in crude oil and  commodity  prices
leading  to  unbridled  inflation  surpassing the  12%  mark;  the  ghastly
terrorist attacks in Mumbai; signing of the historical Nuclear Treaty, deep
rooted  recession of the economic superpowers resulting in a complete  wipe
out  of the capital markets and slump in industrial production -  the  year
was indeed of rising hopes and shattered aspirations.

Added  to  this  was  the global financial crisis in  the  US  and  several
European  countries  leading to bankruptcy of some of the  major  financial
institutions  which  threatened  the world financial system.  Much  of  the
industrialized  world entered into a deep recession resulting from  vicious
circles  of high oil and food prices and bursting of the housing bubble  in
the  US.  This led to collapse of the entire banking and  financial  system
across  countries and increased unemployment, which in the US alone now  is
estimated to be 8.5%.

Though the initial feeling in India was that our Country was insulated from
the  financial crisis affecting the Western hemisphere the  ripple  effects
were witnessed during the later part of the year. Any significant slow-down
in  the  US, which accounts for 1/4th of the World GDP, is  bound  to  have
repercussions across the globe. However, since the interdependency  between
the US economy and India has reduced considerably over the past two decades
the effect on our economy is expected to be less drastic. During the  third
quarter  of the financial year under review there was a sharp fall  in  the
value of the rupee and the worldwide credit crunch led to foreign investors
divesting  shares  of  Indian companies worth more than  US$  12.5  billion
approximately  Rs 62,000 crores. There was a drastic fall in the growth  of
certain  sectors  like IT enabled services, steel,  automobiles,  textiles,
cement and housing etc. The automobile sector was badly hit and in  October
2008 the overall car sales declined by about 9% and car production fell  by
more  than 12%. November 2008 recorded the steepest fall in -car  sales  in
the  past  five years with Maruti recording a degrowth of 27%,  Mahindra  &
Mahindra 40% and Tata Motors 12% respectively.

The  Government was quick to react and a spate of financial  packages  like
cut in repo and reverserepo rates, reduction in excise duty and service tax
etc. were announced in several tranches. These interventions, coupled  with
the  sharp fall in crude oil prices and reducing rate of inflation,  helped
in  styming the crisis to a considerable extent. Recent production /  sales
data  on  cement, steel and automobiles indicate a  strong  recovery  since
January 2009. Two wheeler sales grew by 12% and car sales by a healthy  23%
in February 2009. However, commercial vehicles continued to report a slower
growth.  The  index of six core industries released by  the  Department  of
Industrial  Policy  and Promotion shows a growth of 2.2% in  February  2009
which  was  the highest growth rate clocked in the last  four  months.  The
recovery  in these sectors are expected to gather further momentum  in  the
coming  months.  Thanks  to  the monetary and  fiscal  initiatives  of  the
Government,  high  inventory levels and low liquidity, two  major  problems
affecting  the  industrial sector have been eased to a  great  extent.  The
quick  recovery  indicates  that there continues to be  a  strong  domestic
demand. The reduction in interest rates are expected to further  strengthen
this impetus. Capacity expansion plans which were shelved during October to
December 2008 are now being announced. The financial packages announced  by
the G20 countries should give some impetus to growth in the  industrialized
countries  and the reversal of recessionary trend. Due to some infusion  of
funds  by Foreign Institutional Investors in the beginning of  the  current
financial  year,  the  stock markets appear to be  on  the  recovery  path.
However, widening revenue fiscal deficit, mainly arising out of the  fiscal
and  monetary packages announced by the Government, would continue to be  a
major source of concern.

Industry Structure and Development:

The domestic Battery Industry is poised to grow by more than double  within
the  next five years. Though the un-organised sector is about  three  times
the size of the organised business but with stricter pollution control  and
regulatory  norms, especially with regard to recycling of toxic waste  such
as  Lead,  it  may be difficult for small scale  un-organised  business  to
sustain  their  operations  in the long term.  Notwithstanding  the  recent
setback  arising  out of the global meltdown, the  automobile  industry  in
India  is  poised for quantum growth especially in the small  car  and  two
wheeler segments. With Tata Motors launching the Nano and Bajaj and Renault

announcing  their  plans,  India would emerge as a small  car  hub  in  the
Region.  Nearly all the major global automobile manufacturers have  set  up
base  in India and are also looking at India for export of their  products.
Interestingly,  several  commercial vehicle manufacturers  have  identified
India as a manufacturing base for their export market which would also lead
to  a higher demand for Indian batteries. This would definitely expand  the
market base for automotive batteries manifold. In addition, with the thrust
on  infrastructure,  communication and power sectors,  the  consumption  of
industrial batteries are also expected to rise substantially. That India is
emerging  as  a global player is evident from the fact that for  the  first
time  an International Battery Fair was hosted in India in 2008 instead  of
its traditional venues like the US, Europe or Asia-Pacific region.

Performance:

Your  Company  continues to maintain its leadership position in  India  and
South Asia. The year started promisingly with over 34% growth in sales  and
an  increase  of  20%  in  profit before tax  for  the  first  six  months.
Unfortunately,  thereafter, as a fall out of the global  economic  downturn
the  auto  industry  in  particular and  other  core  industries  including
infrastructure,  telecom,  power  etc. in general  showed  either  a  sharp
degrowth  or  a  tapering  down of growth.  This  definitely  affected  the
operations  of your Company but, inspite of such  difficult  circumstances,
your Board is pleased to announce that your Company succeeded in increasing
its net turnover by 19% and its profits before tax by 16% over the previous
year.

