ITC Directors Report, ITC Reports by Directors


BSE: 500875|NSE: ITC|ISIN: INE154A01025|SECTOR: Cigarettes
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Directors Report Year End : Mar '16    « Mar 15
The Company is a global exemplar in ''Triple Bottom Line'' performance
 and is the only enterprise in the world of comparable dimensions to
 have achieved and sustained the three key global indices of
 environmental sustainability of being ''water positive'' (for 14 years),
 ''carbon positive'' (for 11 years), and ''solid waste recycling positive''
 (for 9 years).
 The following sections outline your Company''s progress in pursuit of
 the ''Triple Bottom Line''.
 The business landscape in your Company''s operating segments was
 rendered extremely challenging during the year in the wake of
 unprecedented pressure on the legal cigarette industry due to the
 cumulative impact of steep increase in taxation and regulatory
 pressures, sluggish demand and price deflationary conditions in the
 FMCG space, and start-up costs relating to new products / categories
 especially in the non-cigarette FMCG segment. The business environment
 in the Hotels industry also remained challenging with the overhang of
 excess room inventory exerting pressure on pricing apart from which the
 Business had to absorb the gestation costs of new properties. Agri
 exports from India were impacted during the year due to higher crop
 output and steeper currency depreciation in competing origins. The
 Paperboards, Paper and Packaging segment also had to contend with a
 weak demand and pricing environment.
 Despite the challenging business environment as aforestated, Gross
 Revenue for the year grew by 3.2% to Rs. 51582.45 crores. Net Revenue
 at Rs. 36475.27 crores grew by 1.1% primarily driven by a 7.7% growth
 in the non-cigarette FMCG segment and 6.2% growth in the Cigarettes
 segment. Excluding exports of agri- commodities, Gross Revenue and Net
 Revenue for the year grew by 6.4% and 5.5% respectively. Profit Before
 Tax registered a growth of 6.9% to Rs. 14958.39 crores while Net Profit
 at Rs. 9844.71 crores increased by 2.5%.  Earnings Per Share for the
 year stood at Rs. 12.26 (previous year Rs. 12.05). Cash flows from
 Operations aggregated Rs. 14079.07 crores compared to Rs. 13534.65
 crores in the previous year.
 Your Directors are pleased to recommend a Special Dividend of Rs. 2.00
 per share in addition to the Ordinary Dividend of Rs. 6.50 per share
 (previous year Rs. 6.25 per share) for the year ended 31st March, 2016.
 Total cash outflow in this regard will be Rs. 8232.60 crores including
 Dividend Distribution Tax of Rs. 1392.48 crores.
 Your Directors also recommend issuance of 1 Bonus Share of Rs. 1/-
 each, for every 2 existing Ordinary Shares of Rs. 1/- each held by
 Members on the record date.
 Your Directors further recommend a transfer to General Reserve of Rs.
 990.00 crores (previous year Rs. 970.00 crores). Consequently, the
 Surplus in Statement of Profit and Loss as at 31st March, 2016 would
 stand at Rs. 9440.48 crores (previous year Rs. 8767.35 crores).
 While profit growth moderated during the year especially in comparison
 with your Company''s own track record, it is pertinent to note that
 Value-Added by your Company, i.e. the value created by the economic
 activities of your Company and its employees, grew by 8.3% over last
 year to Rs. 41135 crores. Your Company''s Contribution to Exchequer
 during the year stood at Rs. 30750 crores representing a growth of
 11.6% over last year.
 It is pertinent to note that the incremental Value-Added during the
 year by your Company accrued entirely to the Exchequer. Consequently,
 the share of Contribution to Exchequer in total Value-Added by your
 Company increased further - from 73% in 2014-15 to 75% in 2015-16.
 Including the share of dividends paid and retained earnings
 attributable to government owned institutions, your Company''s
 contribution to the Central and State Governments represents 81% of its
 Value-Added during the year.
 Your Company remains amongst the Top 3 Indian corporates in the private
 sector in terms of Contribution to Exchequer.
 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.
 Foreign exchange earnings of the ITC Group over the last ten years
 aggregated nearly US$ 6.8 billion, of which agri exports constituted
 57%. Earnings from agri exports, which effectively link small farmers
 with international markets, are an indicator of your Company''s
 contribution to the rural economy.
 During the financial year 2015-16, your Company and its subsidiaries
 earned Rs. 4367 crores in foreign exchange.  The direct foreign
 exchange earned by your Company amounted to Rs. 3644 crores, mainly on
 account of exports of agri-commodities. Your Company''s expenditure in
 foreign currency amounted to Rs. 1672 crores, comprising purchase of
 raw materials, spares and other expenses of Rs. 1461 crores and import
 of capital goods at Rs. 211 crores. Details of foreign exchange
 earnings and outgo are provided in Note 31 to the Financial Statements.
                                                       (Rs. in Crores)
 PROFITS                                          2016          2015
 a) Profit Before Tax                         14958.39      13997.52
 b) Tax Expense
 – Current Tax                                 4896.06       4020.99
 – Deferred Tax                                 217.62        368.80
 c) Profit for the year                        9844.71       9607.73
 a) At the beginning of the year               8767.35       6139.09
 b) Less: Loss for the period from 1st 
 April, 2013                                         -          8.01
 to 31st March, 2014 adjusted pursuant to
 the Scheme of Arrangement
 [Refer Note 31(x)]
 c) Add: Unrecognised Net Deferred Tax               -         45.84
 assets as on 1st April, 2013 adjusted 
 pursuant to the Scheme of
 Arrangement [Refer Note 31(x)]
 d) Less: Depreciation on transition to              -         48.32
 Schedule II of the Companies Act, 2013 
 on Tangible Fixed Assets (Net of 
 Deferred Tax Rs. Nil; 2015: Rs. 24.88 
 crores) [Refer Note 31(xi)]
 e) Add : Profit for the year                  9844.71       9607.73
 f) Less:
 – Transfer to General Reserve                  990.00        970.00
 – Proposed Dividend
 - Ordinary Dividend of Rs. 6.50               5230.68       5009.70 
 (2015 - Rs. 6.25) per share
 - Special Dividend of Rs. 2.00                1609.44             -
 (2015 - Rs. Nil) per share
 – Income Tax on Proposed Dividend
 - Current Year                                1392.48       1019.86
 - Earlier year''s provision no                  (51.02)       (30.58) 
 longer required
 g) At the end of the year                     9440.48       8767.35
 FMCG - Cigarettes
 The performance of your Company''s Cigarettes business remained subdued
 during the year due to unprecedented pressure on the legal cigarette
 industry in India on account of the cumulative impact of steep increase
 in taxation and intense regulatory pressures.
 Over the last 4 years, the incidence of Excise Duty and VAT on
 cigarettes, at a per unit level, has gone up cumulatively by 118% and
 142% respectively thereby exerting severe pressure on legal industry
 volumes even as illegal trade grows unabated.
 It is pertinent to note that steep increases in Excise Duty on
 cigarettes in recent years have resulted in widening the differential
 in Excise Duty rates (on a per kg. of tobacco basis) between cigarettes
 and other tobacco products from 29 times in 2005-06 to over 53 times
 currently as given in the chart below:
 An analysis of the WHO Report on Tobacco Taxation, 20151 reveals that
 at 6.5% of per capita GDP, cigarette taxes in India are amongst the
 highest in the world.  In fact, cigarette taxes in India are 14 times
 higher than USA, 9 times higher than Japan, 7 times higher than China,
 5 times higher than Australia and 3 times higher than Malaysia and
 Pakistan as is evident from the chart given below:
 High incidence of taxation and a discriminatory regulatory regime on
 cigarettes in India have over the years led to a significant shift in
 tobacco consumption to lightly taxed or tax-evaded tobacco products
 like bidi, khaini, chewing tobacco, gutkha and illegal cigarettes which
 presently constitute over 89% of total tobacco consumption in the
 country. Thus, the share of legal cigarettes in overall tobacco
 consumption has progressively declined from 21% in 1981-82 to 11% in
 2014-15 even as overall tobacco consumption has increased in India.
 About 68% of India''s tobacco industry is in the unorganised sector with
 little or no regulatory oversight. Besides adversely impacting the
 performance of the legal cigarette industry, this has led to
 sub-optimisation of the revenue potential from the tobacco sector.
 The imposition of discriminatory and punitive VAT rates by some States
 provides an attractive tax arbitrage opportunity for illegal cigarette
 trade by criminal elements.  The consequential decline in legal
 cigarette volumes in such States has led to stagnation/decline in
 revenue collections, even as illegal cigarettes gained significant
 traction. On the other hand, the pragmatic decisions of several State
 Governments to rationalise VAT on cigarettes have facilitated
 improvement in revenue buoyancy and containing the growth of illegal
 According to an independent study conducted by Euromonitor
 International - a renowned global research organisation - India is now
 the 4th largest market for illegal cigarettes in the world. In fact,
 illegal trade comprising smuggled foreign and domestically manufactured
 tax-evaded cigarettes is estimated to constitute one-fifth of the
 overall cigarette industry in India. A recent study by the Federation
 of Indian Chambers of Commerce and Industry (FICCI) has estimated that
 revenue loss due to illegal cigarettes is more than Rs. 9000 crores per
 annum which represents a growth of nearly 50% over a two year period.
