Annual Report - ITC - 2010-2011

ITC LIMITED

ANNUAL REPORT 2010-2011

DIRECTOR'S REPORT

Your Directors submit their Report for the financial year ended 31st March,
2011.

SOCIO-ECONOMIC ENVIRONMENT

World output staged a smart recovery in 2010 growing by 5% during the year
after a decline of 0.6% in 2009. While growth in the first half of the year
stood at 5.25%, there was a marked deceleration in the second half which
recorded a growth of 3.75%. Receding fears of a global depression in 2009
initially led to a lower rate of destocking by business and subsequently to
a phase of rebuilding depleted inventories. This fostered a sharp rebound
in industrial production and trade which lasted through the first half of
2010. Simultaneously, accommodative policies adopted by most governments,
improvement in business confidence and financial conditions encouraged
investments and helped arrest rising unemployment levels and boost
consumption. Consequently, recovery has become more self-sustaining and the
risk of a double-dip recession in advanced economies has abated. The
recovery, however, is broadly moving at two speeds. While economic growth
in the advanced economies remained modest at around 3% in 2010 after a
decline of 3.4% in 2009, emerging and developing economies recorded robust
growth in excess of 7% during the year - led primarily by China and India.
According to the International Monetary Fund (IMF), world real GDP growth
for 2011 is forecast at 4.4%, representing a modest slowdown from 2010
levels. Real GDP in the advanced economies is expected to grow by 2.5%
while that in the emerging and developing economies is forecast to grow by
6.5%. However, downside risks to these estimates continue to outweigh the
upsides. In the case of advanced economies, the key concerns revolve around
weak sovereign balance sheets, the possibility of financial troubles in
peripheral Euro area spreading to core Europe, high levels of unemployment,
the continued weakness of the US real estate market and the lack of
progress in formulating medium-term fiscal consolidation plans. In the
emerging economies, key risks relate to overheating, asset price bubbles,
rapid rise in inflationary pressures, spurt in commodity prices and the
potential for boom-bust cycles could eventually result in a hard landing in
these economies. With emerging markets accounting for 40% of global
consumption and two-thirds of global growth, a slowdown in these economies
could dent global recovery significantly.




Closer home, after growing at 8.0% in 2009/10, the Indian economy picked up
further steam in 2010/11 recording a real GDP growth of 8.6% during the
year. While the Agricultural sector posted an above-trend growth of 5.4%
aided in part by a low base effect, Industry and Services grew by 8.1% and
9.6% respectively. After clocking an impressive growth of 8.9% in the first
half of the year, the economy showed signs of moderation in the second half
especially in capital goods production and investment spending. A good
performance on the external front with exports growing by 37.5% even as
imports grew by 21.6% during the year helped reduce the Current Account
Deficit to approximately 2.5% of GDP from 2.8% in the previous year. The
Centre's Fiscal Deficit for the year stood at 5.1% of GDP - a significant
improvement from 6.4% recorded in 2009/10 - driven by buoyant tax
collections and proceeds of the 3G spectrum auction. However, amongst these
positives, the persistently high level of inflation in the economy despite
good monsoons was a key cause for concern. The year-on-year headline WPI
inflation started trending up from December 2009 through to April 2010 when
it touched 11%. After remaining in double digits from April 2010 to July
2010, headline inflation moderated progressively to 7.5% in November 2010
before reversing the trend from December 2010 mainly due to supply
bottlenecks in food items. Inflation levels remained elevated in the
December 2010 to March 2011 period mainly on account of fuel, power and
non-food manufacturing products. Thus, the inflationary pressures, which
emanated from food items clearly spilled over and became generalised, as
the year progressed. The recent slowdown in Industrial growth, as reflected
by the Index of Industrial Production (IIP) and data pertaining to the six
core industries, is also a cause for concern.

According to the monetary policy statement released on May 3, 2011, RBI's
baseline growth projection for the Indian economy is expected to slow down
to 8% with year-end WPI inflation estimated at 6% with an upward bias. As
the policy challenge shifts to taming inflation, the economy will have to
contend with high interest rates which in turn could impact growth. Risks
to global recovery as stated earlier, high commodity prices especially of
oil - with Brent crude crossing USD 120 per barrel in April 2011 triggered
by events in the MENA (Middle East and North Africa) region, elevated
levels of inflation including in food prices, high subsidy burden arising
out of high oil prices and commitments arising out of the proposed
implementation of the National Food Security Bill pose the key downside
risks to economic growth in the near term. In the medium to long term,
India's economic growth engine is expected to be powered by multiple
drivers such as the increasing momentum in the savings and investment rates
(which should further improve with India's demographic dividend playing out
in the ensuing years), a vibrant services sector, a large domestic demand
base and the emergence of internationally competitive firms. The challenge
of raising the growth bar to the desired double-digit levels, however,
remains daunting and would require, inter-alia, significant improvement in
agricultural productivity, step up in investments especially in physical
and social infrastructure, skill development, achieving energy security,
job creation and addressing the governance deficit. As captured in the
Union Finance Minister's 2011 Budget speech, '...in the medium term
perspective, our three priorities of sustaining a high growth trajectory;
making development more inclusive; and improving our institutions, public
delivery and governance practices, remain relevant.'

India's rapid economic growth in recent years and the prospects of building
further on this momentum in the medium to long-term has led it to command a
new respect in the world order. According to recent studies India is
expected to be the third largest economy by 2050. India's demographic
trends indicate that the nation will add over 200 million people to the
working age population over the next 20 years, more than any other country
in the world. Several studies indicate a near tripling of household
disposable incomes and a burgeoning middle-class which will comprise over
40% of India's population and grow ten-fold to touch 583 million people by
2025. These trends augur well for the nation and could provide enormous
opportunities for private enterprise and sustaining the growth trajectory.
Yet, with 17% of the world's population, 2.4% of global land mass, 4% of
the world's freshwater resources and 1% of the world's forest resources,
the pressure of economic growth on the country's natural capital will be
enormous. Equally, the need to make economic growth more equitable and
inclusive is compelling.

A comprehensive growth strategy for rural India, including the agricultural
sector which continues to underperform, is necessary to address the serious
issues relating to sustainability and inclusive growth. The government's
focus on social sector programmes such as Bharat Nirman, National Rural
Employment Guarantee Scheme (NREGS), Sarva Shiksha Abhiyan, food security
legislation and strategies to improve benefit delivery mechanisms have the
potential to transform the Indian rural landscape. 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-private-
people 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 unadulterated agri inputs. The
footprint of this network is well established to source most 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 collaborative
and paid extension service aimed towards enhancing farm productivity with
emphasis on adoption of sustainable agricultural best practices, continues
to attract the interest of both farmers and partnering companies. The
demonstration plots under CPK have recorded significant productivity gains
as compared to control plots. An estimated 40,000 farmers participated in
this programme during the year.

In line with the national agenda of pursuing sustainable and inclusive
growth, your Company is proactively engaged in enlarging its contribution
across the three dimensions of the Triple Bottom Line' - economic,
environmental and social - through investments and operations that foster
the competitiveness of entire value chain that it is engaged in. In line
with this philosophy, it is your Company's endeavour to embed larger
societal goals in its various business models. Major initiatives in this
direction include the e-Choupal network which is contributing to increasing
rural incomes by providing a wide range of support services to the farming
community, the Social and Farm Forestry programmes which create sustainable
livelihoods among marginal farmers and poor tribals, adoption of
environment friendly technologies including the increasing use of renewable
sources of energy, recycling processes and creation of rainwater harvesting
structures. Such initiatives have combined to make ITC the only Company in
the world, of comparable size, to be carbon positive', water positive'
and waste recycling positive'.

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

FINANCIAL PERFORMANCE

Your Company, in its Centenary Year, posted yet another year of stellar
performance with an impressive topline growth and high quality earnings
reflecting the robustness of its corporate strategy of creating multiple
drivers of growth. This performance is particularly noteworthy when viewed
against the backdrop of the extremely challenging business context in which
this was achieved, namely, the steep increase in excise duties in the Union
Budget 2010 coupled with the amplified impact of arbitrary increases in VAT
on cigarettes, brand building and incubation costs of the new FMCG
businesses, the impact of the significant investments made in augmenting
distribution infrastructure and the gestation costs of the large
investments in the Hotels business.

Gross Turnover for the year grew by 16.5% to Rs. 30604.39 crores. Net
Turnover at Rs. 21167.58 crores grew by 16.6% primarily driven by a 23.1%
growth in the non-cigarette FMCG businesses, 22.9% growth in Agri business
and 17.6% growth in the Hotels segment. Pre-tax profits increased by 20.8%
to Rs. 7268.16 crores while Post-tax profits at Rs. 4987.61 crores
registered a growth of 22.8%. Earnings Per Share for the year stands at Rs.
6.49 (previous year - adjusted for Bonus Issue - Rs. 5.34). Cash flows from
Operations stood at Rs. 7460 crores compared to Rs. 6632 crores in the
previous year.

Your Company completed 100 years in August 2010. It is a matter of great
pride to reflect on the enormous progress made by your Company over the
years. Your Company today is the leading FMCG marketer in India, the second
largest Hotel chain, the clear market leader in the Indian Paperboard and
Packaging industry and the country's foremost Agri business player.
Additionally, your Company's wholly owned subsidiary, ITC Infotech India
Limited, is one of India's fast growing Information Technology companies in
the mid-tier segment.

Over the last fifteen years, your Company has created multiple drivers of
growth by developing a portfolio of world class businesses. During this
period, your Company's Gross Turnover and Post-tax profits recorded an
impressive compounded growth of 12.7% and 21.7% per annum respectively.
Profitability, as measured by Return on Capital Employed improved
substantially from 28.4% to 43.4% during this period. Total Shareholder
Returns, measured in terms of increase in market capitalisation and
dividends, grew at a compounded rate of 25.6% during this period, placing
your Company amongst the foremost in the country in terms of efficiency of
servicing financial capital. It is indeed a matter of pride that your
Company was ranked, by The Boston Consulting Group, an international
management consultancy firm, amongst the top 10 global consumer goods
companies in terms of sustained shareholder value creation for the period
2005 - 2009. Your Company today is one of India's most admired and valuable
corporations with a market capitalisation in excess of Rs. 140000 crores
and has consistently been, over the last fifteen years, amongst the top 10
private sector companies in terms of market capitalisation.

Report of the Directors
Net Turnover at Rs. 21167.58 crores grew by 16.6% primarily driven by
a 23.1% growth in the non-cigarette FMCG businesses, 22.9% growth
in Agri business and 17.6% growth in the Hotels segment.


Last year, in celebration of your Company completing a 100 years, your
Directors had recommended and you had approved a Special Centenary Dividend
of Rs. 5.50 per share (adjusted for bonus issue - Rs. 2.75 per share) in
addition to a Dividend of Rs. 4.50 per share (adjusted for bonus issue -
Rs. 2.25 per share). Your Directors had also recommended and you had
approved a 1:1 Bonus issue in the Centenary year. This year, on the
occasion of your Company convening its milestone Hundredth Annual General
Meeting, your Directors are pleased to recommend a Special Dividend of Rs.
1.65 per share (previous year - Nil) in addition to a Dividend of Rs. 2.80
per share (previous year - adjusted for bonus issue - Rs. 2.25) for the
year ended 31st March, 2011.

Total cash outflow in this regard will be Rs. 4002.09 crores (previous year
Rs. 4452.33 crores) including Dividend Distribution Tax of Rs. 558.62
crores (previous year Rs. 634.15 crores). Your Board further recommends a
transfer to General Reserve of Rs. 498.76 crores (previous year Rs. 406.10
crores). Consequently, your Board recommends leaving an unappropriated
balance in the Profit and Loss Account of Rs. 548.67 crores (previous year
Rs. 61.31 crores).

FOREIGN EXCHANGE EARNINGS

Your Company continues to view foreign exchange earnings as a priority. All
businesses in the ITC portfolio are mandated to engage with overseas
markets with a view to testing and demonstrating international
competitiveness and seeking profitable opportunities for growth. The ITC
group's contribution to foreign exchange earnings over the last ten years
amounted to nearly USD 4.5 billion, of which agri exports constituted 57%.
Earnings from agri exports are an indicator of your Company's contribution
to the rural economy through effectively linking small farmers with
international markets.

During the financial year 2010/11, your Company and its subsidiaries earned
Rs. 3123 crores in foreign exchange. The direct foreign exchange earned by
your Company amounted to Rs. 2814 crores (Rs. 2354 crores in 2009-10),
powered by exports of major agri-commodities. Your Company's expenditure in
foreign currency amounted to Rs. 1254 crores, comprising purchase of raw
materials, spares and other expenses of Rs. 1028 crores and import of
capital goods at Rs. 226 crores. Details of foreign exchange earnings and
outgo are provided in Schedule 19 to the Accounts.

PROFITS, DIVIDENDS AND RETENTION

(Rs. in Crores)
2011 2010

a) Profit before Tax 7268.16 6015.31

b) Income Tax 2280.55 1954.31

c) Profit after Tax 4987.61 4061.00

d) Add: Profit brought forward
from previous year 61.31 858.14

e) Surplus available for
Appropriation 5048.92 4919.14

f) Transfer to General Reserve 498.76 406.10

g) Proposed Dividend for the financial year

- Ordinary Dividend of Rs. 2.80 per
ordinary share of Rs.1/- each (previous
year - adjusted for Bonus Issue -
Rs. 2.25 per share) 2166.68 1718.18

- Special Centenary Dividend of Nil
per ordinary share of Rs. 1/- each
(previous year - adjusted for Bonus
Issue - Rs. 2.75 per share) - 2100.00

- Special Dividend of Rs. 1.65 per
ordinary share of Rs. 1/- each (previous
year - adjusted for Bonus Issue - Nil) 1276.79 -

h) Income Tax on proposed dividends 558.62 634.15

i) Earlier year's provision no longer
required (0.60) (0.60)

j) Retained Profit carried forward to
the following year 548.67 61.31
5048.92 4919.14
BUSINESS SEGMENTS

A. FAST MOVING CONSUMER GOODS

FMCG - Cigarettes

Disproportionate taxation coupled with a growing incidence of smuggling and
illegal manufacture, continue to be the biggest challenge for the Indian
cigarette industry. In western countries, the belief is that loading the
cigarette sector with high taxation would lead to a reduction in overall
tobacco consumption. This approach, when followed in India, is flawed as it
overlooks the critical fact that, in India, cigarettes constitute less than
15% of tobacco consumption whilst the larger proportion of tobacco
consumption in the country is through other forms such as bidi, khaini,
gutkha, zarda etc. These products, over and above being lightly taxed, also
avoid substantial taxes by virtue of being products of the unorganised
sector. Consequently, cigarettes, despite accounting for a minor portion of
tobacco consumption, contribute more than 75% of taxes raised from the
tobacco sector.