Automotive Batteries:

Inspite  of  depressed  sales  in certain segments  in  the  auto  industry
reasonable  growth was achieved mainly due to increased marketing  efforts,
aggressive forays in the replacement segment, capturing of a larger  market
share  in the two wheeler segment, introducing cost effective  technologies
and  also  through  strict financial  discipline  and  austerity  measures.
Presently,  your Company enjoys a significant market share in  the vehicle
OEM segment.

Your  Company  has  been identified as a supplier for  batteries  for  Tata
Motor's  small  car 'Nano'. In view of some innovative features,  a  design
registration  for  this type of battery has been filed in  India.  Further,
supplies of upgraded batteries based on Advanced Hybrid technology for Tata
Motor's  new  model  'Vista' under the Indica / Indigo  platform  has  also
commenced.  Your Company has also been nominated as the single  source  for
supply of batteries for Toyota's small car as well as for the new models of
Fiat  D/200  and  D/300.  A high performance  battery  for  General  Motors
'Tavera' and for Hyundai Motors new vehicle i20 has also been introduced. A
complete  range  of DIN batteries for Hyundai's Accent and Getz  cars  have
been  upgraded to the advanced calcium technology under the 'Matrix'  brand
with an extended warranty of sixty months. In the motorcycle segment, three
popular types of maintenance-free batteries based on calcium technology was
introduced  under the 'XPack' brand with thirty six months  warranty.  Your
Company  has  received an order for 5000 batteries for the  Singapore  Taxi
market  amidst tough competition. Honda Japan has selected your Company  as
an exclusive supplier initially for 2 years for VRLA MC battery. This is  a
Hi  Tech product and is being introduced in Hero Honda, Honda Motorcycle  &
Scooters  (India)  Ltd. for the first time. This battery is  being  jointly
developed  alongwith Furukawa Battery, Japan, your  Company's  collaborator
and Honda, Japan. This will help in increasing your Company's market  share
further in motor cycle OEM as well as in replacement market.

Your  Company  has entered into a technical  collaboration  with  Changxing
Noble Power Sourcing Co. Ltd., China for manufacture of Deep Cycling E-bike
batteries for electric bicycles and scooters. These E-bike batteries  would
be  launched  in  the second quarter of the current  financial  year.  Your
Company  is  also in the process of developing batteries for a  variety  of
Stop-Start  micro-hybrid vehicles. Further, your Company intends  to  foray
into  development and marketing of Lithium-ion batteries for  the  emerging
electric vehicle segment.

Your Board is pleased to inform that an International Patent of Low  Water
Loss'  battery was filed with WIPO, Geneva jointly in the name  of  Daramic
LLC and your Company.

With  a  view to increase its market penetration and  for  ensuring  better
service  to  the end-users your Company has reorganized its  Marketing  and
Distribution  set-up  by  expanding to 203 locations made up  of  hubs  and
spokes  monitored by the Regional Controlling centres. This initiative  has
paid  immense  dividends  as  not  only your Company  is  now  able  to  be
aggressively  present in the replacement market but also to provide  better
after-sales  and  warranty services to its customers.  Your  Company's  CRM
initiative   through  its  portal  www.exidereachout.com  has   been   very
successful and apart from servicing the needs of customers and dealers  has
helped  in  building  up a data base of loyal  customers.  Project  Kissan,
another  initiative  for customers in the rural markets has  also  achieved
popularity in converting potential customers to subscribe to your Company's
products.

Your  Company  has entered into arrangements with Indian  Oil  Corporation,
Hindustan Petroleum Corporation Ltd., and Toyota Kirloskar for distribution
of  its products through their retail outlets. Similar additional  linkages
are  also  being explored. This would enable your Company to  have  a  much
larger presence across the country including all B and C class towns.

Industrial Batteries:

The net sales of Industrial batteries was Rs 1269 crores as against Rs 1019
crores in the previous year representing a growth of 25%. This was achieved
inspite of cheaper imported batteries flooding the market mainly due to the
ongoing  recession in the Western countries. The growth in trade sales  was
achieved  primarily  due to better reach and improved  product  perception.
Following  satisfactory  field trials, a flat plate Golf Cart  battery  was
introduced during the year. Development of Gel Tubular Prototype Cells  for
Telecom  applications is also in progress. Your Company has also  developed
low maintenance batteries for invertors.

Submarine Batteries:

The  Submarine  division  performed satisfactorily during  the  year  under
review with a number of prestigious orders in hand. Noteworthy among  these
was an order from the Indian Navy for an Advanced Technology Vehicle  (ATV)
as well as orders from the Admiralty Ship Yard of Russia for third  country
exports. This was the first time that a Russian Ship Yard has given  orders
for submarine batteries to India.

Exports:

Export  of both Automotive and Industrial batteries registered  a  degrowth
mainly due to the severe economic downturn. Details of activities  relating
to  exports  are mentioned in Part III of the Information  as  per  Section
217(1)(e) of the Companies Act, 1956 which is annexed to this Report.

Financial Results:

                                                           (In Rs. Crores)
                                                     2008-2009   2007-2008

Profit before depreciation & taxation                  503.33      438.57

Depreciation / Amortisation                           67.94       64.24

Profit before tax                                  435.39      374.33

Taxation                                          151.00      124.00

Profit after tax                                  284.39      250.33

Balance brought forward                                  281.30      118.41

Making a total of                                  565.69      368.74

Out of this appropriations are:

General Reserves                                  185.00       50.00

Leaving a balance of                                  380.69      318.74

Interim Dividend (40%)                                   32.00           -

Tax on Interim Dividend                                    5.44           -

Proposed Final Dividend (20%)                           16.00       32.00

Tax on Final Dividend                                    2.66        5.44
[Aggregate Dividend amounts to 60%
(Previous year 40%)]

And leaving a balance of (which is
carried forward to next year)                          324.59      281.30

Consolidated Financial Statements:

In accordance with Accounting Standard 21 Consolidated Financial Statements
form  part of the Report & Accounts. These Accounts have been  prepared  on
the  basis of audited financial statements received from  the  subsidiaries
and associate companies as approved by its respective Board of Directors.

