Mar 31, 2021
2 Effective 1st April, 2019, the company has adopted Ind AS 116 âLeases'' and applied the standard to all lease contracts existing on the date of initial application i.e. 1st April, 2019. The company has used the modified retrospective approach for transitioning to Ind AS 116 with right-of-use asset recognized at an amount equal to the lease liability adjusted for any prepayments/accruals recognized in the balance sheet immediately before the date of initial application.
At the commencement date of a lease,the Company has recognised a liability to make lease payments (i.e., the lease liability) and an asset representing the right-of-use the underlying asset during the lease term (i.e., the right-of-use asset). The Company has separately recognised the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
The company shall remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The company will generally recognise the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset.
The operating leases recorded on the balance sheet following implementation of Ind AS 116 are principally in respect of leasehold land and other identified assets representing right-of-use as per contracts excluding low value assets and short term leases of 12 months or less.
Leases previously accounted for as operating leases
The company recognised right of use assets and lease liabilities for those leases previously classified as operating leases, using term of non-cancellable and management intention to extend except for short-term leases and leases of low-value assets.
The right-of-use assets for most leases were recognised based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. In some leases, the right of use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.
The company has also applied the available practical expedients wherein it:
⢠Used a single discount rate to a portfolio of leases with reasonably similar characteristics
⢠Relied on its assessment of whether leases are onerous immediately before the date of initial application
⢠Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application
⢠Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application
⢠Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease
⢠Used practical expedients which permits lesses not to account for COVID-19 realted rent concessions as a lease modifications.
The company has no restrictions on the readability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.
The fair valuation is based on current prices in the active market for similar properties. The main inputs used are quantum, area, location, demand, restrictive entry to the complex, age of building and trend of fair market rent.
This valuation is based on valuations performed by an accredited independent valuer. Fair valuation is based on replacement cost method. The fair value measurement is categorized in level 2 fair value hierarchy.
The Company through Qualified Institutional Placement (QIP) allotted 20,000,000 equity shares to the eligible Qualified Institutional Buyers (QIB) at a issue price of '' 2,049 per equity share (including a premium of '' 2,039 per equity share) aggregating to '' 4,098 crore on 11th February, 2020. The issue was made in accordance with the SEBl (Issue of Capital and Disclosure Requirements) Regulations, 2018 as amended (the âSEBI ICDR Regulationsâ), and Sections 42 and 62 of the Companies Act, 2013, as amended, including the rules made thereunder (the âIssueâ). Funds received pursuant to QIP are being utilised towards the object stated in the placement document and the balance unutilised as on 31st March,2021 remain invested in deposits with scheduled commercial banks.
Expenses incurred by the company aggregating to '' 21.49 Crores, in connection with QIP have been adjusted towards securities premium in March 2020.
b) Terms and rights attached to equity shares
The company has only one class of equity shares having par value of '' 10 per share. Each holder of equity shares is entitled to one vote per share. The company if declares dividend would pay dividend in Indian rupees. The dividend if proposed by the Board of Directors would be subject to the approval of the shareholders in the ensuing Annual General Meeting.
In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
c) Shares reserved for issue under option
I nformation relating to Avenue Supermarts limited Employee Stock Option Scheme, 2016, including details of option granted, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 44.
42 (a) Capital risk management
For the purpose of the company''s capital management, capital includes issued equity capital, securities premium and all other equity reserves attributable to the equity shareholders. The primary objective is to maximize the shareholders value.
The company manages its capital structure and makes adjustments in light of changes in economic condition and the requirements of the financial covenants. The company has raised capital by issue of equity shares through an Initial Public Offer (IPO) in the year ended 31st March, 2017 and Qualified Institutional Placement (QIP) in the year ended 31st March, 2020. Certain proceeds from the IPO and QIP have been used for repayment of borrowings which have significantly reduced the company''s borrowings and is NIL in the current year.
The capital structure is governed by policies approved by the Board of Directors and is monitored by various matrices funding requirements are reviewed periodically.
The company has not paid any dividend since its incorporation.
43 Fair values and fair value hierarchy
The carrying amounts of trade receivables, cash and cash equivalents, bank balance other than cash and cash equivalents, other financial assets, trade payables, capital creditors are considered to be same as their fair values, due to their short term nature.
The carrying value of borrowings, lease liabilities, deposits given and taken and other financial assets and liabilities are considered to be reasonably same as their fair values. These are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counter party credit risk.
44 Share-based payments Employee stock option plan
During the year ended 31st March, 2017, the company had instituted an Avenue Supermarts Limited Employee Stock Option Scheme, 2016 (âthe Schemeâ) as approved by the Board of Directors dated 23rd July, 2016 for issuance of stock option to eligible employee of the company and of its subsidiaries.
45 Post retirement benefit plan
As per Indian Accounting Standard 19 âEmployee benefitsâ, the disclosures as defined are given below :
The company operates a gratuity plan wherein every employees entitled to the benefit equivalent to fifteen days salary last drawn for each year of service. The same is payable on termination of sevice or retirement whichever is earlier. The benefit vest after five years of continuous service. The gratuity paid is governed by The Payment of Gratuity Act,1972. The company contributes to the fund based on actuarial report details of which is available in the table of investment pattern of plan asset, based on which the company is not exposed to market risk. The following table summarises the component of net benefit expenses recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for respective period.
The estimates of rate of escalation in salary considered in actuarial valuation, take into account inflation, seniority, promotion and other relevant factors including supply and demand in the employment market. The above information is certified by the actuary.
The expected rate of return on plan assets is determined considering several applicable factors, mainly the composition of plan assets held, assessed risks, historical results of return on plan assets and the Company''s policy for plan assets management.
There has been no change from the previous year in the method and assumptions used in perparing the sensitivity analysis.
These plans typically exposed the company to actuarial risks such as Interest risk, salary risk, investment risk, asset liability matching risk and mortality risk.
Gratuity is a defined benefit plan and company is exposed to the following risks:
Interest rate risk: A fall in the discount rate which is linked to the G.Sec. rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
Salary risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan''s liability.
Investment risk: The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.
Asset liability matching risk: The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.
Mortality risk: Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.
Concentration risk: Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very less as insurance companies have to follow regulatory guidelines.
Financial risk management objectives and policies
The company''s financial principal liabilities comprises borrowings, lease liabilities, trade payables and other payables. The main purpose of these financial liabilities to finance the company operation. The company''s main financial assets includes trade and other receivable, cash and cash equivalent, other bank balances derived from its operations.
I n addition to risks inherent to our operations, we are exposed to certain market risks including change in interest rates and fluctuation in currency exchange rates.
A) Market Rate Risk
i) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flow of a financial instrument will fluctuate because of changes in market interest rate.
The company''s exposure to the risk of changes in market interest rates relates to primarily to company''s borrowing with floating interest rates. The company''s fixed rates of borrowing are carried at amortized cost. They are not subject to interest rate risk as defined in Ind AS 107, since neither carrying amount not the future cash flows will fluctuate because of a change in market interest rate. The company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.
B) Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The company is exposed to credit risk from its operating activities (primarily trade receivable) and from its financial activities including deposits with banks and financial institution.
Credit risk from balances with banks is managed by the Company''s treasury department in accordance with Company''s policy. Since company operates on business model of primarily cash and carry, credit risk from receivable perspective is insignificant.
C) Liquidity risk
Liquidity risk is defined as the risk that the company will not be able to settle or meet its obligations on time, or at a reasonable price. Processes and policies related to such risk are overseen by senior management. Management monitors the company''s net liquidity position through rolling forecasts on the basis of expected cash flows.
Ind AS 115 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires extensive disclosures.
The Company adopted Ind AS 115 using the modified retrospective method of adoption with the date of initial application of 1 April 2018. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed at this date. The Company elected to apply the standard to all contracts as at 1 April 2018.
The application of Ind AS 115 did not have any significant impact on recognition and measurement of revenue and related items in the financial results.
48 Events after the reporting period
The company has evaluated subsequent events from the balance sheet date through 8th May, 2021, the date at which the financial statements were available to be issued, and determined that there are no material items to disclose other than those disclosed above.
49 The Code on Social Security 2020 has been notified in the Official Gazette on 29th Sep 2020, which could impact the contributions by the company towards certain employment benefits. The effective date from which the changes are applicable is yet to be notified, and the rules are yet to be framed. Impact if any of the change will be assessed and accounted in period of notification of the relevant provisions.
50. We have considered the impact of COVID19 as evident so far in our above published financial results. The Company will also continue to closely monitor any material changes to future economic conditions which necessitate any further modifications.
51. The previous year numbers have been reclassified wherever necessary.
As per our report of even date For and on behalf of Board of Directors of
Avenue Supermarts Limited
For S R B C & CO LLP Ignatius Navil Noronha Ramakant Baheti
Chartered Accountants Managing Director and Whole-time Director and
ICAI firm registration nuw mber 324982E/E300003 Chief Executive Officer Group Chief Financial Officer
DIN: 01787989 DIN: 00246480
per Vijay Maniar
Partner Niladri Deb Ashu Gupta
Membership No.: 36738 Chief Financial Officer Company Secretary
Mumbai, 8th May, 2021 Mumbai, 8th May, 2021
Mar 31, 2019
Report of the Board of Directors
Profit After Tax at Rs. 12464.32 crores registered growth of 11.1% over the previous year. Total Comprehensive Income for the year stood at Rs. 12826.88 crores (previous year Rs. 11605.59 crores). Earnings Per Share for the year stood at Rs. 10.19 (previous year Rs. 9.22). Cash generated from operations aggregated Rs. 17234.93 crores.
The Directors are pleased to recommend an Ordinary Dividend of Rs. 5.75 per share (previous year Ordinary Dividend of Rs. 5.15 per share) for the year ended 31st March, 2019. Total cash outflow in this regard will be Rs. 8497.59 crores including Dividend Distribution Tax of Rs. 1448.88 crores.
Over the last five years, the Value-Added by your Company, i.e. the value created by the economic activities of your Company and its employees, aggregated around Rs. 220000 crores of which over Rs. 160000 crores accrued to the Exchequer.
Including the share of dividends paid and retained earnings attributable to government owned institutions, your Companyâs contribution to the Central and State Governments represented about 80% 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.
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. Foreign exchange earnings of the ITC Group over the last ten years aggregated nearly US$ 7.2 billion, of which agri exports constituted 56%. Earnings from agri exports, which effectively link small farmers with international markets, are an indicator of your Companyâs contribution to the rural economy.