 During the year under review, your Company was in continuous engagement
 with various enforcement agencies whose proactive initiatives have
 resulted in significant increase in seizure of smuggled cigarettes.
 The unprecedented fall in legal cigarette volumes and the consequent
 reduction in the utilisation of Indian Flue Cured Virginia tobacco in
 cigarette manufacture is having a devastating impact on tobacco farmers
 in the country.  The sharp decline in domestic demand coupled with the
 unabated growth in illegal cigarette trade have led to a significant
 drop in tobacco prices, especially in Andhra Pradesh, causing deep
 distress to the livelihoods of thousands of tobacco farmers. A stable,
 fair and equitable cigarette taxation policy would be imperative to
 provide a strong domestic demand base to the Indian tobacco farmer,
 insulating him from the volatilities typically associated with
 international markets while helping realise the full export potential
 of Indian leaf tobacco.  This assumes critical significance especially
 in view of the fact that there are no economically viable alternative
 crops for farmers in the tobacco growing regions of the country.
 Your Company continues to engage on an ongoing basis with policy-makers
 at both the Centre and the State levels for moderation in tax rates on
 cigarettes to maximise the revenue potential from the tobacco sector
 and contain the growth of illegal trade. Such a policy would also
 bolster the tobacco control and health objectives of the Government
 which have hitherto been seriously compromised since non-cigarette
 tobacco products from the unorganised sector and illegal cigarettes are
 manufactured using inferior tobaccos and other ingredients of
 questionable quality and hygiene without any regulatory oversight. In
 addition, to combat the menace of growing illegal trade, your Company
 continues to make representations to policy-makers recommending
 compulsory licensing of all cigarette manufacturing units irrespective
 of size, increase in customs duty on imported cigarettes to WTO bound
 rate levels with suitable safeguards built-in to prevent
 undervaluation, ban on manufacture of tobacco and tobacco products in
 EOU and SEZ units, ban on cigarettes from personal baggage allowance
 and duty-free trade and exclusion of tobacco and tobacco products from
 preferential treatment under Free Trade Agreements that India is party
 Over and above a punitive and discriminatory taxation regime, the legal
 Cigarette industry continues to be subjected to increasingly stringent
 regulations.  A Government notification, originally proposed to be
 effective from 1st April, 2015, increased the size of graphic health
 warnings (GHW) from 40% of the surface area on one side of the
 cigarette package to 85% of the surface area of both sides of the
 package, and substituted the previous pictures with even more gruesome
 and repulsive ones. The implementation of the new GHW was subsequently
 kept in abeyance by the Central Government pending the recommendations
 of the Parliamentary Committee on Subordinate Legislation (PCOSL) which
 was tasked with the responsibility of examining the issue of
 introduction of larger GHW in India. The decision to defer the
 notification till completion of PCOSL''s review was reiterated by the
 Government in the Parliament2. Nevertheless, whilst the PCOSL was
 engaged in the matter, on 24th September, 2015, the Central Government
 notified that the new GHW would come in to effect from 1st April, 2016.
 On 15th March, 2016, the PCOSL in its Final Report recommended that the
 size of the GHW should be kept at 50% on both sides of the cigarette
 package as opposed to 85% proposed by the Government.
 The implementation of any change in health warnings on cigarette
 packages is an elaborate process for manufacturers, entailing months of
 preparation involving substantial cost and effort. Since the matter of
 new GHW was under the Parliamentary Committee''s consideration, and the
 Government had itself held out that it would await the Committee''s
 report, the industry was led to believe that the Government would
 re-notify new health warnings after considering the Committee''s
 recommendations. Further, the question of the legality of the new
 warnings was and continues to be pending before the Court.  In this
 situation, your Company, as any prudent person would, did not commit to
 wasting substantial resources in creating the large number of cylinders
 and other tools necessary for a changeover of the warnings.  As a
 result, your Company was not in readiness to print the new GHW and was
 compelled to cease manufacture of cigarettes with effect from 1st
 April, 2016 pending clarity on the matter.  Subsequently, in order to
 attain clarity on the matter, your Company challenged the rules
 mandating larger GHW before the Honourable High Court of Karnataka.
 The Court was pleased to direct, vide Interim Order dated 12th April,
 2016, that the Government should not take any coercive steps against
 your Company for a period of 8 weeks during which your Company would
 continue to follow the Cigarettes and Tobacco Products (Packaging and
 Labelling) Rules, 2008 (2008 Rules), which prescribed 40% warning on
 the front panel of the cigarette packs. Accordingly, your Company
 resumed production of cigarettes at its factories from 15th April,
 On 4th May, 2016, the Honourable Supreme Court directed the Honourable
 High Court of Karnataka to hear and dispose of within 6 weeks, the
 legal challenge to GHW pending in several High Courts. The Honourable
 Supreme Court, however, also ordered that any stay order granted by any
 High Court would not be given effect to till the cases are finally
 disposed of. As a consequence of the above development, in compliance
 with the interim requirements pending hearing in the Honourable
 Karnataka High Court, your Company progressively commenced manufacture
 of cigarettes with 85% warning on cigarette packaging.
 The Tobacco industry in India supports the livelihood of over 45
 million people including vulnerable sections of the society like
 farmers, farm labour, rural poor, women, tribals etc. and contributes
 around Rs. 30000 crores to the national exchequer apart from generating
 valuable foreign exchange earnings of around Rs. 6000 crores.
 The proposed GHW is excessively large, extremely gruesome and
 unreasonable. There is no evidence to suggest that cigarette smoking
 would cause the diseases depicted in the pictures or that large GHW
 will lead to reduction in consumption. In fact this inadequacy of
 evidence prompted the courts in USA to hold that the US FDA''s proposal
 for introduction of similar GHW in that country as unconstitutional.
 Further, over 100 countries representing 60% of the signatories to the
 Framework Convention on Tobacco Control have not adopted GHW3. It is
 pertinent to note that other major tobacco producing countries have
 taken a considered view on the matter and have not adopted over-sized
 and excessive graphic health warnings, thus striking a balance between
 the interests of the consumer and of their farmers. It may also be
 noted that the global average size for GHW is only about 30% coverage
 of the principal display area. Moreover, the top three cigarette
 consuming countries - USA, China and Japan - which together account for
 51% of global cigarette consumption have only text based warnings and
 have not adopted pictorial / graphic health warnings.
 The new GHW will commoditise the market where price will be the sole or
 prime driver of consumer choice thus eroding the value of your
 Company''s distinctive trademarks and pack designs that have been
 developed and nurtured through substantial investments over the years.
 Moreover, the new GHW will encourage the flow of illegal trade of
 brands owned by international companies into the country since such
 brands are manufactured in many jurisdictions which do not mandate the
 printing of graphic health warnings on cigarette packages as applicable
 in India. The legal cigarette industry in India will be hard pressed to
 counter the menace of illegal cigarettes as they will be perceived by
 the consumer to be safer in the absence of the statutorily mandated
 health warnings. Coupled with the fact that illegal cigarettes are
 available at a fraction of the price of legal cigarettes, the new GHW
 will provide further fillip to the growth of illegal cigarettes in the
 It is pertinent to note that the Department of Commerce, in its
 submissions to PCOSL, has stated that large warnings will lead to an
 increase in overall tobacco consumption and illegal cigarettes; when
 large quantities of non-cigarette tobacco products from unorganised
 sector are sold loose and / or without any health warnings, it gives an
 impression of these products being relatively safer than cigarettes.
 As always, your Company complies fully with all regulations and laws in
 letter and spirit and continues to engage with policy-makers for
 reasonable, pragmatic and evidence based regulation and taxation
 policies that balance the health, employment and economic imperatives
 of the country.
 Your Company''s strong product portfolio along with superior consumer
 insights and a strategy of continuous innovation and value addition has
 helped deliver superior competitive performance. Some of the key new
 products launched during the year include ''Classic Fine Taste - Low
 Smell'', ''Noir'' - the first 97mm super slim cigarette in the country and
 new Kretek and capsule filter offers.  Significant investments were
 made during the year on cutting-edge anti-counterfeit technology
 solutions that will enable your Company to protect its trademarks,
 state-of-the-art on-line quality oversight systems and know-how for
 developing innovative packaging formats in the future.
 Your Company''s research and development initiatives continue to focus
 on strengthening existing product signatures, creating differentiated
 offers and developing innovative future-ready products. In this
 context, it is extremely gratifying to report that during the year your
 Company was granted four international patents in respect of cigarettes
 - covering both product and packaging.
 Electronic Vaping Devices (EVD) are gaining increasing traction with
 consumers seeking alternative sources of nicotine. In line with this
 trend, your Company continues to engage in this category through its
 brand ''EON'' which was launched in Hyderabad and Kolkata in the previous
 year.  During the year, your Company extended the brand to target
 markets and also augmented its product portfolio with the launch of a
 rechargeable variant - ''EON Charge'' - in Bengaluru and Delhi.