Dividend:

Your Company has paid an interim dividend at the rate of 40% on the  equity
shares to the shareholders whose names appeared on the Register of  Members
on 27th January, 2009. Your Directors are now pleased to recommend a  final
dividend  at  the rate of 20% on the equity shares of the Company  for  the
year ended 31st March, 2009, subject to your approval at the ensuing Annual
General  Meeting. Consequently, the total dividend for the year ended  31st
March,  2009, including the interim dividend paid during the year,  amounts
to 60% (Re, 0.60 per equity share of Re.1/- each).

Corporate Governance:

Transparency  is  the  cornerstone of your  Company's  philosophy  and  all
requirements  of  Corporate Governance are adhered to both  in  letter  and
spirit.  The  Audit Committee of the Board meets at  regular  intervals  as
required  in  terms of Clause 49 of the Listing Agreement.  Your  Board  of
Directors  have  taken  necessary  steps  to  ensure  compliance  with  all
statutory  and  listing  requirements. The  Directors  and  key  management
personnel of your Company have complied with the Code of Conduct which  was
approved by the Board of Directors. Apart from being in compliance with all
requirements  of  Clause  49  of the Listing  Agreement  your  Company  has
voluntarily  adopted  certain  governance principles.  Setting  up  of  the
Remuneration  Committee of Directors and introduction of a Model  Code  for
Insider  Trading in 2004 are some of the initiatives taken by your  Company
towards this end.

The Report on Corporate Governance as required under the Listing  Agreement
forms  part of and is annexed to this Report. The Auditors' Certificate  on
compliance with Corporate Governance requirements is also attached to  this
Report. Further, as required under Clause 49 (V) of the Listing Agreement a
certificate from the CEO and CFO is being annexed with this Report.

Business / Operational Excellence:

In  keeping  with  its vision to provide credible  value  addition  to  our
stakeholders and being recognized as a responsible corporate citizen,  your
Company has implemented an exhaustive Total Quality Management System (TQM)
throughout the organization. The TQM system includes the latest  techniques
of  Total  Productive Maintenance (TPM), 6 Sigma and Lean  Manufacturing  -
leading towards business excellence.

Products  manufactured  at your  Company's  state-of-the-art  manufacturing
facilities symbolise quality and customer satisfaction. Quality is designed
into  products  through  use of techniques like  Advanced  Product  Quality
Planning (APQP), Failure Mode & Effect Analysis (FMEA), Statistical Process
Control  (SPC) and Measurement System Analysis (MSA) .  Process  capability
monitoring  ensures  that  products  are  well  within  specification  with
negligible rework and scrap.

TQM is a strategic initiative and your Company has progressed  considerably
in  its  unending  journey towards Business  Excellence.  For  its  Quality
Management  System  (QMS),  the Industrial SBU part of  Haldia,  Hosur  and
Shamnagar factories have been certified to ISO9001. For the Automotive  SBU
- Bawal, Chinchwad, Haldia, Hosur, Shamnagar and Taloja factories have been
certified  to  ISO/ TS16949. These certifications although  issued  in  the
names  of  the  different  factories,  however  include  all  our  business
processes of R&D, Manufacturing, Marketing, Sales, After Sales Support  and
Corporate  functions.  The  Submarine SBU is  certified  to  ISO-9001.  The
certification body is the renowned TUV-NORD, headquartered in Germany.

In  line  with its core value of striving for Excellence, your  Company  is
implementing the European Foundation for Quality Management (EFQM) Business
Excellence Model. Your Company has won the CII-EXIM Bank Award for  'Strong
Committment to Excel' in 2006 and 2007 . In 2008 your Company bettered  its
performance  and has been one amongst eight companies in India to  get  the
coveted 'Significant Achievement' Award.

To  improve  efficiency  and  utilization  of  machines  your  Company  has
implemented Total Productive Maintenance (TPM) in the factories,  following
the  methodology given by Japanese Institute of Plant  Maintenance  (JIPM).
For  its  efforts  in  TPM,  the JIPM has  conferred  the  'Award  for  TPM
Excellence - 2008' to our Haldia plant. The other factories are gearing  up
to the challenge to win this award in the near future.

Apart  from these, your Company has won several awards in Quality,  Safety-
Health-Environment,  5-S, Energy Conservation and Productivity. As a  proof
of customer satisfaction, your Company has also won awards and  recognition
from Toyota, Tata Motors and Bajaj Auto.

Environment & Safety:

For the Environmental Management System (EMS) the Chinchwad, Haldia, Hosur,
Shamnagar  and  Taloja  factories are certified to  ISO  14001.  The  Bawal
factory  is  expected to be certified by the third quarter of  the  current
financial  year. Your Company is committed to preserve the environment  and
prevent  pollution,  going much beyond statutory compliance and  ISO  14001
certification.   Your  Company  aims  at  continuous  improvement  of   its
environmental  performance.  Minimisation  of  waste  and  preservation  of
natural  resources are not only part of policy but are put into  effect  by
practice  and  implementation of several environmental projects.  This  has
resulted   in  your  Company  receiving  the  prestigious  TERI   Corporate
Environment Award in 2007.

The  concern  for Occupational Health and Safety issues has  prompted  your
Company to implement OHSAS 18001 standard in its factories. The Hosur plant
has already been certified and the other factories are expected to  receive
the certification in due course.