During the financial year 2018-19, your Company and its subsidiaries earned Rs. 4673 crores in foreign exchange. The direct foreign exchange earned by your Company amounted to Rs. 3828 crores, mainly on account of exports of agri-commodities. Your Companyâs expenditure in foreign currency aggregated Rs. 2373 crores, comprising purchase of raw materials, spares and other expenses of Rs. 1947 crores and import of capital goods at Rs. 426 crores.
PROFITS, DIVIDENDS AND RETAINED EARNINGS
(Rs. in Crores)
PROFITS |
2019 |
2018 |
a) Profit Before Tax® |
18444.16 |
16851.70 |
b) Tax Expense |
||
- Current Tax |
5849.24 |
5599.83 |
- Deferred Tax |
130.60 |
28.62 |
c) Profit for the year® |
12464.32 |
11223.25 |
d) Other Comprehensive Income |
362.56 |
382.34 |
e) Total Comprehensive Income |
12826.88 |
11605.59 |
STATEMENT OF RETAINED EARNINGS |
||
a) At the beginning of the year |
21991.24 |
17576.81 |
b) Add: Profit for the year |
12464.32 |
11223.25 |
c) Add: Other Comprehensive Income (net of tax) |
5.59 |
52.78 |
d) Add: Transfer from share option on exercise and lapse |
3.88 |
18.65 |
e) Less: Dividend |
||
- Ordinary Dividend of Rs. 5.15 (2018: Rs. 4.75) per share |
6285.21 |
5770.01 |
- Income Tax on Dividend paid |
1201.69 |
1110.24 |
f) At the end of the year |
26978.13 |
21991.24 |
@Previous year includes Exceptional items representing provisions for earlier years in respect of Tamil Nadu entry tax that were written back based on a favourable order of the Honourable Supreme Court.
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 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, timely preparation of reliable financial information and compliance with the requirements with respect to related party transactions.
Your Companyâs 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.
Independent consultants have confirmed compliance of Internal Audit systems and processes with the Standards on Internal Audit (SIA) issued by the Institute of Chartered Accountants of India (ICAI). Although the Standards continue to be recommendatory in nature, such validation evidences the contemporariness of the Internal Audit function.
The Internal Audit function consisting of professionally qualified accountants, engineers and Information Technology (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. Information Technology systems undergo pre-implementation audit before being deployed for usage in businesses, thereby delivering an independent assurance with respect to the rigour of implementation. The usage of data analytics in audits was augmented across the organisation.
Qualified engineers in the Internal Audit function review the quality of design, planning and execution of all ongoing projects involving significant expenditure to ensure that project management controls are adequate and yield âvalue for moneyâ. Internal Audit continues to use state-of-the-art tools and software for conducting project audits.
Processes in the Internal Audit function have been continuously strengthened for enhanced effectiveness and productivity including the deployment of best-in-class tools for analytics in the Audit domain, certification as complying with ISO 9001:2015 Quality Standards in its processes, ongoing knowledge improvement programmes for staff, etc. The Audit methodology is also designed to validate effectiveness of critical IT controls that are embedded in the business systems, leading to greater alignment with the business process environment.
The Audit Committee of your Board met eight 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 Companyâs 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 Companyâs risk management systems and discharging of statutory mandates.
HUMAN RESOURCE DEVELOPMENT
The talent management strategy of your Company focuses on sustaining ITCâs position as one of Indiaâs most valuable corporations, remaining customer-focused, competitively-superior, performance-driven and future-ready. The initiatives and processes strive to deliver the unique talent promise of Building Winning Businesses, Developing Business Leaders and Creating Value for India. The talent development practices help create, foster and strengthen the capability of human capital to deliver critical outcomes on the vectors of strategic effectiveness, operational efficiency and capital productivity.
Your Companyâs âStrategy of Organisationâ is based on the approach of distributed leadership enabled through a three-tier governance structure. Such an approach allows businesses, through their management committees, to focus, develop and execute business plans relevant to their product-market spaces while leveraging the institutional strengths of your Company and the opportunities for synergy between businesses.
Your Companyâs strong employer equity has enabled the attraction and retention of high quality talent.
The management trainee programme augmented with recruitment of high quality talent when required, is an integral part of our leadership pipeline development process. We continue to draw the finest technical, managerial and financial talent from premier institutions in the country and are ranked amongst the leading companies in these institutions. A recent survey conducted by Nielsen amongst MBA students featured ITC amongst the Top 8 most preferred employers. Your Companyâs intensive engagement with campuses over decades to communicate ITCâs talent proposition through case study competitions, knowledge sharing programmes by senior managers and the annual internship programmes have all contributed to create a compelling reason for the best candidates to aspire for a career with ITC.
Your Companyâs approach to talent development is founded on the belief that learning initiatives must remain synergistic and aligned to business outcomes, emphasise experiential learning, provide an enabling and supportive environment and promote learning agility. Deep functional expertise is fostered through immersion in solving complex customer problems by the application of domain expertise early in managerial careers.
Key talent is provided critical experiences in high impact roles and mentored by senior managers. Managers are assessed on your Companyâs behavioral competency framework and provided with learning and development support to address any areas identified for improvement. As part of your Companyâs managerial development and capability building strategy, five platform areas have been identified - Strategic, Value Chain, Leadership, Innovation and Human Resources Development. Various programmes have been designed and customised to your Companyâs requirements under these platforms, delivered by leading international faculty. Learning is further supplemented with on demand, online programmes made accessible to employees through globally recognised content platforms. Your Companyâs investments in creating an internal technical training infrastructure and academy was recently acknowledged by Frost & Sullivan when the institute, ITC Gurukul, won the âProject Evaluation and Recognition Program 2018â for âEnhancing Learning Effectiveness by Leveraging Technologyâ.
Your Company has further strengthened its performance management system and its culture of accountability through renewed emphasis on Management by Objectives which includes clearly defined goals, outcomes based assessment and even sharper alignment of performance and rewards.
Your Company continued with the practice of periodically assessing employee engagement through a Company-wide survey in 2018. During the year, comprehensive action plans were formulated and implemented which included the launch and strengthening of various recognition initiatives, systems for career dialoguing, employee wellbeing programmes, periodic communication by the leadership teams in each business as well as through the novel digital platform âStudio Oneâ.
Driven by an ambitious growth agenda, your Company has already commissioned several world-class Integrated Consumer Goods Manufacturing and Logistics facilities across the country and the footprint is in the process of being expanded further. Your Company believes that alignment of all employees to a shared vision and purpose is vital for winning in the marketplace. It also recognises the mutuality of interests with key stakeholders and is committed to building harmonious employee relations. Your Company remains dedicated to an Employee Relations climate of partnership and mutuality while ensuring operations are cost competitive, flexible and responsive. 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 long-term agreements at several of its manufacturing units and hotel properties, ensured smooth commencement of operations at greenfield locations and the execution of productivity improvement practices. Several initiatives have been taken to foster a culture of commitment amongst the demographically diverse workforce in these new facilities.
Your Company believes that the drive for progress is in never being satisfied with the status quo. We are confident that every one of your Companyâs 27,000 plus employees will relentlessly strive to meet the bold growth agenda, deliver world-class performance, innovate newer and better ways of doing things, uphold human dignity, foster team spirit and discharge their role as âtrusteesâ of all stakeholders with true faith and allegiance.
Your Company is committed to perpetuate this vitality of ITC - its growth in dimensions and also as a great institution - so that it continues to succeed in its relentless pursuit of creating enduring value.
Details of constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 are provided in the âBusiness Responsibility Reportâ, forming part of Report and Accounts.
WHISTLEBLOWER POLICY
Your Companyâs Whistleblower Policy encourages Directors and employees to bring to the Companyâs attention, instances of unethical behaviour, actual or suspected incidents of fraud or leak of unpublished price sensitive information, or any violation of the ITC Code of Conduct, that could adversely impact your Companyâs operations, business performance and / or reputation. The Policy provides that your 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 your Companyâs 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 your Companyâs corporate website âwww.itcportal.comâ.
SUSTAINABILITY - CONTRIBUTION TO THE âTRIPLE BOTTOM LINEâ
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 and environmental replenishment 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 Companyâs sustainability strategy aims at creating significant value for the nation through superior âTriple Bottom Lineâ performance that builds and enriches the countryâs economic, social and environmental 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 Companyâs models of sustainable development have led to the creation of sustainable livelihoods for around six 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 carbon positive (for 14 consecutive years), water positive (for 17 years in a row) and solid waste recycling positive (for 12 years in succession).
To contribute to the nationâs efforts in combating climate change, your Companyâs strategy of adopting a low-carbon growth path is manifest in its growing renewable energy portfolio, establishment of green buildings, large-scale afforestation programme, achievement of international benchmarks in energy and water consumption. During the year, about 41% of your Companyâs total energy requirements were met from renewable energy sources - a creditable performance given its expanding manufacturing base.
Your Company has adopted a comprehensive set of sustainability policies that are being implemented across the organisation in pursuit of its âTriple Bottom Lineâ agenda. These policies are aimed at strengthening the mechanisms of engagement with key stakeholders, identification of material sustainability issues and progressively monitoring and mitigating the impacts along the value chain of each business.
Your Companyâs 15th Sustainability Report, published during the year details the progress made across all dimensions of the âTriple Bottom Lineâ for the year 2017-18. This report is in conformance with the Global Reporting Initiative (GRI) standards under âIn Accordance - Comprehensiveâ category and is third-party assured at the highest criteria of âreasonable assuranceâ as per International Standard on Assurance Engagements (ISAE) 3000. The 16th Sustainability Report, covering the sustainability performance of your Company for the year 2018-19, is being prepared in accordance with the GRI Standards and will be made available shortly.
In addition, the Business Responsibility Report (BRR), as mandated by the Securities and Exchange Board of India (SEBI), for the year under review is annexed to this Report and Accounts. The BRR maps the sustainability performance of your Company against the reporting framework suggested by SEBI.
Corporate Social Responsibility (CSR)
Your Companyâs overarching commitment 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, your Company adopted a comprehensive CSR Policy in 2014-15 outlining programmes, projects and activities that your Company plans to undertake to create a significant positive impact on identified stakeholders. All these programmes fall within the purview of Schedule VII read with Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014.
The key elements of your Companyâs CSR interventions are to:
- Deepen engagement in identified core operational geographies to promote holistic development and design interventions in order to respond to the most significant development challenges of your Companyâs stakeholder groups.