 Being a nascent category, regulations with respect to EVD continue to
 evolve globally. European Union has proposed to regulate EVDs under its
 Tobacco Products Directive, 2014 subject to certain conditions. In the
 US, the Food and Drug Administration has recently issued deeming
 regulations that empower it to administer EVDs as Tobacco Products
 subject to fulfilment of certain conditions. In both EU and US,
 manufacturers also have the option of applying for medicine / drug
 licence for EVDs. In India, your Company continues to engage with the
 Government to evolve appropriate regulations for this novel category.
 In the Nicotine Gum category, the presence of your Company''s brand,
 ''Kwiknic'', was expanded with the introduction of the product in the
 chemists channel during the year. The Business also launched a new
 variant - ''Kwiknic Neo'' - in select markets which has received
 encouraging response from consumers.
 During the year, your Company''s Bengaluru, Kolkata and Saharanpur
 cigarette factories were awarded and recognised as ''Future Ready
 Factory - Platinum Rating: FMCG Sector, Mega Large Business'' under the
 aegis of the Indian Manufacturing Excellence Awards (IMEA) by Frost &
 Sullivan, a global consulting firm. This highly acclaimed award
 acknowledges Indian manufacturing capability and its global
 competitiveness. Concurrently, your Company''s cigarette supply-chain
 was also conferred the IMEA award for ''Supply Chain Leadership'' in
 recognition of consistent achievement of higher levels of recognition
 (Platinum / Gold) on the Global Supply Chain Excellence model of IMEA.
 This award acknowledges the strong leadership commitment, excellence in
 manufacturing plants and at key supply chain partners and building of
 reliable and responsive supply chains.  Your Company was the only
 Indian company to be honoured with this distinction during the year
 under review.
 The Business continues to receive industry recognition and accolades
 for its commitment to and excellence in sustainability. The Bengaluru
 factory received the ''Overall Leader Award'' and the Ranjangaon factory
 received the ''Leader Award'' under the aegis of Green Manufacturing
 Excellence Awards (GMEA) by Frost & Sullivan. The Bengaluru and
 Ranjangaon factories also received the ''Excellent Energy Efficiency
 Unit'' award under the Confederation of Indian Industry''s National
 Awards for Excellence in Energy Management.  The Munger factory
 received the first prize in FICCI Water Awards.
 The operating environment for the legal cigarette industry is likely to
 remain extremely challenging in the year ahead in view of the high
 levels of taxation which was exacerbated by a further increase of 10%
 in Excise Duty as announced in the Union Budget 2016, rising illegal
 trade and increasing regulatory pressures including the new graphic
 health warnings. Despite these challenges, your Company remains
 confident of sustaining its leadership position in the legal cigarette
 industry by leveraging its superior strategies, comprehensive product
 portfolio and world-class execution capabilities.
 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 inter alia provides assurance on orderly and
 efficient conduct of operations, security of assets, prevention and
 detection of frauds / errors, accuracy and completeness of accounting
 records and the timely preparation of reliable financial information.
 Your Company''s independent and robust Internal Audit processes, both at
 the Business and Corporate levels, provide assurance on the adequacy
 and effectiveness of internal controls, compliance with operating
 systems, internal policies and regulatory requirements.
 The Internal Audit function consisting of professionally qualified
 accountants, engineers and IT Specialists is adequately skilled and
 resourced to deliver audit assurances at highest levels. In the context
 of the IT environment of your Company, systems and policies relating to
 Information Management are periodically reviewed and benchmarked for
 contemporariness.  Compliance with the Information Management policies
 receive focused attention of the Internal Audit team.  Qualified
 engineers in the Internal Audit function review the quality of planning
 and execution of all ongoing projects involving significant expenditure
 to ensure that project management controls are adequate and yield
 ''value for money''.
 Processes in the Internal Audit function have been continuously
 improved for enhanced effectiveness and productivity including the
 deployment of best-in-class tools for analytics in the Audit domain,
 certification as complying with ISO 9001:2008 Quality Standards in its
 processes, ongoing knowledge improvement programmes for staff, etc.
 During the year, the Standard terms of reference for Internal Audit
 which defines the framework for conduct of Internal Audits was updated
 incorporating latest changes to regulatory requirements and the
 evolving business context.
 The Audit Committee of your Board met ten times during the year. The
 Terms of Reference of the Audit Committee inter alia included reviewing
 the effectiveness of the internal control environment, evaluation of
 the Company''s internal financial control and risk management systems,
 monitoring implementation of the action plans emerging out of Internal
 Audit findings including those relating to strengthening of your
 Company''s risk management systems and discharging statutory mandates.
 Your Company''s Human Resource Management systems and processes are
 aimed at creating a responsive, market-focused, customer-centric
 culture and enhancing organisational vitality, so that each business is
 internationally competitive and equipped to seize emerging market
 opportunities. It is your Company''s firm belief that the robustness and
 adaptability of its Human Resource systems and processes are critical
 for an organisation to remain relevant and competitive in today''s
 highly dynamic and rapidly evolving business landscape. The Human
 Resources function of your Company continues to align its strategic
 interventions and processes with your Company''s Vision of sustaining
 its position as one of India''s most admired and valuable corporations,
 creating growing value for the Indian economy and the Company''s
 stakeholders. Towards this end, five capability platforms relevant to
 making businesses future-ready have been identified – Strategic, Value
 Chain, Leadership, Innovation and Human Resources Development. These
 platforms are also designed to strengthen organisational systems to
 facilitate speedy and competitively superior responses to market
 Your Company''s talent management promise of ''Building Winning
 Businesses. Building Business Leaders. Creating Value for India.''
 backed by its strong corporate equity continues to play a key role in
 attracting and retaining best-in-class talent. Leadership Development
 is the unwavering focus of your Company''s talent management strategy
 and its ''Strategy of Organisation'' – creating multiple drivers of
 growth through a diverse portfolio of businesses each with its own
 independent leadership team - serves as an excellent platform to build
 distributed business leadership.
 An equally important dimension of building leadership is your Company''s
 strategic learning and development agenda which flows from its Vision,
 Mission and its 3-Horizon Growth strategy. Your Company has a
 multi-pronged approach to learning, with focused interventions in core
 and functional areas, customised business specific and
 organisation-wide strategic interventions, as well as four-tiered
 leadership development programmes. Based on the premise that action
 learning leads to holistic development of human resources, these
 programmes are designed to lay more emphasis on workplace projects and
 demonstrated leadership behaviours on the job rather than classroom
 learning. These interventions are, therefore, fashioned more in the
 nature of long term journeys rather than short term events.
 ''Gurukul'', your Company''s state-of-the-art training facility in
 Ranjangaon, is a significant milestone in its skilling journey. An
 integrated technical training centre catering to all the FMCG
 businesses under one roof, ''Gurukul'' underlines your Company''s
 proactive commitment to supporting national goals by focussing on
 enhancing the shop floor skills of its employees in line with the
 Government''s ''Make in India'' initiative and ''Skill India Mission''. This
 commitment is reinforced through your Company''s interventions geared
 towards enhancing the employability of disadvantaged youth such as
 apprenticeship programmes in its units and partnering with National
 Skill Development Corporation (NSDC) empanelled agencies to impart
 market-linked vocational training in the manufacturing and service
 Your Company is dedicated to nurturing sustainable Employee Relations
 and continues to leverage the ''Good Employee Relations'' approach in
 ensuring responsive manufacturing, flexible work systems and, at the
 same time, maintaining a cost and environment conscious ecosystem in
 all units. The Employee Relations philosophy of your Company, anchored
 in the tenets of Scientific Management, Industrial Democracy, Human
 Relations and Employee Well-being, has contributed to building a robust
 platform which has aided the conclusion of several Long Term Agreements
 at multiple locations during the year and ensured the smooth execution
 of large-scale change management initiatives and adoption of
 contemporary management practices.
 Given the contextual realities of your Company''s factories, your
 Company''s businesses are steadily working towards developing a ''Long
 Term Agreement Framework''.  To meet employee expectations, your
 Company''s units appropriately acknowledge the demographic diversity of
 its factories and adopt a commitment based segmented approach. Your
 Company''s progressive Employee Relations approach has enabled a
 harmonious atmosphere across all units, which in turn has been a vital
 element in ensuring that HR systems and practices remain world-class.
 Your Company''s interventions in the area of Employee Relations continue
 to receive accolades and industry recognition.
 Your Company has been able to galvanise its human resource to become
 more agile, leverage change, stay ahead of competition and win in the
 market. Your Company''s employees relentlessly strive to deliver
 world-class performance and discharge their role as ''trustees'' of all
 stakeholders with true faith and in the spirit of allegiance. Over
 25,000 of your Company''s employees have collectively envisioned the
 future with commitment to realise your Company''s vision of creating
 enduring value – for the nation and for the institution that is ITC.