Energy  conservation continues to be an area of focus for your  Company  as
this  is a major cost in the manufacturing process. Your Company has  taken
several initiatives at each plant level in order to conserve energy.  Proof
of  this  is available with all major plants at Shamnagar,  Haldia,  Hosur,
Taloja and Chinchwad, being ISO 14001 certified.

Corporate Social Responsibility:

Your Company continues to believe that it has societal obligations which it
must  fulfill  in order to remain a responsible corporate  citizen  of  the
Country.  It also believes that the ethical conduct of business is part  of
its  corporate ethos which helps to fulfill the Company's long term  vision
and its engagement with stakeholders at large.

One of the key challenges for all individuals and enterprises is sustenance
of the environment and, therefore, the need to generate awareness and drive
initiatives  to  create a greener earth. Towards this end,  your  Board  is
pleased to announce that your Company has agreed to partner UNICEF in their
Child  Environment  Programme in India that aims to create  a  greener  and
healthier  world  and to ensure equitable and sustainable access  to  basic
health   and  hygiene  facilities,  particularly  for  the  unreached   and
marginalized rural communities. This initiative has been linked to  raising
consumer consciousness and creating awareness for return of used  batteries
which  contain lead and thereby inducing the vehicle owners to  participate
in the cause.

Your  Hosur plant continued with its community initiatives by  focusing  on
the  five  core  areas  of  Health  care,  Education,  Women   Empowerment,
Environment and Relief activities. During the year, a village in  Tamilnadu
was  adopted  for community development, a road map for  development  of  a
model  village  has been undertaken, high school classrooms,  mid-day  meal
kitchens  and toilets have been constructed. Apart from that,  support  has
been given for education needs of children of single / handicapped  parents
and assistance in sports activities for local students have been given.

In  Haldia,  vocational training for rural women was organised  and  sewing
machines and zari machines were distributed through the cooperative system.
Further, your Company actively contributed and participated in distribution
of relief materials for the flood victims in Purba Midnapore, West  Bengal.
In  Taloja  drinking water facilities were provided at  Vridhashram  and  a
Community Garden was developed. Your Company also actively participated  in
the  Pulse-Polio  programme. Your Company also has taken up a  project  for
Drug De-addiction and Rehabilitation for street children and a project  for
development  of  societal skills for slum children in  Kolkata.  In  Bawal,
Medical  and Health camps were organized in an adopted village  where  free
medicines  were  distributed  and  pathological  tests  arranged  for   the
villagers.

Internal Controls:

Your  Company  has  proper and adequate system of  internal  controls.  The
Internal  Audit  team conducts both Systems and Financial Audit  which  are
carried  out in two phases at each factory, branch, Regional and  Corporate
offices.  The  audit  findings  are reviewed  by  the  Audit  Committee  of
Directors and corrective action, as deemed necessary, is taken. The Company
also has laid down procedures and authority levels with suitable checks and
balances encompassing the entire operations of the Company.

Your  Company has identified various business risks and has laid  down  the
procedure  for  mitigation of the same. The Risk  Management  &  Mitigation
Systems are reviewed by the Audit Committee of Directors from time to time.

Outlook:

With  the recession likely to continue in most of the  developed  countries
atleast for the medium term, it would inevitably have cascading effects  on
the  World economic order. The IMF in its latest report has cautioned  that
the  economic  downturn is likely to continue through 2009-10  and  perhaps
even  further. Though it is expected that India would not be as  badly  hit
compared  to countries like the USA, Western Europe, Japan or South  Korea,
but  the  growth  in  our  economy  would  definitely  be  affected  to   a
considerable extent in this environment. Nevertheless, it is heartening  to
note that foreign institutional investors have once again reposed faith  in
the Indian capital markets which apart from strengthening the sensex,  will
act as a catalyst in increasing the confidence levels of all concerned. The
short  turnaround time taken by the core industries in recovering from  the
slump,  the  limited dependence on exports to the USA and  the  fiscal  and
monetary  initiatives taken by the Government will be an accelerator for  a
better industrial climate in the near future. However, it may be  premature
to  make any accurate prediction since one cannot vouch that the  worst  is
yet to be over.

Opportunities and Threats:

Infrastructure has been identified as a core thrust area by the  Government
and large investments are planned both by the public as well as the private
sector   in  these  segments.  India  is  witnessing  a   telecommunication
revolution  and its potential is vast. Not only are new  and  path-breaking
technology  easily available but due to the vast population, especially  in
the  two  tier  and three tier cities, the prospects for  this  sector  are
extremely  promising.  As  stated earlier, several global  players  in  the
automotive  industry are setting up manufacturing bases in India  not  only
for  catering to the domestic market but also for sourcing  their  overseas
requirements.  Huge  investments are also planned in the power  sector  for
generation,  transmission and distribution and this would get a big  fillip
after India has been admitted honourably in the Nuclear Club. All this will
augur well for your Company since your Company's products cater to all  the
above  segments where stupendous growth is expected in the short to  medium
term.

Your  Company  is continuously investing in acquiring  new  technology  and
know-how,   capacity  expansion  and  upgradation  of   the   manufacturing
facilities.  The  in-house R&D Department has not  only  been  consistently
developing.  quality products for existing as well as new applications  but
also  been  successful in reducing costs. The Company's  foreign  technical
collaborators  continue to strongly support your Company both with  sharing
their  technology  as well as for improvement of  manufacturing  and  other
related  processes.  Due to its quality products, competitive  pricing  and
transparent  dealings,  your  Company continues to  be  the  largest  power
solutions  company in South Asia and shall strive to maintain its  position
in the future.