- Strengthen capabilities of Non-Government Organisations (NGOs) / Community Based Organisations (CBOs) in all the project catchments for participatory planning, ownership and sustainability of interventions.
- Drive the development agenda in a manner that benefits the poor and marginalised communities in your Companyâs factory and agri-catchments, thereby significantly improving Human Development Indices (HDI).
- Ensure behavioural change through focus on demand generation for all interventions, thereby enabling participation, contribution and asset creation for the community.
- Continue to strive for scale by leveraging government partnerships and accessing the most contemporary knowledge / technical know-how.
Your Companyâs stakeholders are confronted with multi-dimensional and inter-related concerns, at the core of which is the challenge of securing sustainable livelihoods. Accordingly, interventions under your Companyâs Social Investments Programme (SIP) are appropriately designed to build their capacities and promote sustainable livelihoods.
The footprint of your Companyâs projects is spread over 27 States/Union Territories covering 235 districts.
Social Forestry
Your Companyâs pioneering afforestation initiative through the Social Forestry programme greened 33,982 acres during the year. It is currently spread across 16 districts in six States covering 3.29 lakh acres in 5,087 villages, impacting over 1,21,557 poor households. Together with your Companyâs Farm Forestry programme, this initiative has greened nearly 7.33 lakh acres till date, and generated about 135 million person days of employment for rural households, including poor tribal and marginal farmers. Integral to the Social Forestry programme is the Agro-Forestry initiative, which cumulatively extends to over 1.12 lakh acres and ensures food, fodder and wood security.
Besides enhancing farm level employment, generating incomes and increasing green cover, this large-scale initiative also contributes meaningfully to the nationâs endeavour to create additional carbon sinks for tackling climate change.
In addition to the above, the Social and Farm Forestry initiative of your Company, through a multiplier effect, has led to improvement in pulpwood and fuelwood availability in Andhra Pradesh, Telangana, Karnataka, Chhattisgarh and Odisha. In the state of Tripura, this initiative is also creating bamboo wood source that is suitable for agarbatti manufacturing.
Soil and Moisture Conservation
The Soil and Moisture Conservation programme aims to ensure water security for all stakeholders in the factory catchments and to drought-proof the agri-catchments to minimise risks to agricultural livelihoods arising from drought and moisture stress. The programme promotes the development and management of local water resources in moisture-stressed areas by facilitating community participation in planning and implementing measures such as building, reviving and maintaining water-harvesting structures. The coverage of this programme currently extends to 43 districts of 15 States. During the year, the area under watershed increased by 1,37,105 acres, taking the cumulative coverage area till 2018-19 to over 10.12 lakh acres. 2,646 water-harvesting structures were built during the year, creating 3.39 million kilolitres of rainwater harvesting potential, taking the total number of water harvesting structures to 15,086 and total net rainwater harvesting potential to 34.64 million kilolitres.
Biodiversity
The focus of the programme is on reviving ecosystem services provided to agriculture by nature such as natural regulation of pests, pollination, nutrient cycling, soil health retention and genetic diversity, which have witnessed considerable erosion over the past few decades. During the year, your Companyâs biodiversity conservation initiative covered 5,937 acres in seven states and 18 districts, taking the cumulative area under biodiversity conservation to 22,031 acres. While the conservation work is being carried out in select plots of village commons, this intervention significantly benefits agricultural activity in the vicinity of these plots through soil moisture retention, carbon sequestration and by acting as hosts to insects and birds.
Sustainable Agriculture
The Sustainable Agriculture programme attempts to de-risk farmers from erratic weather events through the promotion of climate-smart agriculture premised on dissemination of relevant package of practices, adoption of appropriate mechanisation and provision of institutional services. Currently, 3.95 lakh acres are covered under the programme, which has a significant multiplier effect in terms of adoption by the farming community. During the year, knowledge was disseminated through 4,747 Farmer Field Schools and Choupal Pradarshan Khets benefiting around 1.34 lakh farmers. 351 Agri Business Centres delivered extension services, arranged agri-credit linkages and established collective input procurement and agricultural equipment on hire. In pursuit of your Companyâs long-term sustainability objective of increasing soil organic carbon, a total of 3,169 compost units were constructed during the year taking the total number till date to over 40,699 units.
The âVillage Adoption Programmeâ pioneered by your Companyâs Agri Business presently covers 250 model villages in the states of Andhra Pradesh, Karnataka, Telangana and Rajasthan. This initiative is aligned to the Prime Ministerâs Sansad Adarsh Gram Yojana (SAGY), an initiative to promote holistic rural development. Your Company had entered into a partnership with NITI Aayog in April, 2018 to improve agriculture and other allied services in 27 aspirational districts of eight states (Assam, Bihar, Jharkhand, Rajasthan, Madhya Pradesh, Maharashtra, Odisha and Uttar Pradesh). The plan was to train government officers who, in turn, would cascade the methodology to farmers. During the year, your Company succeeded in creating 402 block level agri-officers as Master Trainers (MT), who in turn trained 2,259 village level personnel as Village Resource Persons (VRPs) to train farmers directly. These VRPs have so far covered 2.05 lakh farmers in package of practices appropriate for the dominant crop of the region.
Livestock Development
The programme provides an opportunity for farmers to improve their livestock based livelihoods by improving productivity of the progeny through breed improvement and dissemination of improved animal husbandry practices. The programme provided extension services, including breeding, fodder propagation and training of farmers in six States and 21 districts. During the year, 1.46 lakh artificial inseminations (AIs) were carried out which led to the birth of 0.62 lakh high yielding progeny. Cumulatively, the figures for AIs and calving stand at 23.67 lakh and 8.13 lakh respectively.
Your Company is also working with dairy farmers in Bihar and Punjab to improve farm productivity through several extension services and to facilitate higher milk production. Qualified teams comprising veterinarians and para-veterinarians have been deployed to facilitate animal breeding, animal nutrition and animal health services towards improving farm productivity and promoting commercial dairy farming among farmers. During the year, 1.29 lakh cattle of 55,074 dairy farmers across 426 villages in six districts of Bihar were supported through training programmes on clean milk production, mastitis control and animal husbandry services like deworming, ectoparasite control, etc.
Women Empowerment
This initiative provided a range of gainful employment opportunities to over 64,000 poor women cumulatively, supported with capacity building and financial assistance by way of loans and grants. Included in the total are 22,700 ultra-poor women in your Companyâs core catchments, who have access to sustainable sources of income through non-farm livelihood opportunities. The financial literacy and inclusion project, in partnership with Madhya Pradesh State Rural Livelihood Mission (MPSRLM) and CRISIL Foundation, was rolled out in 765 villages across 11 districts during the year.
Education
The Primary Education Programme aims to provide children from weaker sections of society in your Companyâs factory catchments access to education with focus on learning outcomes and retention. Operational in 24 districts of 14 states, the programme covered 1.15 lakh children during the year, thus taking the total coverage to around 6.91 lakh children. In addition, nearly 27,000 children were covered through support in teaching and learning material. 199 government primary schools were provided infrastructure support comprising boundary walls, additional classrooms, sanitation units, and furniture, taking the total number of government primary schools covered till date to 1,802. To ensure sustainable operations and maintenance of infrastructure provided, 682 School Management Committees were strengthened and 566 Child Cabinets and Water and Sanitation (WATSAN) Committees cumulatively were formed in various schools with the active involvement of students and teachers.
Skilling & Vocational Training
The Skilling & Vocational Training programme provides training in market linked skills to youth to enable them to compete in the job market. 12,172 youth were enrolled under different courses during the year of which 44% were female and 36% belonged to the SC/ST communities. The programme is operational in 32 districts of 17 States. In addition, 785 youth were trained with requisite skills and provided increased opportunities for entrepreneurial development.
The 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. In addition, since the inception of ITC Culinary Skills Training Centre, Chhindwara in 2014, 103 trainee chefs have successfully completed the six-month programme wherein cooking skills are imparted to youth from economically marginalised communities.
Health & Sanitation
Your Company continues to adopt a multi-pronged approach towards improving public health and hygiene. To promote a hygienic environment through prevention of open defecation and to reduce incidence of water-borne diseases, 4,443 Individual Household Toilets (IHHT) were constructed in 26 districts of 15 States in collaboration with the respective State Governments/District sanitation departments. With this, a total of 35,916 IHHTs have been constructed so far in your Companyâs catchment areas. In addition, 32 community toilets were constructed/renovated in Bihar, West Bengal and New Delhi during the year, taking the cumulative to 62. Along with sanitation infrastructure development, special focus was given to awareness campaigns to create demand and drive behavioural change.
To make potable water available to local communities in three districts of Andhra Pradesh, Reverse Osmosis (RO) water purification plants were set up in villages with poor quality water. 26 new RO plants were established in 2018-19 taking the total to 127, which provide safe drinking water to over 150,000 rural people.
The Company continued to enhance awareness on various health related issues through a network of 415 women Village Health Champions (VHCs) who covered nearly 3.22 lakh women, adolescent girls and school children during the year. The programme is operational in seven districts of Uttar Pradesh and four districts of Madhya Pradesh. The VHCs conducted over 7,000 village meetings and participated in over 4,000 group events, apart from making door-to-door visits focusing on aspects like sanitation, menstrual and personal hygiene, family planning, diarrhoea prevention and nutrition.
Through your Companyâs âSwasth India Missionâ, a combination of audio-visual aids, games and practical training was leveraged to encourage healthy hygiene habits. Nearly 19.2 lakh children from around 5,247 schools in 60 cities in 12 states were covered during the year. Additionally, access to handwashing was enabled through the unique âID Guardâ initiative to all the students covered in these 5,247 schools.
Over 77,000 beneficiaries were covered under Mother and Child Health initiative aimed at improving the health-nutrition status of women, adolescents and children in the catchments of a few of your Companyâs factories with high maternal and infant mortality indices. This was achieved by strengthening institutional capacity, promoting greater convergence with existing government schemes and increasing access to basic services on maternal, child, and adolescent health, nutrition and child protection.
Solid Waste Management
Your Companyâs waste recycling programme,
âWOW - Well-Being Out of Wasteâ, enables the creation of a clean and green environment and promotes sustainable livelihoods for waste collectors. The programme continued to be executed in Coimbatore, Chennai, Bengaluru, Delhi, Muzaffarpur (Bihar), several districts of Telangana and Andhra Pradesh and now expanded to Mysuru and Chikmagalur districts during the year. The quantum of dry waste collected during the year was 51,696 tonnes from 651 wards. The programme has covered 89 lakh citizens, 48 lakh school children and 2,000 corporates since its inception.