 The Company''s Whistleblower Policy encourages Directors and employees
 to bring to the Company''s attention, instances of unethical behaviour,
 actual or suspected incidents of fraud or violation of the ITC Code of
 Conduct that could adversely impact the Company''s operations, business
 performance and / or reputation.  The Policy provides that the Company
 investigates such incidents, when reported, in an impartial manner and
 takes appropriate action to ensure that requisite standards of
 professional and ethical conduct are always upheld.  It is the
 Company''s Policy to ensure that no employee is victimised or harassed
 for bringing such incidents to the attention of the Company. The
 practice of the Whistleblower Policy is overseen by the Audit Committee
 and no employee has been denied access to the Committee. The
 Whistleblower Policy is available on the Company''s corporate website
 Inspired by the opportunity to sub-serve larger national priorities,
 your Company redefined its Vision to not only reposition the
 organisation for extreme competitiveness but also make societal value
 creation the bedrock of its corporate strategy. This super-ordinate
 Vision spurred innovative strategies to address some of the most
 challenging societal issues including widespread poverty, unemployment
 and environmental degradation.  Your Company''s sustainability strategy
 aims at creating significant value for the nation through superior
 ''Triple Bottom Line'' performance that builds and enriches the country''s
 economic, environmental and social capital.  The sustainability
 strategy is premised on the belief that the transformational capacity
 of business can be very effectively leveraged to create significant
 societal value through a spirit of innovation and enterprise.
 Your Company is today a global exemplar in sustainability. It is a
 matter of immense satisfaction that your Company''s models of
 sustainable development have led to the creation of sustainable
 livelihoods for around 6 million people, many of whom belong to the
 marginalised sections of society. Your Company has also sustained its
 position of being the only Company in the world of comparable
 dimensions to have achieved the global environmental distinction of
 being ''water positive'' (for 14 years in a row), ''carbon positive'' (for
 11 consecutive years) and ''solid waste recycling positive'' (for 9 years
 in succession).
 To contribute to the nation''s efforts in combatting climate change,
 your Company''s strategy of adopting a low- carbon growth path is
 manifest in its growing renewable energy portfolio, establishment of
 green buildings, large- scale afforestation programme and achievement
 of international benchmarks in energy & water consumption.  Today, over
 47% of its total energy requirements are met from renewable energy
 sources - an outstanding performance given the large manufacturing base
 of your Company. Further, all luxury ITC Hotels, several office
 complexes and factories of your Company are LEED® (Leadership in Energy
 & Environmental Design) certified at the highest level by the US Green
 Building Council/ Indian Green Building Council and the Bureau of
 Energy Efficiency (BEE) under its star rating scheme.
 Your Company has adopted a comprehensive set of sustainability policies
 that are being implemented across the organisation in pursuit of its
 ''Triple Bottom Line'' agenda. These policies are aimed at strengthening
 the mechanisms of engagement with key stakeholders, identification of
 material sustainability issues and progressively monitoring and
 addressing such issues along the value chain of each Business.
 Your Company''s 12th Sustainability Report, published during the year
 detailed the progress made across all dimensions of the ''Triple Bottom
 Line'' for the year 2014-15. This report is in conformance with the
 latest Global Reporting Initiative (GRI) Guidelines - G4 under In
 Accordance - Comprehensive category and is third-party assured at the
 highest criteria of reasonable assurance as per International
 Standard on Assurance Engagements (ISAE) 3000. The 13th Sustainability
 Report, covering the sustainability performance of your Company for the
 year 2015-16, is also being prepared in conformity with the above
 guidelines and will be made available shortly.
 In addition, the Business Responsibility Report (BRR), as mandated by
 the Securities & Exchange Board of India (SEBI), was brought out as an
 annexure to the Report and Accounts 2015, mapping the sustainability
 performance of your Company against the reporting framework suggested
 by SEBI.  The BRR for the year under review is annexed to this Report
 and Accounts.
 Corporate Social Responsibility (CSR)
 Your Company''s overarching aspiration to create significant and
 sustainable societal value is manifest in its CSR initiatives that
 embrace the most disadvantaged sections of society, especially in rural
 India, through economic empowerment based on grassroots capacity
 building. Towards this end, the Company adopted a comprehensive CSR
 policy in 2014-15 outlining programmes, projects and activities your
 Company plans to undertake to create a significant positive impact on
 identified stakeholders. All these programmes fall within the purview
 of Schedule VII of the provisions of Section 135 of the Companies Act,
 2013 and the Companies (Corporate Social Responsibility Policy) Rules,
 The key elements of your Company''s CSR interventions are to:
 — Strengthen and empower Community Based Organisations for long-term
 sustainability of interventions.
 — Ensure behaviour change through focus on demand generation for all
 interventions to ensure ownership, participation and contribution.
 — Continue to strive for scale in the core operational geographies by
 leveraging government partnerships.
 — Continue to work with key stakeholders with whom your Company has
 enduring partnerships comprising (a) rural communities in the Company''s
 Agri Business operational areas and (b) communities residing in close
 proximity to your Company''s production units. Within these groups,
 specially target poor and marginalised communities/ groups to ensure
 inclusive development.
 — Remain contemporary by accessing knowledge/ technical know-how
 through collaborations.
 Your Company''s stakeholders are confronted with multi- dimensional and
 inter-related issues, at the core of which is the challenge of securing
 sustainable livelihoods.  Accordingly, interventions under your
 Company''s Social Investments Programme (SIP) are appropriately designed
 to build their capacities and promote sustainable livelihoods.
 The footprint of your Company''s SIP projects is spread over 26 states
 covering 166 districts.
 Social Forestry
 Your Company''s pioneering initiative of wasteland development through
 the Social Forestry Programme is currently spread across 16 districts
 in 3 States covering 87,674 hectares in 4,533 villages, impacting over
 85,700 poor households. Together with your Company''s Farm Forestry
 programme, this initiative has greened over 2,25,000 hectares till date
 and generated over 101 million person days of employment for rural
 households, including poor tribals and marginal farmers.  Integral to
 the Social Forestry programme is the agro-forestry initiative which
 ensures food, fodder and wood security and currently extends to nearly
 25,000 hectares.
 Besides enhancing farm level employment & incomes and increasing green
 cover, the Social and Farm Forestry initiative of your Company has led
 to improvement in pulpwood availability in Andhra Pradesh and
 Telangana.  This initiative is also contributing meaningfully towards
 the nation''s endeavour in creating additional carbon sink for tackling
 climate change.
 Soil and Moisture Conservation
 The Soil and Moisture Conservation programme promotes the development
 and management of local water resources in moisture-stressed areas by
 facilitating village-based participation in planning and implementing
 such measures as well as building, reviving and maintaining
 water-harvesting structures. The coverage of this programme currently
 extends to 42 districts across 10 States. During the year, the area
 under watershed increased by 58,864 hectares taking the cumulative
 coverage area till 2015-16 to over 2,59,000 hectares.  1,534 water
 harvesting structures were built during the year, taking the total
 number of water harvesting structures to 7,998.
 Bio Diversity
 During the year, your Company scaled up bio-diversity conservation in
 49 additional plots covering 730 hectares in the catchments of your
 Company''s Agri Business operations with the objective of protecting
 native flora and fauna and providing other eco-system services.  The
 cumulative area under bio-diversity conservation currently stands at
 3,943 hectares.
 Sustainable Agriculture
 The Sustainable Agriculture programme aims at raising farm productivity
 and quality as well as minimising cultivation costs by promoting modern
 agronomic techniques and optimising natural resource use.  The
 programme is operational in 48 districts across 13 States. During the
 year, 764 Farmer Field Schools (FFS) disseminated know-how on advanced
 agri-practices to over 16,969 farmers through 2,464 demonstration plots
 under different crops.  In pursuit of your Company''s long-term
 sustainability objective of increasing soil organic carbon, a total of
 7,314 compost units were constructed during the year taking the total
 number till date to 30,868 units.  In addition, the ''Choupal Pradarshan
 Khet'' programme promoted field demonstrations of seed varieties and
 production practices in more than 5,000 villages covering around 64,000
 hectares and more than 60,000 farmers.
 Livestock Development
 The Livestock Development programme aims at enhancing the productivity
 of cattle through artificial insemination to produce high-yielding
 crossbred progenies. This programme has been implemented through 238
 Cattle Development Centres (CDCs) spread across 24 districts in 7
 states. These CDCs facilitated over 2,29,000 artificial inseminations
 during the year, taking the total to 17,91,000 artificial inseminations
 performed till 2015-16.
 Women Empowerment
 Currently spread across 7 districts in Bihar, West Bengal, Madhya
 Pradesh, Telangana, Rajasthan and Assam, the programme on mainstreaming
 of ultra-poor women covers 10,200 women who have been identified and
 trained in entrepreneurial skills and provided with assets for income
 generation. In addition, over 350 Self-Help Groups (SHGs) with 3,800
 members were formed during the year. Members of SHGs and other
 institutions were linked to individual bank accounts under the
 Government of India''s Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan
 Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti
 Bima Yojana (PMJJY).  55,925 beneficiaries (men and women) were covered
 under the PMSBY, 26,867 members under the PMJJY and 39,105 under
 Pradhan Mantri Jan Dhan Yojana.
 The Primary Education Programme focuses on retention and improving
 learning outcomes in government primary schools in your Company''s
 factory catchment areas.  During the year, 45,823 children were covered
 under this initiative comprising ''Read India Plus'' programme and 176
 Supplementary Learning Centres to mainstream out-of-school children
 into regular schools. Till date, these programmes have reached out to
 over 4.60 lakh children in aggregate. In addition, 164 government
 primary schools were provided infrastructure support comprising
 boundary walls, additional classrooms, sanitation units, and furniture,
 thus taking the total number of government primary schools covered till
 date to 1,322.  To ensure sustainable operations and maintenance of
 infrastructure provided, School Management Committees were strengthened
 in 189 schools and 113 Child Cabinets and Water and Sanitation (WATSAN)
 Committees were formed in various schools with the active involvement
 of students and teachers.