Latest research findings published in the Global Adult Tobacco Survey
(GATS) - conducted under the stewardship of the Ministry of Health and
Family Welfare, Government of India - show that cigarettes are the least
popular form of tobacco consumption in India - only 5.7% of all adults
smoke cigarettes while almost 35% adults consume tobacco. The low share of
cigarettes is a clear reflection of the impact of prolonged high taxation
in this sector. In fact, the disproportionate tax to consumption' ratio of
cigarettes encourages mass migration of consumers to other forms of tobacco
products that, by virtue of being lightly taxed, are much cheaper. In fact,
per capita consumption of cigarettes in India is among the lowest in the
world while tax per 1000 cigarettes as a percentage of per capita GDP is
one of the highest, as is evident from the following:

Disproportionate and high taxation on cigarettes has led to a dwindling of
its share in total tobacco consumption from about 25% in the 1970s to about
15% currently. However, at the same time total tobacco consumption in the
country has continued to grow by way of increased consumption of other
revenue inefficient forms of tobacco. The high taxation of cigarettes has
not only sub-optimised the revenue potential from the tobacco sector but
has also failed to achieve the objective of reducing aggregate tobacco
consumption in the country.

The problem of discriminatory central taxation on cigarettes was
exacerbated during the year under review with many States increasing the
rate of VAT on cigarettes from the revenue neutral rate of 12.5%. These
rate increases by the States is completely against the basic tenets of VAT
enshrined in the White Paper on VAT issued by the Empowered Committee of
State Finance Ministers, wherein it is unequivocally stated - '...the
multiplicity of rates in the existing structure will be done away with
under the VAT system... Under 4% VAT rate category, there will be the
largest number of goods (about 270), common for all States, the remaining
commodities, common for all States, will fall under the general VAT rate of
12.5%.'

Your Company has, during the year, repeatedly drawn the attention of
policy-makers to the fact that:

* Sub-optimal taxation practices of States - like differential VAT rates -
may well derail the implementation of GST with a unitary standard rate of
tax across the Indian common market.

* Being highly taxed products, cigarettes are vulnerable to large scale
smuggling.

* The differential rate of VAT across the States only encourages
unscrupulous tax arbitrage.

* In line with international trends, the illegal trade in cigarettes
results in funds flowing in to the coffers of criminal syndicates with
consequential detrimental impact on civil society by way of heightened law
and order problems.

In addition to the taxation challenge, the legitimate domestic industry is
grappling with another complexproblem - the burgeoning illegal trade in
cigarettes which, according to recent independent international market
studies, accounts for more than 16% of the total industry size. The high
rates of Central Excise and VAT have helped fuel the menace of illegal
trade in cigarettes. It is estimated that the illegal cigarette trade costs
the Exchequer more than Rs. 3000 crores per annum in lost revenues apart
from offering products of dubious and inferior quality to consumers.
According to recent independent international market studies, India now
ranks 6th globally in illicit cigarette trade with one of the highest
growth rates - 58% over the period 2004 - 2009. Despite the rapid growth in
illegal trade the rate of taxation on legitimate domestic cigarettes
continues to grow. The rate of Central Excise Duty on cigarettes was
increased by 17% effective March 2010 whilst several State governments
increased the rate of VAT.

Your Company continues to engage with the authorities on this issue,
highlighting the fact that punitive rates of tax and lack of tax
harmonisation across States fuels the menace of illicit cigarette trade
with consequential adverse impact on the legitimate industry. While there
have been some reports of seizure of such illegal stocks by enforcement
agencies, illicit cigarette units continue to mushroom and grow. Illegal
cigarette trade has serious concerns for the country and needs to be reined
in quickly through appropriate policy and enforcement attention. The
effective and sustainable solution lies in eliminating the tax arbitrage
that encourages these activities by ensuring harmonious and moderate tax
rates on cigarettes.

The year under review also saw unprecedented activity including new brand
launches by global cigarette companies trying to gain a foothold in India.
The challenges in the market place were met by uncompromising and
continuous value creation through innovative and differentiated products
and investments in trade marketing and channel engagements. Your Company's
continuing leadership position and market standing was nurtured by
successfully fortifying the business and growing its portfolio of brands
catering to diverse consumer preferences across segments.

Innovation' across all areas of operation was the central theme around
which enhanced market standing and competitive superiority was achieved.
Inherent expertise in the areas of contemporary product development,
cutting-edge technology and robust go-to-market processes, combined with
your Company's deep consumer insights saw the launch of several new and
exciting offers, in line with the strategy of continually meeting emerging
consumer needs. Lucky Strike' was launched during the year, further
enhancing your Company's position at the premium end of the cigarette
industry. Classic' and Gold Flake' further strengthened their position
through the launch of differentiated offers like Classic Menthol Rush',
Gold Flake Sleek Line Kings' and Gold Flake Arctic Menthol'. Players
Gold Leaf' and a variant of Gold Flake Premium Filter' were also launched
during the year.

The year also saw your Company's premium line of hand-rolled cigars
consolidating its position in the market. Armenteros', which is specially
manufactured for your Company in the Dominican Republic, has already carved
a niche for itself amongst discerning cigar aficionados, further
reaffirming your Company's reputation of delivering fully against consumer
expectations of top quality tobacco products.

During the year, the new cigarette factory set up at Ranjangaon scaled up
operations to full capacity, enabling your Company to service the markets
better.

Your Company also continued the strategic initiatives of upgrading primary
and secondary technology platforms and running continuous improvement
programmes in the areas of operating efficiencies and quality at all
cigarette factories. The Process Improvement Practices' initiative, using
structured problem-solving methodologies such as Lean' and Six Sigma'
have not only contributed to quality and productivity improvements but also
resulted in improvements in operating metrics and internal processes across
all the factories.

In line with your Company's commitment to building sustainable
environmental capital, the business continues to invest in wind energy
farms to increase usage of renewable sources of energy. Till date 14.7
Megawatt (MW) of wind energy farms have been commissioned in Karnataka and
6.3 MW of wind energy farms are in the process of being implemented in
Maharashtra. Cigarette factories continue to recycle 100% of the solid
waste generated. They also maintained the highest standards of Environment
Health and Safety (EHS) and won recognition by way of numerous awards. The
Munger Factory was awarded the Prashansa Patra' Safety Award under the
National Safety Council of India Safety Award Scheme - 2009 (Manufacturing
Sector), Energy Efficient Unit under the CII National Energy Award 2010,
Globe of Honour Award from the British Safety Council and Certificate of
Appreciation at the CII Eastern Region Energy Conservation Award. The
Bengaluru factory won the Energy Efficient Unit under the CII National
Energy Award 2010, Globe of Honour Award from the British Safety Council,
Most Innovative Environment Project Award and Most Useful Environment
Project Award under the CII Environmental Best Practices Award 2011 and the
Best Fuel Efficient Industrial Boiler Award from the Karnataka State Safety
Institute. The Kidderpore factory won the Water Efficient Unit Award at the
CII National Award for Excellence in Water Management 2011.

The punitive rates of taxation and the menace of illegal trade remain the
most serious concerns for the cigarette industry. To serve the interests of
all stakeholders of the industry your Company, as always, will continue to
engage with policy makers on:

* Implementation of a balanced regulatory and fiscal framework for tobacco,

* Harmonisation of VAT rates across the States and

* Creation of a true Indian common market through implementation of GST
with a unitary, standard rate of tax.

Despite the manifold challenges, your Company remains confident that the
continuing support of consumers, coupled with the resilience of its brands,
superior execution of competitive strategies, leveraging of its
internationally benchmarked product quality and its ability to innovate
will enable it to retain and reinforce its leadership position.

FMCG - Others

The Indian FMCG industry is estimated to be over Rs. 1,30,000 crores in
size and accounts for 2.2% of the GDP of the country. The industry has
tripled in size over the last 10 years and has grown at approximately 17%
CAGR in the last 5 years, driven by robust macroeconomic conditions, rising
income levels, increasing urbanisation and favourable demographic trends.
These drivers are expected to continue to favourably impact the industry
which is estimated to further triple in size in the next ten years to Rs.
4,00,000 crores by 2020 (Source: CII, FMCG Roadmap to 2020). Relatively low
levels of per capita consumption of many FMCG products, the growing
population of working women and increased government spending on education
are some of the other key factors that augur well for the sector's growth
prospects. According to a study by the consultancy firm Deloitte Touche
Tohmatsu Limited Consumer 2020: Reading the signs', India will emerge as
the world's fifth largest consumer market by 2025 providing significant
opportunities in the FMCG space.

Given these positive fundamentals, your Company has been rapidly scaling-up
its new FMCG businesses comprising Branded Packaged Foods, Personal Care
Products, Education and Stationery Products, Lifestyle Retailing, Safety
Matches and Incense Sticks (Agarbattis) with Segment Revenues growing at an
impressive compound annual growth rate of 35% during the last 5 years.

Within a relatively short span of time, your Company has established
several strong consumer brands in the Indian FMCG market. Segment Results
reflect the gestation costs of these businesses largely comprising costs
associated with brand building, product development, R&D and infrastructure
creation. The year under review saw a 23% growth in Segment Revenues and a
significant improvement in Segment Results which recorded a positive swing
of Rs. 52 crores at the PBIT level.

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

Highlights of progress in each category are set out below.

Branded Packaged Foods:

Your Company's Branded Packaged Foods business continued to expand rapidly
with sales recording an impressive growth of 25% over the previous year.
During the year, the business focused on enhancing consumer franchise
through new product launches, heightened communication and increased levels
of consumer activation. Value capture was improved through cost reductions
across the supply chain and optimisation of working capital deployment. A
wide range of well differentiated products, supported by significant
investments in product development, innovation, manufacturing technology
and unmatched distribution infrastructure have substantially enhanced the
market standing and consumer franchise of your Company's brands. The
quality of your Company's products continues to be best-in-class' and is
seen as a benchmark in the industry across all segments.

The year saw unprecedented inflation in food prices around the world. In
India, food inflation had spiralled to an all time high of around 18% with
commodities such as edible vegetable oils and dairy products witnessing
close to 50% inflation owing to several global and India centric causes.
The inflationary pressure on input costs was mitigated through a
combination of smart sourcing, increased internal efficiencies and cost
saving actions across the supply chain, thereby minimizing the cost burden
on the consumer.

During the year, your Company launched Sunfeast Yippee!' noodles in the
fast growing instant noodles' category in two exciting flavours. Extensive
consumer research and product development were undertaken to incorporate
consumer relevant differentiation and uniqueness in the offerings. This was
further fortified by an effective communication campaign highlighting the
product differentiators. Sunfeast Yippee!' has received an encouraging
consumer response and holds out the promise of emerging as a sizeable
winner.

In the Staples business, Aashirvaad' atta sustained its leadership
position. Aashirvaad' multigrain atta, launched last year, was well
received by consumers and is witnessing significant growth. Your Company
also scaled up its presence in the branded Spices segment during the year
with the launch of Aashirvaad' rasam and sambhar blended powders in target
markets, leveraging the brand's market standing of superior and consistent
quality.

In the Biscuits category, your Company's Sunfeast' brand recorded
significant growth, especially in the value-added and premium end. The year
witnessed the launch of a slew of products in new and exciting formats.
Research on consumer preferences and understanding of regional palates were
undertaken and led to the launch of differentiated milk cookies for
consumers in target markets. The Sunfeast' range witnessed enrichment


and premiumisation of its product mix with the re-launch of Dark Fantasy'
and the introduction of premium Dark Fantasy Choco Fills' biscuits.

In the Confectionery category, Candyman' is the clear market leader in the
hard boiled segment. Further, growth through flavour extensions continued
with the launch of mint-O GOL' Orange which was very well received by
consumers.

In the Savoury Snacks segment, Bingo!' demonstrated robust sales
performance during the year and penetrated new markets, gaining further
consumer franchise, driven by innovative product development and impactful,
clutter breaking communication. The entire product portfolio ranging from
Potato Chips to Finger Snacks continued to witness robust growth.

The business continues to invest in manufacturing and distribution
infrastructure to support larger scale in the wake of growing volumes and
exploit the benefits of distributed manufacture to service proximal
markets. The business continued to focus on supply chain improvements to
enhance market servicing and margins.

In the backdrop of a resilient economy, the year ahead is expected to
witness robust growth in the Branded Packaged Foods category despite
anticipated inflationary pressures. Product development and brand building
will be critical to driving sales. Innovative interventions will continue
to be essential for building strong consumer franchise. Well researched and
robust product development processes will continue to be leveraged to
launch innovative and differentiated products across all segments. With
effective and cost-efficient servicing of target markets continuing to be a
key success factor, the business will continue to leverage your Company's
sales and distribution network to achieve deep penetration, visibility and
availability for its products.

Personal Care Products

Your Company's Personal Care Products business made significant strides in
gaining consumer franchise during the year. The business continues to roll
out its product offerings under the Essenza Di Wills', Fiama Di Wills',
Vivel' and Superia' brands and is focused on addressing various consumer
benefit segments with the introduction of new variants in the soaps and
shampoos categories.

The business continues to receive accolades for its product innovation
initiatives. Last year the Fiama Di Wills' gel bathing bar was voted the
Product of the Year' in the soap category and this year three of its
products, namely Fiama Di Wills Aqua Pulse' shower gel, Vivel Active
Fair' skin cream and Vivel Deo Spirit' soap, have been voted Product of
the Year' in the shower gel, fairness cream and soap categories
respectively.

This year saw the successful introduction of Vivel Active Fair', your
Company's newest foray into the growing fairness cream category. In a very
short period of time, the brand has garnered a healthy market share in
launch markets. Fiama Di Wills' with its new Aqua Pulse Bath Care' line
of shower gel and bathing bar has augmented the brand franchise to men. The
Men's range has been well received in launch markets. It is estimated that
Vivel' and Superia' soaps and shampoos have together reached over 9.9
crore households so far (according to IMRB Household Panel: February 2011).

The business continues to focus on leveraging more effective ways of
communicating with consumers through multiple channels, including TV,
digital social-networking, print / outdoor advertising, point of sale
merchandising and one-on-one consumer interactions. The business grew at a
pace distinctly ahead of industry despite extreme competitive pressures
from entrenched players. This was achieved through a judicious mix of
innovative consumer offers and by leveraging the distribution network of
your Company to reach consumers even in remote areas. This has helped the
business garner significant market share in a short span of three years.

During the year, the manufacturing unit at Haridwar received certifications
for ISO 9001:2008 (Quality Management System), ISO 14001 (Environment
Management System) and OHSAS 18001 (Occupational Health & Safety Assessment
System). To broad-base process excellence knowledge as well as lead
improvement initiatives across the business, a program using Six Sigma'
and Lean' methodologies was put in place and is contributing to the
competitiveness of the business.

Product innovation and quality continue to be focus areas and are expected
to provide the requisite competitive advantage and impetus for growth in
the near future. Investments have been made, over the past few years, on
product development and research capabilities to support creation of new
consumer-centric products with enhanced consumer benefits. These
interventions will enable your Company to further strengthen its portfolio
of value-added products.