It creates sustainable livelihoods for 14,745 waste collectors by facilitating an effective collection system in collaboration with municipal corporations.
The intervention has also created over 178 social entrepreneurs who are involved in maximising value capture from dry waste collected.
In addition to WOW Programme, another programme on solid waste management which deals with both dry and wet waste has spread to 15 districts of 10 States covering 2.12 lakh households and collected 12,608 tonnes of waste during the year. This programme focuses on minimising waste to landfill by managing waste at source. Home composting was practiced by 10,892 households. Under this programme, in 2018-19, 8,462 tonnes of wet waste was composted, 2,383 tonnes of dry waste recycled and only 14% of the total waste was sent to landfills.
ITC Sangeet Research Academy
The ITC Sangeet Research Academy (ITC SRA), which was established in 1977, is an embodiment of your Companyâs sustained commitment to a priceless national heritage. The Companyâs pledge towards ensuring enduring excellence in Classical Music education continues to drive ITC SRA in furthering its objective of preserving and propagating Hindustani classical music in the age-old principle of the âGuru-Shishya Paramparaâ. The eminent Gurus of the Academy, most of whom reside in the Academyâs campus, impart intensive training and quality education in Hindustani Classical Music to the Scholars. The present Gurus of the Academy are Padma Shri Pt. Ajoy Chakrabarty, Padma Shri Pt. Ulhas Kashalkar, Pt. Partha Chatterjee, Pt. Uday Bhawalkar, Vidushi Subhra Guha and Shri Omkar Dadarkar. The Academyâs focus continues to be on nurturing exceptionally gifted students selected from across India through a system of multi-level audition. Full scholarship is provided to them to reside and pursue music education in the Academyâs campus and in other designated locations under the tutelage of the countryâs most distinguished musicians. The creation of the next generation of masters of Hindustani classical music for the propagation of a precious legacy continues to be the Academyâs objective.
Forging Partnerships with NGOs
The meaningful contribution made by your Companyâs Social Investments Programme to address some of the countryâs key development challenges, has been possible in significant measure, due to your Companyâs partnerships with globally renowned NGOs such as BAIF, DSC, FES, DHAN Foundation, MYRADA, Pratham, SEWA Bharat, Outreach, WASH Institute 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 Indiaâs 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 Companyâs Environment, Health & Safety (EHS) strategies are directed towards achieving the greenest and safest operations across all your Companyâs units by optimising natural resource usage and providing a safe and healthy workplace. Systemic 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 Companyâs focus on inculcating a green and safe culture is supported through the adoption of EHS standards that incorporate best international standards, codes & practices and verified 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 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. Accordingly, all factories incorporate appropriate green features and premium luxury hotels and office complexes continue to be certified at the highest level by either the US Green Building Council, Indian Green Building Council or the Bureau of Energy Efficiency (BEE).
Despite capacity augmentation during the year in FMCG, Hotels and Paperboards Businesses, about 41% of your Companyâs total energy requirements were met from renewable sources such as biomass, wind and solar.
Your Company continues its efforts to achieve a 50% renewable energy share in its total energy consumption based on a mix of energy conservation and renewable energy investments, despite significant enhancement in its scale of operations going forward.
Water Security
With water scarcity increasingly becoming an area of serious concern, your Company continues to focus on an integrated water management approach that includes water conservation and harvesting initiatives at its units - while at the same time working towards meeting the water security needs of all stakeholders at the local watershed level. Interventions have been rolled out to improve water-use efficiencies by adopting latest technologies and increasing reuse and recycling practices within the fence while also working with farmers and other community members towards improving their water-use efficiencies. The supply side interventions include enhancing capture and storage of rainwater (in soil and storage ponds) and recharging aquifers. These initiatives have resulted in the creation of rainwater harvesting potential that is over three times the net water consumption of your Companyâs operations.
Greenhouse Gases and Carbon Sequestration
The greenhouse gas (GHG) inventory of your Company for the year 2018-19 compiled as per the ISO 14064 Standard has been assured, as in the earlier years, at the highest âReasonable Levelâ by an independent third party.
Reaffirming your Companyâs commitment to the ethos of âResponsible Luxuryâ, premium luxury hotels of your Company are Leadership in Energy & Environmental Design (LEED®) Platinum certified, making it a trailblazer in green hoteliering globally. Your Company is a pioneer in the green buildings movement. In 2004, the ITC Green Centre at Gurugram was certified as the largest platinum rated building in the world by the US Green Building Council (USGBC-LEED).
ITC Grand Chola, the 600-key super-premium luxury hotel complex in Chennai, is amongst the worldâs largest LEED® Platinum certified green hotels, besides holding a 5-Star rating from the Green Rating for Integrated Habitat Assessment (GRIHA) Council. The data centre at Bengaluru, ITC Sankhya, is the first data centre in the world to receive the LEED® Platinum certification by USGBC.
Several of your Companyâs factories and office complexes have also received the Green Building certification from Indian Green Building Council (IGBC), the LEED® certification from USGBC and star ratings from the Bureau of Energy Efficiency (BEE). Large infrastructure investments, such as the ITC Green Centre at Manesar (LEED® Platinum certified) and the ITC Green Centre at Bengaluru (pre-certified for LEED® Platinum) continue to demonstrate your Companyâs commitment to green buildings. To date, 24 buildings of your Company have achieved Platinum certification by USGBC/IGBC. In order to continually reduce your Companyâs energy footprint, green features are integrated in all new constructions and also incorporated in existing hotels, manufacturing units, warehouses and office complexes.
Over twice the amount of Carbon Dioxide emissions from your Companyâs operations, are being sequestered through its Social and Farm Forestry initiatives. Besides mitigating the impact of increasing levels of GHG emissions in the atmosphere, these initiatives help greening of degraded wasteland, prevent soil erosion, enhance organic matter content in soil and enhance 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 the associated problems of soil and groundwater contamination and GHG emissions, all of which can adversely 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 89% of the total waste generated in your Company, recycling 99.9% of the total waste generated by its operations. During the year, this Business also recycled around 89,000 tonnes of externally sourced post-consumer waste paper, thereby creating yet another positive environmental footprint.
Circular Economy Approach to Plastic Packaging
ITC aims to go beyond the requirements of Plastic Waste Management Rules, 2016 to ensure that, over the next decade, 100% of packaging is reusable, recyclable or compostable. Your Company is working towards optimising packaging in a way that it reduces the environmental impact arising out of post-consumer packaging waste without affecting integrity of the product. This is being done in a structured manner by optimising design, identifying alternative packaging material with lower environmental impact and suitable end-of-life solutions for packaging waste. ITC is also working towards establishing scalable, replicable and sustainable models of municipal solid waste management based on circular economy principles. ITCâs approach is centred around treating waste as a resource and ensuring that zero waste goes to landfill, which can be achieved only when waste is segregated at source. These initiatives focus on educating citizens on segregating waste at source into dry and wet waste streams and ensuring that value is derived from these resources and in the process create sustainable livelihood for waste collectors and rag-pickers. These models operate on a public-private partnership basis with active involvement of Urban Local Bodies, Civil Society and the informal sector of waste collectors.
Under its flagship âWell-Being Out of Wasteâ (WOW) programme running across various cities in Karnataka, Bihar, Delhi, Tamil Nadu, Andhra Pradesh and Telangana, around 16,000 tonnes of post-consumer plastic waste including around 7400 tonnes of Low Value Plastics (LVP), comprising of multi-layered plastic and thin films, is being collected annually. In 2018-19, your Company also launched an LVP waste collection programme in Pune in collaboration with SWaCH, a cooperative of waste pickers with decade long experience in implementing source segregation and door-to-door collection in Pune. The collection programme was operationalised in January 2019 and has successfully started channelising post-consumer LVP waste to an authorised recycler and is targeting a collection of around 200 tonnes of LVP waste per month.
Safety
Your Companyâs 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 Companyâs approach has been to institutionalise safety as a value-led concept with focus on inculcating a sense of ownership at all levels in order to drive behavioural change. In line with this approach, several of your Companyâs operating units are progressively implementing behaviour-based safety initiatives and customised risk assessment supported by planned job observation programmes to strengthen their safety culture.
Your Company continuously strives to improve on safety performance by incorporating best-in-class engineering standards in the design and project execution phase itself for all investments in the built environment, besides optimising costs. Environment, Health & Safety audits before commissioning and during the operation of units continue to be carried out to verify compliance with standards.
Promoting Thought Leadership in Sustainability
The âCII-ITC Centre of Excellence for Sustainable Developmentâ, established by your Company in 2006 in collaboration with the Confederation of Indian Industry (CII), continues to focus on its endeavour to promote sustainable business practices amongst Indian enterprises. The major highlights during the year include the following:
- The 13th edition of the Centreâs flagship event, the âSustainability Summit: Everyoneâs Futureâ, was held on 6th & 7th September, 2018 in New Delhi with focus on the âCircular Economy Missionâ (CEM) under the European Union Resource Efficiency Initiative. Key dignitaries included Dr Harsh Vardhan, Minister for Environment, Forest & Climate Change, Science & Technology, and Earth Sciences, Mr Suresh Prabhu, Minister of Commerce & Industry and Civil Aviation, Mr Hardeep Singh Puri, Minister for State (I/C) Housing and Urban Affairs, Mr Karmenu Vella, Commissioner for Environment, Maritime Affairs and Fisheries, European Commission and Mr Sanjiv Puri, ITC Limited. 80 delegates from 16 different countries with their representatives from industry, business associations and academia as well as research institutions were present at the EU-CEM.
- The circular economy guidebook for CEOs, titled âCircular Economy: A New Source of Competitivenessâ, which discusses alternatives to current business models by adopting the concept of circular economy, was launched at the Sustainability Summit.
- A high-level B2G Partnership Conclave on Sustainable Development Goals (SDGs) was jointly organised by the Centre, NITI Aayog and the UNDP. The conclave focused on three core areasâ water, energy and green industryâwhich have been identified as fast tracks for the 2030 Agenda. Key dignitaries included Mr. Raj Kumar Singh, Honâble Minister of State (I/C), Power and New & Renewable Energy and Mr. Amitabh Kant, CEO, NITI Aayog.