Risks & Concerns:

Cheap  imports,  mainly  from  China,  for  industrial  batteries  continue
unabated and has seen a recent spurt after the industrial slow down in  the
developed countries. Unfortunately, the present laws and the procedures for
anti-dumping are not adequate in this area.

Prices  of Lead, which is a major constituent of your  Company's  products,
are extremely volatile. From a peak of US$ 2800 per MT in the beginning  of
2008-09  the prices of lead crashed to US$ 963 per MT in the third  quarter
of  the  said financial year, and currently is above US$1400 per  MT.  This
volatility not only creates uncertainty on procurement of the material  but
also  has  a major impact on the manufacturing cost of the  products.  Your
Board  is conscious of all the above risks and endeavours to  minimize  the
same through prudent business practices.

Lead  Acid batteries may not be the optimal source of power  solutions  for
major applications in the long term not only due to its inherent  polluting
nature but also due to limitations in its physical properties. Further, due
to  the  volatility of price and availability of crude oil  more  and  more
automotive  manufacturers are actively considering developing  electrically
powered  hybrid  vehicles. In such a scenario, there would  be  a  paradigm
shift  in the technology and the ingredients for manufacturing  of  storage
power  batteries.  Your Company is conscious of such risks and  is  gearing
itself up for acquiring knowledge, technology and expertise for catering to
the emerging and completely different requirements of the future.

Subsidiary Companies:

Your  Company  has four Indian subsidiaries viz.  Chloride  Metals  Limited
(formerly  Tandon  Metals  Limited), Caldyne  Automatics  Limited,  Leadage
Alloys  India  Limited, Chloride International Limited  and  three  foreign
subsidiaries, viz. Chloride Batteries S.E. Asia Pte. Ltd., Singapore, Espex
Batteries  Limited,  UK,  and  Associated  Battery  Manufacturers  (Ceylon)
Limited, Sri Lanka.

Chloride  Metals  Limited, which is a 100% subsidiary of your  Company,  is
engaged  in  lead  smelting and refining operations and has  its  plant  at
Markal,  Pune.  The  said Company achieved a turnover  of  Rs.  153  crores
representing  a growth of 143% over the previous year and a  profit  before
tax of Rs 7.33 crores which is 226% higher than the previous year. The name
of  the Company was changed from Tandon Metals Limited to  Chloride  Metals
Limited  with  effect from 1st December, 2008 after  receipt  of  necessary
approvals from the Registrar of Companies, Pune, Maharashtra.

Caldyne Automatics Limited is a 100% subsidiary of your Company having  its
factory at Sector V, Salt Lake City, Kolkata and is engaged in  manufacture
and sale of Chargers, DC Power Systems and associated equipment. During the
year 2008-09, the said company achieved a turnover of Rs. 31.65 crores  and
a profit before tax of Rs. 0.38 crores.

Leadage  Alloys  India Limited, a 51% subsidiary of your Company,  has  its
plant  at  Kolar District, Karnataka and is engaged in  lead  smelting  and
refining activities. During the year 2008-09 the said company has  achieved
a turnover of Rs 444 crores representing an increase of more than 62%  over
the  previous year. However, the profit before tax decreased from Rs  11.33
crores in the previous year to Rs 7.45 crores in 2008-09, due to the  sharp
fall  in Lead prices in the third quarter of the year under  review,  which
resulted in high cost inventories.

Chloride  International  Limited,  a 100% subsidiary of  your  Company,  is
engaged  in the marketing and sale of Non-conventional Energy Systems  like
Solar  Panels,  Lanterns,  Home Lights etc. Due  to  the  depressed  market
conditions  and reduced institutional spending, mainly arising out  of  the
economic  slow down, sales of the said company during 2008-09  amounted  to
Rs.3.66 crores only as compared to Rs 6.17 crores in the previous year. Due
to low operating margins, Profit before tax was only Rs. 0.01 crores during
the said year.

Your Company holds 100% of the share capital in Chloride Batteries S E Asia
Pte.  Ltd., Singapore. The said company is engaged in manufacture and  sale
of  lead acid batteries and caters to the South East Asian  and  Australian
markets. During the year 2008-09 the Company achieved a turnover of SGD  40
million (Rs. 134.31 crores) and Profit before tax of SGD 1 million (Rs.3.23
crores).

Espex  Batteries Limited, UK, in which your Company holds 51% of the  share
capital,  is  engaged in marketing and selling of lead acid  batteries  for
industrial  applications.  During the year 2008-09 the company  achieved  a
turnover  of GBP 3.5 million (Rs. 25.19 crores) and made a loss of GBP  0.1
million (Rs. 1.03 crores).

Your  Company  holds  61.5% in Associated  Battery  Manufacturers  (Ceylon)
Limited,  Sri  Lanka.  The  said company is  engaged  in  the  business  of
manufacturing and marketing of Lead Acid batteries. During the year 2008-09
the  said  company achieved a turnover of SLR 1429.50  million  (Rs.  62.90
crores) and Profit before tax of SLR 83.36 million (Rs. 3.67 crores).

Your  Company has received approval from the Central  Government  exempting
your  Company from attaching the Accounts of the Subsidiary Companies  with
the  Annual  Accounts  of  your  Company.  Any  shareholder  interested  in
obtaining  a  copy of the Accounts of the Subsidiary Companies may  send  a
written  request to the Company Secretary. at the Registered Office of  the
Company.

Human Resources:

Your Company believes that nurturing and development of human capital is of
key  importance for its operations. The HR policies and procedures of  your
Company  are geared up towards this objective. Your Company has  laid  down
processes  for  attracting, retaining and rewarding talent.  The  Appraisal
systems are transparent and with an objective to identify performers.  Your
Company  has  developed  systems for Skill Gap Analysis and  based  on  the
results, necessary training interventions are made on a regular basis. Exit
interviews and succession planning continues to receive priority.