The Personal Care industry in India continues to be on a long term growth
path, with rising disposable incomes and changing consumer preference for
enhanced personal grooming. Your Company is positioning itself to actively
participate in the emerging growth opportunities in this sector.

Education & Stationery Products

The Education & Stationery Products business recorded an impressive sales
growth powered by brand Classmate' which continued to consolidate its
leadership position in student notebooks. Sales of non-paper categories
registered an impressive growth of 100% indicating a growing consumer
acceptance of Classmate' pens, pencils, mathematical instruments, erasers
& sharpeners. The year also witnessed the launch of art stationery under
the Classmate-Colour Crew' brand.

On the occasion of ITC's Centenary, your Company rolled out the Classmate
Ideas for India Challenge' (CIIC) - a contest that provided a platform for
India's youth to express their ideas for nation building. The event reached
out to 25 lakh students across 30 cities and received nearly 60,000 entries
that culminated in 11 national winners. Winning ideas covered potential
solutions to India's health, education, water, energy and transportation
problems. These interventions have enhanced the level of consumer awareness
of Classmate's growing product basket beyond its flagship category of
notebooks. Brand health indicators have shown a strong improvement across
all markets. In addition, the distribution footprint of the business
continues to grow.

The Classmate' range of notebooks continued to be sourced from small scale
manufacturers, who have continuously improved their delivery and quality
capabilities. A majority of them, with your Company's assistance, are ISO
9001:2008 certified. Paper and recycled board are sourced from your
Company's mills at Bhadrachalam and Kovai respectively. The paper used in
Classmate' notebooks leverages your Company's world class fibre line at
Bhadrachalam which is India's first ozone treated elemental chlorine free
facility. Classmate' notebooks continue to feature different aspects of
sustainability as core themes, such as Global Warming', Save the
Environment' and Save the Tiger', to name a few. These product values,
which are contributing significantly to creating sustainability awareness
among the country's younger generation, have distinctly enhanced
Classmate's brand equity. Every Classmate' notebook also carries a
powerful social message that reflects your Company's commitment to improve
the quality of primary education in rural India.

During the year, the business took significant steps to promote
Paperkraft', its executive and office supplies stationery brand. Working
in tandem with your Company's Paperboards & Specialty Papers Division, the
business has positioned Paperkraft' as the finest green paper for business
applications viz. copy-scan-print-fax. Paperkraft's green credentials are
supported, among other factors, by your Company's membership of the
prestigious Global Forest & Trade Network, an international initiative of
the WWF (World Wide Fund for Nature) and your Company's social forestry
programme which has created a green cover of nearly 1,14,000 hectares by
planting high yielding varieties of trees. Paperkraft's green profile' has
begun to appeal to a number of corporate and other institutional consumers
who are switching over to Paperkraft' to symbolise their commitment to
reducing carbon footprint. The Paperkraft' range of executive notebooks
was enriched with the launch of a Green Impression Series' which showcases
your Company's sustainability performance.

The education & stationery products industry continues to grow on the back
of massive government and private investments in the education sector. The
government's flagship Sarva Shiksha Abhiyan programme coupled with the mid-
day meals initiative is successfully enhancing enrolment and reducing
dropouts at the primary school level. Efforts are also underway to improve
the enrolment ratios at the secondary and tertiary levels. Progressive
reforms will enable flow of private sector investments into capacity
building and quality enhancement in education delivery. The recent
enactment of The Right of Children to Free and Compulsory Education Act,
2009 will further accelerate growth in the education and stationery
supplies sectors. Your Company, with its widening high quality product
range and excellent distribution infrastructure, is poised advantageously
to respond to this opportunity.

Lifestyle Retailing

During the year, your Company's Lifestyle Retailing business further
strengthened its position in the branded apparel market. Leveraging the
revival in consumer sentiment after a protracted period of sluggish demand
post the global economic slowdown, the business undertook several
initiatives to further fortify its brands, expand its retail reach and
improve product and range vitality.

In the Premium segment, Wills Lifestyle', with its high fashion imagery,
growing desirability and richer product mix, continues to enjoy strong
market standing and consumer bonding. During the year, the brand reach was
expanded to 73 exclusive stores in 40 cities and more than 150 shop-in-
shops' in leading departmental stores. This was further supported by
significant improvements in product range, enhanced availability and
impactful visibility resulting in impressive growth in volumes. During the
year, the premium imagery of the brand was further reinforced through its
association with the Wills Lifestyle India Fashion Week', the country's
most prestigious lifestyle event. Under the business' Ramp to Racks'
initiative, the brand has tied up with leading designers of the country
such as Rohit Bal, Tarun Tahiliani, Rohit Gandhi-Rahul Khanna, Rajesh
Pratap Singh, JJ Valaya, Satya Paul and Ranna Gill to exclusively co-create
the Wills Signature' range of designer wear. This initiative has been very
well received by consumers and has enhanced the brand's exclusive aura,
strengthened its premium standing and deepened its aspirational dimension.
Product equity and premiumness was further enhanced through several
initiatives undertaken during the year. The Wills Classic' Luxuria' range
of super-premium formals for men, finely crafted from luxurious cotton with
high end trims and superior garmenting, was introduced during the year and
received extremely encouraging response from consumers. The Women's range
was further augmented by offerings in stylised formals, an extensive
variety of trendy silhouettes and an international collection crafted by a
leading Milan-based design house.

During the year, Wills Lifestyle' opened its first Men's luxury store in
Chennai offering a comprehensive Formals' collection of shirts, trousers,
suits & jackets and accessories aimed at the premium business consumer. The
business added a Wills Lifestyle' boutique store in your Company's hotel,
ITC Gardenia, Bengaluru, enhancing brand availability to high-end business
and leisure travellers. This is in addition to the existing boutique stores
in ITC Maurya, New Delhi and ITC Mughal, Agra.

The customer privileges programme Club Wills' comprising over 1,10,000
loyal and discerning members contributed significantly to sales. Social
media was also leveraged effectively to engage with customers, enhancing
word-of-mouth' and driving footfalls to stores.

In the popular segment, John Players' has established a strong pan India
presence with over 280 Flagship Stores and 1,100 Multi Brand Outlets and
Departmental Stores. During the year, the retail footprint was expanded
significantly, with nearly 100 new stores being opened, increasing brand
reach, penetrating more markets and acquiring new consumers. John Players'
continues to have a strong presence and has become a leading brand in the
segment, with new products such as denims, knits and jackets. The continued
celebrity association with the popular film star, Ranbir Kapoor, was well
received by consumers, further enhancing brand desirability.

During the year, the business received several industry recognitions,
including Retailer of the year - Fashion & Lifestyle' and Best Retail
Marketing Campaign of the Year' at the Asia Retail Congress 2011 and
Winner - Customer & Brand Loyalty' at the Loyalty Awards 2011.

Rising cotton prices and the re-imposition of Excise Duty on branded
apparel in this year's Union Budget will exert inflationary pressure on
costs in the coming year. However, the business has initiated a number of
strategic cost management actions along with operational efficiency
improvement measures to minimise its impact on consumers.

Improvements in business processes for creation of designs, including
incorporation of regional preferences in product design for wider brand
appeal and further strengthening of the supply chain led to better sell-
thrus' and improved margins during the year. Retail productivity continues
to be a key focus area, and the business undertook several initiatives to
strengthen capabilities at the frontline through training, knowledge and
skill inputs. Investments are also being made in store design, visual
merchandising and customer service to enhancethe international quality
shopping experience that has become synonymous with Wills Lifestyle'.

The business will continue to increase the fashion quotient of its
offerings on the basis of a deep understanding of consumer preferences, and
delivering products benchmarked to world class quality standards.

Safety Matches

Your Company's Safety Matches business sustained its market standing
through continued consumer preference for its strong brand portfolio across
all market segments.

Domestic volumes were impacted during the year as a result of proliferation
of cheaper low quality formats in the marketplace. Despite increased
competition, your Company's flagship brand Aim', continued to grow. While
steep escalations in the prices of raw materials like wood, paperboard and
key chemicals subjected the industry to severe margin pressure during the
year, the business mitigated some of the adverse impact through a series of
strategic cost management and pricing initiatives.

Your Company continues to partner the small scale sector by sourcing a
significant portion of its requirement from multiple units in this sector.
This has helped improve the competitive ability of these units with your
Company providing technical inputs to strengthen their process
capabilities.

Technology induction in manufacturing is crucial for the long term
sustainability of this industry. A uniform taxation framework which
provides a level playing field to all manufacturers is necessary to trigger
the required investments for modernising this industry and enabling it to
become globally competitive.

Incense sticks (Agarbattis)

Market standing of your Company's Mangaldeep' brand of incense sticks was
further strengthened during the year with sales recording an impressive
growth of 54%, driven by increasing consumer franchise for the brand
combined with enhanced distribution reach and innovative product offerings.
Mangaldeep' is currently the second largest national brand. During the
year the business launched a new variant in the premium category,
Sarvatra' under the umbrella brand Mangaldeep'. This introduction has
received wide consumer acceptance and is being rolled out across India.

The business continues to contribute to your Company's commitment to the
Triple Bottom Line', by providing livelihood opportunities to more than
12,000 persons through small scale entrepreneurs, NGOs and Self Help Groups
across India. This business initiative and the continuing partnerships with
the governments of Orissa, Assam and Tripura for setting up sourcing
centres are creating sustainable livelihood opportunities for rural women
through Agarbatti rolling.

Your Company continues to partner small and medium enterprises in raising
their process and quality standards.

B. HOTELS

The year witnessed a gradual recovery for the Indian hotels industry after
two successive years of decline aided by a gradual revival in source
markets like the USA and Europe and the strong showing of the Indian
economy. The buoyancy, however, was muted on account of several reasons
including the run up to the elections in a number of States. Inbound travel
fell short of projections even for large events like the Commonwealth
Games.


In the backdrop of this mixed business environment, your Company's Hotels
business witnessed robust growth of 18% and 23% in Revenues and Pre-tax
profits respectively, reversing the declining trend witnessed in the last 2
years. The business continues to maintain its leadership position in terms
of its operating efficiency with a PBDIT to Net Revenues ratio of 36%.

Your Company's Hotels business continues to be rated amongst the fastest
growing hospitality chains, with over 105 properties at more than 90
locations in India, operating under 4 brands - ITC Hotel' at the luxury
end, WelcomHotel' in the 5 star segment, Fortune' in the mid-market to
upscale segment and WelcomHeritage' in the heritage leisure segment. In
addition, the business has licensing and franchising arrangements for two
international brands - The Luxury Collection' and Sheraton' from the
Starwood Group. These offerings make your Company one of the leading hotel
chains in India.

ITC Gardenia, launched last year, has rapidly established itself as the
premier hotel in Bengaluru and delivered profits in its first full year of
operations.

ITC Mughal, Agra has undergone a major refurbishment. The hotel now offers
a richer ambience with the refurbishment of the public areas and the
creation of a special new wing, the Khwab Mahal', featuring various
categories of rooms, including two luxurious Presidential Suites. These
suites offer private plunge pools and spa rooms, where special treatments
from the hotel's awardwinning spa can be experienced. ITC Mughal's award
winning Kaya Kalp' - The Royal Spa, continues to attract attention and
receive accolades from all over the world.

Food and beverage has been one of the business' main strengths over the
years, regularly bringing accolades and awards from domestic and
international media. Its restaurants Bukhara', Dum Pukht', Dakshin',
Kebabs & Kurries', Pan Asian' and West View' are today well renowned and
powerful cuisine brands. To this enviable collection, your Company debuted
its first Japanese offering with the opening of the Edo' at ITC Gardenia.
Edo' has earned rave reviews and many awards for its superlative quality
of authentic Japanese food, ambience and informal dining style.

In pursuit of your Company's Triple Bottom Line' objectives, the business
has increased investments in wind energy to provide clean power to its
hotels in Bengaluru (ITC Windsor and ITC Gardenia) and Jaipur (WelcomHotel
Rajputana). Further investments in wind energy are on the anvil. These are
in addition to the wind energy investments made in the previous year for
ITC Maratha in Mumbai.

Your Company's commitment to Responsible Luxury' has given it the unique
distinction of being the only green hotel chain in India. ITC Maurya is now
the first and the largest hotel in the world to receive the Leadership in
Energy and Environment Design (LEED) Platinum rating for an existing
building. In addition, ITC Maratha, ITC Grand Central, ITC Windsor, ITC
Mughal, ITC Kakatiya and ITC Sonar have also successfully obtained the LEED
Platinum rating. These together with ITC Gardenia, which achieved the LEED
Platinum rating in the previous year, uniquely position your Company as the
first hotel chain in the world to have all its premium luxury hotels rated
at the highest LEED Platinum rating.

In view of the positive long term outlook for the Indian hotel industry,
your Company continues to sustain its aggressive investment led growth
strategy. Construction activity of new super luxury properties at Chennai,
Kolkata and at Classic Golf Resort near Gurgaon are progressing
satisfactorily. In addition, several new projects including joint ventures
and management contracts are on the anvil to rapidly scale up the business
across all four market segments.

During the year, the Fortune' brand which caters to the mid-market to
upscale segment, forged new alliances taking the total number of hotels in
its fold to 63 with an aggregate room inventory of 4,915. The brand now has
38 operating hotels and 4 more hotels are slated to be commissioned during
the course of the next financial year. The remaining 21 hotels are in
various stages of development. The brand is now well established as a
front-runner among the mid-market to upscale segment of hotels in India.
The WelcomHeritage' brand continues to be India's most successful and
largest chain of heritage hotels with 53 operating properties, spread
across 18 States in India.

Your Company's Hotels business, with its globally benchmarked levels of
product and service excellence and customer centricity represented by its
four brands, is not only well positioned to sustain its leadership position
in the industry, but is also poised to emerge as the largest hotel chain in
the country over the next few years.

C. PAPERBOARDS, PAPER AND PACKAGING

The Paperboards, Paper and Packaging segment recorded yet another year of
steady growth in revenues and profits. Segment revenues grew by 13% over
the previous year to touch Rs. 3667 crores. Segment results at Rs. 819
crores reflect a growth of 20%.

Paperboards & Specialty Papers

The global demand for paper & paperboard recovered strongly to post a
growth of nearly 7% over the previous year driven by resurgence in demand
in Western Europe, North America and growth in emerging Asian and Latin
American economies.

The domestic paperboard industry also grew at about 8% aided by the strong
showing of the Indian economy with value-added paperboard growing at a much
faster rate. Though India has 17% of the world's population, it consumes
only about 2% of global paper production. Per capita consumption is very
low at only 9 kgs compared to a global level of 55 kgs. Going forward, the
continued growth of the Indian economy coupled with favourable
demographics, demand expansion in rural markets, rising demand for branded
and packaged products supported by growth in organised retail and
differentiated packaging, are expected to augur well for the paperboard
industry. Aided by these facilitating drivers, value-added paperboard is
expected to grow at a faster rate of around 15% within the overall
paperboard industry growth of 8% over the next five years. FMCG, pharma,
liquid packaging, apparel and consumer durables will continue to provide
the overall impetus for accelerated growth in derived demand for
paperboard. The growing potential of this industry is also attracting the
attention of global players who are keenly looking at Asia as their next
growth engine. While most majors have taken up large manufacturing
positions in China, some of them are also exploring opportunities in other
countries in Asia, including India.

