ITC

The Directors submit their Report for the financial year ended 31st
 March, 2008.
 
 SOCIO-ECONOMIC ENVIRONMENT
 
 India sustained its pre-eminent position as one of the fastest growing
 economies in the world in 2007/08. Despite the relative deceleration in
 several sectors, real GDP notched an impressive growth of 9%, as per
 revised estimates of the Central Statistical Organisation. India joined
 the ranks of the trillion dollar economies in the world, giving us yet
 another moment of national pride.
 
 The Services sector, accounting for about 56% of GDP, emerged once
 again as a primary driver of economic growth. Led by a continued
 upswing in the trade, hotel, transport and communication sub-sectors,
 Services posted a remarkable growth of 10.8%. The Manufacturing sector
 was under pressure this year from a weaker growth in consumer durables,
 as well as a slowdown in cement and steel that consequently impacted
 the construction sector as well. Despite this setback, which knocked
 off 3.2% from the pace attained last year, manufacturing grew by 8.8%,
 reinforcing India’s competitive strength in diverse sectors.  The
 revised estimates indicate that the Agriculture sector has grown by a
 handsome 4.5%. While higher support prices and closely directed
 extension services have been the primary growth drivers, the challenge
 of sustaining such a growth level calls for focused attention to the
 sector, backed by substantial investments.
 
 Domestic demand continued to fuel economic growth, driven by Investment
 demand, the fastest growing component. Strong private sector
 investment, buoyed by surging capital inflows, easier bank credit and
 reinvestment of profits, resulted in strengthening the build up of
 Gross Fixed Capital Formation, an important pre-requisite for
 sustaining high rates of economic growth. Private Consumption grew by
 8.3%, supported by a steady growth in real wages and remittances.
 
 While the economic scorecard continues to record encouraging numbers, a
 few fundamental challenges have emerged in certain sectors, causing
 concern. The surge in capital inflows contributed to a sharp
 appreciation of the Indian Rupee, particularly against the US Dollar.
 This triggered a multi-pronged impact affecting exports across the
 board, aggravating balance of trade and creating pressure on industry
 growth and margins. The basic viability of certain export-oriented
 industries, like textiles, was threatened, with reported job losses.
 The IT and BPO sectors faced pricing pressures, raising fears of
 cutbacks in potential employment.
 
 A major concern during the year has been the sustained high
 inflationary trends. The Government initiated several policy measures
 to improve the supply side and ease the pressure on consumers and
 industry. Measures such as the duty free import of wheat and pulses,
 reduction or withdrawal of import duties on cement, steel and
 non-ferrous metals, ban on export of rice and wheat and prohibition of
 futures trading in certain commodities were implemented. While these
 interventions temporarily softened prices, the inflationary tendency
 persists in the face of global demand supply mismatches, especially in
 food grains, metals, fuel, etc. A natural fallout of the inflationary
 spiral has been a gradual erosion of consumer spends.  Additionally,
 RBI’s interventions on policy rates and liquidity, while justified in
 the current context, have however had an adverse impact on growth in
 rate-sensitive sectors.  The steep increase in the price of oil and the
 recent depreciation of the Rupee are bound to further accentuate
 inflationary pressures with consequential repercussions on economic
 growth.
 
 Currently, Agriculture contributes only 17.8% of GDP, despite engaging
 52% of the total workforce. Structural weaknesses stemming from small
 land holdings, low productivity, falling levels of public investment
 and steady deterioration in public institutions that provide credit,
 inputs, research and extension services have resulted in this sector
 performing far below its potential. The Green Revolution that
 transformed productivity is well behind us now and it is time that a
 new movement is unleashed to usher in the next wave of agricultural
 development. Rural India remains overwhelmingly poor and the gap
 between urban and rural incomes is unfortunately widening with faster
 growth in urban-centric industries and the services sector.
 
 The challenge of delivering stronger agricultural growth to boost the
 rural economy, reinforce food security and secure inclusiveness demands
 a multi-pronged approach to:
 
 (a) Promote Public-Private and People Partnerships in rural India to
 enhance productivity, strengthen market linkages and create additional
 income avenues through efficient non-farm livelihoods;
 
 (b) Enable consolidation of fragmented rural land parcels to permit the
 deployment of technology for improving agricultural productivity, given
 the future scenario of fewer people being dependent on agriculture as
 the single source of livelihood;
 
 (c) Rapidly scale up rural infrastructure to eliminate wastages, ensure
 last mile connectivity and build efficiencies for adding value to
 agricultural produce;
 
 (d) Promote engagement in rural services which can be employment
 intensive and remunerative;
 
 (e) Facilitate R&D in agriculture and life sciences to support better
 horticultural and agricultural practices;
 
 (f) Make available surplus land for industrial use, as a result of
 higher productivity in agriculture.
 
 The opportunities arising out of a fast growing economy are yet to
 bring benefits to rural India due to lack of skills and education,
 rigidities in land and labour markets, poor infrastructure and absence
 of alternative livelihoods.  In such a scenario, conversion of
 agricultural land for industrial use has met with concerted resistance
 and caused significant socio-political unrest. A more innovative
 approach can lead to the creation of inclusive models of growth that
 marry the traditional strengths of the farm sector to modern technology
 and markets, enabling more value creation and new employment
 opportunities.
 
 Towards this, the ‘Integrated Strategy for Promotion of Agri-business’
 approved by the Union Cabinet in June, 2007 is a positive step. With a
 view to trebling the size of the processed food sector, enhancing
 farmer incomes, generating employment opportunities and providing
 choice to consumers at affordable prices, the strategy document targets
 increasing the level of processing of perishables from 6% to 20%, value
 addition from 20% to 35% and share in global food trade from about 1.5%
 to 3%. Accordingly, the strategy document calls for: (a) Detailed
 mapping of the food cluster in the country; (b) Clusterisation of
 farming in the shape of contract farming or other formal / informal
 arrangements; (c) Strengthening backward & forward linkages and
 developing supply chains with cold storage facilities; (d)
 Establishment of Mega Food Parks in identified Small Scale Industries
 like horticulture, meat, dairy and marine products.
 
 Your Company’s e-Choupal network, created to source agricultural inputs
 directly from farmers, is totally compatible with the Government’s
 strategy described above. The throughput of this value chain is growing
 rapidly as consumer franchise for your Company’s branded food products
 get increasingly established. Entry into newer categories of food
 products will progressively increase sourcing through this channel in
 the years ahead. This is well poised to deliver long term shareholder
 value even as it increasingly contributes to the larger societal
 purpose.
 
 The e-Choupal system has played an important role in catalysing rural
 transformation. The ITC ‘Choupal Pradarshan Khet’, a collaborative and
 paid agri extension service, aimed at enhancing farm productivity
 through adoption of best practices in agriculture, grew exponentially
 by 210% during the year covering 43,500 hectares.  In the light of the
 encouraging response received from farmers, your Company intends to
 further scale-up this activity in the coming years. Your Company has
 also taken up a project jointly with the Government of Madhya Pradesh
 under the Agriculture Technology Management Agency (ATMA) initiative,
 wherein both classroom and on-field training would be provided to
 farmers by experts from various areas of agriculture including lead
 farmers.  We are confident that these initiatives will contribute
 increasingly to build the competitiveness and productivity of India’s
 agricultural sector.
 
 India’s growing economic clout is leading to a more proactive and
 meaningful global engagement, particularly in areas like global warming
 and climate change. It is today widely acknowledged that future
 generations will be more secure and economic growth more sustainable
 only if national and corporate strategies embrace the need to enhance
 environmental and social capital. In line with this philosophy, your
 Company is proactively engaged in enlarging its contribution across the
 three dimensions of the ‘triple bottom line’ – economic, environmental
 and social – through a conscious strategy of investment and operations
 that enhances the competitiveness of the value chains we are engaged
 in.
 
 Highlights of your Company’s progress in the pursuit of the ‘triple
 bottom line’ objectives are discussed in the sections that follow.
 
 COMPANY PERFORMANCE
 
 Your Company posted yet another year of impressive performance with
 healthy topline growth and high quality earnings testifying to the
 robustness of the corporate strategy of creating multiple drivers of
 growth. This performance is even more satisfying since it has been
 achieved despite the imposition of VAT on cigarettes, the incubation
 costs of the new FMCG businesses including the recently launched
 personal care portfolio, the upfront costs of rural marketing
 initiatives and the gestation costs of fresh investments in the
 paperboards and hotels businesses.
 
 Gross Turnover for the year grew by 10.7% to Rs.21355.94 crores. Net
 Turnover at Rs.13947.53 crores grew by 14.7% driven by a robust 48.6%
 growth in the non-cigarette FMCG businesses, and a healthy performance
 by the Hotels and Paperboards, Paper & Packaging segments.  The
 non-cigarette portfolio now accounts for 52.4% of the Company’s Net
 Turnover. Pre-tax profits increased by 16.4% to Rs.4571.77 crores,
 while Post-tax profit at Rs.3120.10 crores registered a growth of
 15.6%. Earnings Per Share for the year stands at Rs.8.29. Cash flows
 from Operations stood at Rs.4136 crores during the year.
 
 In order to strike a balance between the need to sustain strategic
 investments for a secure future and the annual expectation of
 shareholders for growing income, your Directors are pleased to
 recommend a dividend of Rs.3.50 per share (previous year: Rs.3.10 per
 share) for the year ended 31st March, 2008. The cash outflow in this
 regard will be Rs.1543.18 crores (previous year Rs.1364.50 crores)
 including Dividend Distribution Tax of Rs.224.17 crores (previous year
 Rs.198.21 crores). Your Board further recommends a transfer to General
 Reserve of Rs.1500 crores (previous year Rs.1250 crores). Consequently,
 your
 
 Board recommends leaving an unappropriated balance in the Profit and
 Loss Account of Rs.724.45 crores (previous year Rs.647.53 crores).
 
 PROFITS, DIVIDENDS AND RETENTION
 
                                                      (Rs. in Crores)
                                                   2008          2007
 
 a)   Profit Before Tax                           4571.77     3926.70
 
 b)   Income Tax                                  1451.67     1226.73
 
 c)   Profit After Taxation                       3120.10     2699.97
 
 d)   Add :       Profit brought forward
 
 from previous year                                647.53      562.06
 
 e)   Surplus available for
 
 Appropriation                                    3767.63     3262.03
 
 f)    Transfer to General Reserve                1500.00     1250.00
 
 g)   Proposed dividend for the financial         1319.01     1166.29
 year at the rate of Rs.3.50 per
 
 Ordinary Share of Re.1/- each
 (previous year : Rs.3.10 per Share)
 
 Income Tax on proposed dividend                  224.17      198.21
 
 h) Retained profit carried forward to            724.45      647.53
    the following year
 
                                                 3767.63     3262.03
 
 FOREIGN EXCHANGE EARNINGS
 
 Your Company continues to view foreign exchange earnings as a priority.
 All businesses in the ITC portfolio are mandated to engage with
 overseas markets with a view to testing and demonstrating international
 competitiveness and seeking profitable opportunities for growth. The
 ITC Group’s contribution to foreign exchange earnings over the last ten
 years amounted to nearly USD 3.2 billion, of which agri exports
 constituted 60%. Earnings from agri exports are an indicator of your
 Company’s contribution to the rural economy through effectively linking
 small farmers with international markets.
 
 During the financial year 2007/08, your Company, its subsidiaries and
 the ITC Welcomgroup hotel chain together earned Rs.2361 crores in
 foreign exchange. The direct foreign exchange earned by your Company
 amounting to Rs.2168 crores (Rs.2283 crores in 2006/07) was adversely
 impacted by restrictions imposed by the government during the year on
 exports of major agri-commodities. Your Company’s expenditure in
 foreign currency amounted to Rs.1159 crores, comprising purchase of raw
 materials, spares and other expenses at Rs.706 crores, and import of
 capital goods at Rs.453 crores.
 
 Details of foreign exchange earnings and outgo are provided in Schedule
 19 to the Accounts.
 
 BUSINESS SEGMENTS
 
 A. FAST MOVING CONSUMER GOODS
 
 FMCG Cigarettes
 
 The year under review witnessed an unprecedented increase in taxation
 on cigarettes. The combined impact of the increase in the rate of
 excise duty by more than 6% and imposition of VAT @ 12.5% ad-valorem –
 without a corresponding reduction of excise duties collected in lieu of
 State level sales tax – resulted in a total increase in tax incidence
 of about 30%.
 
 It is deeply gratifying to report that not only did your Company meet
 the consequential challenges successfully, but also retained its
 leadership position in the market and improved its market standing in
 the consumer mind-space in key competitive markets across the country
 evidencing the resilience of its brands and the superiority of its
 competitive strategies. On the export front, your Company is pleased to
 report a volume growth of more than 16% over the previous year.
 
 As reported last year, your Company uses a unique IT-enabled ‘Six
 Sigma’ based product development process.  This product development
 process and the deep consumer insights nurtured by your Company were
 leveraged during the year under review for a series of key initiatives
 such as contemporary, internationalised packaging for ‘India Kings’ and
 ‘Gold Flake Kings’, multiple limited Edition Packs and flavour variants
 for ‘Classic’, etc. These initiatives have resulted in considerable
 fortification of your Company’s strong position in the premium,
 value-plus segment of the market.
 
 Your Company’s pursuit of creating global standards across the value
 chain saw major investments in its manufacturing facilities. In
 addition to the induction of state-of-the-art high speed making and
 packing machines reported last year,
 
 significant investments were made during the year under review in
 upgrading technology across all the cigarette factories. These include
 modernisation of Primary Manufacturing in Munger, introduction of
 sophisticated material handling systems at Bengaluru and implementation
 of cutting edge Norwegian technology – Cold Plasma Odour Abatement
 Systems – at the Bengaluru and Saharanpur primary manufacturing
 departments. In fact, your Company is one of the first in the world to
 adopt this technology in tobacco-manufacturing.
 
 The re-certification of the tobacco research laboratories under ISO /
 IEC 17025 Standards of the National Accreditation Board for Testing and
 Calibration Laboratories (NABL) has ensured continuing international
 recognition for your Company’s R&D capabilities from the scientific and
 regulatory communities.
 
 The focus on manufacturing excellence has resulted in your Company
 achieving the highest ever level of productivity in the year under
 review. The concurrent commitment to maintenance of impeccable
 Environment, Health and Safety (EHS) standards has borne fruit by way
 of lowest ever levels of power and water consumption per cigarette
 produced. Additionally, all the manufacturing facilities have achieved
 100% solid waste recycling.
 