As on the date of this Report your Company has 4186 employees.

Directors:

Mr.  Bhaskar Mitter, Mr. S N Mookherjee and Mr. Vijay  Aggarwal,  Directors
retire by rotation and being eligible offer themselves for reappointment.

None of the Directors of your Company are disqualified for being  appointed
as Directors, as specified in Section 274(1)(g) of the Companies Act, 1956.

Auditors:

The  Auditors, M/s S R Batliboi & Co., Chartered Accountants retire at  the
conclusion  of the ensuing Annual General Meeting and being eligible  under
Section  224(1  B)  of the Companies Act, 1956, offer  themselves  for  re-
appointment.

Information pursuant to Section 217 of the Companies Act, 1956:

a. Conservation of Energy and Technology Absorption:

Information pursuant to Clause (e) of SubSection (1) of Section 217 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  for  the financial year ended  31st  March,  2009,  are
attached hereto.

b. Particulars of Employees:

In accordance with the provisions of Section 217 of the Companies Act, 1956
and  the  Rules  framed  thereunder, the names  and  other  particulars  of
employees are set out in the annexure to the Directors' Report. In terms of
the  provisions  of Section 219(1)(b)(iv) of the Companies Act,  1956,  the
Directors'  Report  is being sent to all the shareholders of  the  Company,
excluding such annexure. Any shareholder interested in obtaining a copy  of
the  said  annexure may write to the Company Secretary  at  the  registered
office of the Company.

c. Directors' Responsibility Statement:

In accordance with the provisions of Section 217(2AA) of the Companies Act,
1956, the Board of Directors state:

(i)  That  in  the  preparation of  the  annual  accounts,  the  applicable
accounting  standards  have  been followed along  with  proper  explanation
relating to material departures, if any;

(ii) That the Directors have 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  the
Company  at the end of the financial year and of the profit or loss of  the
company for that period;

(iii)  That  the  Directors have taken proper and sufficient  care  of  the
maintenance   of  adequate  accounting  records  in  accordance  with   the
provisions  of this Act for safeguarding the assets of the Company and  for
preventing and detecting fraud and other irregularities; and

(iv)  That  the  Directors have prepared the annual  accounts  on  a  going
concern basis.

Forward-Looking Statements:

This  Report  contains forward-looking statements that  involve  risks  and
uncertainities.   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,  performance  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.

Acknowledgement:

Your  Directors would like to record its appreciation for the  co-operation
and support received from its employees, shareholders, Government  agencies
and all stakeholders.

                                       On behalf of the Board of Directors

Place: Mumbai                         R G Kapadia
Date : 27th April, 2009                 Chairman

ANNEXURE TO DIRECTORS' REPORT

Information as per Section 217(1)(e) of the Companies Act, 1956, read  with
Companies  (Disclosure  of  Particulars  in the  Report  of  the  Board  of
Directors)  Rules, 1988 and forming part of the Directors' Report  for  the
year ended 31st March, 2009.

I. Conservation of Energy:

The  Company accords great importance to conservation of energy.  The  main
focus of the Company during the year was:

a. Close monitoring of consumption of electricity, LPG, diesel and water.

b.  Closely  monitoring electricity consumption based on  'KWH/MT  of  Lead
Consumed'.

c.  Optimisation of electricity, LPG, diesel and water by reducing  process
cycle  time,  process  modification and also by  equipment  modification  /
replacement / retrofitting.

d. Usage of renewable energy, viz. Solar.

e.  Achieving  power factor standards nearing unity. All of  the  Company's
plants targeted unity.

Chinchwad Plant:

1. Use of non conventional energy (wind power) of 679215 KWH.

2. Power factor maintained at 0.98.

3.  Optimised  use of energy by switching off machines, lights,  fans,  air
conditioners and exhaust systems whenever not required.

4. 100% use of recycled water for gardening and shop floor washing.

5. Reduction in compressed air consumption by arresting air leakages.

6. Awareness given to workmen for conservation of energy.

7.  Installed  solar  power plant for  street  lights  near  administration
building.

8.  Water  cooling  system  for Oxide Mills  made  closed  loop  for  water
conservation.

9.  Optimizing running of equipments to have a continuous run  rather  than
start stop.

10. Use of electronic chokes for light fittings.

Bawal Plant:

1. VFD installation in Grid Casting machines - Saving 8693 KWH per annum.

2. VFD installation in Pasting and Flash Drying Oven - Saving 3911 KWH  per
annum.

3. Replaced all incandescent Lamps by CF - Saving 47808 KWH per annum.

4. Energy Saving T-5 tube lights (28 Watts) installed in assembly area, New
JF and Acid Dilution plant - Saving 10800 KWH per annum.

5. Ten numbers of Solar lights provided for street lighting - Saving 17,560
KWH per annum.

6. Solar Water heater provided for canteen - Saving 26280 KWH per annum.

7.  Energy  saving Street lights installed (7 nos.) - Saving 8432  KWH  per
annum.

8.  Lead  Ingot  Feeding designed with  sliding  arrangement  and  replaced
motorized movement - Saving 3766 KWH per annum.

9.  Closed  Loop Air system and Leakage arresting in the  air  distribution
system to improve efficiency - 84,000 KWH per annum.

10.  Optimum  Air  system  is  installed  to  optimise  the  air   pressure
requirement thereby reduce the power requirement - Saving 1,29,900 KWH  per
annum.

11. DM Water Re-circulation in pasting, leads to saving of 11.5 kl per  day
- Saving DM Water 3450 kl per day.

12.  Imported  CMW acid Filling and leveling machines installed  to  reduce
acid waste and thereby reduce power consumption - Saving 900 KWH per annum.