A three-year partnership MoU was signed between CII and NITI Aayog at the Conclave. This partnership aims to showcase the efforts of Indian businesses to the Government and the UNDP, increase awareness amongst businesses, share best practices and build a tracking mechanism for further improving industry engagement to achieve SDGs by 2030. The Centre also launched a report during the event titled âIndian Solutions for the World to Achieve SDGsâ.
- The Centreâs India Business & Biodiversity Initiative (IBBI) participated in the Business & Biodiversity Forum of the 14th Meeting of the Conference of the Parties (COP 14) to the UN Convention on Biological Diversity (CBD) held in Sharm El Sheikh, Egypt from 17th to 29th November 2018 with the theme of âInvesting in biodiversity for people and planetâ.
The Centre took an Indian industry delegation to participate in the forum to present Indian companiesâ initiatives and best-practice case studies on mainstreaming biodiversity into the sectors of energy, mining, infrastructure, manufacturing and processing and health.
- The Centre organised a session on voluntary climate adaptation framework for industry at the 24th Conference of Parties under United Nations Framework Convention on Climate Change (COP24) held at Katowice, Poland in December 2018.
- The 13th CII-ITC Sustainability Awards 2018 took place in December 2018. Since 2006, 878 businesses have applied for the Awards, of which 275 have been recognised so far. In 2018, out of 77 applicants, 39 companies were declared winners in various categories.
- The Centre promoted capacity building in sustainability through a range of training and consulting assignments. In 2018, almost 2,000 participants were covered through 75 programmes, conducted both in India and abroad. Topics included Value Innovation, CSR Rules and Impact Measurement, Sustainability Reporting, Integrated Reporting, Cluster Platform for Transformative Solutions, Human Rights and Biodiversity.
R&D, QUALITY AND PRODUCT DEVELOPMENT
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.
ITCâs Life Sciences & Technology Centre (LSTC), Bengaluru, continues to focus on its mandate to develop unique sources of competitive advantage and build future readiness. LSTC seeks to achieve this by harnessing contemporary advances in several relevant areas of science and technology and blending the same with classical concepts of product development often leveraging cross-business synergies. Competencies are constantly evolving at LSTC as it strives for scientific rigour at par with the best our global competitors have to offer. LSTC is resourced with 350 highly qualified scientists, world-class measurement systems and state-of-the-art facilities to conduct experimental research, rapid prototyping and process development. Several Centres of Excellence have been established over the past few years in these areas in LSTC. In addition, a number of areas centred around these capabilities have secured global quality certifications.
The Agrisciences R&D team continues to engage in evaluating and introducing several germplasm lines of identified crops including Casuarina and Eucalyptus to increase the genetic and trait diversities in these species. This intervention would facilitate the development of new varieties with higher yields, better quality and other traits relevant for your Companyâs businesses. These new lines are being introduced commercially and will enable farmers increase their revenues and earnings significantly on account of productivity gains and improved disease resistance. Besides pulpwood species, the Agrisciences team continues to focus on delivering world-class solutions using contemporary technologies in crops such as wheat, soya, potato and rice. This includes evaluating and building research collaborations with globally recognised centres of excellence with a view to accelerating the journey towards demonstrating multiple âproofs of conceptâ. These collaborations, covering identified crops and 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 LSTCâs efforts in creating future generations of crops that are more adaptable to varied agro-climatic conditions thereby providing farmers relatively safer and more profitable alternatives, whilst helping secure your Companyâs supply chain and contributing to the vitality and competitiveness of your Companyâs Branded Packaged Foods Businesses. Further, these outcomes have a strong potential to contribute towards augmenting the nationâs ecological capital and biodiversity as well.
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. In keeping with the above, during the year, your Company launched a variety of potatoes which are low in sugar content and rich in antioxidants. LSTCâs Biosciences team has designed and developed several long-term research platforms for 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. Consumer insight driven 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. Several of these initiatives have completed clinical assessment of safety and efficacy of products in line with global standards and specifically for the Indian population. These interventions will go a long way in enabling your Company to become a world-class producer of nutritionally superior food products in the near-term. Similar advances have been made in the skin care, hair care and health/hygiene arena. New best-in-class initiatives, such as data analytics, consumer experience labs and Industry 4.0 are being seeded across LSTC with a view to further strengthen your Companyâs long-term competitiveness. Intellectual properties arising from these efforts have also been secured as appropriate and as of 31st March, 2019, your Company has filed 836 patents. The product development teams at LSTC were instrumental in developing over 50 unique products that were launched during the year by our FMCG Businesses.
LSTC has a clear vision and road map for long-term R&D, backed by a well-crafted Intellectual Property strategy. With scale, speed, science and sustainability considerations, LSTC is poised to deliver long-term competitive advantage for your Company.
In line with your Companyâs 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 Companyâs Hotels Business leveraged its âLeanâ and âSix Sigmaâ 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 âTotal Productive Maintenanceâ (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 âHazard Analysis Critical Control Pointsâ (HACCP)/ISO 22000 standards. Additionally, the quality of all FMCG products of your Company is regularly monitored through âProduct Quality Rating Systemâ (PQRS) which measures competitive superiority of your Companyâs product offerings.
PROCEEDINGS INITIATED BY THE ENFORCEMENT DIRECTORATE
In the proceedings initiated by the Enforcement Directorate in 1997, 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.
In respect of some of the remaining memoranda, your Company filed writ petitions, challenging their validity before the Honourable Calcutta High Court, which have been allowed, and the proceedings in respect of these memoranda have been quashed. Meanwhile, some of the prosecutions launched by the Enforcement Directorate have been quashed by the Honourable Calcutta High Court while others are pending.
TREASURY OPERATIONS
During the year, your Companyâs treasury operations continued to focus on deployment of surplus liquidity and management of foreign exchange exposures within a well-defined risk management framework.
The first half of the financial year witnessed a sharp spike in global price of crude oil leading to concerns on retail inflation and the Governmentâs ability to adhere to the fiscal deficit target. Further, exit by Foreign Institutional Investors from the capital markets led to currency depreciation, which accentuated the negative sentiment. In response, RBI increased policy interest rates. In addition, credit growth outpacing deposit growth, increase in currency holding by the public and default in debt repayment by a large non-banking finance company contributed to volatility and increase in market interest rates. In the second half of the financial year, market concerns started to abate as price of crude oil corrected significantly and domestic retail inflation remained anchored within the targeted range. Consequently, market interest rates normalised, supported by RBI reducing policy interest rates and infusing unprecedented amount of liquidity into the Banking system through open-market purchase of Government Securities.
All investment decisions relating to deployment of surplus liquidity continued to be guided by the tenets of Safety, Liquidity and Return. Treasury operations focused on proactive rebalancing of portfolio duration and mix in line with the evolving interest rate environment.
Your Companyâs risk management processes ensured that investment of surplus liquidity was made after proper evaluation of underlying risk while remaining focused on capturing market opportunities.
US$ strength was a dominant theme in global currency markets during the year, attributed to a strong US economy (pick-up in economic growth, decline in unemployment rate) and monetary policy normalisation by the US Federal Reserve through interest rate hikes. By mid-October, the Indian Rupee (INR) depreciated by over 14% against the US$ (from 65 to 74.48). Other factors, which contributed to Rupee weakness include widening Current Account Deficit and global risk aversion due to economic/political crisis in some of the Emerging Markets. Thereafter, as global risk sentiment towards Emerging Markets improved, Rupee regained some of the losses to close the year at Rs. 69.16. In this scenario, your Company adopted a proactive forex exposure management strategy, which included the use of foreign exchange forward contracts and plain vanilla options to protect business margins and reduce risks/costs.
As in earlier years, commensurate with the size of the temporary surplus liquidity under management, treasury operations continue to be supported by appropriate control mechanisms, including independent check of 100% of transactions by your Companyâs Internal Audit department.
DEPOSITS
Your Companyâs erstwhile Public Deposit Scheme closed in the year 2000. As at 31st March, 2019, there were no deposits due for repayment except in respect of two 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 Companyâs 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.
DIRECTORS
Changes in Directors
Mr. Yogesh Chander Deveshwar, Chairman of the Company since 1st January, 1996, passed away on 11th May, 2019. Your Directors express their sincere condolences on the demise of Mr. Deveshwar and place on record their deep appreciation for his legendary stewardship of the Company for more than two decades.
Spearheading a journey of stellar growth,
Mr. Deveshwarâs leadership transformed ITC into a valuable and admired multi-business conglomerate with a robust portfolio of front-ranking businesses in FMCG, Hotels, Paperboards, Paper & Packaging and Agri Business. His vision to make societal value creation a bedrock of corporate strategy also led ITC to become a global exemplar in sustainability and the only company in the world of comparable dimensions to be carbon positive, water positive and solid waste recycling positive for over a decade, creating over six million livelihoods, many of whom represent the most disadvantaged in society.
Mr. Deveshwarâs outstanding contribution and foresight helped in creation of world-class Indian brands which capture and retain larger value in the country and national assets in the form of intellectual property, state-of-the-art manufacturing facilities and iconic hospitality properties. Mr. Deveshwarâs inspiring vision will continue to guide your Company in the journey ahead.
The Board of Directors of your Company (âthe Boardâ), on the recommendation of the Nomination & Compensation Committee (âthe Committeeâ), appointed Mr. Sanjiv Puri, Managing Director, also as the Chairman of the Company with effect from 13th May, 2019.
Mr. Suryakant Balkrishna Mainak [representing the Life Insurance Corporation of India (âLICâ)] resigned from the Board with effect from 24th July, 2018. Your Directors place on record their appreciation for the services rendered by Mr. Mainak.
Mr. John Pulinthanam was appointed, with your approval, as a Non-Executive Director of the Company with effect from 27th July, 2018, representing the General Insurersâ (Public Sector) Association of India.
On the recommendation of the Committee, the Board at the meeting held on 27th July, 2018, appointed
Mr. Hemant Bhargava as an Additional Non-Executive Director of your Company with effect from 28th July, 2018, representing LIC.
Mr. Sumant Bhargavan, on the recommendation of the Committee, was appointed by the Board at the meeting held on 15th November, 2018, as an Additional Director of your Company and, subject to the approval of the Members, also as a Wholetime Director, with effect from 16th November, 2018.