 It is a matter of deep satisfaction that in recognition of its
 excellence in EHS standard, several awards were conferred on your
 Company during the year. All the 4 cigarette factories won the ‘5-Star
 rating’ from the British Safety Council, UK. The Bengaluru, Saharanpur
 and Kidderpore factories won the ‘Occupational Health and Safety Gold
 Medal Award’ from the Royal Society for Prevention of Accidents
 (ROSPA), U.K. and the ‘Greentech Gold Award for Excellence in Safety
 Management’ from the Greentech Foundation, New Delhi. The Bengaluru,
 Kidderpore and Munger factories won the ‘Greentech Gold Award for
 Excellence in Environment Management’ from the Greentech Foundation,
 New Delhi. Additionally, the Bengaluru factory won the ‘Safety
 Innovation Award’ from the Institution of Engineers, New Delhi and the
 Munger factory won the ‘Occupational Health and Safety Gold Award’ from
 the ROSPA, U.K., the Winners Trophy – ‘Safety Health and Environment
 Award’, CII, Eastern Region, the ‘National Award for Excellence in
 Water Management’, CII and the ‘Innovative Project Award for Energy
 Conservation Initiatives’, CII, whilst the Kidderpore factory won the
 ‘Award for Outstanding Performance in Environment Health and Safety’,
 CII, the ‘Suraksha Puraskar Award’ from The National Safety Council,
 Mumbai and the ‘Golden Peacock Gold Award for Occupational Health and
 Safety’ from Institute of Directors, New Delhi.
 
 The discriminatory taxation regime on cigarettes within the overall
 tobacco industry remains the biggest challenge faced by the domestic
 cigarette industry. The extremely high rates of excise duties coupled
 with VAT renders cigarettes unaffordable to the common man and drives
 the growing consumption of tobacco in the form of lightly taxed
 products like bidis, guthka, chewing tobacco, zarda, etc.  The steep
 imposition of taxes increases the arbitrage opportunity not only for
 smugglers of international brands, but also for clandestine domestic
 players who produce and sell cheap cigarettes by evading Excise and
 VAT. It is estimated that consequent to the 30% equivalent increase in
 tax rates on cigarettes during the year under review, the volume of
 these illegal cigarettes has doubled from around 150 million per month
 to nearly 300 million per month.
 
 The unprecedented increase in the rates of excise duties on non-filter
 cigarettes in the 2008 Union Budget will only further induce consumers
 to move to cheaper and revenue-inefficient tobacco products, including
 smuggled and tax evaded cigarettes.
 
 Your Company believes that the economic potential of tobacco can be
 maximised through moderation of taxes on cigarettes, minimisation of
 discriminatory taxes between different classes of tobacco products and
 a regulatory framework that addresses the genuine concerns of all the
 stakeholders of the tobacco industry. This is borne by the experience
 of countries like Brazil and China where moderate taxes and pragmatic
 policies have combined to serve the twin objectives of tobacco control
 and Exchequer revenue.  As the 3rd largest tobacco grower and the 2nd
 largest tobacco consumer in the world, India can also reap a rich
 economic harvest from tobacco even while implementing tobacco control
 policies. The need, however, is for a balanced agenda on tobacco, both
 fiscal and regulatory.  Your Company continues to engage with the
 policy-makers in this regard.
 
 As mentioned in earlier years, the Honourable Supreme Court declared
 the various State luxury tax levies on cigarettes and other goods as
 unconstitutional. The Court further directed that if any party, after
 obtaining a stay order from the Court, had collected any amount towards
 luxury tax from its customers / consumers, such amounts should be paid
 to the respective State governments. Since your Company had not charged
 or collected any amounts towards luxury tax during the relevant period,
 there is no liability on the Company in this regard. However, the State
 of Andhra Pradesh has filed a contempt petition in the Supreme Court
 claiming a sum of about Rs.323.25 crore towards luxury tax, and a
 further sum of about Rs.261.97 crore towards interest, on the
 allegation that your Company had charged and collected luxury tax from
 its customers, but in view of a stay order passed by the Court on 1st
 April, 1999, did not pay the tax to the Government. The State’s
 contention is baseless, contrary to facts and is also contrary to the
 assessment orders passed by the State luxury tax authorities
 consistently holding that the Company, right from 1st March, 1997, did
 not charge or collect any amount towards luxury tax from its customers.
 Accordingly, the State’s petition is being contested.
 
 The year ahead is fraught with extreme uncertainties, since for the
 first time in the history of the industry, manufacturers will not be
 able to position viable offers for consumers of non-filter cigarettes
 in view of the massive increase in excise duty rates in this segment.
 This challenge coupled with the harsh regulatory climate presents a
 daunting operating environment that will, undoubtedly, test the
 resilience of all legitimate players in the industry. Your Company is,
 however, confident that the trust reposed on it by consumers together
 with its robust strategic initiatives – based on excellence in product
 quality and innovation in manufacturing and operations – will enable it
 to retain its leadership position in the market.
 
 FMCG Others
 
 In the short to medium term, over half of India’s population will
 remain below the age of 25 and according to the United Nations, India’s
 working age population (i.e. 15-64 year olds) is projected to surge by
 150 million to a total of 854 million over the decade from 2005 to
 2015. In 2020, the average Indian will be only 29 years old, compared
 with the average age of 37 in China and US, 45 in Western Europe and 48
 in Japan. This ‘demographic dividend’ underlines India’s growth story.
 
 The spurt in India’s per capita GDP to about Rs.32,000 is resulting in
 a rapidly growing middle class. According to one recent study by
 McKinsey and Co., India’s middle class – defined as those with annual
 incomes between Rs.1.8 lacs and Rs.8.9 lacs – has increased to 13
 million households or about 50 million people.
 
 Further, as is well known, urbanisation increases with rising per
 capita GDP in a ‘hockey stick’ fashion with cities providing large
 economies of agglomeration for individual activity. If India’s per
 capita GDP were to grow at a double-digit rate, as is being targeted by
 the government, over 40% of Indians could be living in cities in the
 next decade against the 30% living in urban areas today.  (Source:
 World Bank and Lehman Bros)
 
 Your Company’s bullishness on the future prospects of the FMCG industry
 is anchored on the interplay of demographic dividend, rising incomes
 and increasing urbanisation.  The low penetration of many FMCG products
 and the growing population of working women also augur extremely well
 for the sector’s growth. Your Company is uniquely positioned to tap the
 emerging opportunities in this sector by blending and synergising the
 diverse pool of competencies residing in its various businesses.
 
 Accordingly, during the year under review, your Company continued to
 rapidly scale up the new FMCG businesses comprising Branded Packaged
 Foods, Lifestyle Retailing, Education and Stationery Products and
 Safety Matches & Incense Sticks (Agarbattis). Your Company’s presence
 in this sector was further enhanced with the launch of a portfolio of
 Personal Care Products under a carefully designed brand architecture.
 
 It is a matter of immense satisfaction that the Trade Marketing and
 Distribution initiatives of your Company continue to deliver high
 value. Your Directors are happy to report that the significant
 investments made in scaling up the Trade Marketing and Distribution
 infrastructure, backed by focused channel management, have
 substantially enhanced the market standing of your Company’s FMCG
 products.
 
 The Segment Report set out in Schedule 20 to the Accounts reflects the
 outcome of this rapid scaling up.  Segment Revenues grew by 49% over
 2006/07 to touch Rs.2511 crores during the year.
 
 Segment Results reflect the gestation costs of these businesses largely
 comprising costs associated with brand building, product development
 and infrastructure creation.  Highlights of progress in each category
 are set out below.
 
 Branded Packaged Foods
 
 The Branded Packaged Foods business continued to expand rapidly with
 sales growing by 57% over the previous year. The impressive scale up
 spanned all categories, attesting the market standing and consumer
 franchise of your Company’s brands. Relentless focus on providing
 consumers well-differentiated best-in-class products, supported by
 significant investments in product development, innovation,
 manufacturing technology and unmatched distribution infrastructure have
 dramatically enhanced brand equity of this business. It is a matter of
 pride and satisfaction that both ‘Aashirvaad’ and ‘Sunfeast’ command
 consumer spends of nearly Rs.1,000 crore each in a short span of time.
 
 Enthusiastic consumer response has enabled the ‘Bingo!’ range of potato
 chips and finger snack foods to acquire a double-digit market share
 within just one year of launch.  Consumer acceptance of this order is
 rare and evidences your Company’s ability to leverage its deep consumer
 insights, exploit the cuisine expertise of its Hotels Division and
 unleash its superior brand building capabilities.
 
 The ‘Bingo!’ launch received wide commendation for its width of
 portfolio and the high-energy clutter breaking marketing campaign. The
 business drew on the strong agri-sourcing linkages of your Company. It
 will progressively leverage its access to potato tuber technology
 arising out of the acquisition, during the year under review, of
 Technico Pty Ltd., Australia, by Russell Credit Ltd., a wholly owned
 subsidiary of your Company, to ensure security of supply and achieve
 critical buying efficiencies in cost and quality.
 
 The biscuit category continued its growth momentum with sales growing
 by 53%. The ‘Sunfeast’ range of biscuits was further expanded with the
 launch of ‘Coconut’ and ‘Nice’ variants as well as ‘Sunfeast Benne
 Vita’ flaxseed biscuits, Special Edition of ‘Sachin’s Fitkit’ multi
 grain biscuits and ‘Golden Bakery’ premium cookies. The excise relief
 accorded in the budget to low and mid-priced biscuits, consistent with
 the government’s stated intention to promote the food processing
 industry, has given a fillip to the sector. It is hoped that the
 government would respond favourably to the industry’s representation
 and extend the relief to the entire category.
 
 In the staples category, ‘Aashirvaad’ further built on its leadership
 position with revenues growing by 43%.  It continues to draw upon the
 agri sourcing strengths of your Company’s e-Choupal network to gain
 competitive advantage by obtaining superior quality wheat at
 competitive costs. The business has successfully segmented the market
 through an expanded product range at appropriate price points.
 ‘Aashirvaad Select’ was positioned as a premium offering. ‘Aashirvaad
 MP Chakki’ atta was launched in target markets. ‘Aashirvaad’ spices
 grew by 49% leveraging the in-house agri-sourcing and crop development
 skills.
 
 The confectionery category recorded robust sales with revenues growing
 by 40% over last year mainly driven by ‘Deposited Mint’ and ‘Eclairs’.
 New variants in the ‘Mint-o’ and ‘Candyman’ range were launched during
 the year to expand consumer choice. A combination of effective
 distribution and aggressive trade marketing supported by a strong
 supply chain have helped the business to overtake incumbent market
 leaders and establish ‘Candyman’ and ‘Mint-o’ as the top brands in
 their respective segments.
 
 In the Ready-to-Eat (RTE) group, ‘Sunfeast PastaTreat’ and ‘Aashirvaad
 Instant Mixes’ have grown by more than 100%. ‘PastaTreat’ has created a
 new category to address the snacking habits of urban consumers. Export
 of ambient stable products under the ‘Kitchens of India’ banner has
 shown a robust growth and is now well established in the US market for
 Ready-to-Eat Indian food. These products are already available in more
 than 4,500 stores across the US. They also enjoy a strong position in
 Canada.
 
 During the year, the business received accolades from reputed
 organisations such as NDTV Profit, Business Standard, Business Today
 and Avaya Global Connect for a range of accomplishments: the successful
 launch of ‘Bingo!’, superior consumer relations and responsiveness,
 leadership in the foods sector and the best managed FMCG business in
 India.
 
 The year ahead presents a unique challenge to the business in the shape
 of an unprecedented rise in commodity prices across the board,
 including wheat, vegetable oil, maize and skimmed milk powder. Coupled
 with the soaring fuel prices, the task of growing volumes without
 adversely impacting margins has been rendered extremely challenging.
 However, the economic growth momentum in the country is likely to lend
 support. Only a sustained supply side correction can ease inflationary
 pressures. In the interim, the Government should consider removal of
 Excise Duty and standardisation of the VAT rate at 4% for all food
 products to provide relief to the consumers and sustain growth in this
 sector.
 
 Lifestyle Retailing
 
 Your Company’s Lifestyle Retailing business continued to enjoy a high
 brand salience in the minds of consumers, both in the premium and
 popular segments of the branded apparel market. Domestic sales grew by
 26% over the previous year, while exports registered a growth of 17%.
 
 In the premium segment, ‘Wills Lifestyle’ continues to be a leader with
 a range that provides a classy expression of contemporary trends,
 styled and accessorised to give discerning customers the look of the
 season, in tune with the international fashion mood. The stature and
 premium imagery of the ‘Wills Lifestyle’ brand was further reinforced
 during the year through its association with the ‘Wills Lifestyle India
 Fashion Week’, the country’s most prestigious lifestyle event. In a
 ‘Ramp to Racks’ initiative, the brand
 
 teamed up with the leading designers of the country to create the
 ‘Wills Signature’ range of designer-wear, which has been very well
 received by the consumers. The introduction of the ‘Essenza Di Wills’
 and ‘Fiama Di Wills’ range of personal care products has helped augment
 the lifestyle portfolio. These products have met with encouraging
 response at the ‘Wills Lifestyle’ outlets. The business re- launched
 its customer privileges programme, ‘Club Wills’, by incorporating a
 Platinum category, which offers more personalised services to enhance
 the shopping experience.  During the year the company also launched the
 new concept ‘Wills Lifestyle’ stores designed by a well known US based
 design firm specialising in retail.
 
 The ‘Wills Lifestyle’ brands are now available nationwide in your
 Company’s exclusive stores, as well as in leading departmental stores.
 The chain of ‘Wills Lifestyle’ stores offers a complete fashion
 wardrobe comprising ‘Wills Classic’ formal wear, ‘Wills Sport’ relaxed
 wear, and ‘Wills Clublife’ evening wear, along with accessories for
 both men and women. The soaring rental costs have hampered the pace of
 store expansion, as it has for the rest of the industry.  The business
 is taking early positions in key malls and considering selective
 ownership of stores to mitigate the impact of rising rental costs and
 maintain its growth trajectory.
 
 ‘Wills Lifestyle’ was rated amongst the top 5 Luxury brands in the
 country in a Global Luxury Survey conducted by TIME Magazine. ‘Wills
 Lifestyle’ was also voted as the ‘Retailer of the Year’ in ‘Fashion &
 Lifestyle’ category at the Asia Retail Congress, 2008.
 
 In the popular ‘Youth’ segment, ‘John Players’ delivered a strong
 performance, generating high buzz through its vibrant imagery, youthful
 product portfolio and association with youth icon, Hrithik Roshan. The
 brand has established a strong leadership presence in this segment. The
 vibrant portfolio comprising youthful products such as cargoes, denims,
 suits and jackets helped enhance brand appeal, while the ‘Signature
 Line’ a range of glamour wear incorporating the fashion preferences of
 the brand ambassador, gave the brand portfolio its edgy face.  ‘John
 Players’ now enjoys a strong pan India presence.  The business will
 continue to aggressively expand its retail presence.
 
 During the year, the business launched its new brand ‘Miss Players’.
 The brand, positioned to make a lively and playful statement, brings to
 the market trendy fashion wear for young women. It offers a vibrant
 wardrobe of cool casual- wear, exciting party-wear and chic work-wear.
 The well- known film actor Amrita Rao is the face of the brand. She
 brings life to the brand philosophy of ‘playing it cool’. ‘Miss
 Players’ is now widely available in ‘Miss Players’ exclusive stores,
 select ‘John Players’ stores, leading large-format retail chains and
 key multi brand outlets across the country.
 