Hosur Plant:

1.  Power common feed line system in VRLA Casting thereby saving energy  to
the tune of Rs 1.75 lacs per month.

2.  Conversion  of 40HP Bag Filter to 7.5 HP Bag filter in  Bay  1  Pasting
machine resulting in saving of Rs 0.37 lacs per month.

3. Service Equipment automation like Fume Killers for all Assembly lines.

4. Trim Die Hydraulic power pack machine inter connected with Grid  Casting
- Auto Machine installed.

5. Assembly Conveyor and Service Equipment Automation done.

6. Conversion of Twin tube light fitting to Single tube light fitting.

7.  Power factor improvement made resulting in saving of Rs 3.78  lacs  per
month.

Taloja Plant:

1.  Conversion of Electrically Heated Pot to LPG fired Pot selenium  alloy,
therefore, KWH per plate resulting in a saving of Rs 3.60 lacs per annum.

2. Installation of Star-delta converter in compressors.

3. To achieve power factor unity.

4. LPG, energy less water bath vaporisor for vapourising gas resulting in a
saving of Rs 5.70 lacs per annum.

5. Optimum utilisation of HSD, by use of additives and increasing the  load
factor of DG sets.

6. Auto switching of Blowers as per the production requirements.

7. Optimum utilisation of Motors.

Shamnagar Plant:

1.  Improvement of power factor from 0.95 to 0.98 by installing 4 nos  APFC
banks  of  additional  1000 KVAR capacity  with  harmonic  filter.  Savings
achieved: Approx Rs.1.00 lacs per month from November 2008 onwards.

2.  Replaced Mercury vapour lamps in Energy park by solar lighting.  Saving
achieved: Rs 24000 per year.

3.  In  Iron Clad, Plante & Industrial Casting area  Power  driven  exhaust
system replaced by Natural draft roof extractor. Hot air goes up by natural
draught and total 6 nos. of 3HP Force draft replaced. Savings achieved  per
year: 81,000 KWH and Cost savings: Rs. 3,48,000 per year.

4.  Replaced  Holman  Compressors  at  5  kg/cm2  pressure  for   supplying
compressed air for washing of plates in Industrial & Plante Forming to  3.5
kg/cm2  compressed  air  for  washing  operation,  one  Inefficient  Holman
compressor stopped by installing pressure reducing valve in both Plante and
Industrial Forming area. - Savings achieved per year: 1,44,000 KWH and Cost
savings: Rs. 6,12,000 per year.

5. Installation of transparent sheets in roof in place of asbestos sheet in
New  Industrial  building, energy load reduced by not using of 24  nos.  of
mercury vapour lamps in day time. Savings achieved per year: 21,600 KWH and
Cost savings: Rs. 92,880 per year.

6.  Double tube light set converted to single set & Mercury  Lamps  removed
from less required areas. 40 watt 180 nos. tube lights, 52 nos. of 250 watt
Mercury  lamps,  6 nos. of 150 watt Mercury lamps and 6 nos. 20  watt  tube
lights  removed.  Savings achieved per year: 90,000 KWH and  Cost  savings:
Rs.3,87,000 per year.

7.  In Automotive section, recirculation of cooling water one no. Tiegel  &
one no. Fuji was started. 150 KL of water saving achieved per day.  Savings
achieved per year: 1,20,000 KWH and Cost Savings: Rs. 5,16,000 per year.

8.  LPG  pressure  reduced to 13-14 psi by increasing  the  temperature  of
Vapouriser  and  introduced  LPG pressure regulators  in  various  machines
without affecting the production activities. (LPG consumption reduced to  4
MT per Month approx.). Savings achieved: Rs. 14,40,000 per year .

Haldia Plant:

1. Improvement of power factor from 0.96 to 0.98

2. Use of solar lighting for street illumination.

3. Use of air turbine ventilator for improving ventilation.

4. Use of VFD in screw compressor.

5. Installation of lighting saver in domestic lighting illumination.

6. Replacing V Belts by Flat belts to eliminate transmission losses.

7. Transfer of effluent by gravity eliminating use of pump.

8.  Replacement  of conventional 40W tube light by 25W energy  saving  tube
light.

9.  Installation  of LPG Pressure regulator in grid casting LPG  header  to
control LPG pressure and eliminate heat losses.

10. LPG flow control in reaction pot to eliminate heat losses.

11. Installation of solar water heater for preparing hot water in canteen.

12.Reuse of treated sewerage water in gardening and floor washing.

13. Recycle and reuse of RO reject water in Jar Formation cooling and alloy
blending pig cooling.

II. Particulars as per Form B:

A1. Research & Development (R&D) Specific areas in which R&D is carried out
by the Company:

Research  & Development activities are aimed at the continuous  advancement
of Technology, the development of new products with a competitive edge  for
various applications, viz. Automotive, Motor Cycle, Railway, Motive  Power,
UPS, Telecom, Submarine etc.

Advanced  Technology  Projects  would include new range  of  batteries  for
Idling  Stop-Start Applications (micro-hybrid vehicles), Deep Cycling  VRLA
Batteries  for  Electric-Bike  & Scooter applications, Long  Life  Solar  &
Inverter batteries, Technology improvement to enhance Re-chargeability  and
Deep  Cycling  capabilities,  Long Life batteries  for  Automotive,  UPS  &
Telecom Applications, etc.

The  on-going  R&D  Projects are focused on the  development  of  new  Grid
Alloys,  improved  Active  Material  Formulations,  new  Designs  &  Tools,
Improved Processes & Separator Materials, etc. Special focus is also  being
laid on improving the product consistency.