By virtue of the provisions of Article 96 of the Articles of Association of your Company and Section 161 of the Companies Act, 2013 (âthe Actâ), Messrs. Bhargava and Sumant will vacate office at the ensuing Annual General Meeting (âAGMâ) of your Company.
The Board at the meeting held on 13th May, 2019, on the recommendation of the Committee, recommended for the approval of the Members (a) appointment of Mr. Bhargava as a Non-Executive Director of your Company, liable to retire by rotation, for a period of three years from the date of the ensuing AGM, and (b) appointment of Mr. Sumant as a Director, liable to retire by rotation, and also as a Wholetime Director of your Company, for a period of three years from the date of the ensuing AGM.
Further, the Board at the meeting held on 13th May, 2019, on the recommendation of the Committee, recommended for the approval of the Members, the re-appointment of Mr. Arun Duggal, Mr. Sunil Behari Mathur and Ms. Meera Shankar as Independent Directors of your Company 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 (âListing Regulations 2015â) with effect from 15th September, 2019.
Requisite Notices under Section 160 of the Act have been received in respect of Messrs. Bhargava, Sumant, Duggal and Mathur and Ms. Shankar, who have filed their consents to act as Directors of the Company, if appointed.
Appropriate resolutions seeking your approval to the above are appearing in the Notice convening the 108th 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, Messrs. David Robert Simpson and John Pulinthanam will retire by rotation at the ensuing AGM and being eligible, offer themselves for re-election. The Board has recommended their re-election.
Number of Board Meetings
Eight meetings of the Board were held during the year ended 31st March, 2019.
Attributes, Qualifications & Independence of Directors and their Appointment
The Nomination & Compensation Committee, as reported in earlier years, adopted the criteria for determining qualifications, positive attributes and independence of Directors, including Independent Directors, pursuant to the Act and the Rules thereunder. The Corporate Governance Policy, inter alia, requires that Non-Executive Directors be drawn from amongst eminent professionals, with experience in business/finance/law/public administration and enterprises. The Board Diversity Policy of your Company requires the Board to have balance of skills, experience and diversity of perspectives appropriate to the Company. The skills, expertise and competencies of the Directors as identified by the Board, are provided in the âReport on Corporate Governanceâ forming part of the Report and Accounts.
The Articles of Association of your 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 and as may be determined by the Board from time to time. 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 re-election.
The Independent Directors of your Company have confirmed that (a) they meet the criteria of Independence as prescribed under Section 149 of the Act and Regulation 16 of the Listing Regulations 2015, and (b) they are not aware of any circumstance or situation, which could impair or impact their ability to discharge duties with an objective independent judgement and without any external influence. Further, in the opinion of the Board, the Independent Directors fulfil the conditions prescribed under the Listing Regulations 2015 and are independent of the management of the Company.
Details of the Companyâs Policy on remuneration of Directors, Key Managerial Personnel and other employees is provided in the âReport on Corporate Governanceâ forming part of the Report and Accounts.
Board Evaluation
The Nomination & Compensation Committee, as reported in earlier years, formulated the Policy on Board evaluation, evaluation of Board Committeesâ functioning and individual Director evaluation, and also specified that such evaluation will be done by the Board, pursuant to the Act and the Rules thereunder and the Listing Regulations 2015.
In keeping with ITCâs belief that it is the collective effectiveness of the Board that impacts Companyâs 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 Listing Regulations 2015 read with the Companyâs Governance Policy. The parameters for Board performance evaluation have been derived from the Boardâs core role of trusteeship to protect and enhance shareholder value as well as to 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 against the laid down parameters, anonymously in order to ensure objectivity. Reports on functioning of Committees were placed before the Board by the Committee Chairmen.
The Independent Directors Committee of the Board also reviewed the performance of the non-Independent Directors and the Board, pursuant to Schedule IV to the Act and Regulation 25 of the Listing Regulations 2015.
KEY MANAGERIAL PERSONNEL
During the year, Mr. Sumant Bhargavan was appointed as an Additional Wholetime Director of the Company, as stated above. There were no other changes in the Key Managerial Personnel of your Company.
AUDIT COMMITTEE & AUDITORS
The composition of the Audit Committee is provided under the section âBoard of Directors and Committeesâ in the Report and Accounts.
Statutory Auditors
The Companyâs Auditors, Messrs. Deloitte Haskins & Sells, Chartered Accountants, who were appointed with your approval at the 103rd AGM for a period of five years, will complete their present term on conclusion of the ensuing 108th AGM of the Company.
The Board, on the recommendation of the Audit Committee, recommended for the approval of the Members, the appointment of Messrs. S R B C & CO LLP, Chartered Accountants (âSRBCâ), as the Auditors of the Company for a period of five years from the conclusion of the ensuing 108th AGM till the conclusion of the 113th AGM. On the recommendation of the Audit Committee, the Board also recommended for the approval of the Members, the remuneration of SRBC for the financial year 2019-20. Appropriate resolution seeking your approval to the appointment and remuneration of SRBC as the Statutory Auditors is appearing in the Notice convening the 108th AGM of the Company.
Cost Auditors
Your Board, as recommended by the Audit Committee, appointed for the financial year 2019-20:
(i) Mr. P. Raju Iyer, Cost Accountant, for audit of Cost Records maintained by the Company in respect of âWood Pulpâ, âPaper and Paperboardâ and âNicotine Gumâ products.
(ii) Messrs. S. Mahadevan & Co., Cost Accountants, for audit of Cost Records maintained in respect of all applicable products of the Company, other than âWood Pulpâ, âPaper and Paperboardâ and âNicotine Gumâ products.
Pursuant to Section 148 of the Act read with the Companies (Audit and Auditors) Rules, 2014, appropriate resolutions seeking your ratification to the remuneration of the aforesaid Cost Auditors are appearing in the Notice convening the 108th AGM of the Company.
The Company maintains necessary cost records as specified by Central Government under sub-section 1 of Section 148 of the Act read with the Companies (Cost Records and Audit) Rules, 2014.
Secretarial Auditors
Your Board appointed Messrs. Vinod Kothari & Company, Practising Company Secretaries, to conduct secretarial audit of the Company for the financial year ended 31st March, 2019. The Report of Messrs. Vinod Kothari & Company is provided in the Annexure forming part of this Report, pursuant to Section 204 of the Act.
CHANGES IN SHARE CAPITAL
During the year, 5,43,36,690 Ordinary Shares of Rs. 1/- each, fully paid-up, were issued and allotted upon exercise of 54,33,669 Options under the Companyâs Employee Stock Option Schemes.
Consequently, the Issued and Subscribed Share Capital of your Company, as on 31st March, 2019, stands increased to Rs. 1225,86,31,601/- divided into 1225,86,31,601 Ordinary Shares of Rs. 1/- each.
The Ordinary Shares issued during the year rank pari passu with the existing Ordinary Shares of your Company.
EMPLOYEE STOCK OPTION SCHEMES
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 (âthe Regulationsâ), are available in the Notes to the Financial Statements and can also be accessed on the Companyâs corporate website âwww.itcportal.comâ under the section âShareholder Valueâ. During the year, there has not been any material change in the Companyâs Employee Stock Option Schemes.
Your Companyâs Auditors, Messrs. Deloitte Haskins & Sells, have certified that the Employee Stock Option Schemes of the Company have been implemented in accordance with the Regulations and the resolutions passed by the Members in this regard.
INVESTOR SERVICE CENTRE
The Investor Service Centre of your Company (âISCâ), accredited with ISO 9001:2015 certification, is registered with the Securities and Exchange Board of India as Category II Share Transfer Agent for providing in-house share registration and related services. ISC continues to focus on upgrading its infrastructure, systems and processes for providing contemporary and efficient services to the shareholders and investors of your Company, in compliance with the applicable statutory requirements.
During the year, Messrs. Det Norske Veritas, accredited agency for ISO certification, accorded the highest possible âLevel 5â rating to ISCâs systems and processes for the tenth consecutive year, exemplifying the excellence achieved by ISC in providing quality investor services.
RELATED PARTY TRANSACTIONS
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 Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. All such contracts or arrangements have been approved by the Audit Committee, as applicable. No material contracts or arrangements with related parties were entered into during the year under review. Further, the prescribed details of related party transaction 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 Companyâs Policy on Related Party Transactions, as adopted by your Board, can be accessed on the corporate website at https://www.itcportal.com/about-itc/policies/policy-on-rpt.aspx.
DIRECTORSâ RESPONSIBILITY STATEMENT
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 are adequate and were 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 effectively.
CONSOLIDATED FINANCIAL STATEMENTS
Your Companyâs Board of Directors is responsible for the preparation of the consolidated financial statements of your Company & its Subsidiaries (âthe Groupâ), Associates and Joint Venture entities, in terms of the requirements of the Companies Act, 2013 and in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under Section 133 of the Act.
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 and for preventing and detecting frauds and other irregularities; the selection and application of appropriate accounting policies; making judgements 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.
OTHER INFORMATION
Compliance with conditions of Corporate Governance Report
The certificate from your Companyâs Auditors,
Messrs. Deloitte Haskins & Sells, confirming compliance with the conditions of Corporate Governance as stipulated under the Listing Regulations 2015, is annexed.
Integrated Report
The Company has voluntarily prepared its Integrated Report for the financial year 2018-19. As a green initiative, the Report has been hosted on the Companyâs corporate website at https://www.itcportal.com/about-itc/shareholder-value/index.aspx#sectionb2 .
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 provided in the Annexure forming part of this Report.
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 4, 5, 6, 9 and 27 (v) (a) (ii) to the Financial Statements.
Particulars relating to Conservation of Energy and Technology Absorption
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.
Compliance with Secretarial Standards
The Company is in compliance with the applicable Secretarial Standards issued by the Institute of Company
Secretaries of India and approved by the Central Government under Section 118(10) of the Act.
Employees
The total number of employees as on 31st March, 2019 stood at 27,279.
There were 91 employees, who were employed throughout the year and were in receipt of remuneration aggregating Rs. 102 lakhs or more or were employed for part of the year and were in receipt of remuneration aggregating Rs. 8.5 lakhs per month or more during the financial year ended 31st March, 2019. 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.
Dividend Distribution Policy
The Companyâs Dividend Distribution Policy is provided in the Annexure forming part of this Report and is also available on the Companyâs corporate website âwww.itcportal.comâ. There has been no change in the Policy during the year.