 In the area of apparel exports, the growth in turnover was healthy
 despite the depreciation of the US dollar against the rupee. However,
 margins were under serious pressure.  Nevertheless manufacturing
 capacities were augmented to offer a wider product portfolio, the
 existing customer base was consolidated and relationships established
 with potential high value customers.
 
 The business leveraged the expertise of leading global consultants to
 strengthen its product design and engineering capability. New dedicated
 high quality supply sources were added to further support the
 robustness of the supply chain.  The business also made significant
 investments in Information Technology to augment real time data
 visibility.  These strategic initiatives will enable the business to
 substantially increase the fashion quotient of its product range,
 improve operational effectiveness and enhance customer intimacy.
 
 Education & Stationery Products
 
 The Stationery business recorded an impressive sales growth of 72% over
 the previous year, positioning your Company as the largest marketer of
 notebooks in India. Its two flagship brands, namely ‘Classmate’ for the
 student community and ‘Paperkraft’ for the discerning working
 executives, have established a strong beachhead in the Indian
 stationery market in a short span of time. This success has clearly
 been achieved on the strength of quality and innovation, which have
 yielded a growing consumer franchise, particularly among students.
 
 The market for notebooks in India is highly fragmented and dominated by
 regional and local players. There has been little investment in product
 quality, brand building and national distribution. The business has
 played a pioneering role in partnering over 15 small-scale units to
 upgrade their quality, delivery capability and business processes.  8
 of these units were awarded the ISO 9001:2000 certificate, which is a
 first for the stationery industry. This accomplishment underscores the
 mutual benefits of a marketing partnership between a large marketing
 company and small scale manufacturers.
 
 The business has systematically invested in product superiority, brand
 building and the creation of robust demand and supply side networks.
 These strategic initiatives have positioned ‘Classmate’ as the top
 notebook brand in India.  The business has effectively leveraged your
 Company’s world class paper manufacturing capability to impart
 unmatched quality to its product range. Apart from superior physical
 characterstics, the paper used in ‘Classmate’ notebooks is also
 environment friendly, being free from elemental chlorine.
 
 The business has painstakingly built brand equity through innovative
 cover designs, trivia pages and impactful point of sales communication.
 Consumer preference and brand loyalty have been created by leveraging
 the power of your Company’s ‘Citizen First’ philosophy by which a
 committed contribution is made to rural development for every Classmate
 notebook bought by the consumer.
 
 During the year, the business enlarged the size and scale of its school
 contact programme, the ‘Classmate Young Author & Artist Contest’, which
 drew participation from over 5,000 schools and a million students
 across 34 cities.  This has led to deeper engagements with all
 stakeholders viz. students, teachers and academicians. The distribution
 infrastructure was strengthened by expanding the network of specialist
 distributors and stockists to service 2,000 markets.
 
 Buoyed by the success of ‘Classmate’, your Company plans to introduce a
 slew of complementary education & stationery products by further
 leveraging the investment in the new paper machine at the Paperboards &
 Specialty Papers Division. With the macro economic indicators for
 education being extremely positive, your Company’s stationery brands
 are well poised to lend their equity to a wider assortment of products,
 which will exploit its demand and supply side capabilities.
 
 During the year, the business launched ‘Classmate Fun N Learn’
 children’s books for the pre-school segment. These have been extremely
 well received and consequently distribution is being extended to more
 markets.
 
 In view of the quantum growth opportunities presented by the education
 & stationery products market, your Company has decided to scale down
 its greeting cards business which has been adversely impacted by the
 rapid emergence of e-technology. Accordingly, your Board of Directors
 has approved re-naming the business as ‘Education & Stationery Products
 Business’.
 
 Safety Matches
 
 The brand portfolio of your Company combined with that of Wimco Ltd.
 continues to enjoy a strong consumer franchise in almost all markets in
 India. Continuous product development and new product introductions
 based on deep consumer insights have sustained the vitality of the
 business’s brand portfolio. Consequently, growth has been driven by
 value added products, with the combined portfolio delivering a topline
 growth of 8%. In the continuing pursuit of this strategy, the business
 launched new value added offers such as ‘Aim Mega’ and ‘Aim Metro’
 during the year.  Driven by wide availability, these brands are
 steadily gaining market share.
 
 The business continued to take advantage of the synergy benefits
 accruing from the acquisition of Wimco Ltd. two years ago by Russell
 Credit Ltd., a wholly owned subsidiary of your Company. The business
 strengthened its foothold in the international market by enhancing its
 presence in the key markets of Middle East and Africa. The business
 continues to source significantly from the small scale sector, working
 closely with these units to improve their competitive capability
 through the induction of technology and best practices.
 
 The steep escalation in the cost of key input materials like wood and
 chemicals has subjected the industry to extreme financial pressures.
 Your Company has responded to this scenario with renewed focus on
 product development and operational efficiencies.
 
 The long term sustainability of this industry hinges crucially on
 technology induction. Introduction of a uniform taxation policy aimed
 at providing a level playing field to all manufacturers would trigger
 investments towards modernisation of this industry. The Government
 should seriously consider creating such an enabling environment which
 will not only help the industry improve its global competitiveness, but
 will also provide a safer working environment for the large population
 of workers engaged in this industry.
 
 Incense sticks (Agarbattis)
 
 The Agarbatti business recorded an impressive 25% growth in revenues,
 primarily driven by increasing consumer franchise for the ‘Mangaldeep’
 brand combined with improved distribution reach. ‘Mangaldeep’ is
 already the second largest national brand in the industry, riding on
 the success of two key sub-brands, namely ‘Madhur 100’ and ‘Yantra’.
 Launched last year, ‘Yantra’ has received wide consumer acceptance on
 the strength of its unique fragrance which evokes a temple ambience. It
 is expected to become a national drive brand.
 
 In line with the Company’s commitment to the ‘triple bottom line’, the
 Agarbatti business indirectly provides livelihood opportunities to 5000
 people. The business continues to work in conjunction with NGOs and
 Self Help Groups in Tripura, Bihar, Andhra Pradesh, Tamil Nadu etc.,
 extending support to them by training village women in rolling
 agarbattis, thereby creating income streams for women from poor rural
 households. The business continues to collaborate with small and medium
 enterprises to harness the best of their entrepreneurial skills and
 raise their process and quality standards. Specific and well directed
 inputs from your Company have enabled 7 out of 10 agarbatti
 manufacturing units to receive ISO 9001 : 2000 certification.
 
 In order to exploit other opportunities in the ‘air care’ segment, the
 business has commenced export of premium perfumed candles to the US.
 The business has also launched a range of premium aromatic candles in
 the Indian market under the brand ‘Expressions’. Given the growing
 popularity of aroma therapy and the changing gifting habits in India,
 these products are expected to do well across segments.
 
 Personal Care Products
 
 In line with your Company’s stated strategy of aggressively scaling up
 the FMCG initiatives through portfolio expansion, the Personal Care
 business was commenced during the year with the launch of a range of
 shampoos, soaps, shower gels and conditioners under the brand names of
 ‘Fiama Di Wills’, ‘Vivel Di Wills’, ‘Vivel’ and ‘Superia’. Anchored on
 meticulous consumer research, these products have been formulated to
 bring a unique blend of nature and science to discerning consumers.
 Each of these brands addresses an identified segment of the market with
 differentiated value benefits.
 
 The initial market response to your Company’s products under the ‘Fiama
 Di Wills’, ‘Vivel Di Wills’, ‘Vivel’ and ‘Superia’ brands has been
 encouraging. The range is being progressively extended nationally. The
 ‘Di Wills’ family, strongly endorsed by the ‘Wills Lifestyle India
 Fashion Week’, the country’s premier fashion event, provides an
 opportunity for the business to engage with consumers at the luxury
 end. The business has unleashed an aggressive communication strategy
 with appropriate celebrity association. The combined quality of promise
 and performance is expected to speedily build an appreciable consumer
 franchise for these brands.
 
 At a total size of Rs.20,000 crores, the Personal Care industry in
 India continues to grow at a healthy 10 - 12% per annum due to the
 interplay of economic, demographic and sociological factors discussed
 earlier in this report.  The sector holds immense appeal for your
 Company on account of its scale and growth potential, given the low
 market penetration in these categories, other than soaps.  A rapidly
 growing luxury segment adds to the appeal.  This arena of opportunity
 fits well with your Company’s established strengths in brand building,
 trade marketing and lifestyle retailing, all of which can be leveraged
 to build a successful business.
 
 B. HOTELS
 
 The hotel industry witnessed yet another year of robust growth aided by
 India’s economic momentum and its increasing attractiveness as a
 business and tourist destination. Foreign tourist arrivals were
 buoyant, touching 5 million in 2007, representing a growth of 12% over
 the previous year. Estimates of foreign exchange earnings from tourism
 of US Dollar 10 billion during 2007/08 reflect an increase of 32% over
 the previous year. Domestic tourism posted a handsome growth of about
 20% in 2007 to touch 500 million travellers.
 
 India has 27 properties on the World Heritage List, the second highest
 in Asia after China’s 34. The World Travel and Tourism Council has,
 quite rightly, identified India as one of the world’s foremost tourist
 growth centres in the coming decade. India’s comparative cost advantage
 in specific niches such as medical and adventure tourism can
 significantly synergise and enhance the country’s traditional tourism
 potential premised on its rich history and cultural heritage. Despite
 such enormous potential, India’s share in the world travel & tourism
 demand remains extremely low. India’s travel and tourism economy, as a
 share of GDP, is estimated at only 6.1% which is well below the world
 average of 9.9%.
 
 India’s tourism infrastructure including airport facilities, hotels and
 roads to tourist destinations, needs to be upgraded to international
 standards. The number of hotel rooms in India, including approved
 projects, is estimated at 110,000 of which, around 30% is in the 5 Star
 / Luxury segment – a woefully inadequate capacity, lower than even some
 of the much smaller South-East Asian countries like Singapore, Malaysia
 and Thailand. It is estimated that India would need an additional
 50,000 rooms in the next 2 to 3 years to cater to the projected tourist
 arrivals into the country. However, the astronomical price of land
 remains the key hurdle in the realisation of this objective.
 
 During the year under review, the hotels business performed well with
 revenues growing by 12% to touch Rs.1100 crores driven by better room
 rates and higher food & beverage sales. Gross Operating Profit (PBDIT)
 grew 15% over the previous year to touch Rs.475 crores, while segment
 results (PBIT) at Rs.411 crores grew by 17%. The results would have
 been even more impressive but for the adverse impact of the
 strengthening rupee in the first half of fiscal 2007/08.  The business
 resorted to rupee billing from September 2007 onwards as an insurance
 against rupee appreciation.  The business maintained its leadership in
 terms of operating efficiency as measured by the ratio of PBDIT to Net
 Income.
 
 Consequent to the exclusive tie-up with its partner Starwood, 7 of
 ITC’s finest properties were repositioned and associated with the
 premium ‘Luxury Collection’ franchise with effect from 15th May, 2007.
 Globally, only a limited number of exclusive properties carry the
 ‘Luxury Collection’ endorsement, offering unique experiences indigenous
 to their destination. In India, your Company’s ‘Luxury Collection’
 properties stand for the true essence of Indian hospitality.  This
 exclusive franchise acknowledges ITC’s leadership in the premium
 segment and positions it amongst the world’s finest hotel chains.
 
 ITC-Welcomgroup has emerged as the country’s 2nd largest hotel chain
 offering a choice of over 90 hotels across 77 destinations in India
 under 4 different brand propositions - ‘ITC Hotels’, ‘Welcom Hotel’,
 ‘Fortune’ and ‘Welcom Heritage’ and 4 properties carrying the Sheraton
 franchise, aggregating to an inventory of 6,000 plus rooms. About half
 of this room inventory is at the premium end, owned between your
 Company and its subsidiaries. The balance consists of third party owned
 properties operating under the ‘WelcomHotel’, ‘Fortune’ and
 ‘WelcomHeritage’ brands.
 
 Comprehensive renovation and product upgradation programmes were
 completed at 4 properties including the premium Towers Block at ITC
 Maurya, New Delhi.  In keeping with the Company’s strategy of
 maintaining the contemporariness and premium positioning of its
 properties, considerable investments will continue to be made in
 renovation and upgradation plans.
 
 Buoyed by the continuing impressive performance of this sector, your
 Company, as reported last year, has embarked on an aggressive
 investment led growth strategy.  Construction activity in respect of
 the super deluxe luxury hotel projects at Bengaluru and Chennai is
 progressing on schedule and several new projects entailing substantial
 investments are in various stages of implementation.
 
 The ITC-Welcomgroup chain, with its globally benchmarked levels of
 product and service excellence and customer centricity is not only well
 positioned to sustain its leadership position in the industry, but is
 also poised to emerge as the largest hotel chain in the country over
 the next few years.
 
 C. PAPERBOARDS, PAPER AND PACKAGING
 
 The Paperboards, Specialty Paper and Packaging segment recorded yet
 another year of steady growth in revenues and profits. Segment revenues
 grew by 13% over the previous year to touch Rs.2364 crores. Segment
 results at Rs.453 crores reflect a growth of 9%.
 
 Paperboards & Specialty Papers
 
 While the global paper & paperboard industry grew by about 2%, the
 industry in India witnessed a 9% growth during the year under review.
 The domestic paperboards industry, sized at 1.24 million TPA, is
 characterised by fragmented capacities, with over 100 mills servicing
 the market.  The top five manufacturers account for over 45% of the
 domestic supplies. Your Company is the market leader and the only
 significant player in the premium value added paperboard segment with
 integrated pulping operations.
 
 Driven by macro economic factors, the outlook for the industry in India
 remains positive on the demand side.  The per capita consumption of
 paper and paperboard in India at 7 Kgs. is exceptionally low compared
 to the world average of about 55 Kgs. and the Chinese average of 45
 Kgs. Sustained economic growth will progressively bridge this gap,
 resulting in a consequent surge in demand.  Accelerated growth of the
 FMCG sector, driven by consumer spending, is expected to boost demand
 for sophisticated packaging for branded products. Your Company, with
 its high quality value added paperboards, is well poised to exploit
 this opportunity.
 
 Production during the year touched 4,14,714 MT as compared to 3,90,458
 MT in the previous year. Total sales increased to 4,03,063 MT from
 3,85,005 MT, a volume growth of 5%. Sales of Value Added Paperboards
 grew by 15% driving revenue growth and market standing. Major planned
 upgrade programmes, involving complex rebuild and stabilisation of
 certain machines, adversely affected production volumes during the
 year.
 
 The year witnessed a continuing trend of steep inflation in the cost of
 fuel and major raw materials. Globally, pulp and waste paper prices
 spiralled, mainly due to the widening demand supply gap. China, as the
 largest importer of input raw materials, influences the international
 prices of fibrous inputs. Uncompetitive cost structures have forced
 many North American and European mills to shut down operations, some of
 them permanently. Notwithstanding this high cost scenario, your Company
 succeeded in partially neutralising cost pressures by optimising
 opportunity buying and increasing sales realisations.
 