The domestic paper industry is estimated at 10.3 million tonnes per annum,
out of which paperboard demand is estimated to be 2.3 million tonnes per
annum. Your Company, with its wide range of products in the paperboard
segment, is the market leader with a value market share of 26% and a
significantly higher share of the fast-growing value-added paperboard
segment. To further consolidate its pre-eminent position in the paperboard
segment, the business is in the process of investing in a state-of-the-art
machine which is expected to be operational by early 2013.

The Writing and Printing' paper segment, estimated at 3.3 million tonnes
grew by 7% in 2010-11. Your Company's state-of-the-art paper machine is
being currently optimally utilised to meet the demand for high quality
copier and writing paper, leveraging the strong forward linkages with your
Company's Education and Stationery Products business. The growth in the
valueadded writing and printing paper segment will continue to be fuelled
by initiatives like Sarva Shiksha Abhiyan, together with increasing
literacy levels, changing demographic profiles and GDP growth. This segment
is expected to grow at around 8% per annum during the next 5 years, with
higher growth expected in the Copier paper and Fine paper categories at
16%.

Specialty papers, with an estimated market size of 4 lakh tonnes, is
expected to grow at 9% over the next 5 years, with increased spends on
infrastructure and construction driving demand for quality decor and
insulating grades. Your Company is the largest manufacturer of cigarette
tissue in India and continues to be the market leader with a share of 65%
of the domestic market. In the growing decor segment, your Company
maintained its market share of 26%.

In consonance with your Company's value proposition of delivering
sustainable value to all its stakeholders, the business participated in the
Check Your Paper' rating system developed by WWF - World Wide Fund for
Nature's Global Forest and Trade Network, which evaluates paper and
paperboard on parameters such as Forest, Climate and Water performance and
awards star ratings and an overall score. During the year, two grades of
paperboard manufactured by your Company were submitted for evaluation and
received 4 and 5 star ratings and scores which are comparable to those
achieved by global paperboard majors. Your Company


has commenced this initiative with recycled board grades and will gradually
include more paper and paperboard products. In addition, the business
improved its service delivery to its customers through shortened order
servicing timelines. It also facilitated customers in the usage of your
Company's Forestry Stewardship Certified boards. During the year a number
of new paperboard applications have been successfully developed for the
communication, entertainment and packaging industries.

Your Company continued with its aggressive clonal propagation strategy with
the distribution of over 54 million saplings to farmers during the year.
Research on clonal development has resulted in the introduction of
topography specific, high yielding and disease resistant clones. This
initiative, besides securing the long term supply of fibre at competitive
costs, also assists in generating farm incomes through utilisation of
marginal wastelands. Enhanced R&D activity has resulted in the development
of high yielding eucalyptus and subabul' clones and your Company's
continued focus on clonal plantations in core areas is expected to yield
significant competitive advantage in the years to come. Your Company's R&D
is actively collaborating with several expert agencies to further leverage
bio-technology for enhancing both farm and manufacturing yields. In the
last 15 years, your Company's bio-technology based research initiatives
have resulted in the planting of nearly 487 million saplings which are
currently sown in nearly 1,14,000 hectares of plantations, including around
12,000 hectares planted during the year under review. These pioneering
initiatives have generated over 51 million person days of employment
opportunities over this period for small farmers and poor tribals.

Agro-forestry has an important role to play in developing countries like
India, both for food and wood security and conservation of the environment.
During the year under review, your Company facilitated the introduction of
agro forestry models which incorporate inter-cropping practices where
eucalyptus trees are grown on the same land asagricultural crops, in Andhra
Pradesh and Madhya Pradesh. By integrating tree growing with crop
production, the problems of poor agricultural production, worsening wood
shortages and environmental degradation can be addressed simultaneously.
Furthermore, inter-cropping technologies/practices also help to take
pressure off the remaining natural forests and to increase the diversity of
vegetation on existing farms.

Your Company continues to represent to policy makers the need to introduce
appropriate amendments to the Forest (Conservation) Act, 1980 and related
Rules to permit industry to use degraded forest land for afforestation
linked to the end-use of such wood. An enabling policy framework that
encourages public-private partnerships for the development of degraded
forest lands would serve the multiple objectives of enhancing the
competitiveness of the Indian paper and paperboard industry, creating
sustainable livelihoods in rural India and contributing to the national
objective of enhancing the country's green cover.

Your Company's collaborative initiative called Wealth out of Waste' (WOW)
continues to promote and facilitate waste paper recycling, another major
environmental objective to conserve scarce resources. This initiative has
now been extended to 6 cities in Southern India scaling up significantly
from the 2 cities where this programme was launched earlier. Existing
processes and systems in the areas of collection, sorting and recycling
were further strengthened to improve the overall efficacy of the
initiative. A first-of-its-kind National Recycling Day' was initiated to
build awareness and increase involvement amongst target consumers.
Celebrated on the 1st of July 2010 at Hyderabad, this event attracted large
participation from school children as well as government and corporate
bodies. With a growing base, the business is also in the process of
enhancing its capability to handle larger volumes of recycled waste.

Your Company has invested significantly in the deployment of contemporary
technologies including environment-friendly Elemental Chlorine-Free (ECF)
and Ozone bleaching for pulp thereby improving environmental standards of
its manufacturing operations. Such investments are expected to provide
customers with a sophisticated product, way ahead of legislation, creating
new dimensions in environmental stewardship.


The Industry would welcome policies that lay down environmental benchmarks
in tune with other industries such as automotives etc. and suitably reward
those who achieve or exceed such parameters.

While all manufacturing units have already achieved near 100% solid waste
recycling by its usage for making products like lime, fly ash bricks, grey
boards, egg trays etc., the procurement and recycling of over 1,19,000
tonnes of waste paper during the year has further consolidated the
business' overall positive solid waste recycling footprint. In addition,
your Company is also working on various Clean Development Mechanism (CDM)
projects under the Kyoto Protocol to enable full realisation of potential
benefits in this area. Your Company's unique social forestry project has
been the first of its kind in India to be registered with the United
Nations Framework Convention on Climate Change (UNFCCC) as a CDM project.
The net benefits from this project will be passed on to the partnering
farming communities.

The Bhadrachalam and Tribeni units were awarded the Sword of Honour' by
the British Safety Council. All manufacturing units of the business
received the 5 Star Rating' from the British Safety Council for the third
successive year. The Bhadrachalam unit also won the Most Innovative
Project on Environment Best Practices' Award 2011 from CII, Indian Paper
Manufacturers Association (IPMA) - Paper Mill of the year 2010 award and
SIEMENS - Ecovatives award 2011. The Kovai unit won the CII - National
award for Excellence in Energy Management 2010.

After having laid a strong foundation in implementing Total Productive
Maintenance (TPM) at its units in Bhadrachalam and Bollaram, the programme
has now been extended to Tribeni and Kovai units. This is expected to
further improve operational excellence and profitability.

During the year, the industry faced enormous challenges on account of steep
hike in costs of key domestic raw materials, coal and imported pulp. This
hike in input costs, coupled with the large additions to capacity in the
industry, adversely impacted overall industry profitability.It is expected
that continuing inflation in the cost of domestic raw materials and
imported pulp will continue to impact industry profitability in the near
term. Your Company with its unwavering focus on quality, cost
consciousness, integrated operations, customer service and ability to
create new market segments is well placed to mitigate the impact of these
cost escalations.

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

Packaging and Printing

Your Company's Packaging and Printing business continues to invest in
best-in-class' technology and skills to provide the most contemporary and
superior value delivery in paper, paperboard and flexible packaging. The
business continued to provide strategic support to your Company's FMCG
businesses by ensuring security of supplies in addition to sustaining
international quality at competitive cost.

During the year, business from external trade grew significantly, driven by
growth in volumes from existing customers as well as an enlargement of its
customer base. Your Company continues to be a leading supplier of value-
added packaging to the Consumer Electronics and FMCG segments.

The further consolidation of the business' operations in the flexibles
packaging segment at its state-of-the-art manufacturing facilities at
Chennai and Haridwar continued to provide innovative packaging solutions to
your Company's FMCG businesses. This in-house capability has enabled your
Company to facilitate quicker turnarounds of designs, pack changes and
reduced product launch timelines, thereby providing a source of competitive
advantage in the market place.

The business is augmenting capability and capacity at its Haridwar plant to
cater to the increased packaging requirements of your Company's FMCG
business and external trade customers based in the northern region.

The business won several national awards for excellence in packaging
solutions and also won 20 India Star' awards in printing in several
categories instituted by the Indian Institute of Packaging for excellence
in packaging during the year.

The 14.1 MW wind energy farm, which was commissioned in 2008, continued
operating at optimum levels providing clean energy to the Chennai unit. The
initiative flowing from your Company's commitment to the Triple Bottom
Line', is now a certified project under the Clean Development Mechanism of
the Kyoto Protocol under the auspices of the United Nations Framework
Convention on Climate Change and is generating carbon credits and
contributing to the reduction in your Company's carbon footprint.

The factories at Chennai, Munger and Haridwar continued to maintain their
highest standards in Environment, Health and Safety (EHS) and quality
management during the year. The Chennai unit was awarded the British Safety
Council Globe of Honour' for Environment Management. The unit was also
awarded National Water Management' Award 2010 by CII for being an
excellent water efficient unit. During the year, Chennai and Munger units
were also certified for ISO 9001:2008, ISO 14001:2004 Quality Management
System and have been re-certified for OHSAS 18001:2007 Occupational Health
and Safety Management System. All the three units at Chennai, Munger and
Haridwar received the 5 Star Rating' for safety from the British Safety
Council.

With substantial investments in world class technology, best-in-class
quality management systems, multiple locations and diversified packaging
solutions portfolio, the business is well poised to continue servicing all
the requirements of your Company's FMCG businesses and to rapidly grow its
external trade.

D. AGRI BUSINESS

Cigarette Leaf Tobacco

Against a backdrop of a decline in global leaf production in key regions
over the past two to three years and low inventory pipeline with
international cigarette majors, the current year saw global leaf production
grow by 4% with countries like Zimbabwe, Malawi, Tanzania, India and Brazil
driving overall supply. On the demand side, the year witnessed global
cigarette production remaining flat, primarily as a result of the slow and
tentative recovery in the advanced economies, as well as the growth in
illicit trade triggered by excessive taxation. This dramatically altered
the demand-supply scenario during the year. In India, leaf tobacco crop
grew by 14% in 2010 supported by a favourable price trend.

With global cigarette production tempered and record crop sizes projected
in key tobacco growing countries like Brazil, Zimbabwe, Malawi and European
Union, it is expected that global leaf demand would be benign in the near
term. A correction in this cycle is expected in the medium term with the
anticipated revival of the global economy coupled with growing consumption
in Asian and African countries. In the Indian market, it has been seen that
the consumption of other non cigarette forms of tobacco, particularly
chewing tobacco, is growing at a much faster rate.

Despite these adverse conditions, your Company was able to sustain the
demand for Indian tobacco through focused strategies based on delivering
superior value to the customer, variety offerings in the burley and
oriental segment through collaborative and customised programs and an
enlarged customer base. The business is exploring market opportunities in
the growing smokeless tobacco segment through customised offerings. While
flavour has not been a source of competitive strength for Indian tobaccos,
focused attention to reliability, scalability, product integrity, service
and competitive pricing would continue to be the imperatives to sustain and
grow market share.

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

Your Company's pioneering R&D efforts on varietal improvements in leaf
tobacco was further fortified with the development of various burley and
oriental type tobaccos. These initiatives such as improved nursery
management designed for higher efficiencies in seed use, optimised usage of
crop production chemicals and other agronomic practices are improving the
potential of the newly developed varieties. These efforts are not only
helping to secure global demand for Indian leaf tobacco, but also in
improving the socio-economic status of the small/tribal farmers and
providing enhanced value to global customers. Vertical growth to achieve
enhanced productivity continues to be the focus area of research and crop
development initiatives. Similarly, substantial progress has been made to
strengthen the pipeline of new hybrid combinations for deployment in the
growth zones. Capitalising on your Company's R&D efforts on varietal
improvement, the growing areas of Flue-Cured Virginia hybrids were
substantially increased in collaboration with the Central Tobacco Research
Institute and the Tobacco Board of India. Significant milestones were
achieved towards the development of a new curing regime in tobacco and
further experimental trials are underway to bring forth a unique product
portfolio.

Your Company continues to focus on maintaining the highest quality and
safety standards in all its units. During the year, the Chirala unit won
the Globe of Honour' award from the British Safety Council for best
environmental practices and the Best Management Award' from the Government
of Andhra Pradesh for industrial relations & employee welfare. The Anaparti
unit won the Gold Medal and Silver Medal awards for Quality Circles in
competitions held by Quality Circle Forum of India' at regional level
competitions and Distinguished Awards' at National level competitions.
Total Cost Management Maturity Model Level 3 from CII for Total Cost
Management was awarded to both the Chirala and Anaparti units.

In order to service the growing demand for leaf tobacco, your Company is in
the process of commissioning additional capacities in Karnataka. The
business is in the process of reorganising the supply chain to address the
ever increasing complexity of the leaf supply chain from a strategic cost
management perspective.

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

Other Agri Commodities

Global trade grew by 12% on the strength of robust growth witnessed in
developing and emerging economies as also on account of the fiscal stimulus
provided by advanced nations. This has been achieved despite the sluggish
post recession recovery in theworld economy, reduced availability of credit
and trade volumes which are still ruling below the pre-recession levels in
countries severely affected by the financial crisis. Food grain production
in the country is expected to touch 232 million tonnes representing a
growth of 6.4% over the previous year. Despite this impressive growth, food
inflation continued to be high and a cause of worry. Consequently, the ban
on export of some key commodities like wheat, rice and sugar continued
during the year.

A decline in global soya bean production led by a sharp drop in Argentina
resulted in good demand for Indian soya bean and soya meal in the
international markets. Aided by good monsoons in the crop growing regions,
Indian soya crop output registered an increase over last year. Your
Company, a leading player in the Indian soya bean market, was able to
benefit from this opportunity and record significant increase in business
size and profits. The agri-business model has been reoriented to focus on
providing comprehensive assistance to customers on all aspects of commodity
sourcing viz. procurement, inventory, logistics and costs. The target
customer segments comprise brand owners, private labels, food processors
and exporters. The new model has enabled your Company to deliver relatively
risk free returns even as the markets remained volatile. Your Company
proposes to further strengthen this model to scale up business in the
future.