 Skilling & Vocational Training
 The Skilling & Vocational Training Programme focuses on providing
 market-linked skills to young people to make potential job-seekers
 industry-ready and employable in the services and manufacturing
 sectors.  During the year, 11,872 youth were enrolled for training
 under different courses offered as part of this programme.  Of the
 total students enrolled, 9,447 (79% of enrolled) completed training and
 6,452 (68% of trained) students were provided placement. The students
 trained included a healthy mix of women and SC/ST candidates. The
 initiative is spread across 31 districts covering 15 states.
 Your Company continues to work with the Welcomgroup Graduate School of
 Hotel Administration (WGSHA) together with Dr. TMA Pai Foundation to
 cater to the ever growing need for professionally trained human
 resources in the hospitality industry.  WGSHA has been recently rated
 by CEO World Magazine amongst the top 50 hospitality schools in the
 world. In addition, since the inception of ITC Culinary Skills Training
 Centre, Chhindwara in 2014, 41 trainee chefs in three batches have
 successfully completed the 6-months programme wherein cooking skills
 are imparted to youth from the disadvantaged sections of society.
 Health & Sanitation
 Your Company continues to adopt a multi-pronged approach to improve
 public health. To promote a hygienic environment through prevention of
 open defecation and reduce incidence of water-borne diseases, 7,175
 household toilets were constructed during the year, of which, 5,231
 toilets were constructed directly by your Company. With this, a total
 of 15,429 low-cost sanitary units have been constructed so far in your
 Company''s factory catchment areas covering 20 districts in 10 states.
 In areas with water quality problems, 46 Reverse Osmosis plants have
 been installed providing safe drinking water to about 40,690 rural
 households in the state of Andhra Pradesh.  ''Swasthya Choupal'', your
 Company''s e-Choupal Rural Health initiative, was consolidated in 7
 districts of Uttar Pradesh and expanded to 3 districts in Madhya
 Pradesh during the year.
 Solid Waste Management
 Your Company''s Solid Waste Management programme - christened ''WOW -
 Wellbeing out of Waste'' presently extends to Hyderabad, Chennai,
 Bengaluru, Coimbatore and several towns of Telangana, enjoying the
 support of over 5 million citizens, 500,000 school children, 350
 corporates, more than 1,000 commercial establishments and around 200
 industrial plants.
 The door-to-door waste collection programme under this initiative is
 operational in 9 districts of Saharanpur, Hooghly, Kolkata, Munger,
 Guntur, Madurai, Pune, Thiruvallur and Haridwar. These projects, which
 together cover over 42,000 households, handled 3,975 MT of waste during
 the year.
 ITC Sangeet Research Academy
 The ITC Sangeet Research Academy (ITC SRA), which was established in
 1977, is a true embodiment of your Company''s sustained commitment to a
 priceless national heritage. Your Company''s pledge towards ensuring
 enduring excellence in Classical Music education has helped ITC SRA
 uphold the age-old ''Guru-Shishya Parampara'' - a model that has
 otherwise begun fading away owing to lack of patronage. Although
 methods of music education are now changing with the advent of
 digitisation, exceptionally gifted students, carefully handpicked
 across India receive full scholarships to reside and pursue their music
 education at the Academy''s campus. This has helped young talent who
 have limited access to the newer modes of music education, to train
 under the tutelage of the country''s most distinguished stalwarts who
 are helping create the next generation of musical masters.
 Forging Partnerships with NGOs
 The substantial progress made by your Company''s Social Investments
 Programme in contributing to address some of the country''s key
 development challenges, has been possible in significant measure, due
 to your Company''s partnerships with globally renowned NGOs such as
 BAIF, DB Tech, DSC, FES, MYRADA, Pratham, SEWA Bharat, Outreach and
 Water for People amongst others. These partnerships, which bring
 together the best-in-class management practices of your Company and the
 development experience and mobilisation skills of NGOs, will continue
 to provide innovative grassroots solutions to some of India''s most
 challenging problems of development in the years to come.
 CSR Expenditure
 The annual report on Corporate Social Responsibility activities as
 required under Sections 134 and 135 of the Companies Act, 2013 read
 with Rule 8 of the Companies (Corporate Social Responsibility Policy)
 Rules, 2014 and Rule 9 of the Companies (Accounts) Rules, 2014 is
 provided in the Annexure forming part of this Report.
 Environment, Health & Safety
 Your Company''s Environment, Health & Safety (EHS) strategies are
 directed towards achieving the greenest and safest operations across
 all your Company''s units by optimising natural resource usage and
 providing a safe and healthy workplace. Systemic and structured efforts
 continue to be made towards natural resource conservation by
 continuously improving resource-use efficiencies and enhancing the
 positive environmental footprint following a life-cycle based approach.
 Your Company''s focus on inculcating a green and safe culture is
 supported through the adoption of EHS standards that incorporate best
 international standards, codes and practices and ensuring compliance
 through regular audits.
 Your Company is addressing the critical area of climate change
 mitigation through several innovative and pioneering initiatives. These
 include continuous improvement in energy efficiency, enhancing the
 renewable energy portfolio, integrating green attributes into the built
 environment, better efficiency in material utilisation, maximising
 water use efficiencies and rain water harvesting, maximising reuse and
 recycling of waste and utilising post-consumer waste as raw material.
 Energy Conservation and Renewable Energy
 Your Company is well positioned to benefit from India-specific energy
 conservation and renewable energy promotion schemes such as Perform,
 Achieve and Trade (PAT) and Renewable Energy Certificates (RECs)
 promoted by the Government of India. As a responsible corporate
 citizen, your Company has made a commitment to reduce dependence on
 energy from fossil fuels and to achieve at least 50% of its total
 energy requirements from renewable sources by 2020. Significant
 progress has been made in enhancing the renewable energy portfolio and
 during 2015-16 over 47% of your Company''s total energy requirements was
 met from carbon neutral fuels such as biomass, and wind and solar. Your
 Company has developed a strategic approach and drawn up action plans
 based on a feasible balance of energy conservation and renewable energy
 investments to progressively move towards meeting the aforestated
 Water Security
 With water scarcity increasingly becoming an area of serious concern,
 your Company continues to focus on integrated water management
 including water conservation and harvesting initiatives at its units -
 while also working towards meeting the water security needs of all
 stakeholders at the local watershed level.  These include adopting
 latest technologies to reduce fresh water intake and increase reuse and
 recycling practices, best practices to achieve zero effluent
 discharges, rainwater harvesting, etc., within the unit premises. These
 initiatives, along with your Company''s CSR interventions in the area of
 integrated watershed development, have resulted in the creation of
 rainwater harvesting potential that is over 3 times the net water
 consumption of your Company''s operations.
 Greenhouse Gases and Carbon Sequestration
 During the year, your Company improved its ''disclosure score'' in the
 Climate Disclosure Leadership Index published under the aegis of the
 Carbon Disclosure Project from 94% in 2014-15 to100% in 2015-16. In
 this context, it may be noted that only 3 other Indian organisations
 have achieved a perfect score of 100%.  The green house gas (GHG)
 inventory of your Company for the year 2015-16 compiled as per the ISO
 4 standard, has been assured at the highest ''Reasonable Level'' by an
 independent third party assurance provider, are markable achievement
 considering the scale and spread of your Company''s operations.
 Reaffirming your Company''s commitment to the ethos of ''Responsible
 Luxury'', all luxury hotels of your Company are LEED® Platinum
 certified, making it the ''greenest luxury hotel chain'' in the world. In
 order to continually reduce your Company''s energy footprint, green
 features are integrated in all new constructions and are also being
 incorporated in existing hotels, manufacturing units, warehouses and
 office complexes during retrofits.
 Your Company''s Social & Farm Forestry initiatives enable sequestration
 of over twice the amount of Carbon Dioxide emitted by its operations.
 Besides mitigating the impact of increasing levels of GHG emissions in
 the atmosphere, these initiatives help greening degraded wasteland,
 prevent soil erosion, enhance organic matter content in soil and enable
 ground water recharge.
 Waste Recycling
 Your Company continues to make significant progress in reducing
 specific waste generation through constant monitoring and improvement
 of efficiencies in material utilisation and also in achieving almost
 total recycling of waste generated in operations. In this way, your
 Company has prevented waste reaching landfills and associated problems
 such as soil and groundwater contamination and GHG emissions, all of
 which can impact public health. In the current year, your Company has
 achieved over 99% waste recycling, with the Paperboards and Specialty
 Papers Business, which accounts for 90.8% of the total waste generated
 in your Company, recycling 99.7% of the total waste generated by its
 operations. During the year, this Business also recycled around
 1,13,213 tonnes of externally sourced post-consumer waste paper,
 thereby creating yet another positive environmental footprint.
 Your Company''s commitment to provide a safe and healthy workplace to
 all has been reaffirmed by several national and international awards
 and certifications received by various units. Your Company''s approach
 is to institutionalise safety as a value-led concept with focus on
 inculcating a sense of ownership at all levels to drive behavioural
 change. In line with this approach, several of your Company''s operating
 units are progressively implementing behavioural based safety
 initiatives and custom-made risk based training programmes leading to
 the creation of safety culture.