 Addressing the challenge of securing the long-term supply of fibre at
 competitive prices is critical for the business.  Given the downward
 trend in import duties on paperboards, cost competitiveness will be of
 vital importance. Your Company’s operating strategies, centered on
 expanding pulp capacities, improving energy management and enhancing
 internal efficiencies, are robust enough to yield sustainable cost
 advantages.
 
 Building on its pioneering ‘Elemental Chlorine Free’ bleaching process,
 the business has successfully commissioned a new pulp mill at its
 Bhadrachalam unit. The new line, which is in the process of
 stabilising, will enable the business to mitigate the impact of cost
 escalations in hardwood pulp.  The new ‘Ozone bleached’ Pulp mill, the
 first of its kind in the country, meets world-class environmental
 standards – a testimony to your Company’s commitment to the ‘triple
 bottom line’. This differentiated capability will enable the business
 to expand the market for superior value added paper and boards on the
 strength of cost competitiveness.
 
 As reported in previous years, the business has consistently pursued an
 aggressive clonal propagation strategy. It makes available
 high-yielding clones and seedlings of the desired pulp wood species to
 farmers engaged in plantation on their marginal wastelands. It also
 provides extension services to such farmers to improve productivity and
 output quality.  The quality of these clones and seedlings, products of
 the biotechnology-based R&D programme of the business, has been tested
 for its effectiveness in more than 80,000 hectares of plantations,
 including 15,000 hectares planted during the year under review. The
 business continues to collaborate with the Council for Scientific and
 Industrial Research (CSIR) to leverage contemporary bio-technology
 applications to develop high yielding pulpwood species with low lignin
 content.
 
 Your Company continues to represent to policy makers to introduce
 appropriate amendments to the Forest Conservation Act, 1980 and related
 Rules with a view to permitting the industry to use degraded forest
 land for afforestation linked to the end-use of such wood. An enabling
 Policy framework, which would inter alia promote public- private
 partnerships for the development of degraded forest lands, would go a
 long way in serving the twin objectives of securing wood supply for the
 domestic paper and paperboards industry and creating sustained
 livelihood providing economic activity in rural India.
 
 Waste paper is a key input in the manufacture of recycled boards.
 Unfortunately, mobilisation of waste paper in India is very low at 14%
 compared to 60% in developed countries.  The business has therefore
 commenced an initiative for efficient collection and recycling of waste
 paper, targeting large sources of aggregation such as schools, offices,
 residential colonies and apartment blocks. This initiative, widely
 appreciated, will contribute to a cleaner environment while enhancing
 the long term cost competitiveness of the business.
 
 The business is well on its course to achieve ‘zero solid waste’
 discharge status, with the units at Tribeni and Kovai having already
 achieved 100% compliance, and the units at Bhadrachalam and Bollaram
 being very close to achieving the same. The business has initiated a
 slew of projects that qualify for carbon credit in terms of the Clean
 Development Mechanism (CDM) under the Kyoto Protocol.
 
 The robust growth in the value added printing and writing paper segment
 in India presents an attractive opportunity, which the business plans
 to leverage by tapping your Company’s institutional strengths in
 distribution. The Indian market is witnessing a robust growth in demand
 for fine printing paper, premium quality coated paper and branded
 copier paper. The business is at an advanced stage of commissioning a
 new paper machine at its Bhadrachalam unit with a capacity of 1 lac ton
 per annum, to service this demand effective middle of 2008 when this
 machine is expected to commence commercial production.
 
 During the year, the British Safety Council awarded the ‘Sword of
 Honour’ to the Tribeni unit and the ‘5 Star Rating’ to the Kovai and
 Bollaram units. The Bhadrachalam unit was recognised for ‘Excellence in
 Energy Management’ by CII. The Bhadrachalam and Kovai units were
 conferred with the ‘National Award for excellence in Water Management
 2007’ by CII. The Bhadrachalam unit received recognition for practicing
 ‘Cleaner Production Technology and Climate Change Mitigation Measures’
 from the Andhra Pradesh Pollution Control Board.
 
 The business with its augmented capacity and capability, backed by the
 strength of its research and development team and an all-pervasive
 culture of innovation and excellence is well poised to become a major
 player in the Afro-Asian region.
 
 Packaging and Printing
 
 The Packaging and Printing business of your Company continued to invest
 in world class technology and skills.  It expanded its range of
 offerings to consolidate its position as a leading provider of high
 quality paperboard and flexibles packaging in the country. The business
 provided strategic support to your Company’s cigarette and other FMCG
 businesses by ensuring security of supplies and sustaining
 international quality at competitive prices.
 
 Deliveries from the flexibles and carton lines, commissioned at
 Haridwar and Chennai respectively during the year, are being scaled up
 to cater to the distinctive and innovative packaging requirements of
 your Company’s Branded Packaged Foods and Personal Care businesses. The
 business also built up critical volumes in the supply of value added
 packaging to the consumer electronics industry from its Chennai
 facility.
 
 The in-house capability to deliver best-in-class packaging has enabled
 your Company to crash time in the launch of new products by the Branded
 Foods and Personal Care businesses, while simultaneously contributing
 to significant enhancement of brand image. Capacities are being
 augmented further at both Haridwar and Chennai to cater to the
 increasing packaging requirements of your Company’s FMCG businesses.
 
 The business won several national awards for excellence in printing, as
 well as ‘Star’ awards from the Paper, Film and Foil Converters’
 Association (PFFCA). The Chennai unit was certified at Level 8 of the
 International Quality Rating System (IQRS) as audited by Det Norske
 Veritas (DNV), becoming the first in India to receive this rating. All
 three units, at Chennai, Munger and Haridwar, received the ‘5 Star
 Rating’ for Safety from the British Safety Council.  The Chennai
 Packaging unit was awarded the ‘Appreciation Award for Safety’ by the
 Government of Tamil Nadu for the second year in succession. The Munger
 unit received the ‘Greentech Gold Award for Safety Management and
 Environmental Excellence’ and the ‘ROSPA Gold Award’.
 
 With substantial investments in technology, quality management systems
 and manufacturing practices, the business is well poised for rapid
 growth.
 
 D. AGRI BUSINESS Cigarette Leaf Tobacco
 
 Global production of burley and oriental tobaccos declined sharply in
 2007 in Greece and the major producing countries of East Europe
 consequent to the decoupling of subsidies in the European Union. The
 constrained supply chain for such tobaccos increased farm and trade
 prices. The increase in the production of flue-cured tobaccos in
 Brazil, Zimbabwe, Argentina and the US was too moderate to mitigate the
 demand supply mismatch.
 
 In India, the size of the tobacco crop has been increasing in the past
 four years despite rising labour and input costs, largely due to the
 fact that cigarette tobacco farmers have been consistently well
 remunerated. Global supply shortages have spurred demand for Indian
 tobaccos, considerably raising prices from their traditional lows.
 Resultantly, Indian farmers have been insulated from the bargaining
 power of large buyers in the wake of global consolidation, which has
 led to the top five cigarette majors (including China) controlling 85%
 of world cigarette production.
 
 During the year under review, the business achieved a new high in
 tobacco exports for the 3rd consecutive year, and despite the sharp
 appreciation of the rupee, recorded a 21% increase in export revenues
 over the previous year.  In volume terms, exports for the year grew at
 27%. Your Company won the ‘Golden Leaf Awards’ in the TABEXPO 2007 held
 in Paris in the categories of ‘Most Committed to Quality’ and ‘Most
 Impressive Public Service Initiative’. The business continued to
 provide strategic sourcing support to your Company’s cigarette
 business.
 
 The R&D teams of the business focused on development of desired styles
 of leaf and appropriate production practices for maximising
 productivity in the Flue Cured Virginia and Burley growing regions.
 Trials on Advanced Breeding Lines (ABL) and hybrid seeds continued
 during the year in close collaboration with the Central Tobacco
 Research Institute (CTRI). Results indicate the potential for increase
 in farm productivity. Micro irrigation trials conducted in nurseries
 yielded superior quality seedlings at a lower cost of production,
 besides conserving ground water to the tune of 30% to 40%.
 
 The full benefits of the investments made in the modernisation of the
 plants at Chirala and Anaparti were realised during the year. In-house
 processing was maximised with significant improvement in asset
 utilisation.  In view of the accelerated growth of the Mysore crop,
 your Company has decided to establish a green leaf processing plant at
 a location near Mysore. Land acquisition for this project is in
 progress.
 
 Your company continues to focus on maintaining the highest safety
 standards in its factories. During the year, the Units at Anaparti and
 Chirala received the prestigious ‘Sword of Honour’ award from the
 British Safety Council. These Units also received the ‘5 star Rating’
 (Health, Safety & Environment) from the British Safety Council. The
 Chirala Unit also received the ‘Safety Innovation Award’ from the
 Institution of Engineers, New Delhi.
 
 The global supply situation continues to be tight in 2008.
 Consequently, the demand for Indian tobaccos has increased considerably
 with sharp increases in the auction prices.  In the absence of
 structural interventions to improve farm productivity and develop and
 scale up the right types of tobacco in alignment with demand, such
 short term opportunity as the present one would moderate quickly as
 other countries step up production to bridge the supply gap.
 
 On the domestic front, fresh challenges have emerged. As explained in
 an earlier section of this Report, Indian cigarette manufacturers will
 not be able to position viable offers for consumers of non-filter
 cigarettes in view of the massive increase in excise duties in this
 segment. This will adversely impact domestic demand with severe
 consequences for tobacco farmers and all others who depend on the
 tobacco value chain for their livelihood. An equitable and balanced
 approach to cigarette taxation is needed to de-risk the tobacco
 dependants from such large taxation induced discontinuities.
 
 In order to strengthen your Company’s competitive standing, several R&D
 initiatives were launched including some that provide insight into
 genetic compositions in Flue Cured Virginia tobaccos. These initiatives
 will enable the business to align R&D inputs with customer requirements
 and other market opportunities.
 
 Your Company with its strong R&D capability, modern processing
 facilities, crop development and extension expertise and deep
 understanding of customer and farmer needs is in a position to leverage
 opportunities and address challenges that lie ahead for the Indian leaf
 tobacco industry.  The business will continue to extend strategic
 sourcing support to the cigarette business even as it sustains its
 leadership position as a major exporter of quality Indian tobaccos,
 thereby catalysing the multiplier impact of increased farmer incomes to
 benefit the rural economy.
 
 Agri Commodities
 
 The year under review witnessed substantial turbulence in agri
 commodities trading. Rising crude prices and concerns over climate
 change are driving most countries to develop bio-fuels as alternatives.
 The shift to bio-fuel cultivation coupled with steadily increasing
 demand and all time low inventory levels resulted in a major spurt in
 commodity prices worldwide. In India, growing inflationary pressures
 compelled the Government to take drastic measures such as ban on
 exports, imports at nil duty, market intervention at subsidised prices
 and imposition of limits on inventory holding.
 
 These challenging circumstances adversely impacted the performance of
 the business during the first half of the year.  The business was left
 with no option but to liquidate its agri commodity inventories at
 prices lower than the remunerative procurement prices paid to the
 farmers through its e-Choupal network. The appreciating Rupee
 aggravated the situation.  Subsequently, in the second half of the
 year, with the restoration of market dynamics in the agri sector, the
 business regained its growth momentum with a fine-tuned portfolio mix.
 As a result, your Company retained its position as a prime player in
 agri business, with strong performance in Soyabean trading driving
 revenues to a new high. The value added segment of frozen foods, IQF
 (individually quick frozen) fruits, niche products like baby food,
 quality purees, high brix pulp and organic purees registered a strong
 sales growth of 41% over last year. Such a performance revalidates your
 Company’s strategy of focusing on the value added segment to capture
 better margins in products where India has a natural agro climatic
 advantage.
 
 During the year, your Company’s commodity trading operation was
 accredited with ISO 9001:2000 certification, testifying to the high
 quality process standards resident in the system. The business is
 progressively aligning its commodity portfolio with the sourcing needs
 of your Company’s Foods business to generate higher order value from
 its agri procurement infrastructure.
 
 The e-Choupal model continued to provide strategic competitive
 advantage to your Company’s Foods business by enabling purchase of
 large quantities of identity preserved, high quality wheat at
 competitive prices. During the year the business commenced procurement
 of chipstock potatoes, one of the critical raw materials in the
 manufacture of the Company’s ‘Bingo!’ brand of potato chips. A
 judicious blend of sourcing from different growth zones, and
 optimisation through in-season and off-season purchases helped in
 competitively meeting the requirement of chipstock potatoes despite a
 significant price increase in the wake of high demand and adverse
 growing conditions.
 
 The acquisition of Technico, an Australian company with technology
 leadership in the production of early generation seed potatoes, helped
 your Company access a ready pipeline of new high-yielding varieties of
 chipstock potato seeds. In order to ensure uninterrupted supply of
 chipstock potato, the business proposes to undertake initiatives like
 varietal and regional crop development.
 
 The horticulture pilot through ‘Choupal Fresh’ stores is progressing as
 per plans. The business intends to further strengthen its farmer
 linkages and its expertise in the management of perishables before
 scaling up this business.
 
 The spices business was scaled up to provide supply chain support for
 the growing spice powder sales of your Company’s Foods business. In
 order to ensure sustainable growth, the business is working closely
 with farmers, NGOs and Self Help Groups for developing a reliable
 farm-to-factory spices supply chain. Focus on special growing programs
 for organic spices and Integrated Pest Management (IPM) chillies have
 helped the business access premium export markets like Japan, US and
 the European Union. The business has entered into a unique tripartite
 agreement with the Spices Board and the State Government of Nagaland
 for developing the ‘Naga Chilli’ crop. The business is setting up a
 state-of-the-art spices grinding and sterilisation facility to support
 growth in the domestic and export markets. The business is well
 positioned to expand the product range to include value added products
 such as oleoresins.
 
 The agri-inputs part of the business grew its topline by a handsome
 49%. Its core product, ‘Wellgro Soil’, a neem- based organic manure, is
 gaining increasing acceptance amongst the farming community in Andhra
 Pradesh, Karnataka and Maharashtra. A mobile based Dealer Ordering
 System was deployed during the year to strengthen distribution. The
 business has developed a cost effective neem-based organic fertiliser,
 ‘Wellgro Grains’ for field crops. Initial results of large scale
 commercial trials on paddy crops have been very encouraging in terms of
 higher yields. Usage of Hybrids and BT seeds require application of
 specialty fertilisers. The business has launched a range of such
 fertilisers.
 
 Your Company’s rural servicing initiative under the ‘Choupal Saagar’
 banner now encompasses 21 centres across 3 states. These centres
 continue to be a one-stop shop for the farming community with a host of
 services like sourcing, training soil testing, cafeteria and health
 clinic being provided in the same complex. Apart from the doubling of
 turnover, the year witnessed improvement across the key performance
 drivers of footfalls, conversion, average realisation and product mix,
 with consequent expansion of margins.  Acquisition of suitable land
 however remains a key challenge.
 