Your Company continued to source identity preserved, specific high quality
wheat through its e-Choupal channel for its Foods business. The initiative
of procuring a part of its wheat requirement directly at the processing
plants on a just-in-time' basis was scaled up during the year. This
yielded significant reduction in freight, warehousing and other operational
costs without diluting its stringent quality norms.

In sourcing chip stock potato for its Bingo!' potato chips business, your
Company continued its initiative of sourcing locally grown potatoes (closer
to manufacturing units) in order to provide encouragement to local farmers
and to minimise logistics costs. During the year, 57% of the consumption at
your Company's Haridwar processing plant was sourced locally. Trials on
development of new varieties and new areas continued during the year.

India is the world's largest producer, consumer and exporter of spices.
Exports of spices from India have been growing at 16% and the domestic
market for branded spice powders is growing at 11%. With the growing
concerns of food safety and product integrity, there is an increasing
demand for suppliers with end-to-end' capabilities having complete custody
of the supply chain, supported by appropriate technology to deliver quality
and augmented with traceability management systems to provide the required
product assurance. Your Company seeks to harness this opportunity by
building a business model based on customised products and services with
requisite crop development, state-of-the-art infrastructure and tailor made
products and processes to garner an increasing share of the fast growing
domestic and export market. In the last five years, the spices business,
apart from providing support to the Aashirvaad' range of spice powders has
gained considerable market standing amongst large domestic and export
customers as a supplier of assured quality with customised processes and
infrastructure, with a significantly high level of source credibility'.

Your Company's initiative of marketing Kisan Credit Cards on behalf of the
State Bank of India continued to receive encouraging response from the
farmers. Credit camps were organised by your Company to help farmers
improve awareness of Kisan Credit Cards, and were received enthusiastically
by the farming community. This increased awareness and continuous
communication at the field level, significantly improved the quality of
documentation, lowered application rejection levels while improving
turnaround times.

The rural retailing business of your Company continued to make good
progress by registering an overall increase in sales by 87% facilitated by
expansion of product range, introduction of reputed brands of apparel,
footwear and other products at affordable prices and quicker product
replenishment. The Kisan Vikas Yojana', a unique customer loyalty scheme
designed to cater to the requirements of the farmers was received very well
by the farming community. The range of agri-inputs was expanded to include
products and brands specifically to meet local requirements. This resulted
in a 90% increase in sales of agri-inputs. Your Company also organised mass
consumer awareness programmes - Choupal Mahotsav' in the premises of the
stores, which comprise of product / brand familiarisation, product
demonstration and entertainment. Based on the considerable interest evinced
by customers towards this programme, as evident in the enhanced footfalls
at your Company's stores, plans are afoot to scale up the programme in the
coming years.

Last year, your Company launched an initiative to strengthen and expand the
distribution reach of its e-Choupal network for FMCG products in the rural
markets. The year saw throughputs increasing by more than 40%. Based on the
learnings over the last few years, your Company now proposes to synchronise
its rural marketing and rural distribution businesses. Towards this end,
your Company has piloted convergence programmes engaging a large number of
rural consumers. These convergence programmes which are called Choupal
Haats', focus on product awareness, demonstration and brand marketing and
targets higher availability of quality FMCG products in rural retail
outlets. Last year, your Company had launched an employment portal
Rozgarduniya.com' in alliance with Monster India - an online career and
recruitment firm, to assist the rural youth in finding jobs in the non-
agricultural sector. During the year, the initiative was extended across
several locations and a large number of rural youth were registered for
employment search. The portal also partnered many companies who are
potential employers. Your Company has definite plans to increase the number
of partners, geographical reach and sectors under this portal.

Your Company has piloted a Market Based Partnership for Health' programme
in alliance with United States Agency for International Development (USAID)
and other partners. The pilot, which has been launched in Gonda and
Chandauli districts of Uttar Pradesh focuses on improvement of maternal and
child health and general hygiene and thereby reducing mortality rates.
Under the programme, several village health workers have been trained.
These village health workers will create awareness among the rural
womenfolk and will market products from partnering companies which address
health and hygiene issues. In the year ahead, your Company plans to focus
on market activation through these convergence platforms, awareness
creation through village level contacts by village health workers and
making the products available at the villages. These initiatives will
progressively transform the e-Choupal network into an all-weather venture -
relatively de-risked from regulatory uncertainties and market volatility -
even as it continues to provide strategic sourcing support to your
Company's Foods business as well as to serve as an efficient intervention
model for rural development.

NOTES ON SUBSIDIARIES

The following may be read in conjunction with the Consolidated Financial
Statements enclosed with the Accounts, prepared in accordance with
Accounting Standard 21. In view of the general exemption granted by the
Ministry of Corporate Affairs, the report and accounts of subsidiary
companies are not required to be attached to your Company's Accounts.
Shareholders desirous of obtaining the report and 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 downloadable format.

ITC Global Holdings Pte. Limited, Singapore (ITC Global'), a subsidiary of
your Company, was under Judicial Management from 8th November, 1996 till
30th November, 2007. On an application of the Judicial Managers of ITC
Global, the High Court of the Republic of Singapore on 30th November, 2007
ordered winding up of ITC Global, appointed a Liquidator and discharged the
Judicial Managers. 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, 2010 or to make available copies of the
same for inspection by shareholders.

Surya Nepal Private Limited

The unsettled political environment in Nepal continued through the year
under review. After several months of functioning under a caretaker Prime
Minister, a coalition government assumed charge but the absence of
consensus amongst coalition partners stalled the formation of a full
cabinet.

Social, economic and political disruptions continued to take place from
time to time. Workers of several companies in Nepal, including those at the
company's factories, went on strike on 27th March, 2011, demanding inter-
alia, 100% increase in wages. While the factories have since resumed normal
operations, negotiations involving various unions, the Government of Nepal
and industry continue. While GDP growth for the financial year ending mid
July 2011 is estimated at 3.5%, such tensions coupled with the political
uncertainties have restrained the economy from performing at a higher
level.

Amidst the challenging operating environment, the company maintained its
growth trajectory during the year under review. In the twelve-month period
ended 14th March, 2011 (30th Falgun 2067), the company recorded a 25%
growth in sales with Gross Turnover (net of VAT) increasing to Nepalese
Rupees (Rs.) 1256 crores from Rs. 1005 crores in the previous year. Profit
After Tax at Rs. 237 crores increased by 31% over the previous year. The
company retains its status as the single largest private sector contributor
to the exchequer accounting for about 3.5% of the total revenues of the
Government of Nepal.

The company consolidated its leadership position in the cigarette market
through its investments in product development and quality. Despite the
agro-climatic challenges of growing tobacco in Nepal, the company's
continuous engagement with tobacco farmers from the stage of seed
development to crop harvesting have helped in enhancing productivity and
quality at the farm level, thereby enhancing returns to the farmers.
Encouraged by the interventions of the company, farmers have sharply
stepped up the acreage under tobacco cultivation. Efforts are underway to
further improve the quality of the domestic grades of tobacco.

On the manufacturing front, the company continued to invest in new
technology cigarette making and packing lines, additional infrastructure
and development of human talent to sustain superior and consistent product
quality and augment capacity. Energy conservation measures were further
reinforced. Construction of a second cigarette factory near Pokhara has
commenced and will position the company well for servicing consumer demand
for its products over the longer term.

The garments export business, while continuing to service orders for the
John Players' and Wills Lifestyle' range of apparels, strengthened its
forays into new export markets and increased such export volumes
significantly over the previous year.

In the domestic garments market, John Players' continued to retain its
leadership status in the branded apparel segment while Springwood', the
company's mass market brand, positioned as an alternative to low price
imports from China and South East Asia, has further consolidated its
position in the value for money' segment.

In the Safety Matches business, the company's brand Tir', has established
a strong consumer franchise within a few years of its launch.

The company continued to remain committed to its role as a responsible
corporate citizen and promoted sports and tourism in the country under the
Surya Nepal Khelparyatan programme, in collaboration with Nepal Tourism
Board.

The company declared a dividend of Rs. 90/- per equity share of Rs. 100/-
each for the year ended 16th July, 2010 (32nd Ashad 2067).

ITC Infotech India Limited

While global Information Technology (IT) spends in hardware and software
improved in 2010, growth in IT Services was relatively moderate. Further,
in the US, although the recessionary conditions eased towards the latter
part of the financial year, client budgets continued to be tightly
monitored. These trends reflect the continuing uncertainty during the
economic recovery. Surveys by global analysts suggest that IT services are
expected to grow during the next 24 months on the back of increased IT
spends on implementation of software application systems and
infrastructural support.

Despite the sluggish market conditions, the company grew total income for
the year by 13%. During the year, the business focused on building
differentiated capability and in strengthening its sales and technical
delivery teams. Although these investments, predominantly in manpower,
impacted margins for the year, it has at the same time strengthened its
capability platform for future growth.

For the year under review:

(a) ITC Infotech India Limited registered an Income of Rs. 426.42 crores
(previous year Rs. 377.71 crores) and a Profit After Tax of Rs. 7.46 crores
(previous year Rs. 34.01 crores);

(b) ITC Infotech Limited, UK, (I2B) a wholly owned subsidiary of the
company, registered a Turnover of GBP 22.22 million (previous year GBP
19.44 million) and a Net Profit of GBP 1.03 million (previous year GBP 0.69
million).

(c) ITC Infotech (USA), Inc., (I2A) a wholly owned subsidiary of the
company, together with its wholly owned subsidiary Pyxis Solution LLC,
registered Total Revenues of US$ 38.43 million (previous year US$ 30.99
million) and a Net Profit of US$ 0.01 million (previous year US$ 0.08
million). In line with its focus on continuously providing quality
deliverables to its customers, the company's delivery processes have been
certified at a maturity Level 3 of the Software Engineering Institute's
(SEI) Capability Maturity Model Integration (CMMI) framework. The company
continues to invest in improving program management processes to ensure the
highest levels of quality in technical delivery.

As mentioned earlier, the company also continues to invest in building
differentiated capabilities. Some of these capabilities include solutions
in the areas of customer loyalty', end-to-end transformational services in
IT outsourcing and Global Reporting Initiative (GRI) based sustainability
reporting. Further, the company has maintained its partnerships with the
world's leading Independent Software Vendors (ISVs) in building niche
solutions to address white spaces and joint go-to-market initiatives. ITC
Infotech India has been ranked 26th in the Leader's Category for the 2011
Global Outsourcing 100 by the International Association of Outsourcing
Professionals (IAOP). This is the fifth consecutive year that the company
has featured in this prestigious list.

The partner co-innovation strategy and the focused strategy of launching
solutions which demonstrate value to clients in addressing some of their
critical business challenges such as effective client relationship
management and lowering the cost of operations, have yielded encouraging
results and led to the acquisition of several marquee, high potential
clients and a growing funnel of prospects. During the year, the company has
renewed its focus on India and the larger Asia-Pacific region and this has
already resulted in significant traction in acquiring new customers,
particularly in India. Market focus has also been extended to specific
regions in Western Europe.

Based on a survey commissioned through a reputed external agency, existing
customers of the company have given satisfaction scores which are amongst
the highest in the industry.

On the talent front, as expected, there has been a build-up of pressure on
availability of quality talent. The company has addressed this through a
process of growing and nurturing talent internally through continuous
employee engagement and training programs.

With strategies in place to expand to new markets, a portfolio of
differentiated solutions, the ability to provide superior customer care and
excellence in delivery through project management capabilities, knowledge
management, solution accelerators and a robust quality system, the company
is poised to achieve rapid growth.

During the year, the company registered an Income of Rs. 27.72 crores and a
Profit After Tax of Rs. 19.97 crores.

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 Limited, made in accordance
with the Securities and Exchange Board of India (Substantial Acquisition of
Shares & Takeovers) Regulation, 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.

Wimco Limited

The company achieved a Turnover of Rs.192 crores during the year and posted
a net loss for the year of Rs. 59.65 crores against Rs.16.24 crores loss in
the previous year, primarily as a result of one-time separation costs (Rs.
37 crores) and steep increases in input costs.

During the year under review, margins in the Matches business continued to
remain under pressure due to a very sharp escalation in the prices of raw
materials, primarily wood, splints, paperboard and key chemicals. Several
measures were taken to rationalise costs and improve margins in this highly
competitive category.

Availability of critical raw materials like wood at competitive prices is
crucial for the success of this industry. The Agro Forestry business of the
company is taking steps towards this end by supplying high quality poplar
saplings to farmers in northern India. Apart from creating a long term
sustainable supply of a critical raw material, the company's initiative of
creating sustainable and meaningful linkages across the farmer community is
helping to create employment and livelihood and in improving the green
cover in the region.

The continuing differentials in taxation between the mechanised and non-
mechanised sectors have forced the company to evaluate alternatives to
arrive at a viable business model. As a first step, a voluntary separation
scheme was effected at Chennai and Ambernath factories, during the year, to
enable better leveraging of the underlying asset base.

The Engineering business of the company continued to be supported by steady
orders with the improving investment climate. This business is poised for
further growth through new customer acquisitions, both in the domestic and
overseas markets. The business plans to leverage new and improved product
designs to offer superior packaging solutions to customers.

The initiatives taken by the company during the year to restructure its
operations are expected to yield positive results in the years to come.

Srinivasa Resorts Limited

During the financial year ended 31st March, 2011, the company recorded an
Income of Rs. 56.04 crores (previous year Rs. 54.57 crores) and a Profit
Before Tax of Rs. 12.85 crores (previous year Rs. 14.11 crores). Profit
After Tax stood at Rs. 9.26 crores (previous year Rs. 9.62 crores) after
providing for income tax of Rs. 3.59 crores (previous year Rs. 4.49
crores).

The financial performance of the company's hotel at Hyderabad, ITC
Kakatiya, was adversely impacted by the continuing political uncertainty in
the State. The hotel initiated various measures to contain costs and
improve profitability without compromising on the quality of superior guest
experience.

The hotel received the Times Food Guide' awards for Kebabs & Kurries' and
Dakshin'- with both being rated the best restaurants in their respective
categories.

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, 2011.

Fortune Park Hotels Limited

During the financial year ended 31st March, 2011, the company recorded an
Income of Rs. 18.01 crores (previous year Rs. 14.92 crores) and earned a
Profit After Tax of Rs. 4.12 crores (previous year Rs. 2.13 crores) after
providing for income tax of Rs. 1.90 crores (previous year Rs. 1.20
crores).

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 63, with a total room count of 4,915. Of these, 38
properties are operating hotels. Additionally, 4 hotels are slated to be
commissioned during the course of the financial year 2011-12. The
remaining 21 hotel projects are under various stages of development. The
company seeks to be a leading player in the mid market to upscale segment,
providing quality products and 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. 7/-
per equity share of Rs. 10/- each for the year ended 31st March, 2011.