Key Financial Ratios
Key Financial Ratios for the financial year ended 31st March, 2019, are provided in the Annexure forming part of this report.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements that involve risks and uncertainties. When used in this Report, the words âanticipateâ, âbelieveâ, âestimateâ, âexpectâ, âintendâ, âwillâ 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
Inspired by the opportunity to serve a larger national purpose, your Company redefined its Vision about two decades ago to transform itself into a vibrant engine of growth that would make a substantial contribution to the Indian economy, whilst rewarding shareholders by creating growing value for the Indian society.
Over the last 23 years, your Company has created multiple drivers of growth by developing a portfolio of world-class businesses across all sectors of the national economy spanning agriculture, manufacturing and services. Your Company ranks amongst the Top 3 in the private sector in terms of Contribution to the Exchequer. Over the last 23 years, your Companyâs Value Addition aggregated Rs. 4.6 lakh crores of which nearly 75% accrued to the Exchequer at the Central and State levels. During this period, your Companyâs net revenue and post-tax profit have recorded an impressive compound annual growth of 13.3% and 18.3% respectively. Total Shareholder Returns, measured in terms of increase in market capitalisation and dividends, have grown at a compound rate of 22.3% per annum during this period, placing your Company amongst the foremost in the country in terms of efficiency of servicing financial capital.
Your Companyâs non-cigarette businesses have grown over 21-fold since 1996 and presently constitute appx. 60% of net segment revenue. In aggregate, the non-cigarette businesses account for over 80% of your Companyâs operating capital employed, about 90% of the employee base and over 80% of annual investments.
Your Company today is the leading FMCG marketer in India, a pre-eminent hotel chain and a globally acclaimed icon in green hoteliering, the clear market leader in the Indian Paperboard and Packaging industry, a pioneering trailblazer in farmer and rural empowerment through its Agri Business and a global exemplar in sustainable business practices.
Aligned with the Governmentâs Make in India Vision, your Company is building national assets in the manufacturing and tourism sector. As stated earlier in this Report, several world-class Integrated Consumer Manufacturing & Logistics facilities are being built to deliver sustainable competitive advantage to your Companyâs FMCG businesses. Several projects with an aggregate outlay of Rs. 25000 crores are in various stages of implementation / planning across the length and breadth of the country facilitating regional and national economic development. Recognising that tomorrowâs world will belong to those who create, own and nurture intellectual capital, your Company continues to invest in augmenting the capability of its globally benchmarked Life Sciences and Technology Centre to ensure that its Businesses are future-ready and contribute to building intellectual property assets for the nation.
Your Companyâs Board and employees are inspired by the Vision of sustaining ITCâs position as one of Indiaâs most admired and valuable companies, creating enduring value for all stakeholders, including the shareholders and the Indian society. The vision of enlarging your Companyâs contribution to the Indian economy is driven by its âLetâs Put India Firstâ credo anchored on the core values of Trusteeship, Transparency, Empowerment, Accountability and Ethical Citizenship, which are the cornerstones of ITCâs 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
13th May, 2019
Gurugram S. PURI Chairman & Managing Director
India R. TANDON Director & Chief Financial Officer
Mar 31, 2018
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. Foreign exchange earnings of the ITC Group over the last ten years aggregated nearly US$ 7.1 billion, of which agri exports constituted 56%. Earnings from agri exports, which effectively link small farmers with international markets, are an indicator of your Companyâs contribution to the rural economy.
During the financial year 2017-18, your Company and its subsidiaries earned Rs, 4189 crores in foreign exchange. The direct foreign exchange earned by your Company amounted to Rs, 3480 crores, mainly on account of exports of agri-commodities. Your Companyâs expenditure in foreign currency amounted to Rs, 2038 crores, comprising purchase of raw materials, spares and other expenses of Rs, 1506 crores and import of capital goods at Rs, 532 crores.
PROFITS, DIVIDENDS AND RETAINED EARNINGS
(? in Crores)
PROFITS |
2018 |
2017 |
a) Profit Before Tax |
16851.70 |
15502.96 |
b) Tax Expense |
||
- Current Tax |
5599.83 |
5285.65 |
- Deferred Tax |
28.62 |
16.41 |
c) Profit for the year |
11223.25 |
10200.90 |
d) Other Comprehensive Income |
382.34 |
77.00 |
e) Total Comprehensive Income |
11605.59 |
10277.90 |
STATEMENT OF RETAINED EARNINGS |
||
a) At the beginning of the year |
17576.81 |
16589.89 |
b) Add: Profit for the year |
11223.25 |
10200.90 |
c) Add: Other Comprehensive Income |
52.78 |
(24.92) |
(net of tax) |
||
d) Add: Transfer from share option on exercise and lapse |
18.65 |
14.58 |
e) Less: Dividends |
||
- Ordinary Dividend of Rs, 4.75 (2017: Rs, 4.33) per share |
5770.01 |
5230.68 |
- Special Dividend of Rs, Nil (2017: Rs, 1.33) per share |
- |
1609.44 |
- Income Tax on Dividend paid |
1110.24 |
1333.52 |
f) Less: Transfer to General Reserve |
- |
1030.00 |
g) At the end of the year |
21991.24 |
17576.81 |
FMCG Cigarettes
A punitive and discriminatory taxation and regulatory regime continues to exert severe pressure on the domestic legal cigarette industry even as illegal cigarette trade grows unabated.
The legal cigarette industry, already reeling under the cumulative impact of steep increase in taxation over the last five years and intense regulatory pressures, was further impacted by the sharp upward revision in GST Compensation Cess announced in July 2017. Contrary to indications from the Government that the transition to GST would be based on the principle of maintaining revenue neutrality, tax incidence on cigarettes rose sharply by 13% with an even steeper increase of 19% for the king-size filter segment under the GST regime. Coupled with the increase in Excise Duty rates announced in the Union Budget 2017, this resulted in an incremental tax burden of over 20% on your CompanyRs,s Cigarette Business post implementation of GST.
It is pertinent to note that the tax incidence on cigarettes, after cognising for the latest increase in Cess rates, has nearly trebled over the last six years, on a comparable basis.
The Cigarette Business also had to contend with additional costs associated with the transition to GST due to non-availability of Additional Duty Surcharge credit on transition stocks and the unanticipated revision of GST Compensation Cess w.e.f. 18th July, 2017 which impacted pipeline stocks.
In addition to being subjected to punitive taxation, cigarettes continue to be discriminated against in the GST regime. Even as a uniform GST rate of 28% has been made applicable to all tobacco products the discriminatory tax incidence continues on account
of differential rates of GST Compensation Cess.
For example, a Specific GST Compensation Cess, at rates higher than the Central Excise Duty levied on cigarettes in the erstwhile regime, is levied on cigarettes in addition to an Ad-valorem GST Compensation Cess of 36% for king-size cigarettes and 5% for the other length segments. In comparison, no GST Compensation Cess is levied on bidis. Consequently, cigarette taxes remain, effectively, about 50 times higher than on other tobacco products.
The high rates of tax on cigarettes also provide attractive tax arbitrage opportunities to unscrupulous players, fanning the growth of illegal cigarette trade in the country. While the legitimate cigarette industry has declined steadily since 2010-11 at a compound annual rate of 4.8% p.a., illegal cigarette volumes in contrast have grown at about 5% p.a. during the same period, making India one of the fastest growing illegal cigarette markets in the world. It is pertinent to note that, according to Euromonitor International, India is now the 4th largest illegal cigarette market in the world.
Another factor that fuels the growth of smuggled international brands is that such cigarette packs do not carry the excessively large (85% of the surface area of both sides of the cigarette package) pictorial warnings with extremely gruesome and unreasonable images that are prescribed under Indian laws. While the legal cigarette industry scrupulously complies with the statutory provisions, smuggled international brands of cigarettes either do not bear any pictorial or other health warnings or bear warnings of much smaller dimensions, that too different from what is mandated under Indian law. Findings from research conducted by IMRB International, an independent organisation, indicate that the lack of warnings or their diminutive size creates a perception in the consumerâs mind that the smuggled cigarettes are âsaferâ than domestic duty-paid cigarettes that carry the statutory warnings.
The attractive tax arbitrage opportunity for smuggled cigarettes allows unscrupulous players to make the products available to consumers at a fraction of the price of duty-paid domestic cigarettes. In fact, the affordability of illegal cigarettes and the other cheaper tobacco products (by reason of lower tax incidence as well as evasion of taxes) has been driving the consumption of tobacco from duty-paid cigarettes to the other forms. Consequently, Indiaâs per capita cigarette consumption is amongst the lowest in the world and is significantly lower in comparison to Russia, Japan, China, United States and even neighboring countries such as Pakistan and Bangladesh.
While overall tobacco consumption in the country continues to grow, the share of duty-paid cigarettes has come down substantially over the years and is estimated to account for around 11% of current tobacco consumption in the country. Despite accounting for such a low share of overall tobacco consumption in the country, the legal cigarette industry contributes more than 87% of tax revenue from the tobacco sector.
The other types of tobacco products contribute barely 13% of tax revenue from the tobacco sector despite accounting for 89% of total tobacco consumption.
It is estimated that the exchequer is losing more than Rs, 13000 crores revenue annually on account of tax evasion on cigarettes alone. The loss to the exchequer is even higher when the evaded taxes on other tobacco products are also considered.
The growth of smuggled international brands has also adversely impacted the demand for domestic Flue Cured Virginia (FCV) tobacco that is used in cigarette manufacture. The absence of a strong domestic demand base has not only resulted in loss of income but has also exposed the Indian tobacco farmer to the volatilities of the international market, thereby sub-optimising earnings from tobacco crop exports as well. These developments have had a devastating impact on the Indian tobacco farmer and the 46 million livelihoods dependent on the tobacco value chain.
Soft demand for Indian FCV tobacco has prompted the Tobacco Board of India to reduce the authorized crop size for three successive years i.e. 2015-16, 2016-17, 2017-18. Further, the unprecedented drought in Andhra Pradesh in late 2016 played havoc on the actual crop output in 2017 besides adversely impacting its quality. This, in turn, has also led to lower exports of tobacco. It is estimated that the cumulative drop in farmer earnings is in excess of Rs, 3450 crores over the last three years, i.e., an average loss in earnings of over Rs, 1150 crores per year.