 The throughput of the rural marketing businesses through the e-Choupal
 network experienced robust growth during the year. Channel productivity
 improved through focus on capability building of both internal staff
 and the extended organisation of Sanchalaks / Sanyojaks. Distribution
 of FMCG and Financial Services products through the network witnessed a
 growth of 36% and 335% respectively. The channel maintained its
 leadership in the distribution of life insurance and weather insurance
 products. The marketing of Kisan Credit Cards on behalf of State Bank
 of India was initiated in 4 States after a successful pilot. The
 channel, having earned the trust of customers, is now poised for a
 major expansion in the distribution of banking products.
 
 NOTES ON SUBSIDIARIES
 
 The following may be read in conjunction with the Consolidated
 Financial Statements enclosed with the Accounts, prepared in accordance
 with Accounting Standard 21. Your Company has been exempt from the
 provisions of Section 212(1) of the Companies Act, 1956 relating to the
 attachment of the accounts of its subsidiaries to its Accounts.
 Shareholders desirous of obtaining the annual accounts of your
 Company’s subsidiaries may obtain the same upon request. The report and
 accounts of the subsidiary companies will be kept for inspection at
 your Company’s registered office and those of the subsidiary companies.
 Further, the report and accounts of the subsidiary companies will also
 be available at the ‘Shareholder Value’ section of your Company’s
 website www.itcportal.com, in a user friendly, downloadable format.
 
 ITC Global Holdings Pte. Ltd., Singapore (‘ITC Global’) was placed
 under liquidation on 30th November, 2007 by the High Court of the
 Republic of Singapore vide its Order dated 30th November, 2007, on an
 application of the Judicial Managers of ITC Global. ITC Global has been
 under Judicial Management since 8th November, 1996. Consequently, your
 Company is not in a position to consolidate the accounts of ITC Global
 and its subsidiaries for the financial year ended 31st December, 2007
 or to make available copies of the same for inspection by shareholders.
 
 Surya Nepal Pvt. Ltd.
 
 The year under review has been a landmark year in the history of Nepal.
 After a prolonged period of political uncertainty and economic
 blockades, the twice postponed Constituent Assembly elections finally
 took place on 10th April, 2008, transitioning Nepal from a monarchy to
 
 a parliamentary republic. The resultant overwhelming victory gained by
 the Communist party of Nepal (Maoist) has hopefully ended the
 protracted civil war.
 
 The disturbed socio-political environment reflected in a lower GDP
 growth of 2.3% for the year ended 16th July, 2007 against 3.1% in the
 previous year. However, with a politically settled democratic scenario,
 it is expected that the economy will be back on a growth trajectory
 during 2008/09.
 
 Notwithstanding the challenging socio-political environment, the
 twelve-month period ended 13th March, 2008, witnessed Sales growth of
 16% to Nepalese Rupees 637 crores (net of VAT), while Profit After Tax
 stood at Nepalese Rupees 92 crores representing an increase of 33% over
 the previous year. The company continues to be the single largest
 contributor to the Exchequer accounting for about 3.7% of total
 revenues of the Government of Nepal. During the year, labour unrest at
 the company’s Simra factory resulted in a stoppage of operations for 20
 days. A Terai blockade from 13th February, 2008 for 15 days worsened
 the pressure on the supply chain. Despite the difficult operating
 conditions, the company’s proactive supply chain and inventory
 management minimised the impact of such disruptions.
 
 The company’s cigarette business continued to make satisfactory
 progress with focus on improving value share.  New brands were launched
 to strengthen the portfolio, consolidating its position in key product
 segments and channels. During the year, the company launched ‘Surya 24
 CARAT Lights’ and ‘Kings’ in an international bevel edge pack at the
 super-premium end of the market and ‘Pilot Filter’ at the lower end of
 the regular size filter segment.  The new brands reflecting the well
 researched consumer insight have been well received by consumers. The
 cigarette factory at Simra was accredited with ‘OHSAS 18001:1999
 Certification’. The Employee’s Housing Colony in Simra was accredited
 with ‘OHSAS 18001:1999’ and ‘ISO 14001:2004’ certification during the
 year.
 
 The company’s garments business continued to fulfil export orders for
 the ‘Wills Lifestyle’ and ‘John Players’ range of apparel from the
 Lifestyle Retailing Business of your Company. The continued imposition
 of Additional Customs Duty of 4% on all garment imports into India is a
 cause of concern for the company. The company continues to make
 representations to the appropriate authorities in this regard and is
 hopeful that this issue will be redressed soon. The company’s
 state-of-the-art garment manufacturing facility at Biratnagar is
 expected to commence production shortly.
 
 In the domestic market, ‘John Players’ has consolidated its position in
 the branded apparel segment. ‘Springwood’, the company’s mass-market
 brand, which offers an alternative to low price imports from China and
 South East Asia, was successfully launched across the country. Sales
 and consumer response have been extremely encouraging.
 
 The company remains committed to its role as a responsible corporate
 citizen. As part of its commitment to promote Sports and Tourism in the
 country under the Surya Nepal Khelparyatan initiative, the company in
 association with the Nepal Tourism Board sponsored the country’s most
 premier professional Golf tournament – the ‘Surya Nepal Masters’. The
 company also sponsored the ‘Surya Nepal 9th SAARC Golf Championship’,
 which was held for the first time in Nepal under the aegis of the Nepal
 Golf Association. During the year, the company was conferred with the
 prestigious ‘Federation of Nepalese Chambers of Commerce and Industry
 National Excellence Award’ in recognition of the highest standards
 achieved in professional management.
 
 The company declared a Dividend of Nepalese Rs.120/- per equity share
 of Nepalese Rs.100/- each for the year ended 32nd Ashad, 2064.
 
 Srinivasa Resorts Ltd.
 
 During the financial year ended 31st March, 2008, the company recorded
 net revenues of Rs.68.97 crores (previous year – Rs.77.62 crores) and a
 Profit Before Tax of Rs.21.57 crores (previous year – Rs.31 crores).
 Net Profit stood at Rs.14.41 crores (previous year – Rs.20.69 crores)
 after providing for income tax of Rs.7.16 crores (previous year
 Rs.10.31 crores).
 
 In order to sustain contemporariness and bolster the premium
 positioning of the hotel, 38 guest rooms were renovated during the year
 under review. The non availability of these rooms, coupled with the
 additional supply of new hotel rooms in Hyderabad, adversely impacted
 the occupancy of the hotel, leading to a temporary drop in revenues and
 profitability.
 
 The Board of Directors of the company has recommended a dividend of
 Rs.2/- per equity share of Rs.10/- each for the year ended 31st March,
 2008.
 
 Fortune Park Hotels Ltd.
 
 During the financial year ended 31st March, 2008, the company recorded
 net revenues of Rs.1019.85 lacs (previous year – Rs.724.57 lacs) and
 earned a Net Profit of Rs.157.54 lacs (previous year – Rs.138.26 lacs)
 after providing for income tax of Rs.94.35 lacs (previous year –
 Rs.78.79 lacs).
 
 The Board of Directors of the company has recommended a dividend of
 Rs.4/- per equity share of Rs.10/- each for the year ended 31st March,
 2008.
 
 The company, which caters to the mid range to upscale segment, signed
 up nine alliances during the year for hotel properties situated at
 various locations, taking the total number of properties under the
 ‘Fortune’ brand to 42, with a total room count of 3,281. Of these, 23
 are operating hotels, while 5 hotels are slated to be commissioned
 during the course of the financial year 2008/09. The company seeks to
 be a dominant player in the mid / upper scale segment, providing
 quality services that would position ‘Fortune’ as the premier ‘value’
 brand in the Indian hospitality sector.
 
 Bay Islands Hotels Ltd.
 
 During the year 2007/08, the company earned an income of Rs.83.16 lacs
 (previous year – Rs.63.75 lacs) and a Net Profit of Rs.54.14 lacs
 (previous year – Rs.41.38 lacs) after providing for income tax of
 Rs.23.60 lacs (previous year – Rs.16.87 lacs).
 
 The Board of Directors of the company has recommended a dividend of
 Rs.40/- per equity share of Rs.100/- each for the year ended 31st
 March, 2008.
 
 King Maker Marketing
 
 King Maker Marketing Inc. (KMM), a company registered in the State of
 New York, USA, became a wholly-owned subsidiary of your Company in May
 2007. During the year KMM expanded its distribution capability to
 facilitate your Company’s export initiatives in the US Tobacco market.
 It continues to provide to your Company market research services
 relating to the US Tobacco and FMCG markets.
 
 The year witnessed an increase in the customer base by nearly a third,
 leading to an equivalent increase in Net Sales over last year, despite
 falling industry volumes. Growth was driven by the strong performance
 of ‘Ace’ launched in 2006 and increase in the sales of Roll Your Own
 Tobaccos (RYO).
 
 Operating profit margins were adversely impacted by the higher
 manufacturing costs of Low Ignition Propensity Cigarettes (LIP) whose
 share in the product mix is progressively increasing in the wake of
 more States legislating LIP as mandatory. Profitability was also eroded
 by higher Master Settlement Agreement (MSA) contributions resulting
 from KMM’s higher relative tobacco market share.
 
 As reported last year, legislation to grant jurisdiction to the Federal
 Drug Administration (FDA) for Tobacco products is pending before the US
 Congress. The final shape of the legislation and its impact are likely
 to be known only in the coming year.
 
 Russell Credit Ltd.
 
 During the year, the company earned a total income of Rs.90 crores and
 a Profit After Tax of Rs.86 crores.  The company paid a dividend of
 11.6% aggregating Rs.75 crores for the year ended 31st March 2008.
 
 In line with its objective of making long-term investments in areas of
 strategic interest for the ITC Group, the company acquired the entire
 shareholding of Technico Pty Ltd., Australia (Technico) on 17th August,
 2007. Upon such acquisition, Technico and its subsidiaries Technico ISC
 Pty Ltd., Australia; Technico Asia Holdings Pty Ltd., Australia;
 Technico Technologies Inc, Canada; Technico Group America Inc, USA;
 Technico Horticultural (Kunming) Co.  Ltd., China and Chambal Agritech
 Ltd., India have become subsidiaries of the company. The US subsidiary
 has since been wound up.
 
 The wholly owned subsidiaries of Wimco Ltd. namely Wimco Boards Ltd.
 and Wimco Seedlings Ltd. have amalgamated with the parent company with
 effect from 1st April, 2007.  Consequent to such amalgamation, the
 shareholding of the company in Wimco Ltd. has increased from 94.25% to
 96.82%.
 
 In order to consolidate strategic investments and streamline the
 investment operations, 3 associate companies namely Newdeal Finance and
 Investment Ltd., Megatop Financial Services and Leasing Ltd. and
 Peninsular Investments Ltd. amalgamated with the company with effect
 from 1st April, 2007.
 
 As stated in earlier Reports, a petition was filed by an individual in
 the High Court at Calcutta, seeking an injunction against the company’s
 Counter Offer to the shareholders of VST Industries Ltd., made in
 accordance with the Securities and Exchange Board of India (Substantial
 Acquisition of Shares & Takeovers) Regulations, 1997, as a competitive
 bid, pursuant to a Public Offer made by an Acquirer, which closed on
 13th June, 2001. The High Court at Calcutta, while refusing to grant
 such an injunction, instructed that the acquisition of shares pursuant
 to the Counter Offer by the company and the other Acquirer, would be
 subject to the final Order of the High Court, which is still awaited.
 Similar suits filed by an individual and two shareholders, in the High
 Courts of Delhi at New Delhi and Andhra Pradesh at Hyderabad, had
 earlier been dismissed by the respective High Courts.
 
 BFIL Finance Limited
 
 The company continues to focus its efforts on recoveries through
 negotiated settlements, including property settlements. Legal cases
 against various defaulters are being pursued. During the year, some
 negotiated settlements were concluded and the company effected
 collections aggregating Rs.144 lacs. As at 31st March 2008, the company
 had no liabilities outside the ITC Group.  The company plans to
 intensify its efforts for collection of dues through negotiated
 settlements in the coming year.  The company will examine options for
 further business opportunities at the appropriate time.
 
 Gold Flake Corporation Limited, Wills Corporation Limited, Greenacre
 Holdings Limited & MRR Trading and Investment Company Limited
 
 There were no major events to report with respect to these companies.
 
 Wimco Limited
 
 The company achieved a turnover of Rs.220.71 crores during the year
 recording a growth of 14% over the previous year. The match business
 grew by 10% to Rs.201.68 crores and the Engineering business grew by 33
 % to Rs.13.18 crores during the year. Net profit of the company stood
 at Rs.6.33 crores.
 
 The agro forestry activity of the company witnessed appreciable
 expansion. 2.5 million high quality ETPs (Entire transplants or
 saplings) were sold to farmers in North India. Apart from creating a
 long term sustainable supply of a critical raw material, the agro
 forestry mission of the company is directly contributing to improving
 the green cover in the region.
 
 The scheme of amalgamation of subsidiary companies, Wimco Boards Ltd
 (WBL) and Wimco Seedlings Ltd. (WSL) with the company has been
 sanctioned by the Hon’ble High Court of Bombay Judicature and the order
 of the High Court has been filed with the Registrar of Companies,
 thereby making the scheme effective from 22nd February, 2008, although
 operative from 1st April, 2007 and accordingly, WBL and WSL have been
 dissolved without winding up with effect from 22nd February, 2008.
 
 Landbase India Limited
 
 Landbase India Ltd. (Landbase) owns and operates ‘The Classic Golf
 Resort’, a Jack Nicklaus Signature Course, 45 kms from Delhi. As
 reported in previous years, golf based resorts present attractive
 long-term prospects in view of their growing popularity all over the
 world. The company proposes to set up a destination luxury golf resort.
 The preparatory work towards developing a resort hotel at the Classic
 Golf Resort is at an advanced stage. Consultants were appointed during
 the year. Permissions required for the commencement of the project are
 awaited from the concerned authorities.
 
 In accordance with the directions of the Haryana Government, the
 lockout declared in October 2006 at the Classic Golf Resort was lifted
 in August 2007. Subsequently, the company settled the disputes with the
 workmen under the supervision of the Labour Department of Haryana in
 January 2008 and simultaneously reopened the golf course.  Operations
 at the Classic Golf Resort have resumed since then.
 
 ITC Infotech India Limited
 
 The underlying drivers of the long term trend towards outsourcing
 remain unimpaired. Nevertheless, the global outsourcing market,
 dominated by the US, is expected to take a slight pause consequent to
 the slowdown in the US economy and the fallouts of the sub-prime
 crisis. In mainland Europe and the Nordics, the shortage of skills
 continued to drive outsourcing. The Asia Pacific, India and Middle East
 markets remained on the growth track.
 
 India continued to be the dominant location for offshore based IT
 services, despite the growing challenge from certain locations in East
 Europe, Latin America and closer home from the Philippines. Indian
 companies operating in this sector have grown on the strength of their
 ability to scale up, quality of talent and maturity of processes, all
 of which will remain sources of competitive advantage in the
 foreseeable future. However, the cost advantage of Indian companies in
 the IT services space was considerably eroded by the spiralling wage
 increases in the last few years, worsened by the sharp appreciation of
 the Rupee during the year under review. Consequently, growth and
 profitability were under pressure for a large number of industry
 players.
 