Bay Islands Hotels Limited

During the year 2010-11, the company earned an Income of Rs. 1.12 crores
(previous year Rs. 1.01 crores) and Profit After Tax of Rs. 0.76 crores
(previous year Rs. 0.68 crores) after providing for income tax of Rs. 0.30
crores (previous year Rs. 0.27 crores).

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,
2011.

Landbase India Limited

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

During the year, the company issued and allotted to ITC Limited, 25,00,000
Redeemable Preference Shares of Rs. 100/- each for cash at par, aggregating
Rs. 25 crores. The proceeds from the Preference Share issue are being
utilised by the company for the construction of the destination luxury
resort.

Technico Pty Limited

The company continued to focus on the commercialisation of its TECHNITUBERr
technology and subsequent field multiplication of seed potatoes 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 under review, Technico's leadership in the production of
early generation seed potatoes and strong agronomy skills have been
leveraged by your Company's Branded Packaged Foods business for its chip
stock sourcing operations for the Bingo!' brand of potato chips as well as
by the Other Agri Commodities business in servicing the seed potato
requirements of its farmer base in key States.

For the year under review:

a) Technico Pty Limited, Australia registered a Turnover of Australian
Dollar (A$) 1.58 million (previous year: A$ 1.95 million) and a Net Profit
of A$ 0.10 million (previous year: A$ 0.71 million). Sales and Post-tax
profits for the year under review were adversely affected by the
appreciation in the Australian Dollar versus the US Dollar, which is the
invoicing currency for the company.

b) Technico Agri Sciences Limited, India registered a Turnover of Rs. 47.65
crores (previous year: Rs. 54.31 crores) and a Profit After Tax of Rs. 7.02
crores (previous year: Rs. 14.02 crores). During the year under review, a
record potato crop drovedown table potato prices. Consequently, sales
realisation during the year for seed potatoes were also lower compared to
the prices achieved in the previous financial year. While this resulted in
lower Post-tax profits relative to the previous year, the company was
successful in wiping-out its accumulated losses and looks forward to the
future with confidence.

c) Technico ISC Pty Limited, a dormant entity since its incorporation, was
voluntarily deregistered on 3rd November, 2010.

d) Technico Asia Holdings Pty Limited, Australia, Technico Technologies
Inc., Canada and Technico Horticultural (Kunming) Co. Limited, China

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

King Maker Marketing Inc.

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

During the year under review, KMM continued to face a challenging operating
environment, post the Federal Excise Tax increases of the previous year,
which resulted in a decline of cigarette volumes and the end of the Roll
Your Own (RYO) industry segment. In the year under review, the Food and
Drug Administration (FDA) initiated cigarette packing changes in June 2010
and most States adopted the costlier Low Ignition Propensity (LIP)
cigarette law. Discontinuation of RYO coupled with regulatory changes viz.,
changes in LIP cigarette law, inter-alia, resulted in inventory
obsolescence. The company used this occasion to rationalise its product
offers, while focusing on developing its brands.

The year also saw the large multinational cigarette companies operating in
the US, investing in the discount segment in which the company operates.
Growth of Pipe tobaccos as a substitute for RYO, cigarette manufacturing
machine at retail, presence of flavoured little cigars akin to cigarettes,
discount cigarettes manufactured in Native American reservations and
illicit trade, all challenged the company's ability to drive volume
upturns. Consequently, revenues declined by 32% over the previous year.
However, improved productivity and cost saving actions enabled improved
profitability.

The FDA is expected to announce several new initiatives in the next two
years to regulate product standards and packaging of cigarette products.
The company will continue to review the regulatory and market environment
for tobacco, to fine-tune its strategies in the US Market.

ITC Global Holdings Pte. Limited

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

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

BFIL Finance Limited

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

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

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

NOTES ON JOINT VENTURES

ITC Filtrona Limited

Gross sales for the year ended 31st December, 2010 at Rs. 139 crores
represents a growth of 3% over the previous year. Pre-tax profits at Rs.
12.1 crores was adversely impacted by high input costs and pricing
pressures.

The company continued its modernisation programme aimed at upgrading its
filter making machines to sustain the company's technological edge over
competition and to further consolidate its position as the market leader.
In addition, the company plans to augment its capacity to address future
market potential. While striking a balance between the need to sustain
investments for growth and the shareholder's expectation for growing
income, the Directors of the company have recommended a dividend of Rs. 9/-
per Equity share of Rs. 10/- each for the year ended 31st December, 2010.

While quality continues to be its prime focus, innovation and support to
customers for product development has resulted in the company attaining the
status of a preferred supplier.

Maharaja Heritage Resorts Limited

Maharaja Heritage Resorts Limited, a joint venture of your Company with
Jodhana Heritage Resorts Pvt. Limited, currently operates 53 heritage
properties under the WelcomHeritage' brand and continues to grow, with
additional 14 properties under development.

Espirit Hotels Private Limited

During the year, your Company entered into a joint venture towards
developing a luxury hotel complex at Begumpet, Hyderabad. Under the terms
of the Joint Venture Agreement, your Company acquired 26% equity stake in
the joint venture company, Espirit Hotels Pvt. Ltd. (EHPL) and will, inter-
alia, provide hotel management services to EHPL under an Operating Services
Agreement upon commissioning of the hotel.

RISK MANAGEMENT

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

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

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

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

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

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

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

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

AUDIT AND SYSTEMS

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

Well established and robust internal audit processes, both at business and
corporate levels, continuously monitor the adequacy and effectiveness of
the internal control environment across your Company and the status of
compliance with operating systems, internal



policies and regulatory requirements. In the networked IT environment of
your Company, validation of IT security continues to receive focused
attention of the internal audit team which includes IT specialists. The
Internal Audit function, consisting of professionally qualified
accountants, engineers and IT specialists reviews the quality of planning
and execution of all ongoing projects involving significant expenditure to
ensure that project management controls are adequate to yield value for
money'.

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

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

HUMAN RESOURCE DEVELOPMENT

The human resource philosophy and strategy of your Company has been
designed to attract and retain the best talent on offer. In practice it
creates and nurtures workplace challenges that keep employees engaged,
motivated and innovative. This talent has, through strongalignment with
your Company's vision, successfully built and sustained your Company's
standing as one of India's most admired and valuable corporations despite
unrelenting competitive pressures.

Your Company has conscientiously fostered a culture that rewards continuous
learning, collaboration and development across the organisation to be
future-ready and meet the challenges posed by ever-changing market
realities. Employees are your Company's most valuable assets and your
Company's processes are designed to empower employees and support creative
approaches in order to create enduring value. Your Company's unflagging
commitment to investing in talent development ensures performance and
achievement of the highest order.

Your Company's human resource management systems and processes aim to
enhance organisational capability and vitality, so that each business is
world class and equipped to seize emerging market opportunities. The
strategy of organisation and its ongoing emphasis on developing and
nurturing distributed leadership has ensured that each of your Company's
businesses are managed by a team of competent, passionate and inspiring
leaders, capable of building a future-ready organisation through continuous
learning, innovationand world class execution.

Your Company's unswerving belief in the mutuality of interests of key
stakeholders binds all employees to a shared vision and purpose, thus
providing it with the vital force for winning in the market place. During
the year under review, your Company successfully concluded long-term
agreements at several of its manufacturing units and hotel properties,
strengthening the collaborative spirit across all sections of employees.
Continuous investment in contemporary management practices and
manufacturing systems has resulted in significant enhancement in quality
and productivity.

Your Company's employees will relentlessly strive to deliver world class
performance, innovate newer and better ways of doing things, uphold human
dignity and foster team spirit and discharge their role as trustees' of
all stakeholders with true faith and allegiance. Over 24,000 of your
Company's employees have collectively envisioned the next hundred years
with commitment to realising your Company's vision of creating enduring
value for your Company and for the country.

SUSTAINABILITY - CONTRIBUTION TO THE TRIPLE BOTTOM LINE'

The societal challenges arising out of widespread poverty and alarming
degradation of the environment, exacerbated now by the spectre of climate
change, continue to be major threats for the future sustainability of the
economy and indeed the nation. It is critically important for all organs of
society to recognise these challenges and align its forces to find
innovative solutions to ensure a secure, sustainable and equitable future.
Your Company has achieved wide acclaim and significant business advantage
by foreseeing these challenges and crafting sustainable and inclusive
growth strategies that are in consonance with a larger societal purpose.
Your Company's Triple Bottom Line' philosophy of creating value that
encompasses the economic, environmental and social dimension summarises
this approach and has indeed made your Company a global exemplar of
Corporate Citizenship.

Your Company's environmental leadership is manifest in the unique position
it has achieved as the only company in the world, of comparable size, to be
carbon positive', water positive' and waste recycling positive'. These
path-breaking initiatives taken by your Company have not only helped in
demonstrating its leadership in responsible corporate stewardship, but have
also enabled significant cost savings and nurtured the creation of
environmental and societal capital, transforming the lives of many living
at the margin. Your Company's sustainability initiatives are in line with
the Prime Minister's vision for corporate participation in ensuring
sustainable economic development with equity and are also in full alignment
with the Government of India's National Action Plan on Climate Change.

Your Company's 7th Sustainability Report published during the year and
independently assured by Ernst & Young is in accordance with the Global
Reporting Initiative G3 Guidelines and at the highest A+ level. The report,
ranked 7th globally in best carbon disclosure' by the Corporate
Responsibility Reporting Awards, details your Company's progress across all
dimensions of the Triple Bottom Line'. The 8th Sustainability Report
covering the sustainability performance during the year 2010-11 is in the
process of publication and will continue to be independently assured by
Ernst & Young.

Your Company has pro-actively pursued a low carbon growth strategy that
addresses climate change mitigation and adaptation through several
innovative and pioneering initiatives. This integrated strategy encompasses
large scale afforestation initiatives for carbon sequestration, increasing
use of renewable energy in its operations, continuous efforts towards
energy conservation and efficiency, establishment of inspirational green
buildings, extensive watershed development programmes and promotion of
sustainable agricultural practices amongst farming communities. This is
manifest in your Company's Social and Farm Forestry programme that covers
nearly 1,14,000 hectares, its Integrated Watershed Development programmes
that spans nearly 65,000 hectares of water-stressed land, as well as
initiatives under the credo of Responsible Luxury' of your Company's
Hotels business which is today the world's greenest hotel chain, with all
luxury hotels being LEED Platinum rated. In the process, your Company has
significantly added to the environmental and social capital of the nation.

Your Company has actively participated in market-based mechanisms for
mitigating the impact of climate change under Clean Development Mechanism
(CDM) developed by the United Nations Framework Convention on Climate
Change (UNFCCC). Eight CDM projects are presently registered with the
UNFCCC and many of them have already started earning carbon credits. In
addition, a number of new CDM projects are also at various stages of
registration. Furthermore, your Company is also positioned to take
advantage of other opportunities in voluntary carbon markets and India
specific schemes on the anvil, such as the Perform, Achieve and Trade (PAT)
promoted by the Government of India.

Your Company's focus on carbon reduction is also reflected in its
commitment to reduce its dependence on fossil fuel based energy. Towards
this, your Company has progressively made investments in renewable
resources of energy. In addition to the 20.1 MW wind energy capacity set-up
earlier, a 90 tonnes per hour biomass fired boiler has also been in
operation for over a year. Reinforcing this capacity, your Company has now
installed a 21 MW wind energy unit in Karnataka and a 2.5 MW unit in
Rajasthan. These investments and better utilisation of biomass in the
Paperboards and Specialty Papers business ensure that 35.3% of your
Company's total energy requirements come from renewable sources.

Recognising that more than half of India's districts are acutely water
stressed, your Company has developed several water conservation initiatives
to enhance its positive water footprint. These include adopting the best
available technologies and benchmarked practices to achieve zero effluent
discharges, enhance rainwater harvesting both within units and in socially
relevant areas as well as provide treated wastewater for irrigation as an
alternate option for farmers in water stressed areas. All these initiatives
have resulted in the creationof rainwater harvesting potential which is
over two times the net water consumption of your Company.

Continuing in the low carbon growth path, your Company has been at the
forefront of establishing iconic green buildings certified to the highest
levels of energy efficiency and environmental design. A journey that began
with the ITC Green Centre in Gurgaon (the largest LEED - Leadership in
Energy and Environment Design - Platinum rated office space in the world in
2004) and the ITC Gardenia in Bengaluru (the World's largest LEED Platinum
rated hotel), has now inspired the implementation of validated green/
sustainability standards in existing hotels and factories. As a testament
to these efforts, during the year under review, ITC Maurya in New Delhi
became the first LEED Platinum rated hotel worldwide in the existing
building category, followed closely by ITC Grand Central, ITC Maratha, ITC
Windsor, ITC Mughal, ITC Sonar and ITC Kakatiya, all of whom received the
LEED Platinum rating from the US Green Building Council (USGBC). This
remarkable achievement makes your Company the greenest hospitality chain in
the world.

Your Company's WOW - Wealth Out of Waste' programme has been instrumental
in creating awareness amongst the public on the benefits of the Reduce-
Reuse-Recycle' approach. The waste recycling initiatives implemented by the
programme have contributed significantly to the protection of the
environment, as well as in improving civic amenities, public health and
hygiene. This initiative has received several accolades from the
government, NGOs, commercial institutions and the public at large,
including the prestigious Papyrus Award' from the Bureau of International
Recycling (BIR). Your Company benefits from the generation of sustainable
raw material sources at competitive prices, while conserving precious
environmental resources and also generating considerable livelihood
opportunities.

All units of your Company are mandated to achieve total recycling of solid
waste generated by their operations. The Paperboards and Specialty Papers
business, which accounts for more than 91% of total waste generated in your
Company, has recycled over 99% of the total waste generated by its
operations. This business has also recycled an additional 1,19,002 tonnes
of externally sourced waste paper, thereby reinforcing your Company's waste
recycling positive status for the 4th consecutive year.

Your Company continued with its commitment towards ensuring a safe and
healthy workplace for all employees, guests and visitors, by maintaining
the highest levels of safety and occupational health standards. All units
of your Company have best-in-class infrastructure, competent resources and
state-of-art fire detection and protection measures. The Environment,
Occupational Health and Safety Management Systems in all manufacturing
units and hotels conform to the best international standards. Overall
accident statistics show a continual improvement trend which has been
reaffirmed by several national & international safety awards and
certifications.

The CII - ITC Centre of Excellence for Sustainable Development', set up by
your Company and the apex national chamber CII in 2006, continues its
endeavours to promote sustainable business practices amongst corporates
across the country. It has enhanced its activities to meet the core
objectives of creating awareness, promoting thought leadership and building
capacity amongst Indian enterprises in their quest for sustainable growth
solutions. The CII - ITC Sustainability Awards', instituted to recognise
excellence in sustainability performance, have honoured a large number of
leading Indian companies and provided encouragement to many others. It is
heartening that the number of aspirants for the Award is steadily
increasing year on year.