 Your Company incorporates established engineering standards in the
 design and project execution phase itself for all investments in the
 built environment, with a view to ensuring the highest levels of safety
 besides optimising costs. Environment, Health & Safety audits before
 commissioning and during the operation of units are carried out to
 verify compliance with standards.
 Promoting Thought Leadership in Sustainability
 The ''CII-ITC Centre of Excellence for Sustainable Development'',
 established by your Company in 2006 in collaboration with the
 Confederation of Indian Industry (CII), continues to focus on its
 endeavours to promote sustainable business practices amongst Indian
 enterprises. The major highlights during the year include the
 Sustainability Summit inaugurated by the Honourable Union Minister in
 charge of Environment, Forests & Climate Change. The Honourable Union
 Minister for Railways was the Chief Guest at a Special Plenary.
 The 10th CII-ITC Sustainable Awards were handed over by the Honourable
 Union Minister for Railways to 26 winning companies as India''s Most
 Sustainable.  On the occasion of International Day for Biological
 Diversity, the India Business Biodiversity Initiative (IBBI) released
 ''Bridging Business and Biodiversity: Innovative Approaches'' along with
 the Ministry of Environment, Forest and Climate Change - a study
 highlighting the best practices of Indian companies that are
 signatories to the IBBI Declaration.
 Your Company continues to invest in a comprehensive Research &
 Development programme leveraging its world-class infrastructure,
 benchmarked processes, state-of-the-art technology and a
 business-focused R&D strategy.
 ITC Life Sciences & Technology Centre (LSTC) has a mandate to develop
 unique sources of competitive advantage and build future-readiness by
 harnessing contemporary advances in several relevant areas of science
 and technology, and blending the same with classical concepts of
 product development and leveraging cross-business synergies. This
 challenging task of driving science-led product innovation has been
 carefully addressed by appropriately identifying the required set of
 core competency areas of science. LSTC has evolved over the years into
 a team of nearly 350 highly qualified scientists, equipped with
 world-class measurement capabilities and state-of-the-art facilities to
 conduct experimental research. Several Centres of Excellence have
 evolved over the past few years in the identified competency areas. In
 addition, a number of areas centred around these capabilities have
 secured global quality certifications of the highest order.
 The Agrisciences R&D team has continued its efforts in evaluating and
 introducing several germplasm lines of identified crops including
 Casuarina and Eucalyptus to increase the genetic and trait diversities
 in these species, towards developing new varieties with higher yields,
 better quality and other relevant traits for your Company''s businesses.
 LSTC continues to evaluate and build research collaborations with
 globally recognised centres of excellence to remain contemporary and
 fast-track its journey towards demonstrating multiple ''proofs of
 concept''. These collaborations, covering identified species, are
 designed in a manner that enables your Company in gaining fundamental
 insights into several technical aspects of plant breeding and genetics
 and the influence of agro-climatic conditions on the growth of these
 species. Such interventions will accelerate LSTC''s efforts in creating
 future generations of these crops with greater genetic and trait
 diversities leading to significant benefits for your Company''s
 businesses.  Further, these outcomes have a strong potential to
 contribute towards augmenting the nation''s ecological capital and
 biodiversity as well. Several ''proof of concept'' studies have been
 accomplished at the laboratory scale which are being advanced to
 large-scale field trials in multiple locations. These initiatives are
 expected to produce significant business impact in the years to come.
 In addition, the Agrisciences team continues to focus on delivering
 effective solutions using contemporary technologies in other crops such
 as wheat, soya and potato.
 Recognising the unique construct of your Company in terms of its strong
 presence in Agri, Branded Packaged Foods and Personal Care Products
 Businesses, a convergence of R&D capabilities is being leveraged to
 deliver future products aimed at nutrition, health and well-being.
 Advances in biosciences are creating a ''convergence'' of these areas and
 it is likely that several future developments in these businesses and
 their products are heavily influenced by this trend. In this context,
 LSTC has created a Biosciences R&D team to design and develop several
 long-term research platforms evolving multi-generation product concepts
 and associated claims that are fully backed by scientific evidence for
 the Branded Packaged Foods and Personal Care Products Businesses.
 Multiple value propositions have been identified in the area of
 functional foods, which are being progressed to products of the future
 with strong scientifically validated claims via clinical trials.
 Similar advances have been made in the area of personal care products.
 In addition, LSTC has evolved a strategy in building a new value chain
 called, ''Nutrition'' with a special focus on ''Indianness'' and ''health
 and well-being'' founded on the basis of Value Added Agriculture (VAA)
 and Medicinal and Aromatic Plants.  New capabilities and centres of
 excellence have been identified to support your Company''s aggressive
 growth plans in the FMCG space.
 LSTC has a clear vision and a road map for long-term R&D, to ensure an
 outstanding journey backed by a well-crafted Intellectual Property
 strategy. With scale, speed, science and sustainability considerations,
 LSTC is poised to deliver long-term competitive advantage and play a
 lead role in creating significant business impact for your Company.
 In line with your Company''s relentless focus on operational excellence
 and quality, each Business is mandated to continuously innovate on
 processes and systems to enhance their competitive position.  During
 the year, your Company''s Hotels Business leveraged its ''Lean'' and ''Six
 Sigma'' programmes to improve business process efficiencies. This will
 further enhance capability to create superior customer value through a
 service excellence framework.  The Paperboards, Paper & Packaging
 Businesses continued to pursue ''Total Productive Maintenance'' (TPM)
 programmes in all units, resulting in substantial cost savings and
 productivity improvements.
 All manufacturing units of your Company have ISO quality certification.
 All manufacturing units of the Branded Packaged Foods Businesses
 (including contract manufacturing units) and hotels operate in
 compliance with stringent food safety and quality standards.  Almost
 all Company owned units/ hotels and contract manufacturing units of the
 Branded Packaged Foods Businesses are certified by an accredited third
 party in accordance with ''Hazard Analysis Critical Control Points''
 (HACCP) / ISO 22000 standards. Additionally, the quality of all FMCG
 products of your Company is regularly monitored through ''Product
 Quality Ratings Systems'' (PQRS).
 As mentioned in the previous years'' Reports of the Directors, your
 Company had secured from the District Court of New Jersey, USA, a
 decree for US$ 12.19 million together with interest and costs against
 Suresh and Devang Chitalia of USA and their companies, and the
 Chitalias had filed Bankruptcy Petitions before the Bankruptcy Court,
 Orlando, Florida, which are yet to be determined.
 Though your Company has written off the export dues in foreign exchange
 from the Chitalias with the approval of the Reserve Bank of India, your
 Company continues with its recovery efforts by a suit filed in India
 against some associates of the Chitalias. The suit is in progress.
 In the proceedings initiated by the Enforcement Directorate, in respect
 of some of the show cause memoranda issued by the Directorate, after
 hearing arguments on behalf of your Company, the appropriate authority
 has passed orders in favour of your Company, and dropped those
 memoranda. Meanwhile, some of the prosecutions launched by the
 Enforcement Directorate have been quashed by the Honourable Calcutta
 High Court while others are pending.
 During the year, your Company''s treasury operations continued to focus
 on deployment of surplus liquidity and management of foreign exchange
 exposures within a well-defined risk management framework.
 Easing inflation and improvement in the Fiscal and Current Account
 deficit position provided sufficient comfort to the Reserve Bank of
 India for reducing policy rates by a cumulative 75 basis points during
 the year. However, lack of corresponding reduction in bank base rates,
 tight banking liquidity conditions, and adverse demand-supply dynamics
 due to higher issuance of State Development Loans impeded transmission
 of rate cuts and brought about intermittent spikes in market interest
 All investment decisions relating to deployment of surplus liquidity
 continued to be guided by the tenets of Safety, Liquidity and Return.
 Proactive management of portfolio duration helped improve treasury
 performance. The portfolio mix during the year was continuously
 rebalanced in line with the evolving interest rate environment.
 Further, towards the year end, your Company increased the quantum of
 investments in Tax-free Bonds, Taxable Bonds / Debentures and Bank
 Fixed Deposits taking advantage of spikes in market interest rates.
 Your Company''s risk management processes ensured that all deployments
 were made with proper evaluation of underlying risk while remaining
 focused on capturing market opportunities.
 In the foreign exchange market, the Indian Rupee (INR) came under
 pressure against the USD during the year.  The key factors that
 contributed to INR weakness include interest rate tightening by the US
 Federal Reserve, monetary stimulus in the EU and Japan, risk aversion
 caused by weak global economic growth and decline in commodity prices,
 fears of fiscal slippage and lack of progress on the reforms agenda in
 India, and depreciation of the Chinese Yuan. Under these circumstances,
 the INR touched a low of 68.79 per USD in February 2016 - close to the
 record low of 68.85 witnessed in August 2013. However, the INR
 recovered significantly in March 2016 to close the year at 66.25
 largely due to the Government''s announcement in the Union Budget 2016
 of its commitment to reduce the Fiscal Deficit to 3.5% of GDP in
 2016-17 and USD sell-off triggered by expectations of a more moderate
 interest rate hike trajectory in the USA than anticipated earlier.