 In these circumstances, the encouraging results achieved by the company
 during the year under review are a matter of satisfaction. The company,
 together with its subsidiaries in the US and UK successfully acquired
 over 25 new customers in the US and Europe and posted a 47% increase in
 total income.
 
 Customer acquisition was driven by the development of new capabilities,
 differentiated offerings and pioneering solutions. The focus on the
 Nordic markets of Denmark, Finland, Sweden and Norway; and the opening
 of branches at Finland and Norway during the year in addition to the
 Denmark branch yielded excellent results and accounted for a
 significant portion of the revenue growth.
 
 Consequently, the underlying profitability, adjusted for the profit on
 sale of investments of Rs.36 crores recorded in the previous year,
 improved significantly.
 
 For the year under review:
 
 (a) ITC Infotech India Ltd. registered a total income of Rs.263.95
 crores (previous year Rs.205.18 crores) and a PAT of Rs.6.91 crores
 (previous year Rs.20.67 crores).
 
 (b) ITC Infotech Ltd., UK, a wholly owned subsidiary of the company,
 registered a Turnover of GBP 17.87 million (previous year GBP 16.81
 million) and a Net Profit of GBP 0.29 million (previous year GBP 0.12
 million).
 
 (c) ITC Infotech (USA), Inc., a wholly owned subsidiary of the company,
 registered total revenues of USD 18.09 million (previous year USD 9.31
 million) and a Net Profit of USD 0.43 million (previous year Net Profit
 USD 0.18 million).
 
 As reported last year, the company had restructured its organisation
 into 3 business clusters each focused on specific business verticals
 and supported with technical capabilities aligned to the target
 vertical. This strategy of organisation has clearly yielded results,
 especially in capability building, ‘go to market’ strategy formulation,
 aggressive customer acquisition and building a global delivery model.
 
 In a survey conducted by Global Services in association with neoIT, the
 company was placed among the Top 100 service providers across four
 continents, in terms of operations, service offerings, client
 relationships and human capital. The company has been ranked in the
 ‘Leaders Category for 2008 Global Outsourcing 100’ by the International
 Association of Outsourcing Professionals (IAOP) for the second year in
 a row. The customer satisfaction survey carried out on behalf of the
 company clearly points to an increasing trend of satisfied customers.
 
 In the course of the year, the company added a new vertical, Media and
 Entertainment, to the existing collection of verticals, namely Banking,
 Financial Services & Insurance, Travel, Hospitality & Transportation,
 Manufacturing and Consumer Packaged Goods & Retail. The company has
 built up a sizable funnel across incumbent verticals. In line with your
 Company’s focus on the ‘triple bottom line’, the company has devised a
 holistic approach to deliver value to its customers through greener
 solutions including those aimed at increasing efficiency of clients’
 data centres.
 
 The company is further strengthening its sales organisation with the
 opening of an office in Sweden to enhance its presence in the Nordic
 region. It continues to focus on deepening its capabilities to move up
 the value chain. It will also aggressively pursue inorganic growth
 opportunities to rapidly scale up its operations.
 
 The company has reinforced its holistic approach to talent management,
 significantly focusing on training, development, engagement and
 retention of talent. It is constantly strategising to strengthen the
 value proposition for its employees. The company has recently migrated
 to a higher version of its ERP system to improve resource management
 and drive operational excellence.
 
 The government’s decision to extend tax holiday for export oriented
 Software Technology Parks of India (STPI) by one year till March 2010,
 is a favourable and supportive development.
 
 In the light of its stronger customer relationships, deeper
 capabilities, differentiated offerings and solutions and greater sales
 bandwidth and wider geographic presence, the company is optimistic
 about its rapid future growth.
 
 In the ITES segment, CLI3L e-Services Ltd. (CLI3L), a joint venture
 company of ITC Infotech India Ltd. and Sitel Operating Corporation, USA
 posted a total income of Rs.107.02 crores (previous year Rs.124.43
 crores) with post tax profits of Rs.16.44 crores (previous year
 Rs.29.89 crores). The company has decided to exit from the Joint
 Venture and exercise its Put Options in a staggered manner under the
 Shareholders Agreement dated 28th May, 2003.  As reported last year,
 your Company, in accordance with Article 16 of the Articles of
 Association of CLI3L, now holds the shares of the company in CLI3L and
 these shares shall be sold in line with the company’s decision.
 
 Technico Pty Limited
 
 As stated in the earlier part of this Report, Russell Credit Ltd.
 acquired the entire shareholding in Technico Pty Ltd.  (Technico),
 Australia effective 17th August, 2007. The principal activities of the
 company are anchored on the ownership of a unique horticulture
 technology and its downstream implementation and commercialisation. The
 company owns the proprietary ‘TECHNITUBER®’ technology for potatoes and
 has commercialised it through its wholly owned subsidiaries in
 different geographies, namely: Chambal Agritech Ltd., India; Technico
 Asia Holdings Pty Ltd., Australia (TAHL); Technico ISC Pty Ltd.,
 Australia; Technico Horticultural (Kunming) Co. Ltd., China (100%
 subsidiary of TAHL); and Technico Technologies Inc. Canada.  The
 company is also engaged in the marketing of ‘TECHNITUBER®’ seeds to
 global customers from the production facilities of its subsidiaries in
 India and China.
 
 The acquisition of Technico Pty Ltd. will bring strong synergies to the
 potato value chain, enhancing farmer capabilities through access to
 high quality seeds and internationally benchmarked best practices in
 agronomy.  Technico’s leadership in the production of early generation
 seed potatoes will create significant value for your Company’s Foods
 business by bringing distinctive product and quality advantages to the
 ‘Bingo!’ brand of potato chips.
 
 Acquisition of Technico will also support your Company’s abiding
 philosophy of contributing to the development of the agriculture-based
 rural economy and secure the competitiveness of the value chains
 created through its Agri and Foods businesses.
 
 For the year under review:
 
 a) Technico Pty Ltd., Australia registered a PAT of Australian Dollar
 (A$) 4.59 million (previous year loss of A$ 1.27 million) after writing
 back the provision of A$ 4.69 million created in earlier years towards
 diminution in value of its investments in its Indian subsidiary,
 Chambal Agritech Ltd.
 
 b) Technico Asia Holdings Pty Ltd., Australia did not engage in any
 activity, other than holding the entire shareholding of Technico
 Horticultural (Kunming) Co.  Ltd., China. The company had no earnings
 or costs.
 
 c) Technico ISC Pty Ltd., Australia continued to be dormant during the
 year.
 
 d) Technico Technologies Inc., Canada registered sales of Canadian
 Dollar (C$) 0.18 million (previous year C$ 0.10 million) and posted a
 net loss of C$ 0.28 million (previous year C$ 0.25 million).
 
 e) Chambal Agritech Ltd., India registered a turnover of Rs.30.84
 crores (previous year Rs.21.68 crores) and a Profit After Tax of
 Rs.6.15 crores (previous year Rs.3.08 cores). The Company’s field seed
 program has been successfully demonstrated in the Indian market. The
 company has developed a robust contract farming network backed by a
 specialist team.
 
 For the year ended 31st December, 2007 – Technico Horticultural
 (Kunming) Co. Ltd., China registered a turnover of Chinese Yuan (CNY)
 14.31 million (previous year CNY 14.18 million) and posted a net profit
 of CNY 0.82 million (previous year CNY 2.16 million).
 
 ITC Global Holdings Pte. Ltd.
 
 The Judicial Managers have been conducting the affairs of ITC Global
 Holdings Pte. Ltd. (‘Global’) since 8th November, 1996 under the
 authority of the High Court of Singapore.
 
 As stated in the previous years’ Reports, the Judicial Managers of
 Global had filed a Writ against your Company in November 2002 before
 the Singapore High Court claiming approximately USD 18.10 million.
 Based on legal advice, your Company filed an appropriate application
 for setting aside the said Writ. On 2nd March 2006 the Assistant
 Registrar of the Singapore High Court set aside the service of writ of
 summons on the Company and some individuals. Subsequently in November
 2006, your Company received a set of papers purportedly sent by Global
 including what appeared to be a copy of the earlier Writ of Summons.
 Your Company filed a fresh Motion in the Singapore High Court praying
 for setting aside the said Writ of Summons, which was upheld by the
 Assistant Registrar of the Singapore Court on 13th August 2007.  Global
 has since filed an Appeal against this Order, which is awaiting
 hearing.
 
 Meanwhile, pursuant to the application of the Judicial Managers, the
 Singapore Court on 30th November, 2007 ordered the winding up of
 Global, appointed a liquidator and discharged the Judicial Managers.
 
 NOTES ON JOINT VENTURES
 
 ITC Filtrona Limited
 
 The company completed yet another year of sustained good performance
 and maintained its market leadership in the Indian cigarette filter
 industry with a 60% value share.  Gross Sales for the year ended 31st
 December, 2007 at Rs.97.09 crores represents a growth of 3.8% over the
 previous year. Pre-tax Profit increased by 8.7% to Rs.11.84 crores. The
 Board of Directors of the company recommended a dividend of 80% for the
 year, in line with that of the previous year.
 
 While quality continues to be its prime focus, innovation and support
 to customers for product development has resulted in the company
 attaining the status of a preferred supplier. In a clear demonstration
 of this position, the company secured an export order for 370 million
 filter rods from the Taiwan Monopoly. The company is in the process of
 acquiring new machinery to augment production capacities and upgrade
 existing technology. Its superior productivity standards and operating
 parameters have enabled the company to rank among the best operating
 units in the Filtrona Group.
 
 Maharaja Heritage Resorts Limited
 
 Maharaja Heritage Resorts Ltd., a joint venture of your Company with
 Marudhar Hotels Private Ltd., currently operates 51 properties under
 the ‘WelcomHeritage’ brand.  6 more properties are under development.
 
 During the year, for the third consecutive time, ‘WelcomHeritage’
 received the ‘Galileo-Express Award for Travel Tourism, 2007’ for the
 Best Heritage Hotels Chain in India.
 
 RISK MANAGEMENT
 
 As a diversified enterprise, your Company has always had a system-based
 approach to business risk management.  Backed by strong internal
 control systems, the current risk management framework consists of the
 following elements:
 
 The Corporate Governance Policy clearly lays down the roles and
 responsibilities of the various entities in relation to risk
 management. A range of responsibilities, from the strategic to the
 operational, is specified in the Governance Policy. These role
 definitions, inter alia, are aimed at ensuring formulation of
 appropriate risk management policies and procedures, their effective
 implementation and independent monitoring and reporting by Internal
 Audit.
 
 A combination of centrally issued policies and divisionally-evolved
 procedures brings robustness to the process of ensuring business risks
 are effectively addressed.
 
 Appropriate structures have been put in place to effectively address
 the inherent risks in businesses with unique / relatively high risk
 profiles.
 
 A strong and independent Internal Audit Function at the Corporate level
 carries out risk focused audits across all businesses, enabling
 identification of areas where risk management processes may need to be
 improved. The Audit Committee of the board reviews Internal Audit
 findings, and provides strategic guidance on internal controls. The
 Audit Compliance and Review Committee closely monitors the internal
 control environment within the Company and ensures that Internal Audit
 recommendations are effectively implemented.
 
 At the Business level, Divisional Auditors continuously 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 business planning and
 performance management ensures realisation of business objectives based
 on effective strategy implementation. The annual business planning
 exercise requires all businesses to clearly identify their top risks
 and set out a mitigation plan with agreed timelines and accountability.
 All businesses have confirmed that relevant business risks have been
 identified, assessed, evaluated and appropriate mitigation systems
 implemented.
 
 The combination of policies and processes as outlined above adequately
 addresses the various risks associated with your Company’s businesses.
 The senior management of the Company periodically reviews the risk
 management framework to maintain its contemporariness so as to
 effectively address the emerging challenges in a dynamic business
 environment.
 
 AUDIT AND SYSTEMS
 
 Your Company believes that internal control is a necessary concomitant
 of the principle of governance that freedom of management should be
 exercised within a framework of appropriate checks and balances. Your
 Company remains committed to ensuring an effective internal control
 environment that provides assurance on the efficiency of operations and
 security of assets.
 
 Well established and robust internal audit processes, both at business
 and corporate levels, continuously monitor the adequacy and
 effectiveness of the internal control environment across the Company
 and the status of compliance with operating systems, internal policies
 and regulatory requirements. In the networked IT environment of your
 Company, validation of IT security continues to receive focused
 attention of the internal audit team, which includes IT specialists.
 
 The Internal Audit function consisting of professionally qualified
 accountants, engineers and IT specialists, also reviews the quality of
 planning and execution of all ongoing projects involving significant
 expenditure to ensure that project management controls are adequate to
 yield ‘value for money’.
 
 Your Company’s Internal Audit function is certified as complying to ISO
 9001: 2000 quality standards in its processes.
 
 The Audit Committee of your Board met 8 times during the year. It
 reviewed, inter alia, the adequacy and effectiveness of the internal
 control environment and monitored implementation of internal audit
 recommendations including those relating to strengthening of the
 Company’s risk management policies and systems. It also engaged in
 overseeing financial disclosures.
 
 HUMAN RESOURCE DEVELOPMENT
 
 Your Company’s multi-business context poses unique challenges to the
 human resource function. Over the years, the Company has fashioned
 human resource management systems and processes, which aim to create a
 responsive, customer-centric and market-focused culture that enhances
 organisational capability and vitality. These systems and processes,
 operating in an enabling and empowering work environment, support
 winning performance.
 
 The competitive context has made Talent Management a strategic
 priority. Your Company’s unique employee value proposition backed by
 strong corporate equity has enabled attraction and retention of quality
 talent in a buoyant market.  Your Company’s conscious strategy of
 developing and supporting distributed leadership has ensured that each
 of your Company’s businesses are managed by a team of competent and
 passionate leaders, capable of enhancing your Company’s standing in the
 competitive market.  The enduring success of your Company rests on a
 unique culture that blends ‘accountability’ with ‘care and concern’.
 This ability to simultaneously appeal to the heart and the mind
 represents the cultural DNA of your Company.
 
 During the year under review, your Company’s commitment to building
 harmonious employee relations was evident in the successful conclusion
 of long term agreements at its manufacturing units and hotel
 properties, and the smooth start of operations at greenfield locations.
 
 The collaborative spirit of partnership across all sections of
 employees and their sense of ownership and commitment has sustained the
 culture of excellence, learning and readiness to change. The collective
 dedication of over 22,000 employees is helping your Company deliver
 superior customer and shareholder value.
 
 Your Company’s employees have a defining role in significantly
 accelerating its growth and transformation, thereby enhancing its
 position as one of India’s most valuable corporations. Your Company
 salutes the unflinching commitment of its dedicated team of employees.
 
 SUSTAINABILITY – CONTRIBUTION TO THE ‘TRIPLE BOTTOM LINE’
 
 Your Company’s triple bottom line performance continued to improve
 across all the three dimensions, namely economic, environmental and
 social.
 