A2. Benefits derived as a result of the above R&D:

Significant benefits have been derived from the R&D activities. Some of the
notable  achievements would include: Development and introduction  of  Nano
Car  battery,  new products for Hyundai's i20 car models (both  Petrol  and
Diesel), long life batteries for Inverter and Solar applications, Long Life
Motor Cycle batteries based on Advanced Calcium Technology, etc.

In  addition,  there  are several OE projects  in  progress  which  include
development  of batteries for new vehicle models like  Toyota,  Volkswagen,
Renault-Nissan and General Motors India, Tata Motors, M&M and Nissan, etc.

Furthermore,  development projects are in progress for the introduction  of
Deep  Cycling  VRLA batteries for E-bikes and Scooters,  Sealed  VRLA  type
batteries  for Motor Cycle range, Gel Tubular range for rural  Telecom  and
UPS applications, Long Life VRLA batteries for UPS applications, etc.

New  manufacturing processes have been introduced, e.g. new  Expanded  Grid
lines  at  Shamnagar and Hosur, Double Sided Pasting Machine  and  modified
Curing  Processes  for  the new Paste Formation, etc. The  new  Grid  Alloy
developed  in-house has been utilized for the manufacture of Long  Life  as
well as Idling Stop-Start type Automotive batteries.

A3. Future Action Plan:

The  major  R&D  focus  will be  on  the  development  of  state-of-the-art
batteries for Idling Stop-Start applications (micro-hybrid vehicles),  mild
hybrid and electric vehicles, long life batteries for E-bikes and Scooters,
Gel Tubular batteries for rural Telecom and UPS applications, etc.

The  research projects will also aim at building enhanced  re-chargeability
and  deep  cycling capability in new range of batteries for  a  variety  of
applications,   long  life  batteries  based  on  improved  materials   and
processes,  enhancement  of battery's shelf life, etc. In addition  to  the
Advanced  Lead-Acid Technology, new Research Projects will be initiated  on
the  development of high power, long life batteries suitable for a  variety
of hybrid and electric vehicles in the medium to long term.

A4. Expenditure on R & D:

The  capital  and  revenue expenditure on R & D were Rs.  1.80  Crores  and
Rs.7.58 Crores respectively, aggregating to Rs. 9.38 Crores.

Total R&D Expenditure as percentage of Net Turnover: 0.28%.

B1. Technology Absorption, Adaptation and Innovation:

a)  Continuous  improvement  in  the  Product  Design  &  Technology.   New
innovations  in  the  area of New Alloys &  Paste  Technology  towards  the
development  of Advanced Lead-Acid batteries for a variety of  applications
including   Automotive,  Motor  Cycle,  Solar,  Inverter   and   Industrial
Applications.

b)  Introduction of E-bike batteries, improvement in Production  &  Process
Technology with the assistance from Technical Collaborators.

c) Evaluation of new and emerging Technologies for future use.

B2. Benefits:

R&D  innovations and new products have helped the Company to  maintain  its
technological leadership in the country. Similar benefits have been derived
by way of enhanced market penetration by meeting the specific  requirements
of International and Domestic OEMs, Replacement Markets, Exports, etc.

B3. Particulars, of Imported Technology in the last 5 years

Technology       Year of     Has Technology   If not fully absorbed,
Imported              Import     been absorbed    reasons and future
                                                    action plan

Lead acid storage     1999,     Absorbed      Not applicable
batteries for         valid upto
Automotive            2010
applications with 
Shin-Kobe Electric
Machinery Co. Ltd.,
Japan

URLA batteries for    1995,      Absorbed*      Not applicable
Stationary       valid upto
applications with     2010
Shin-Kobe Electric
Machinery Co. Ltd.,
Japan

Lead Acid Storage     1996,     Absorbed*      Not applicable
Batteries for         valid upto
Automotive            2010
applications with
Furukawa Battery
Co. Ltd., Japan

VRLA Lead Acid       2007,     Absorbed*      Not applicable
Storage batteries     valid upto
for motorcycles with  2012
Furukawa Battery
Co. Ltd., Japan

Deep Cycling E-bike   2008,     In progress      In trial production
batteries for         valid upto       stage. Will be
Electric Bicycles &   2010        absorbed during the
Scooters with                                        period of the
Changxing Noble                                      agreement.
Power Sourcing Co.
Ltd., China

* Agreement continuing mainly for technical assistance.

III. Foreign Exchange - Earnings and Outgo:

1.  Activities relating to exports, initiatives taken to increase  exports,
development  of  new export markets for products and  services  and  export
plans:

Your  Company  continued  with its initiatives for  developing  the  export
market for both Automotive and Industrial batteries. During the year, Dynex
MF  brand of automotive batteries with Ca-Ca Alloy was launched in the  UAE
and Bahrain. A special battery for Singapore Taxis was developed and orders
for 5000 batteries was received. A distributor was appointed for Automotive
batteries  in Uzbekistan and Turkmenistan and the distribution  network  in
Lebanon and Ghana were reactivated after a considerable period.

In  the  Industrial  battery segment, a whole  range  of  bolt-on  traction
batteries  were  developed  as  also  a  new  product  6V32Ah  (Tubular  in
transparent container) for HDB, Singapore. Successful inroads were made  in
Germany,  Canada and Poland for the first time. Your Company  also  secured
and  executed  its  biggest single order for  solar  application  in  Mali,
Africa.

2. Total Foreign Exchange used and earned:

Used                                 Rs. 727.95 crores
Earned                                 Rs. 121.69 crores

                        On behalf of the
                        Board of Directors

Place: Mumbai                       R G Kapadia
Date: 27th April, 2009               Chairman