The CII-ITC Centre is today playing a major role in engaging with policy
makers to create an environment that encourages the adoption of sustainable
business practices. The Centre is a consulting partner in several policy
interventions such as Green Guidelines for Public Procurement, Low Carbon
Expert Group of the Planning Commission, National Innovation Council,
Ministry of Corporate Affairs on CSR policy and is also represented on the
Board of the Central Pollution Control Board and other bodies. During the
year, the Centre introduced three new service lines in the areas of
stakeholder engagement, climate change strategies and training of
sustainability assurance professionals. It is the only certified trainer
for sustainability assurance professionals in South-East and South Asia.

In pursuit of your Company's commitment to the Triple Bottom Line, your
Company's Social Investments strategy continues to be driven by the needs
and concerns of two important stakeholders - the rural communities with
whom your Company's Agri business has forged a long and enduring
partnership and the communities (both rural and urban) residing in close
proximity of your Company's manufacturing units. The Social Investments
Programme aims to address certain key challenges that these stakeholders
face in terms of livelihoods. For rural India, the major challenge is that
of a deteriorating agri-production base that is likely to worsen, due to
the adverse impacts of climate change. For households around the units, the
challenge is that of providing the necessary social infrastructure to
enable a decent quality of life.

Your Company addresses these challenges through a range of activities with
the overarching objective of creating sustainable sources of livelihood for
the stakeholders: (a) For rural communities, the attempt is to diversify
farming systems by broad-basing the farm and off-farm based livelihoods
portfolio of the poor. This is sought to be achieved through an integrated
approach that includes the development of wastelands, watersheds,
agriculture and milch animals. (b) In the catchment habitations of
manufacturing units, your Company's focus is on nurturing and developing
social capital to create a level playing field in the market for relevant
and contemporary skills and to compete with the demands for higher
productivity. This is being achieved through the promotion of gender-
centric economic empowerment programmes for women, enhancing the quality of
primary education and improving health and sanitation conditions focusing
on the mother and child.

The footprints of your Company's Social Investments Programme has spread to
51 districts in the States of Andhra Pradesh, Bihar, Karnataka, Kerala,
Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Tamil Nadu, Haryana, Uttar
Pradesh and West Bengal.

Your Company's pioneering Social and Farm Forestry initiative covers nearly
1,14,000 hectares today and is aligned to your Company's pulpwood supply
chain which creates a sustainable source of raw material for your Company
and also meets the energy requirements of rural households. Within this,
the Social Forestry Programme covers 19,820 hectares in 541 villages,
impacting 24,382 poor households.

The coverage of your Company's Soil and Moisture Conservation programme,
designed to assist farmers in identified moisture-stressed districts,
increased by another 13,204 hectares. 416 water-bodies were created during
the year. The total area covered under the watershed programme cumulatively
stands at 64,498 hectares. A significant achievement this year was the
partnerships forged with a number of State governments for implementing
watershed programmes. Agreements have been signed with the governments of
Maharashtra, Rajasthan and Madhya Pradesh to bring 92,000 hectares under
soil and moisture conservation over the next five years.

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. The programme for improvement of cattle
through artificial insemination to produce high-yielding crossbred
progenies has been given special emphasis because it reaches out to the
most impoverished and has the potential to enable them to live with social
and economic dignity. 49 Cattle Development Centres were established during
the year, taking the total to 210 centres, which provided 1.67 lakh
artificial inseminations during the year.

With the objective of improving the quality of life of people living in the
proximity of the manufacturing units, the Women's Empowerment Programme
covered 15,068 women through 1,314 self-help groups (SHG) with total
savings of Rs. 206 lakhs. More than 37,000 women were gainfully employed
either through micro-enterprises or assisted with loans to pursue income
generating activities. Over 2,47,000 children have been covered under the
Supplementary Education Programme till date, through the 2,523
Supplementary Learning Centres. Infrastructural support has been provided
to 741 government schools till date.

The advances made towards contributing to India's sustainable development
goals have been possible, in large measure, to your Company's partnerships
with some globally renowned NGOs like BAIF Institute for Rural Development,
DHAN Foundation, Foundation for Ecological Security (FES), Mysore
Resettlement and Development Agency (MYRADA), Pratham, Self Employed Women
Association (SEWA), Self Reliant Initiatives through Joint Actions (SRIJAN)
and Watershed Organisation Trust (WOTR). These partnerships, which bring
together the best-in-class management practices of your Company and the
development experience and mobilisation skills of NGOs, will continue to
provide innovative grassroot solutions to some of India's worst problems of
development in the years to come.

R&D, QUALITY AND PRODUCT DEVELOPMENT

Your Company, over the years, has invested significantly in its Research &
Development (R&D) programme to develop a unique source of sustainable
competitive advantage by leveraging contemporary advances in several
relevant areas of science and technology and blending the same with
classical concepts of product development.

This challenging task of creating a culture of science-led product
innovation in your Company was carefully addressed by appropriately
identifying the required set of core competency areas of science such as
Plant Breeding and Genetics, Agronomy, Microbiology, Cell Biology,
Genomics, Proteomics, Silviculture and several disciplines of Chemistry.
Presently, your Company's R&D Centre is staffed with world class scientists
and equipped with state-of-the-art equipment for carrying out research and
securing proprietary technologies for your Company's businesses.

Your Company's Agrisciences R&D team continued its efforts in evaluating
and introducing several germplasm lines of tobacco and eucalyptus to
increase the genetic and trait diversities in these crops, which in turn
will strengthen the research programs for developing new varieties with
higher yields, better quality and other relevant traits for its businesses.
Several research collaborations have been initiated with globally
recognised Centres of Excellence to fast track its journey towards proof
of concepts'. These collaborations cover both Tobacco and Eucalyptus and
are designed in a manner whereby your Company will gain fundamental
insights to several technical aspects of plant breeding and genetics of
these species. This will accelerate efforts in creating future generations
of these crops with greater genetic and trait diversities, which indigenous
crops currently lack, thereby supporting your Company's businesses. These
outcomes have the potential of making a meaningful contribution to the
nation as well.

Your Company's Biosciences R&D team continued to pursue strategies to
leverage the potential of convergence amongst agricultural science, food
science and the scientific dimensions of its personal care products
portfolio. During the year under review, the R&D team continued to progress
several long-term research platforms, which over time, will form the basis
for launching new and competitively superior products.

Your Company's R&D strategy is anchored on a clear vision and road map and
is supported by a well-crafted Intellectual Property strategy. With scale,
speed, science and sustainability considerations, your Company's R&D is
poised to deliver long term competitive advantage and play a leading role
in creating significant business impact.

Pursuing your Company's relentless commitment to quality, each business is
mandated to continuously innovate on processes and systems to deliver
superior competitive capabilities. During the year, your Company's Hotels
business extended its Lean' practices programme to cover more business
processes, in addition to the continuing implementation of the Six Sigma
Quality Process' supported by trained teams of black and green belts. This
will further enhance capability to create superior customer value through a
service excellence framework. The Paperboards, Paper & Packaging business
have implemented the Total Productive Maintenance' (TPM) techniques in all
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 hotels
have stringent food safety and quality systems certified by an 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

As mentioned in the previous year's Report of the Directors, the demand for
Rs. 27.58 crores made by Central Excise Department, Bangalore, in respect
of a period prior to March 1983, 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.

With respect to the Munger factory, proceedings for finalisation of
assessments for the period prior to March 1983 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. These were confirmed by the Commissioner
(Appeals), Patna vide his orders dated 22nd December, 2004, against which
your Company has preferred appeals before CESTAT, Kolkata, which are
pending. Your Company has made pre-deposits of Rs. 2 crores and Rs. 0.55
crores against the aforesaid demands at the stage when its appeals were
pending before Commissioner (Appeals), Patna.

Although your Company, in a spirit of settlement, paid the differential
Excise Duty that arose out of an Order of the Director General dated 10th
April, 1986, as early as in March, 1987, and although the Excise
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 the Bangalore factory was
quashed by the Court. In the proceedings relating to Saharanpur and Munger
factories, the individuals concerned have been discharged.

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

Since your Company is contesting the above cases and contending that the
Show Cause, the Demand Notices and the Complaints are not sustainable, it
does not accept any liability in this behalf. Your attention is drawn to
the Note 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 your Company in this regard. However, the State of
Andhra Pradesh has filed a contempt petition in the Supreme Court claiming
a sum of about Rs. 323.25 crores towards luxury tax, and a further sum of
about Rs. 261.97 crores towards interest, on the allegation that your
Company had charged and collected luxury tax from its customers, but in
view of a stay order passed by the Court on 1st April, 1999, did not pay
the tax to the government.

The 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 your 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 PROCEEDINGS INITIATED BY THE
ENFORCEMENT DIRECTORATE

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

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

In the proceedings initiated by the Enforcement Directorate, 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 your Company, the appropriate authority has passed orders in
favour of your Company, and dropped those memoranda.

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

TREASURY OPERATIONS

During the year, your 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.

The year under review was characterised by rising interest rates and tight
liquidity conditions in the monetary system. Against the backdrop of high
inflation and the consequent policy rate increases by the Central Bank,
interest rates hardened across maturities. In the environment of rising
interest rates, your Company by appropriately managing portfolio duration
continued to improve its treasury performance within the ambit of strong
risk management processes.

All investment decisions in deployment of temporary surplus liquidity
continued to be guided by the tenets of Safety, Liquidity and Return.
During the year, timely positioning of the portfolio in shorter maturity
assets like Liquid Mutual Funds, Fixed Maturity Plans and Bank Fixed
Deposits enabled your Company to take advantage of rising interest rates
and enhancing yields. The portfolio mix was constantly rebalanced in line
with the changing risk/return scenario. Your Company's risk management
processes ensured that all deployments were made with proper evaluation of
underlying risk while remaining focused on capturing market opportunities.

In the foreign exchange market, the Indian Rupeeappreciated gradually
during the year on the strength of FII inflows with intermittent
volatility. In a scenario where the US Dollar was under pressure, your
Company adopted an appropriate forex management strategy,including use of
foreign exchange forward contracts and plain vanilla options to manage
volatility and reduce risks/costs. However, it refrained from entering into
any exotic derivative structures.

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

TAXATION

As mentioned in the Report of the Directors of earlier years, your 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 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. This status also remains
unchanged.

PUBLIC DEPOSITS

Your Company's Public Deposit Scheme closed in the year 2000. As at 31st
March, 2011, there were no deposits due for repayment except in respect of
2 deposit holders for Rs. 0.20 lakhs which have been withheld on the
directives received from government agencies.

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

INVESTOR SERVICE CENTRE

During the year, the ISO 9001:2008 Quality Management System Certification
for investor servicing by Investor Service Centre (ISC) was renewed by
Messrs. Det Norske Veritas (DNV) for a further period of three years. DNV
also accorded Level 5 rating to ISC, the highest possible rating level, for
the second consecutive year, for its systems and processes, which stands
testimony to the exemplary standards of investor servicing practices by the
ISC.

ISC continues to operate with an experienced team of professionals backed
by state-of-the-art infrastructure and systems focused towards meeting the
increasing expectations of investors and regulatory authorities.

DIRECTORS

Mr. Krishnamoorthy Vaidyanath, Wholetime Director, retired from your
Company after 35 years of service, with effect from close of business on
2nd January, 2011 on completion of his term. Your Directors would like to
record their appreciation of the services rendered by Mr. Vaidyanath. The
Board of Directors (the Board') atits meeting held on 22nd December, 2010,
appointed Mr. Vaidyanath as Non-Executive Director of your Company with
effect from 3rd January, 2011 to draw upon his knowledge and vast
experience.

Mr. Anup Singh ceased to be Additional Wholetime Director on 23rd July,
2010, the date of the last Annual General Meeting (AGM) of your Company.

Mr. Nakul Anand and Mr. Pradeep Vasant Dhobale were appointed by the Board
at its meeting held on 22nd December, 2010, as Additional Wholetime
Directors of your Company with effect from 3rd January, 2011.

By virtue of the provisions of Article 96 of the Articles of Association of
your Company and Section 260 of the Companies Act, 1956, Messrs.
Vaidyanath, Anand and Dhobale will vacate office at the ensuing AGM of your
Company.

Your Board at its meeting held on 20th May, 2011, recommended for the
approval of the Members the appointment of Messrs. Anand and Dhobale as
Directors, liable to retire by rotation, and also as Wholetime Directors of
your Company for a period of three years from 3rd January, 2011. Your Board
at the said meeting also recommended for the approval of the Members the
appointment of Mr. Vaidyanath as Non-Executive Director of your Company,
liable to retireby rotation, with effect from the date of the ensuing AGM
of your Company.

Your Board at its meeting held on 20th May, 2011 recommended for the
approval of the Members the re-appointment of Mr. Yogesh Chander Deveshwar
as a Director, not liable to retire by rotation, and also as Wholetime
Director and Chairman of your Company, for a period of five years from 5th
February, 2012.

Notices have been received from Members of your Company under Section 257
of the Companies Act, 1956 for the appointments / re-appointment of Messrs.
Anand, Dhobale, Vaidyanath and Deveshwar, who have filed their consents to
act as Directors of your Company, if appointed.

Appropriate resolutions seeking your approval to their appointments / re-
appointment are appearing in the Notice convening the 100th AGM of your
Company.

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

CHANGES IN SHARE CAPITAL

During the year, the following changes were effected in the Share Capital
of your Company:-

(i) Increase in Authorised Share Capital The Authorised Share Capital of
your Companywas increased from Rs. 500 crores to Rs. 1000 crores divided
into 1000,00,00,000 Ordinary Shares of Rs. 1/- each, with effect from 23rd
July, 2010.

(ii) Issue of Bonus Shares 382,67,01,530 Ordinary Shares of Rs. 1/- each,
fully paid-up, were issued as Bonus Shares, in the ratio of 1 (One) Bonus
Share for every existing 1 (One) Ordinary Share of Rs. 1/- each held on 4th
August, 2010, being the Record Date fixed for the purpose. The Bonus Shares
were allotted on 6th August, 2010.

(iii) Issue of Shares under the ITC Employee Stock Option Schemes
9,32,65,960 Ordinary Shares of Rs. 1/- each, fully paid-up, were issued and
allotted during the year upon exercise of 93,26,596 Options under your
Company's Employee Stock Option Schemes. Consequently, the Issued and
Subscribed Share Capital of your Company, as on 31st March, 2011, stands
increased to Rs. 773,81,44,280/- divided into 773,81,44,280 Ordinary Shares
of Rs. 1/- each. The new Ordinary Shares issued during the year rank pari
passu with the existing Ordinary Shares of your Company.

AUDITORS

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

EMPLOYEE STOCK OPTION SCHEME

Details of the Options granted up to 31st March, 2011, and other
disclosures as required under Clause 12 of the Securities and Exchange
Board of India (Employee Stock Option Scheme and Employee Stock Purchase
Scheme) Guidelines, 1999 (the SEBI Guidelines') are set out in the
Annexure to this Report.