 The Company’s 4th Sustainability Report, published during the year
 under review, details the ‘triple bottom line’ performance and
 achievements of your Company in accordance with ‘G3’, the latest
 guidelines of Global Reporting Initiative (GRI). This report,
 independently assured by PricewaterhouseCoopers, conforms to the
 highest level ‘A+’ for reporting Sustainability performance. Your
 Company’s 5th Sustainability Report covering the year 2007-08 is
 already in the process of publication and will be independently assured
 by Ernst & Young.
 
 It is a matter of pride that your Company’s Sustainability Report
 received two Readers’ Choice Awards from GRI at the GRI International
 Conference, held in Amsterdam in May 2008. The Report has received the
 3rd ‘Overall Award’ amongst Non OECD large company reports.
 
 Your Company, the only one in the world with positive footprints in the
 3 serious global environmental concerns, has further improved its
 ‘water positive’ and ‘carbon positive’ status. The Company, in 2007/08
 not only recycled nearly 99% of all the solid wastes, but also used
 1,63,245 tonnes of external waste paper as raw material in its
 paperboards units, thereby achieving the 3rd positive environmental
 footprint.
 
 Your Company’s strategies to become ‘carbon positive’ have yielded
 rewards through significant savings in energy costs. Seven Clean
 Development Mechanism (CDM) projects of the Company have been accepted
 by the CDM Executive Board set up under the ‘Kyoto Protocols’.  A
 number of additional projects are in different stages of CDM
 registration.
 
 The Bhadrachalam mill continues to be the only producer of ‘Elemental
 Chlorine Free’ (ECF) pulp and paperboards in India. The ‘ITC Green
 Centre’ in Gurgaon, certified by the US Green Building Council for
 Leadership in Energy & Environmental Design (USGBC–LEED) as the largest
 commercial ‘Platinum Rated’ building in the world when it was
 commissioned, continues to provide inspiration to the ‘green buildings’
 movement in India.
 
 Your Company continued its uncompromising dedication to maintaining the
 highest levels of safety, occupational health and environmental
 standards across all its units.  Environment management systems at all
 manufacturing units and large hotels have been certified ‘ISO 14001’
 compliant, while all manufacturing units have received ‘OHSAS 18001’
 certification. These and several other certifications and awards,
 stated elsewhere in the Report, bear testimony to your Company’s
 dedicated and uncompromising pursuit of the Triple Bottom Line.
 
 The ‘CII-ITC Centre of Excellence for Sustainable Development’, set up
 by your Company and CII in 2006, has achieved significant milestones in
 creating awareness, promoting thought leadership and building capacity
 amongst Indian enterprises in the quest for sustainable development.
 The Centre gave away the 2nd ‘CII-ITC Sustainability Awards’ in
 December 2007, promoting role models in the Indian industry to catalyse
 superior sustainable performance.  The Centre conducted the ‘1st
 Business Leaders Programme’ in association with the Indian Institute of
 Management, Bangalore. Professor Stuart Hart from Cornell University,
 John Elkington from ‘SustainAbility’ and other senior leaders and
 experts in Sustainability helped 30 CEOs and senior managers from
 various Indian companies in appreciating the challenges and
 opportunities in sustainable development, inspiring them to start the
 virtuous cycle of sustainable development in their own organisations.
 The Centre’s 2nd Sustainability Summit: Asia 2007 was held in New Delhi
 in association with Development Alternatives. The Summit, attended by
 more than 400 leaders from industries, NGOs and Government was
 supported by the Australian Government, Sustainability, World Wildlife
 Fund (WWF) & UN Environment Program.  The Summit provided a platform
 for debate to foster partnerships for further actions on a number of
 important issues e.g. food security, linking farmers to markets,
 sustainable construction, responsible mining, sustainable financing and
 fostering inclusive growth.
 
 Your Company deepened its imprint on the social sector by expanding to
 newer districts during the year. It continued with its proven strategy
 of concentrating on three main areas of interventions under Mission
 Sunehra Kal: (a) natural resource management, which includes wasteland,
 watershed and agriculture development; (b) sustainable livelihoods,
 comprising women’s economic empowerment and genetic improvement in
 livestock; and (c) community development, with focus on primary
 education and health and sanitation. Your Company is currently running
 social development projects in 47 districts spread over the states of
 Andhra Pradesh, Bihar, Kerala, Karnataka, Maharashtra, Madhya Pradesh,
 Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal.
 
 Your Company’s pioneering initiative of wasteland development through
 the Social Forestry programme has so far promoted plantations over
 11,969 hectares in 406 villages, covering 13,492 poor households. The
 collaboration between ITC and the Government of Andhra Pradesh for
 wasteland development under ‘Indira Kranthi Patham’ continued during
 the year – 1,180 hectares of plantations were promoted through this
 public-private partnership taking the total to 2,972 hectares. The
 households covered under the Social Forestry programme continue to reap
 the benefits derived from cut plantations.  Total income gained so far
 is Rs.4.36 crores from 903 hectares. Not only have their earnings per
 acre improved significantly from the sale of plantations, most
 beneficiaries have also ensured that the contribution to the Village
 Development Fund continues apace, which has grown to nearly Rs.68 lacs.
 Thus, their own incomes have been invested wisely into productive
 assets to ensure a long-term virtuous cycle of development.
 
 Your Company’s Social Forestry and Farm Forestry programmes have
 together promoted plantations over a total area of 80,000 hectares
 todate.
 
 The Soil & Moisture Conservation programme, designed to assist farmers
 in identified moisture-stressed districts, witnessed a rise in its
 coverage during the year. 648 water- bodies were created this year
 taking the total to 2,178 water-harvesting structures. These structures
 provide critical irrigation security to about 18,483 hectares. Active
 participation of our stakeholders has ensured sustainable long-term
 maintenance of these structures. Additionally, 16,496 hectares have
 also been treated for erosion resulting in preservation of precious
 topsoil for agriculture. In total, the watershed development programme
 today covers 34,979 hectares. During the year under review, your
 Company entered into a partnership with NABARD in Andhra Pradesh, Bihar
 and Madhya Pradesh. Together, these projects will cover soil and
 moisture conservation work on 17,500 hectares under a 5 year programme.
 Direct employment created by these interventions till date was 5.36 lac
 person-days. Todate, 686 active Water User Groups (WUGs) with over
 33,000 members actively manage water distribution and collection of
 charges.
 
 In continuation of its policy of providing an integrated solution for
 promoting a sustainable water management regime, your Company lays
 equal emphasis on ensuring efficient usage of water through
 interventions aimed at improving farm productivity, promoting group
 irrigation projects and demonstrating the use of agricultural
 equipments including sprinkler sets. During 2007/08, 153 group
 irrigation projects were initiated and sprinkler sets benefiting 369
 farmers were installed.
 
 Sustainable agricultural practices received a major boost during the
 year with the promotion of 3,368 organic fertiliser units through
 vermi-composting and NADEP technologies.  Farmers have tested various
 varieties of paddy, gram and wheat in 1,288 field demonstrations
 leading to participative selection of higher productive strains.
 
 The sustainable livelihoods initiative of your Company strives to
 create alternative employment for surplus labour and decrease pressure
 on arable land by promoting non-farm incomes. Among many such
 activities, the programme for genetic improvement of cattle through
 artificial insemination to produce high-yielding crossbred progenies
 has been given special emphasis because it reaches out to the most
 impoverished and has the potential to pull them out of poverty. 95
 cattle development centres already cover more than 1,900 villages
 providing artificial insemination to more than 80,000 milch animals.
 Integrated animal husbandry services were provided to nearly 48,000
 milch animals during the year. These included addressing the needs of
 problem breeders, vaccines, feed additives and awareness drives. The
 initiative for the economic empowerment of women also continued apace:
 todate, 13,981 women have been organised under 972 self-help groups
 (SHG) with total savings of Rs.97.7 lacs.  More than 9,900 women were
 gainfully employed either in micro-enterprises or through
 self-employment with the support of income generation loans.
 
 Your Company’s social sector footprint can be seen at a glance in the
 following chart:
 
 Intervention Areas                        Unit of             2007-08
                                           Measurement     (Cumulative
                                                            Achievement)
 
 Total Districts Covered                     Number                47
 
 Social and Farm Forestry                   Hectare             80000
 
 Soil and Moisture Conservation             Hectare             34979
 
 Programme
 
 Sustainable Agricultural Practices
 
 Organic Fertiliser Units                   Number              12706
 
 Sustainable Livelihoods Initiative
 
 Cattle Development Centres                 Number                 95
 
 Animal Husbandry Services                  Milch Animals      128056
 
 Economic Employment of Women
 
 SHG Members                                Persons             13981
 
 Women Entreprenuers                        Persons              9900
 
 Primary Education
 
 Beneficiaries                              Children           128000
 
 Health and Sanitation
 
 Low Cost Sanitary Units                    Number               2563
 
 The advances made towards contributing to India’s sustainable
 development goals have been possible, in large measure, to your
 Company’s partnerships with some of the globally renowned NGOs like
 BAIF Development Research Foundation, Dhan, FES, MYRADA, Pratham,
 
 SEWA, SRIJAN and WOTR etc. These partnerships, which bring together the
 best in class management practices of your Company and the development
 experience and mobilisation skills of these NGOs, have demonstrated
 that it is possible to create innovative grass-roots solutions to some
 of India’s complex problems of development.
 
 R&D, QUALITY AND PRODUCT DEVELOPMENT
 
 In today’s dynamic business environment, innovation through a sustained
 process of Research & Development (R&D) is a critical growth driver.
 R&D will need to focus on the development and speedy commercialisation
 of globally competitive products, processes and technologies.  Your
 Company pursues an R&D strategy premised on best-in-class benchmark
 research processes to secure sustainable and long-term competitiveness
 for all its businesses. Its priorities are focused on projects with
 high research content and high impact.
 
 Over the last several years, your Company has assembled a pool of
 world-class scientists focused on plant breeding and genetics,
 agronomy, biotechnology, molecular biology and silviculture. At its
 state-of-the-art Food Technology Centre, your Company’s R&D strategies
 have been progressed to leverage the potential of convergence between
 agricultural science, food science and the scientific dimensions of its
 personal care portfolio. Your Company’s R&D continues to collaborate
 with other centres of excellence, and currently leverages expertise
 from University of Agricultural Science, Bangalore; Indian Institute of
 Science, Bangalore; CSIOR, Australia and CSIR, South Africa.
 
 The Hotels Business continued to implement the ‘Six Sigma Quality
 Process’ supported by trained teams of black / green belts. The
 Paperboards, Paper & Packaging Businesses have put in place ‘Total
 Productive Maintenance’ (TPM) techniques to create and sustain
 international quality standards in their products and processes.
 
 All manufacturing units of your Company have ISO quality certification.
 Almost all contract manufacturing units in the Foods Business and all
 large hotels have food safety and quality systems certified by the
 accredited ‘third party’ in accordance with ‘Hazard Analysis Critical
 Control Points’ (HACCP) standards. Additionally, the quality of all
 FMCG products of your Company is regularly monitored through ‘Product
 Quality Ratings Systems’ (PQRS).
 
 The Leaf Tobacco and Printing & Packaging Businesses of your Company
 have achieved world-class ratings in the ‘International Quality Rating
 Systems’ (IQRS) for business excellence in which key processes are
 rated against international benchmarks and certified by accredited
 ‘third party’ independent assurance providers.
 
 EXCISE
 
 For the period prior to March, 1983, various Show Cause Notices were
 issued in respect of the Bangalore, Saharanpur and Munger factories of
 the Company between 1975 and 1985. These Show Cause Notices were
 assigned to the Director General of Inspection, Customs & Central
 Excise, New Delhi (‘DG’) who passed his Order on 10th April, 1986.
 Although the differential duty payable under the DG’s Order was
 determined and paid by your Company on an admitted interpretation of
 Rule 5 of Central Excise (Valuation) Rules (which interpretation has
 since been upheld by the CEGAT and affirmed by the Supreme Court), the
 Excise Department raised doubts on such interpretation and issued
 revised demands under the DG’s Order, in respect of Bangalore, Munger
 and Saharanpur factories. The Bangalore demand for Rs.27.58 crores was
 set aside by the Commissioner (Appeals), Bangalore, by his Order dated
 22nd November, 1999, which order was confirmed by the CEGAT, Chennai
 vide its Order dated 18th December, 2003. The department has filed an
 appeal before the Supreme Court, which is pending. The Saharanpur
 demand of Rs.80.30 crores was confirmed by the Commissioner (Appeals)
 to the extent of Rs.76.03 crores, which order was set aside by the
 CEGAT by its Order dated 2nd August, 2002 and the Department’s appeal
 against this order was dismissed by the Supreme Court on 18th July,
 2007. As regards the Munger factory the revised demand of Rs.8.29
 crores under the DG’s Order was dropped by the Commissioner of Central
 Excise, Patna vide his Order dated 20th September, 2001.
 
 As mentioned in the Report of the Directors for 1987 and thereafter,
 the Excise Department, during 1987 and 1988, again reopened some of the
 issues already settled by the Order of the DG, by issuing fresh Show
 Cause Notices in respect of the period upto 28th February, 1983. The
 Notices proposed to recover differential duties of Rs.43.88 crores (for
 Munger factory), Rs.143.22 crores (for Bangalore factory), Rs.31.05
 crores (for Kidderpore factory), Rs.41.51 crores (for Parel factory)
 and Rs.26.43 crores (for Saharanpur factory). As already reported, the
 proceedings relating to the Bangalore, Parel and Munger Show Cause
 Notices stand concluded in favour of your Company. As regards the Show
 Cause Notice in respect of the Saharanpur factory, your Company has
 filed a writ petition in the Delhi High Court, which is pending. So far
 as the Kidderpore factory is concerned all pre-March 1983 valuation
 disputes stand resolved in favour of your Company pursuant to the
 finalisation of the provisional assessments.
 
 With respect to the Munger factory, proceedings for finalisation of
 assessments resulted in the Deputy Commissioner’s Orders dated 29th
 August, 2002 and 8th October, 2002 demanding Rs.13.09 crores and
 Rs.1.73 crores for clearances of cigarettes and smoking mixtures
 respectively which was confirmed by the Commissioner
 
 (Appeals), Patna vide his orders dated 22nd December, 2004, against
 which your Company has preferred appeals before CESTAT, Kolkata, which
 are pending.  Your Company, has made pre-deposits of Rs.2 crores and
 Rs.0.55 crore against the aforesaid demands at the stage when its
 appeals were pending before Commissioner (Appeals), Patna.
 
 In accordance with the law laid down by the CEGAT and upheld by the
 Supreme Court, the exorbitant duty demands under the aforesaid Show
 Cause Notices and orders on interpretation of Rule 5 of the Central
 Excise Valuation Rules, 1975 would stand virtually extinguished.
 