 As in earlier years, commensurate with the large size of the temporary
 surplus liquidity under management, treasury operations continue to be
 supported by appropriate control mechanisms, including an independent
 check of 100% of transactions, by your Company''s Internal Audit
 Your Company''s erstwhile Public Deposit Scheme closed in the year 2000.
 As at 31st March, 2016, there were no deposits due for repayment except
 in respect of 2 deposit holders totalling to Rs. 20,000/- which have
 been withheld on the directives received from the government agencies.
 There was no failure to make repayments of Fixed Deposits on maturity
 and the interest due thereon in terms of the conditions of your
 Company''s erstwhile Schemes.
 Your Company has not accepted any deposit from the public/ members
 under Section 73 of the Companies Act, 2013 read with the Companies
 (Acceptance of Deposits) Rules, 2014 during the year.
 Changes in Directors
 Mr. Pradeep Vasant Dhobale, Wholetime Director, retired from the
 Company with effect from close of business on 6th December, 2015 after
 38 years of service. Mr. Kurush Noshir Grant, Wholetime Director,
 retired from the Company with effect from close of business on 22nd
 January, 2016 after 35 years of service. Your Directors would like to
 record their appreciation of the services rendered by Mr. Dhobale and
 Mr. Grant.
 Mr. Sanjiv Puri and Mr. Rajiv Tandon, on the recommendation of the
 Nomination & Compensation Committee, were appointed by the Board of
 Directors of the Company (''the Board'') as Additional Directors of your
 Company, and subject to the approval of the Members, also as Wholetime
 Directors, with effect from 6th December, 2015 and 22nd January, 2016,
 respectively. Mr. Tandon also continues as the Chief Financial Officer
 of your Company.
 Mr. Serajul Haq Khan, Independent Director, expired on 12th January,
 2016. Your Directors deeply mourn the demise of Mr. Khan and place on
 record their appreciation for the valuable contribution made by Mr.
 Khan during his tenure.
 Ms. Nirupama Rao, on the recommendation of the Nomination &
 Compensation Committee, was appointed by the Board as Additional
 Director, and subject to the approval of the Members, also as
 Independent Director, with effect from 8th April, 2016.
 Mr. Angara Venkata Girija Kumar [representing General Insurers'' (Public
 Sector) Association of India], on completion of his term, ceased to be
 Non-Executive Director of your Company with effect from close of
 business on 22nd July, 2015. Mr. Girija Kumar, on the recommendation of
 the Nomination & Compensation Committee, was appointed by the Board as
 Additional Non-Executive Director on 31st July, 2015.
 By virtue of the provisions of Article 96 of the Articles of
 Association of your Company and Section 161 of the Companies Act, 2013
 (''the Act''), Messrs. Puri, Tandon, Girija Kumar and Ms. Rao will vacate
 office at the ensuing Annual General Meeting (''AGM'') of your Company.
 Your Board at the meeting held on 20th May, 2016, on the recommendation
 of the Nomination & Compensation Committee, has recommended for the
 approval of the Members the appointment of Mr. Puri and Mr. Tandon as
 Directors, and also as Wholetime Directors of your Company, for a
 period of three years from the date of the AGM. Your Board at the said
 meeting, on the recommendation of the Nomination & Compensation
 Committee, also recommended for the approval of the Members the
 appointment of Ms. Rao as an Independent Director in terms of Section
 149 of the Act and Regulation 17 of the Securities and Exchange Board
 of India (Listing Obligations and Disclosure Requirements) Regulations,
 2015, for a period of five years with effect from 8th April, 2016.
 Mr. Yogesh Chander Deveshwar, Wholetime Director and Chairman of your
 Company, will complete his present term on 4th February, 2017. The
 Nomination & Compensation Committee and the Board strongly urged Mr.
 Deveshwar to continue for a longer period in his present role. Mr.
 Deveshwar however expressed his desire to shed the executive role, in
 accordance with the indication given by him at the 100th AGM in 2011,
 and put in place a youthful leadership at the helm in the longer term
 interest of the Company. At the request of the Nomination &
 Compensation Committee and the Board, recognising the need for orderly
 transition in a company of ITC''s size and complexity,
 Mr. Deveshwar has instead agreed to provide guidance and mentorship to
 the new executive management, that is planned to be put in place, as
 Non-Executive Chairman on expiry of his current term.
 Accordingly the Board at the meeting held on 20th May, 2016, on the
 recommendation of the Nomination & Compensation Committee, has
 recommended for the approval of the Members, the appointment of Mr.
 Deveshwar as Non-Executive Director, not liable to retire by rotation,
 and Chairman of the Company for a period of three years with effect
 from 5th February, 2017.
 Notices under Section 160 of the Act have been received for the
 appointment of Messrs. Deveshwar, Puri, Tandon and Ms. Rao, who have
 filed their consents to act as Directors of the Company, if appointed.
 Appropriate resolutions seeking your approval to the aforesaid
 appointments are appearing in the Notice convening the 105th AGM of
 your Company.
 Retirement by Rotation
 In accordance with the provisions of Section 152 of the Act read with
 Article 91 of the Articles of Association of the Company, Mr. Nakul
 Anand will retire by rotation at the AGM and being eligible, offers
 himself for re-election.  Your Board has recommended his re-election.
 Number of Board Meetings
 During the year ended 31st March, 2016, six meetings of the Board were
 Attributes, Qualifications & Independence of Directors and their
 The criteria for determining qualifications, positive attributes and
 independence of Directors in terms of the Act and the Rules thereunder,
 both in respect of Independent Directors and the other Directors as
 applicable, has been approved by the Nomination & Compensation
 Committee, as reported last year.  The Governance Policy of the Company
 also, inter alia, requires that Non-Executive Directors, including
 Independent Directors, be drawn from amongst eminent professionals with
 experience in business/ finance/ law/ public administration &
 enterprises. The Board Diversity Policy of the Company requires the
 Board to have balance of skills, experience and diversity of
 perspectives appropriate to the Company. The Articles of Association of
 the Company provide that the strength of the Board shall not be fewer
 than five nor more than eighteen.
 Directors are appointed/ re-appointed with the approval of the Members
 for a period of three to five years or a shorter duration, in
 accordance with retirement guidelines as determined by the Board from
 time to time. The initial appointment of Executive Directors is
 normally for a period of three years.  All Directors, other than
 Independent Directors, are liable to retire by rotation, unless
 otherwise approved by the Members. One-third of the Directors who are
 liable to retire by rotation, retire every year and are eligible for
 The Independent Directors of your Company have confirmed that they meet
 the criteria of independence as prescribed under Section 149 of the Act
 and Regulation 16 of Securities and Exchange Board of India (Listing
 Obligations and Disclosure Requirements) Regulations, 2015.
 The Company''s policy relating to remuneration of Directors, Key
 Managerial Personnel and other employees is provided under the section
 ''Report on Corporate Governance'' in the Report and Accounts.
 Board evaluation
 The Nomination & Compensation Committee has approved the Policy on
 Board evaluation, evaluation of Board Committees'' functioning and
 individual Director evaluation. In keeping with ITC''s belief that it is
 the collective effectiveness of the Board that impacts Company
 performance, the primary evaluation platform is that of collective
 performance of the Board as a whole.  Board performance is assessed
 against the role and responsibilities of the Board as provided in the
 Act and the Securities and Exchange Board of India (Listing Obligations
 and Disclosure Requirements) Regulations, 2015 read with the Company''s
 Governance Policy.  The parameters for Board performance evaluation
 have been derived from the Board''s core role of trusteeship to protect
 and enhance shareholder value as well as fulfil expectations of other
 stakeholders through strategic supervision of the Company. Evaluation
 of functioning of Board Committees is based on discussions amongst
 Committee members and shared by the respective Committee Chairman with
 the Board. Individual Directors are evaluated in the context of the
 role played by each Director as a member of the Board at its meetings,
 in assisting the Board in realising its role of strategic supervision
 of the functioning of the Company in pursuit of its purpose and goals.
 While the Board evaluated its performance against the parameters laid
 down by the Nomination & Compensation Committee, the evaluation of
 individual Directors was carried out anonymously in order to ensure
 objectivity.  Reports on functioning of Committees were placed by the
 respective Committee before the Board.
 The composition of the Audit Committee is provided under the section
 ''Board of Directors and Committees'' in the Report and Accounts.
 Statutory Auditors
 The Auditors, Messrs. Deloitte Haskins & Sells, Chartered Accountants
 (DHS), were appointed with your approval at the 103rd AGM to hold such
 office till the conclusion of the 108th AGM. The Board, in terms of
 Section 139 of the Act, on the recommendation of the Audit Committee,
 has recommended for the ratification of the Members the appointment of
 DHS from the conclusion of the ensuing AGM till the conclusion of the
 106th AGM. The Board, in terms of Section 142 of the Act, on the
 recommendation of the Audit Committee, has also recommended for the
 approval of the Members the remuneration of DHS for the financial year
 2016-17. Appropriate resolution for the purpose is appearing in the
 Notice convening the 105th AGM of the Company.
 Cost Auditors
 Your Board, on the recommendation of the Audit Committee, appointed for
 the financial year 2016-17:
 (i) Mr. P. Raju Iyer, Cost Accountant, for audit of cost records
 maintained by the Company in respect of ''Paper and Paperboard'' and
 ''Nicotine Gum'' products.