Your Company's Auditors, Messrs. Deloitte Haskins & Sells, have certified
that your 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
judgments and estimates that are reasonable and prudent so as to give a
true and fair view of the state of affairs of your Company at the end of
the financial year and of the profit of your Company for that period;

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

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

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Accounting Standard 21 - Consolidated Financial
Statements, ITC Group Accounts form part of this Report & Accounts. These
Group Accounts also incorporate the Accounting Standard 23 - Accounting for
Investments in Associates in Consolidated Financial Statements and
Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures
as notified under the Companies (Accounting Standards) Rules, 2006. These
Group Accounts have been prepared on the basis of audited financial
statements received from Subsidiary, Associate and Joint Venture Companies,
as approved by their respective Boards.

OTHER INFORMATION

The total number of employees as on 31st March, 2011 stood at 24,027.

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

There were no changes to your Company's significant Accounting Policies.

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 31 employees, who were employed throughout the year and were in
receipt of remuneration aggregating Rs. 60 lakhs or more or were employed
for part of the year and were in receipt of remuneration aggregating Rs. 5
lakhs per month or more during the financial year ended 31st March, 2011.
The informationrequired under Section 217(2A) of the Companies Act, 1956
and the Rules thereunder, in respect of the aforesaid employees, is
provided in the Annexure forming part of this Report.

FORWARD-LOOKING STATEMENTS

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

CONCLUSION

Your Company's Board and employees are inspired by the Vision of sustaining
your Company's position as one of India's most admired and valuable
companies through world class performance, creating enduring value for all
stakeholders, including the shareholders and the Indian society. Each
business within the portfolio is continuously engaged in upgrading
strategic capability to effectively address the challenge of growth in an
increasingly competitive market scenario. Effective management of diversity
enhances your Company's adaptive capability and provides the intrinsic
ability to effectively manage business risk. The vision of enlarging your
Company's contribution to the Indian economy is manifest in the creation of
unique business models that foster international competitiveness of not
only 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 and employees look forward to the future with confidence and
stand committed to creating an even brighter future for all stakeholders.

20th May, 2011 On behalf of the Board

Virginia House Y. C. DEVESHWAR Chairman
37 J L Nehru Road P. V. DHOBALE Director
Kolkata 700071
India

Annexure to the Report of the Directors

Statement as at 31st March, 2011, 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.

Sl. Year of No. of No. of Bonus Total Exercise Adjusted
No. Grant Options Options Price per Exercise
Granted Allocated* Option Price per
(i) (ii) (i)+(ii) (Rs.) Option
(Rs.)**

(A) ITC Employee Stock Option Scheme

2001 3,39,119 - 3,39,119 779.95 -
2002 6,27,070 - 6,27,070 617.90 -
2003 9,99,115 1,83,501 11,82,616 679.90 453.27
2004 8,57,208 2,85,987 11,43,195 880.45 586.97
2005 9,72,433 4,75,638 14,48,071 1,531.65 1,021.10
2006 60,95,625 18,30,137 79,25,762 1,814.00 907.00
Total 98,90,570 27,75,263 1,26,65,833 - -

ITC Employee Stock Option Scheme - 2006

2007 55,77,343 38,29,364 94,06,707 1,661.00 830.50
2008 59,69,437 51,30,034 1,10,99,471 1,896.00 948.00
2009 43,46,161 42,69,672 86,15,833 2,180.00 1,090.00
2010 42,30,600 42,21,225 84,51,825 2,923.50 1,461.75
Total 2,01,23,541 174,50,295 3,75,73,836 - -

* Bonus Options were allocated in 2005-06 and 2010-11 in the same ratio as
Bonus Shares issued (i.e. in the ratio of 1 Bonus Share for every 2
Ordinary Shares & in the ratio of 1 Bonus Share for every 1 Ordinary Share,
respectively) in accordance with the ITC Employee Stock Option Schemes 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.

(B) 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.


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

(C) Total number of
Options vested: 1,16,93,812 1,74,82,469 2,91,76,281

(D) Total number of Options
exercised : 1,11,69,757 60,78,656 1,72,48,413
(Each Option represents 10
Ordinary Shares of Rs.1/- each)

(E) Total number of Ordinary
Shares of Rs. 1/- each : 11,16,97,570 6,07,86,560 17,24,84,130
arising as a result of
exercise of Options

(F) Total number of Options
lapsed : 13,33,225 18,97,251 32,30,476

(G) Variation of terms of Options: Nil

(H) Money realised by exercise Rs.1247.48 Rs.623.31 Rs.1870.79
of Options : crores crores crores

(I) Total number of
Options in force : 1,62,851 2,95,97,929 2,97,60,780

(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 N. Anand 20,000
3 P. V. Dhobale 20,000
4 K. N. Grant 67,500
5 A. Baijal 10,000
6 S. H. Khan 10,000
7 S. B. Mathur 10,000
8 H. G. Powell 10,000
9 P. B. Ramanujam 10,000
10 A. Ruys 10,000
11 K. Vaidyanath@ 67,500
12 S. M. Ahmad 11,500
13 N. Arif 15,000
14 P. Banerjea 8,625
15 S. Basu 13,750
16 M. S. Bhatnagar 13,750
17 A. Chand 13,750
18 S. Chandrasekhar 11,500
19 L. C. Chandrasekharan 15,000
20 B. B. Chatterjee 20,000
21 C. Dar 20,000
22 C. S. Das 13,750
23 D. Haksar 13,750
24 S. Kaul 13,750
25 U. Lall 11,500
26 H. Malik 13,750
27 A. K. Mukerji 13,750
28 A. Nayak 20,000
29 A. R. Noronha 13,750
30 R. Parasuram 13,750
31 A. Pathak 13,750
32 S. Puri 20,000
33 R. Rai 13,750
34 V. L. Rajesh 9,725
35 A. Rajput 20,000
36 T. V. Ramaswamy 20,000
37 S. Rangrass 13,750
38 S. Janardhana Reddy 13,750
39 R. Senguttuvan 9,725
40 S. K. Singh 13,750
41 S. Sivakumar 20,000
42 R. Sridhar 13,750
43 B. Sumant 13,750
44 K. S. Suresh 20,000
45 R. Tandon 20,000

# Bonus Options were also allocated consequent to the Bonus Share issue in
2010-11.

Options granted prior to appointment as Executive Director.

@ Options granted when he was Executive Director.


(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.6.41
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 of : The employee compensation cost has
employee compensation cost. 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 2010-11 is Nil.


(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 4987.61

Add: Intrinsic Value
Compensation Cost Nil

Less: Fair Value
Compensation Cost 338.40
(Black Scholes model)

Adjusted Profit 4649.21

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

As reported 6.49 6.41
As adjusted 6.05 5.97

(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. 1,461.75
(Adjusted for Bonus Share Issue 1:1)

Weighted average fair value per Option : Rs. 436.17

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

Pricing model after applying the following key assumptions on a weighted
average basis:

(i) Risk-free interest rate 6.91%

(ii) Expected life 3.19 years

(iii) Expected volatility 34.98%

(iv) Expected dividends 1.97%

(v) The price of the underlying Rs. 1,488.50
shares in market at the time of Option grant
(Adjusted for Bonus Share Issue 1:1)

On behalf of the Board

Y. C. DEVESHWAR - Chairman
Kolkata, 20th May, 2011 P. V. DHOBALE - Director

CONSERVATION OF ENERGY

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

a) Energy conservation measures taken:

All business units continued their efforts to improve energy usage
efficiency and increase contributions from renewable sources of energy.
Various key performance indicators like specific energy (energy consumed
per unit of production), specific energy costs and renewable energy
contributions were continuously tracked to monitor alignment with the
Company's overall carbon strategy. Innovative ways and new technologies
were constantly explored to bring about alignment with the Government of
India's National Action Plan on Climate Change. Some of the measures
adopted across the Company were:

I. Optimisation in energy consumption by replacing air-cooled chillers with
higher efficiency water-cooled chillers, installing high efficiency burners
in existing boilers and improved waste heat recovery.

II. Improvement in energy usage efficiency in lighting systems by
installation of automated lighting controls & sensors, changing over to
higher efficiency lighting solutions such as Light Emitting Diodes and
increased daylight harvesting.

III. Obtaining LEED (Leadership in Energy and Environment Design) Platinum
rating from US Green Building Council (USGBC) in the Existing Building (EB)
category, as part of a holistic approach towards sustainability, for ITC
Maurya, ITC Maratha, ITC Grand Central, ITC Sonar, ITC Mughal and ITC
Windsor. This has helped achieve significant energy savings. IV.
Installation of renewable energy sources like wind turbine generators and
harnessing solar energy through thermal & photovoltaic systems.

V. Appropriate fuel switching measures from furnace oil to piped natural
gas and producer gas across different business units.

VI. Retrofitting measures and replacement of motors, pumps, boilers, air
compressors, cooling towers and transformers by high-energy efficiency sets
across different business units.

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

I. Renewable sources such as wind turbines and micro hydel projects.

II. Process improvements across different factories and installation of
more energy efficient technologies.

III. Solar pre-heating arrangement for boiler feed water and furnace oil at
different factories.

IV. Replacement of pumps, motors, compressors, blowers etc. with higher
efficiency sets.

V. Installation of capacitor sets to improve power factor of electrical
system.

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 holistic approach towards energy costs reduction by focusing on
specific energy costs and increasing investments on renewable energy
options have resulted in significant energy cost savings for the Company.
The various process improvements brought about by retrofitting and
implementation of newer and better technologies have also resulted in more
efficient processes. Continuing focus on sustainable business practices
have led to several units of the Company such as ITC Windsor, ITC Gardenia,
ITC Maratha, Welcomhotel Rajputana, ITC InfoTech Park Bengaluru, ITC R&D
Bengaluru and Printing & Packaging Business unit at Tiruvottiyur Chennai,
meeting most of their energy requirements from renewable sources. Wherever
feasible, less carbon intensive fuels are also being adopted to deal with
the concerns of climate change and a continual system of periodic energy
audits ensures that all energy conservation opportunities are realised. The
Company has also 8 registered CDM (Clean Development Mechanism) projects
under UNFCCC (United Nations Framework Convention on Climate Change) which
have generated significant amount of Certified Emission Reductions (CERs)
during the year.

A) POWER AND FUEL CONSUMPTION

Relating to Paperboards & Paper

For the For the
Year ended Year ended
31st March, 31st March,
2011 2010

1. Electricity (Excluding Consumption in Colony)
a) Purchased Units (KwH in Lakhs) 230 254
Total Amount (Rs. in Lakhs) 1714 1459
Rate/Unit (Rs.) 7.47 5.74

b) Own Generation

i) Through Diesel Generator 6 17

Units (KwH in Lakhs)
Units/Litre of Diesel Oil 3.03 2.98
Cost/Unit (Rs.) 12.60 10.91

ii) Through Steam Turbine/ 4115 3899
Generator Units
(KwH in Lakhs)

Units/Kg. of Coal 1.45 1.62
Cost/Unit (Rs.) 2.76 2.57
{considering all fuel types}


Process Power Total Process Power Total
2. Coal (Specify
Quantity &
Where Used)
B/C/D/E/F
Grades Coal
Used Coal
Quantity (MT) 398260 284708 682968 365811 240950 606761

Total Cost
(Rs. in Lakhs) 13809 11539

Average Rate 2021.96 1901.66
(Rs. per MT)

3. Furnace Oil
Quantity (KL) 11947 16049

Total Amount (Rs. in Lakhs) 3548 4228
Average Rate (Rs. per KL) 29696.22 26344.76

4. Others/Internal
Generation
De Oiled Bran &
Saw Dust etc.

Quantity (MT) 118118 96784
Total (Rs. in Lakhs) 2402 2079
Rate/Unit (Rs.) 2033.97 2148.49

LP Gas

Quantity (MT) 1100 1112
Total (Rs. in Lakhs) 516 452
Rate/Unit (Rs.) 46880.34 40613.60


B) CONSUMPTION PER UNIT OF PRODUCTION

For the Year ended For the Year ended
31st March, 2011 31st March, 2010

Products (Paper in MT) 602099 587624
Electricity (KwH) 1036 1024
Coal C/ F Grade (MT) 0.71 0.67
Furnace Oil (Litre) 30 34
Others - De Oiled Rice Bran/ 0.100 0.101
Saw Dust/Raw Lignite /
LP Gas, etc. (MT)

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 for enhancing analytical capabilities, new product
development and cost management.

II. Development of eco-friendly paper, food grade paper, premium printing
papers and coated papers and paperboards with high strength and better
print aesthetics.

III. Development of site specific and disease resistant clones of
Eucalyptus, Casuarina and Subabul trees.

IV. Control of eucalyptus gall insect (leptocybe invasa) in association
with the National Bureau of Agriculturally Important Insects (NBAII, CSIR),
Bengaluru.

V. Development of new grades of digital printing paperboards and
modification of existing products benchmarked to global standards.

VI. Development of botanical formulations compatible with the Integrated
Pest Management' strategies of field and commercial crops.

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

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

II. Meeting the statutory requirements of US EPA and FDA in respect of food
grade paper.

III. High survival and growth of clonal plantations of Eucalyptus,
Casuarina and Subabul resulting in increased productivity of wood biomass
and higher returns to farmers.

IV. Development and evaluation of a new botanical formulation with neem
based active ingredients for use against stored product pests.

3. Future Plan of Action:

I. Reduction in Specific fuel consumption and reduction in carbon
footprint.

II. Continuing research on improvement of pulp yield of Eucalyptus,
Casuarina, Subabul and other pulp wood trees.

III. Development of eucalyptus gall wasp management protocol and breeding
of wasp insect resistant eucalyptus trees.

IV. Design and development of modified curing methods, optimal use of solar
energy and evaluation of alternative fuel options for curing tobacco.

V. Enhance packaging through increased use of eco-friendly materials.

For the year ended
31st March, 2011

4. Expenditure on R&D : (Rs. in Lakhs)

i) Capital 2482.00
ii) Recurring 9023.87
iii) Total 11505.87
iv) Total R&D Expenditure as a % of
- Gross Turnover 0.38%
- Net Turnover 0.54%

Technology Absorption, Adoption and Innovation:

I. Induction of contemporary making and packing technologies across
multiple speed platforms for Cigarette business.

II. Establishment of wind energy farms in Karnataka and Rajasthan.

III. Continuous improvement projects towards reducing process variability,
cycle time and wastages while enhancing manufacturing productivity.

IV. Innovations in manufacturing and engineering technologies through
indigenous interventions.

V. Operating state-of-the-art printing and conversion equipment for
packaging.

Benefits Derived:

I. World class quality and differentiated products.

II. Improved productivity and process control.

III. Conservation of fuel and reduced emissions.

IV. Enhanced state-of-the-art capacity.

V. Reduction in carbon foot print.

On behalf of the Board

Y. C. DEVESHWAR Chairman
P. V. DHOBALE Director
Kolkata
20th May, 2011