 Although your Company in a spirit of settlement, paid the differential
 Excise Duty that arose out of the Order of the Director General as
 early as in March 1987, and although the Excise Department’s aforesaid
 Demands had either been quashed or stayed, the Collectorates in Meerut,
 Patna and Bangalore, during the year 1995, filed criminal complaints in
 the Special Court for Economic Offences at Kanpur, Patna and Bangalore,
 charging your Company and some of its Directors and employees who were
 employed with your Company during the period 1975 to 1983 with offences
 under the Central Excises & Salt Act, 1944, purportedly on the basis of
 the Order of the Director General dated 10th April, 1986. Your
 Directors are advised that no prosecution would lie on the basis of the
 aforesaid Order of the Director General dated 10th April, 1986. As
 reported in the previous year Report and Accounts and even earlier, the
 criminal case in respect of Bangalore factory was quashed by the court
 and in the proceedings relating to Saharanpur factory, the Special
 Court in Kanpur, on applications filed by the individuals concerned,
 discharged them. In Patna, upon applications filed by the individuals
 against dismissal of similar petitions by the Special Court in Patna,
 the High Court has stayed all further proceedings before the Special
 Court.
 
 In all the above instances, your Directors are of the view that your
 Company has a strong case and the Show Cause, the Demand Notices and
 the Complaints are not sustainable.
 
 Since your Company is contesting the above cases and contending that
 the Show Cause, the Demand Notices and the Complaints are not
 sustainable, it does not accept any liability in this behalf. Your
 attention is drawn to the Note 19 (iv) in the Schedules to the Accounts
 and Note 19 (iii) in the Schedules to the Consolidated Financial
 Statements.
 
 RECOVERY OF DUES FROM THE CHITALIAS AND ENQUIRY BY THE ENFORCEMENT
 DIRECTORATE
 
 You are aware that your Company had secured from the District Court of
 New Jersey, U.S.A, a decree for USD 12.19 million together with
 interest and costs against Suresh and Devang Chitalia of U.S.A. and
 their companies, and that the
 
 Chitalias had filed Bankruptcy Petitions before the Bankruptcy Court,
 Orlando, Florida, which are yet to be determined.
 
 As explained in the previous reports of the Directors, though the
 Company has written off the exports dues in foreign exchange from the
 Chitalias with the approval of the Reserve Bank of India, your Company
 continues with its recovery efforts in the Indian suit against the
 Chitalia associates.  The suit is in progress.
 
 In the proceedings initiated by the Enforcement Directorate, the return
 of non-relied documents in possession of the Enforcement Directorate,
 pursuant to the request of your Company, is in progress. In respect of
 some of the show cause memoranda issued by the Directorate, after
 hearing arguments on behalf of the Company, the appropriate authority
 has passed orders in favour of the Company, and dropped those
 memoranda.
 
 The prosecutions launched by the Enforcement Directorate are pending.
 
 TREASURY OPERATIONS
 
 During the year, the Company’s treasury operations continued to remain
 focused on proactively managing temporary surplus liquidity and foreign
 exchange exposures within the well defined risk management framework.
 The implementation of a state-of-the-art Integrated Treasury Management
 System has brought efficiencies to Treasury operations, enabling better
 cash management and monitoring of exposures on a real time basis.
 
 The year under review was marked by a rise in volatility in all
 markets, including bonds, Government Securities, equities, foreign
 exchange etc. As markets started factoring the effects of the US
 sub-prime crisis, risk aversion became the dominant mood in global
 financial markets, resulting in pressures on liquidity. Although local
 markets also experienced higher volatility, RBI and SEBI were proactive
 in their regulation of the markets. Despite the volatility, your
 Company continued to improve its treasury performance due to its strong
 risk management processes and proactive monitoring of positions.
 
 The deployment of temporary surpluses of the Company continued to be
 guided by the twin objectives of capital protection and return
 optimisation. In view of the range bound interest rate scenario,
 investments were made in liquid plus, floating rate, fixed maturity
 plans, short term funds and income schemes of Debt Mutual Funds.
 Deployments in long dated fixed deposits / fixed maturity plans were
 tailored in accordance with the capex and working capital needs of the
 Company.
 
 In the foreign exchange markets, the Rupee appreciated sharply,
 threatening the competitiveness of Indian exports.  However, due to RBI
 and Government intervention, the
 
 Rupee stabilised bringing much needed relief to exporters.  In a
 scenario, where the US Dollar was under continuous pressure, the
 Company adopted an appropriate forex management strategy, including the
 use of simple options to manage the heightened volatility. However, it
 refrained from entering into any exotic derivative structure.
 
 In view of the Rupee’s sharp rise during the first half of the year,
 RBI allowed subvention on export credit for certain eligible products.
 The Company availed the benefit of lower cost finance to reduce the
 cost of working capital for its exporting businesses.
 
 As in earlier years, commensurate with the large size of temporary
 surplus liquidity under management, treasury operations were supported
 by appropriate control mechanism, including an independent check of
 100% of the transactions by your Company’s Internal Audit Function.
 
 TAXATION
 
 As mentioned in the Report of the Directors of earlier years, the
 Company had obtained Stay Orders from the Hon’ble Calcutta High Court
 in respect of the Income Tax notices for re-opening the past
 assessments for the period 1st July, 1983 to 30th June, 1986. This
 status remains unchanged.
 
 As also stated in the Report of the Directors of earlier years, in
 respect of similar Income Tax notices for re-opening the past
 assessments for the period 1st April, 1990 to 31st March, 1993, the
 Hon’ble Calcutta High Court had admitted the Writ Petitions and ordered
 that no final assessment orders be passed without the leave of the
 Court. The status also remains unchanged.
 
 PUBLIC DEPOSITS
 
 Your Company’s Public Deposit Scheme closed in the year 2000. As at
 31st March 2008, 42 deposit holders had not claimed fixed deposits
 amounting to Rs.6.09 lacs. Reminders have been sent to these deposit
 holders by the Fixed Deposit Service Centre of your Company.
 
 There was no failure to make repayments of Fixed Deposits on maturity
 and the interest due thereon in terms of the conditions of your
 Company’s erstwhile Schemes.
 
 INVESTOR SERVICE CENTRE
 
 The Investor Service Centre (ISC) of your Company continues to provide
 high quality service through its trained and dedicated team of
 professionals supported by state- of-the-art infrastructure and
 systems.
 
 ISC received the Quality Management System Certification ISO 9001:2000
 in the year 2005 for a period of three years.  This certification,
 which has been renewed during the year for a further period of three
 years, stands testimony to the exemplary standards that your Company’s
 ISC has achieved in investor servicing.
 
 DIRECTORS
 
 Mr. Dinesh Kumar Mehrotra, who represented the Specified Undertaking of
 the Unit Trust of India (‘SUUTI’), Mr. Sunil Behari Mathur, who
 represented the Life Insurance Corporation of India (‘LIC’), and Mr.
 Pillappakkam Bahukutumbi Ramanujam, who represented the General
 Insurance Corporation of India and its erstwhile subsidiaries, resigned
 as Non-Executive Directors of your Company with effect from 27th July,
 2007, consequent upon withdrawal of their representation by the
 respective Institutions.  Mr. Charles Richard Green ceased to be a
 Non-Executive Director of your Company with effect from close of
 business on 31st March, 2008, consequent upon completion of his term.
 
 Your Directors would like to record their appreciation of the services
 rendered by Messrs. Mehrotra, Mathur, Ramanujam and Green.
 
 Mr. Anil Baijal and Mr. Dinesh Kumar Mehrotra were appointed by the
 Board of Directors (the ‘Board’) as Additional Non-Executive Directors
 of your Company with effect from 27th July, 2007, as representative of
 SUUTI and LIC, respectively. Dr. Ravinder Kumar Kaul was appointed by
 the Board as Additional Non-Executive Director of your Company with
 effect from 7th August, 2007 as representative of the General Insurers’
 (Public Sector) Association of India.
 
 Mr. Sunil Behari Mathur and Mr. Pillappakkam Bahukutumbi Ramanujam were
 appointed by the Board as Additional Non-Executive Directors of your
 Company with effect from 27th July, 2007. Mr. Hugo Geoffrey Powell was
 appointed by the Board as Additional Non-Executive Director of your
 Company with effect from 7th May, 2008.
 
 By virtue of the provisions of Article 96 of the Articles of
 Association of the Company and Section 260 of the Companies Act, 1956,
 Messrs. Baijal, Mehrotra, Mathur, Ramanujam, Powell and Dr. Kaul will
 vacate office at the ensuing Annual General Meeting of your Company and
 have filed their consents to act as Directors of the Company, if
 appointed. Your Board at its meeting held on 23rd May, 2008 recommended
 for the approval of the Members the appointment of Messrs. Baijal,
 Mehrotra, Mathur, Ramanujam, Powell and Dr. Kaul as Non-Executive
 Directors of your Company, liable to retire by rotation, with effect
 from the date of the ensuing Annual General Meeting of the Company.
 
 Dr. Basudeb Sen and Mr. Balakrishnan Vijayaraghavan were re-appointed
 as Non-Executive Directors of your Company with effect from 27th
 August, 2003 and their present term will expire on 26th August, 2008.
 Your Board at its meeting held on 23rd May, 2008 recommended for the
 approval of the Members their re-appointment as Non-Executive Directors
 of your Company, liable to retire by rotation, with effect from 27th
 August, 2008.
 
 Notices have been received from Members of the Company under Section
 257 of the Companies Act, 1956 for the appointment / re-appointment of
 Messrs. Baijal, Mehrotra, Mathur, Ramanujam, Powell, Vijayaraghavan,
 Dr. Kaul and Dr. Sen as Directors. Appropriate resolutions seeking your
 approval to their appointment / re-appointment are appearing in the
 Notice convening the 97th Annual General Meeting of the Company.
 
 In accordance with the provisions of Article 91 of the Articles of
 Association of the Company, Dr. Basudeb Sen, Mr. Balakrishnan
 Vijayaraghavan and Dr. Ram S. Tarneja will retire by rotation at the
 ensuing Annual General Meeting of your Company and, being eligible,
 offer themselves for re-election. The Board has recommended their
 re-election.
 
 AUDITORS
 
 The Auditors, Messrs. A. F. Ferguson & Co., retire at the ensuing
 Annual General Meeting and, being eligible, offer themselves for
 re-appointment. Since not less than 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
 
 Under the Company’s Employee Stock Option Scheme, 63,87,270 Ordinary
 Shares of Re.1/- each, were issued and allotted during the year upon
 exercise of 6,38,727 Options; such shares rank pari passu with the
 existing Ordinary Shares of your Company. Consequently, the Issued and
 Subscribed Share Capital of your Company, as on 31st March, 2008,
 stands increased to Rs. 3,76,86,10,050/- divided into 3,76,86,10,050
 Ordinary Shares of Re.1/- each.
 
 Details of the Options granted up to 31st March, 2008, and other
 disclosures as required under Clause 12 of the Securities and Exchange
 Board of India (Employee Stock Option Scheme and Employee Stock
 Purchase Scheme) Guidelines, 1999 are set out in the Annexure to this
 Report.
 
 The Company’s Auditors, Messrs. A. F. Ferguson & Co., have certified
 that the Company’s Employee Stock Option Schemes have been implemented
 in accordance with the Securities and Exchange Board of India (Employee
 Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,
 1999 and the resolutions passed by the Members in this regard.
 
 DIRECTORS’ RESPONSIBILITY STATEMENT
 
 As required under Section 217 (2AA) of the Companies Act, 1956, your
 Directors confirm having:
 
 a) followed in the preparation of the Annual Accounts, the applicable
 accounting standards with proper explanation relating to material
 departures if any;
 
 b) selected such accounting policies and applied them consistently and
 made judgments and estimates that are reasonable and prudent so as to
 give a true and fair view of the state of affairs of your Company at
 the end of the financial year and of the profit of your Company for
 that period;
 
 c) taken proper and sufficient care for the maintenance of adequate
 accounting records in accordance with the provisions of the Companies
 Act, 1956 for safeguarding the assets of your Company and for
 preventing and detecting fraud and other irregularities; and
 
 d) prepared the Annual Accounts on a going concern basis.
 
 CONSOLIDATED FINANCIAL STATEMENTS
 
 In accordance with Accounting Standard 21 - Consolidated Financial
 Statements, ITC Group Accounts form part of this Report & Accounts.
 These Group Accounts also incorporate the Accounting Standard 23 -
 Accounting for Investments in Associates in Consolidated Financial
 Statements and Accounting Standard 27 - Financial Reporting of
 Interests in Joint Ventures issued by the Institute of Chartered
 Accountants of India. These Group accounts have been prepared on the
 basis of audited financial statements received from Subsidiary,
 Associate and Joint Venture Companies, as approved by their respective
 Boards.
 
 OTHER INFORMATION
 
 The certificate of the Auditors, Messrs. A.F. Ferguson & Co. confirming
 compliance of conditions of Corporate Governance as stipulated under
 Clause 49 of the Listing Agreement with the Stock Exchanges in India,
 is annexed.
 
 Particulars as required under Section 217(1)(e) of the Companies Act,
 1956 relating to Conservation of Energy and Technology Absorption are
 also provided in the Annexure to this Report.
 
 There were 205 employees who were employed throughout the year and were
 in receipt of remuneration aggregating Rs.24 lakhs or more or were
 employed for part of the year and were in receipt of remuneration
 aggregating Rs.2 lakhs per month or more during the financial year
 ended 31st March, 2008. None of the said employees is a relative of any
 Director of the Company. The information required under Section 217(2A)
 of the Companies Act, 1956 and the Rules thereunder, in respect of the
 aforesaid employees, is provided in the Annexure forming part of this
 Report. In terms of Section 219(1)(b)(iv) of the Act, the Report and
 Accounts are being sent to the Members excluding the aforesaid
 Annexure. The Annexure is available for inspection by Members at the
 Registered Office of the Company during business hours on working days
 up to the date of the ensuing Annual General Meeting, and if any Member
 is interested in obtaining a copy thereof such Member may write to the
 Company Secretary whereupon a copy would be sent.
 
 FORWARD-LOOKING STATEMENTS
 
 This Report contains forward-looking statements that involve risks and
 uncertainties. When used in this Report, the words “anticipate”,
 “believe”, “estimate”, “expect”, “intend”, “will” and other similar
 expressions as they relate to the Company and/or its businesses are
 intended to identify such forward- looking statements. The Company
 undertakes no obligation to publicly update or revise any
 forward-looking statements, whether as a result of new information,
 future events, or otherwise. Actual results, performances or
 achievements could differ materially from those expressed or implied in
 such forward-looking statements. Readers are cautioned not to place
 undue reliance on these forward-looking statements that speak only as
 of their dates. This Report should be read in conjunction with the
 financial statements included herein and the notes thereto.
 
 CONCLUSION
 
 Your Company’s Board and employees are inspired by their vision of
 sustaining ITC’s position as one of India’s most valuable companies
 through world-class performance, creating enduring value for all
 stakeholders, including the shareholders and the Indian society. 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 the entire value
 chain of which it is a part.
 
 Inspired by this Vision, driven by Values and powered by internal
 Vitality, your Directors look forward to the future with confidence.
 
 
 3rd June, 2008                      On behalf of the Board
 Virginia House
 37 J L Nehru Road
 Kolkata 700071                     Y. C. DEVESHWAR   Chairman
 
 India                              K. VAIDYANATH     Director