 (ii) Messrs. Shome & Banerjee, Cost Accountants, for audit of cost
 records maintained by the Company in respect of all applicable products
 of the Company, other than ''Paper and Paperboard'' and ''Nicotine Gum''.
 In terms of Section 148 of the Act read with the Companies (Audit and
 Auditors) Rules, 2014, appropriate resolutions seeking your
 ratification of the remuneration of the said Cost Auditors are
 appearing in the Notice convening the 105th AGM of the Company.
 Secretarial Auditors
 Your Board appointed Messrs. S. M. Gupta & Co., Company Secretaries, to
 conduct secretarial audit of the Company for the financial year ended
 31st March, 2016. The Report of Messrs. S. M. Gupta & Co. is provided
 in the Annexure forming part of this Report, in terms of Section 204 of
 the Act.
 Under the Company''s Employee Stock Option Schemes, 3,16,87,450 Ordinary
 Shares of Rs. 1/- each, fully paid- up, were issued and allotted during
 the year upon exercise of 31,68,745 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, 2016, stands increased to Rs. 804,72,06,991/- divided into
 804,72,06,991 Ordinary Shares of Rs. 1/- each.
 Disclosures with respect to Stock Options, as required under Regulation
 14 of the Securities and Exchange Board of India (Share Based Employee
 Benefits) Regulations, 2014 (''the Regulations''), are available in the
 Notes to the Financial Statements and can also be accessed on the
 Company''s corporate website '''' under the section
 ''Shareholder Value''. During the year, there has not been any material
 change in the Company''s Employee Stock Option Schemes.
 Your Company''s Auditors, Messrs. Deloitte Haskins & Sells, have
 certified that the Company''s Employee Stock Option Schemes have been
 implemented in accordance with the Regulations and the resolutions
 passed by the Members in this regard.
 The Investor Service Centre (ISC) of your Company, accredited with ISO
 9001:2008 certification, is registered with SEBI as Category II Share
 Transfer Agent for providing in-house share registration and related
 services.  During the year, the infrastructure, systems and processes
 in ISC were further upgraded. Messrs. Det Norske Veritas, accredited
 agency for ISO certification, has accorded the highest possible Level 5
 rating to ISC for the seventh consecutive year exemplifying the
 superior standards practised by ISC in providing service of a high
 order to the shareholders and investors.
 All contracts or arrangements entered into by the Company with its
 related parties during the financial year were in accordance with the
 provisions of the Companies Act, 2013 and the SEBI (Listing Obligations
 and Disclosure Requirements) Regulations, 2015 and erstwhile Clause 49
 of the Listing Agreement.  All such contracts or arrangements have been
 approved by the Audit Committee. No material contracts or arrangements
 with related parties were entered into during the year under review.
 Further, the prescribed details of related party transactions of the
 Company in Form No. AOC-2, in terms of Section 134 of the Act read with
 Rule 8 of the Companies (Accounts) Rules, 2014 is given in the Annexure
 to this Report.
 Your Company''s Policy on Related Party Transactions, as adopted by your
 Board, can be accessed on the corporate website at itc/policies/policy-on-rpt.aspx.
 As required under Section 134 of the Companies Act, 2013, your
 Directors confirm having:
 a) followed in the preparation of the Annual Accounts, the applicable
 accounting standards with proper explanation relating to material
 departures if any;
 b) selected such accounting policies and applied them consistently and
 made judgements and estimates that are reasonable and prudent so as to
 give a true and fair view of the state of affairs of your Company at
 the end of the financial year and of the profit of your Company for
 that period;
 c) taken proper and sufficient care for the maintenance of adequate
 accounting records in accordance with the provisions of the Companies
 Act, 2013 for safeguarding the assets of your Company and for
 preventing and detecting fraud and other irregularities;
 d) prepared the Annual Accounts on a going concern basis;
 e) laid down internal financial controls to be followed by your Company
 and that such internal financial controls were adequate and operating
 effectively; and
 f) devised proper systems to ensure compliance with the provisions of
 all applicable laws and that such systems were adequate and operating
 Your Company''s Board of Directors is responsible for the preparation of
 the consolidated financial statements of your Company, its
 Subsidiaries, Associates and Joint Venture entities (''the Group''), in
 terms of the requirements of the Companies Act, 2013 and in accordance
 with the accounting principles generally accepted in India, including
 the Accounting Standards specified under Section 133 of the Act, read
 with Rule 7 of the Companies (Accounts) Rules, 2014.
 The respective Board of Directors of the companies included in the
 Group and of its associates and joint venture entities are responsible
 for maintenance of adequate accounting records in accordance with the
 provisions of the Act for safeguarding the assets of the Group and for
 preventing and detecting frauds and other irregularities; the selection
 and application of appropriate accounting policies; making judgments
 and estimates that are reasonable and prudent; and the design,
 implementation and maintenance of adequate internal financial controls,
 that were operating effectively for ensuring the accuracy and
 completeness of the accounting records, relevant to the preparation and
 presentation of the financial statements that give a true and fair view
 and are free from material misstatement, whether due to fraud or error,
 which have been used for the purpose of preparation of the consolidated
 financial statements by the Directors of your Company, as aforestated.
 Compliance with conditions of Corporate Governance
 The certificate of the Auditors, Messrs. Deloitte Haskins & Sells,
 confirming compliance of conditions of Corporate Governance as
 stipulated under the Securities and Exchange Board of India (Listing
 Obligations and Disclosure Requirements) Regulations, 2015 and
 erstwhile Clause 49 of the Listing Agreement with Stock Exchanges in
 India, is annexed.
 Compliance with requirements relating to downstream investments
 Your Company''s Auditors, Messrs. Deloitte Haskins & Sells, have
 certified that the Company and its subsidiaries are in compliance with
 the requirements relating to downstream investment as laid down in the
 Foreign Exchange Management (Transfer or Issue of Security by a Person
 Resident outside India) (Ninth Amendment) Regulations, 2013 and other
 applicable FEMA Regulations.
 Going Concern status
 There is no significant or material order passed during the year by any
 regulator, court or tribunal impacting the going concern status of the
 Company or its future operations.
 Extract of Annual Return
 The information required under Section 134 of the Act read with Rule 12
 of the Companies (Management and Administration) Rules, 2014, is
 Particulars of loans, guarantees or investments
 Details of Loans, Guarantees and Investments covered under the
 provisions of Section 186 of the Companies Act, 2013 are provided in
 Notes 11, 12, 13, 17 and 31 (iv) (a) (ii) to the Financial Statements.
 Particulars relating to Conservation of Energy and Technology
 Particulars as required under Section 134 of the Companies Act, 2013
 relating to Conservation of Energy and Technology Absorption are also
 provided in the Annexure to this Report.
 The total number of employees as on 31st March, 2016 stood at 25,564.
 There were 156 employees, who were employed throughout the year and
 were in receipt of remuneration aggregating Rs. 60 lakhs or more or
 were employed for part of the year and were in receipt of remuneration
 aggregating Rs. 5 lakhs per month or more during the financial year
 ended 31st March, 2016. The information required under Section 197(12)
 of the Companies Act, 2013 and the Companies (Appointment and
 Remuneration of Managerial Personnel) Rules, 2014 is provided in the
 Annexure forming part of this Report.
 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.
 Over the last twenty years, your Company has created multiple drivers
 of growth by developing a portfolio of world-class businesses. During
 this period, your Company''s Gross Turnover and Post-tax profit have
 recorded an impressive compound growth of 12.2% and 19.9% per annum
 respectively.  Return on Capital Employed has improved substantially
 from 28.4% to 43.1% during this period.  Total Shareholder Returns,
 measured in terms of increase in market capitalisation and dividends,
 have grown at a compound rate of 23.3% per annum during this period,
 placing your Company amongst the foremost in the country in terms of
 efficiency of servicing financial capital.
 Your Company today, is the leading FMCG marketer in India, a
 pre-eminent hotel chain and a trailblazer in green hoteliering, the
 clear market leader in the Indian Paperboard and Packaging industry,
 the country''s foremost Agri business player and a global exemplar in
 sustainable business practices. Additionally, its wholly-owned
 subsidiary, ITC Infotech India Limited, is one of India''s fastest
 growing Information Technology companies in the mid-tier segment.
 Your Company''s Board and employees are inspired by the Vision of
 sustaining ITC''s position as one of India''s most admired and valuable
 companies, creating enduring value for all stakeholders, including the
 shareholders and the Indian society. The vision of enlarging your
 Company''s contribution to the Indian economy is driven by its ''Let''s
 Put India First'' credo as well as the core values of Trusteeship,
 Transparency, Empowerment, Accountability and Ethical Citizenship,
 which are the cornerstones of ITC''s Corporate Governance philosophy.
 Inspired by this Vision, driven by Values and powered by internal
 Vitality, your Directors and employees look forward to the future with
 confidence and stand committed to creating an even brighter future for
 all stakeholders.
                                          On behalf of the Board
 20th May, 2016           Y. C. DEVESHWAR                      Chairman
 India                    R. TANDON  Director & Chief Financial Officer
Source : Dion Global Solutions Limited
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