As reported last year, your Company and several other stakeholders had challenged the validity of the pictorial warnings. Based on a direction of the Honourable Supreme Court, all litigation on pictorial warnings were tagged together and heard by the Honourable High Court of Karnataka. The High Court, by its judgment in December 2017 held the 85% pictorial warnings with extremely gruesome imagery to be factually incorrect and unconstitutional. Upon a Special Leave Petition filed by the Government, the Honourable Supreme Court stayed the Order of the High Court. Pending the final hearing of this matter, the regime of the extremely repugnant 85% pictorial warnings continues.
It is pertinent to note that the global average size of pictorial warnings is only about 30% coverage of the principal display area. In fact, the three countries that account for about 51% of the worldâs cigarette consumption, viz., USA, Japan and China have not adopted pictorial / graphical warnings and have prescribed only text-based warnings on cigarette packages.
Although India is the 3rd largest FCV tobacco grower in the world, it has put in place extremely stringent tobacco control laws. For instance, the statutorily prescribed pictorial warning occupying 85% of both sides of a cigarette pack ranks India in the 2nd position globally in terms of their stringency1. Unfortunately, these laws have fuelled, albeit unintentionally, the growth of illegal cigarettes in the country and consequently, impacted adversely on farmer incomes. In contrast, several major tobacco producing countries, including the USA, have taken into consideration the interests of their tobacco farmers in deciding whether or not to adopt large or excessive pictorial warnings. The Indian tobacco control laws have, thus, had the inadvertent and unforeseen effect of causing losses to the Indian farmer with corresponding gains to tobacco farmers in the countries that have opted for moderate and equitable tobacco control laws.
Regardless of the steps taken by the Government towards tobacco control in the country, taking advantage of the countryâs large porous international borders as well as by exploiting loopholes in the policies that are in place, the smuggling of international brands of cigarettes into the country continues to grow at an alarming rate. This is confirmed by the fact that detection and seizure of smuggled cigarettes by the enforcement agencies2 has gone up from 1312 cases in 2014-15 to 3108 cases in 2016-17 - an increase of more than 136%.
Unfortunately, the taxation and regulatory policies of the country are largely cigarette-centric and based on tobacco consumption patterns prevalent in developed countries. Such policies are not suitable for India since duty-paid cigarettes account for only about 11% of tobacco consumption in the country as compared to the global average of more than 90%. The unintended consequences of the extant tobacco taxation and regulatory framework may be summarized as follows:
- Continuing decline in legal cigarette volumes in favour of lightly taxed and tax-evaded tobacco products, due to extremely attractive tax arbitrage, resulting in sub-optimization of the revenue potential of the tobacco sector and significant loss to the Exchequer.
- Further fillip to the growth of illegal cigarettes in the absence of statutory pictorial warnings on smuggled international brands.
- The greater portion of tobacco consumption in the country (estimated at about 68%3) remaining outside the tax net.
- Widespread availability of illegal cigarettes and other tobacco products of dubious quality and hygiene to consumers at extremely affordable prices.
- Persistent negative impact on the livelihood of tobacco farmers and others dependent on tobacco for their livelihood.
As always, your Company complies with all regulations and laws in letter and spirit whilst remaining engaged
3 Report on the impact of current tax framework on the tobacco sector in India and suggestions for its improvement - 2014, by ASSOCHAM and KPMG.
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 Companyâs strong product portfolio along with superior consumer insights and a strategy of continuous innovation and value creation has, once again, helped deliver superior competitive performance during the year, notwithstanding the extremely challenging operating environment. It is a matter of deep satisfaction that your Company consolidated its leadership position in the industry during the year and continues to improve its standing in key competitive markets across the country. Some of the key interventions during the year include the launch of innovative variants viz., Classic Double Burst, Gold Flake Mint Switch,
Flake Mint Switch, Bristol Magnum, Navy Cut Century and a new brand, Wave. Additionally, two brands, American Club and Players, which were launched towards the end of 2016-17 were strengthened significantly during the year.
During the year, the Electronic Vaping Devices portfolio was augmented with the launch of EON Myx, a disposable variant which is offered in adult flavours like coffee in addition to menthol and full flavour.
The consumer response to this offering has been encouraging. The rechargeable variant, EON Charge, further strengthened its performance during the year. Given the nascent state of the market and the evolving regulatory oversight globally, your Company remains engaged with the policy makers for adoption of an appropriate and equitable regulatory framework in India for this category. The research and development initiatives of your Company continue to add to the countryâs bank of Intellectual Property Rights (IPR).
In addition to grant of several patents in previous years, your Company was granted three more patents during the year - two international and one national - in respect of cigarettes.
To secure increasingly higher levels of productivity and product excellence going forward, the Business continues to modernize its manufacturing facilities by inducting contemporary technologies. The Business leveraged its in-house design and development expertise and innovation capabilities to step up flexibility in manufacturing technologies and to further improve speed to market for differentiated products and pack formats. In line with its philosophy of manufacturing excellence, the Business has commenced several initiatives towards capability enhancement in the arena of Industry 4.0 including Advanced Analytics, Artificial Intelligence, Virtual Assist and Augmented Reality. These interventions are expected to bring about a digital transformation in the manufacturing process. Up gradation of on-line, real time quality assurance systems and induction of state-of-the-art technology for several product and packaging types were carried out during the year. These initiatives have further improved the speed to market for successful launches and augmented the innovation pipeline of the Business. Further, Long Term Agreements were concluded successfully with the unionized workforce at the Bengaluru and Ranjangaon cigarette factories.
It is extremely satisfying to report that the Business continues to be recognized for its leadership role and commitment towards excellence, sustainability and HR practices. The Bengaluru factory was conferred the âSustainable Factory of the Yearâ award by Frost & Sullivan and The Energy & Resource Institute (TERI).
The factory has also been recertified as an IGBC Platinum Rated Green Factory Building with the highest score in India. The Saharanpur factory was awarded the First Prize under the âFICCI Safety Systems Excellence Awards for Industry 2017â. The Munger factory was honoured with the âExcellent Energy Efficient Unitâ award at the 18th National Award for Excellence in Energy Management 2017. The Kidderpore cigarette factory was the recipient of the âSafety Innovation Awardâ by The Institution of Engineers (India). Your Company was also conferred two awards by the Association for Talent Development (ATD) and another one by Employees Federation of India (EFI) for excellence in HR practices.
A punitive and discriminatory taxation regime along with ever increasing regulatory pressures and the unabated growth in illegal trade will continue to pose several challenges in the year ahead. Your Company will continue to engage with policy makers for a tobacco taxation and regulatory policy that is non-discriminatory, helps combat the menace of illegal cigarettes and addresses the issues of all stakeholders, particularly tobacco farmers, Exchequer and consumers. Such a policy will not only help maximization of the revenue potential of tobacco even in a shrinking basket of tobacco consumption but also address the tobacco control and health objectives of the Government. Your Company remains confident that despite the severe pressures, the trust and faith reposed by the consumers coupled with the Companyâs robust product portfolio, world-class quality, innovation in processes, investments in cutting-edge technology and superior execution of competitive strategies will enable it to retain its pole position and reinforce its market standing in the years to come.
FMCG - Others
The FMCG industry faced another challenging year with demand conditions remaining sluggish for the fifth year in a row. The slowdown in the broader economy, as reflected by the marked deceleration in Nominal GDP and private consumption expenditure growth, headwinds in rural demand and supply chain disruptions during the transition to the GST regime was manifest in your Companyâs operating segments in the FMCG space. The year also witnessed commodity prices settling at an elevated level, exerting pressure on margins. While it is anticipated that the FMCG industry will take a few more quarters for demand revival to play out fully, the green shoots of economic recovery and expectations of normal monsoons augur well for the industry. The structural drivers of long-term growth such as increasing affluence and consumer awareness, a young and expanding workforce, increasing urbanization, Governmentâs thrust on infrastructure development and the rural sector, implementation of GST amongst others, remain firmly in place and the FMCG industry is poised for rapid growth in the ensuing years.
Despite the challenging conditions prevailing during the year, your Companyâs FMCG-Others Businessesâ Segment Revenue at Rs, 11329 crores grew ahead of industry and recorded an increase of 11.3% (on a comparable basis) on a relatively firm base. It is pertinent to note that while the second half of 2016-17 witnessed reduced consumer off take and trade pipelines in the wake of adverse liquidity conditions, your Companyâs FMCG-Others Businesses were relatively less impacted. Most major categories enhanced their market standing during the year. While âBingo!â snacks, âAashirvaadâ atta and âDark Fantasy Choco Fillsâ premium cream biscuits were the key drivers of growth in the Branded Packaged
Foods Businesses, âEngageâ deodorants, âVivelâ/âFiamaâ soaps & shower gels and âSavlonâ hand wash fuelled strong growth in the Personal Care Products Business. The Education and Stationery Products Business posted a robust performance during the year led by âClassmateâ notebooks, which consolidated its leadership position in the industry. However, the performance of the Lifestyle Retailing Business remained sluggish mainly on account of an early and prolonged âend-of-seasonâ sale in the wake of disruption to the trade during transition to GST and ongoing structural interventions to enhance operating efficiencies. Segment Results for the year improved to Rs, 164 crores from Rs, 28 crores in 2016-17 driven by enhanced scale, product mix enrichment and strategic cost management initiatives after absorbing the impact of sustained investment in brand building, gestation costs of new categories viz. Juices, Dairy, Chocolates and Coffee and costs associated with the ongoing structural interventions in the Lifestyle Retailing Business.
Your Company continued to make investments during the year towards enhancing brand salience and consumer connect while simultaneously implementing strategic cost management measures across the value chain. Several initiatives were also implemented during the year towards leveraging the rapidly growing e-commerce channel with a view to enhancing the reach of your Companyâs products and harnessing digital and social media platforms for deeper consumer engagement.
During the year, your Company commissioned two world-class Integrated Consumer Goods Manufacturing and Logistics Units (ICMLs) at Panchla, West Bengal and Kapurthala, Punjab. Significant progress was also made in constructing several other state-of-the-art owned ICMLs across regions to secure capacity and enable the FMCG Businesses to rapidly scale up in line with long-term demand forecast. Currently, over 15 projects are underway and in various stages of development - from land acquisition/site development to construction of buildings and other infrastructure. The Businesses are focussing on deploying âIndustry 4.0â technologies including advanced analytics, big data and industrial Internet of Things (IoT) in areas such as overall equipment efficiency, energy management, maintenance, downtime analysis, quality and traceability.
The FMCG Businesses comprising Branded Packaged Foods, Personal Care Products, Education and Stationery Products, Lifestyle Retailing, Incense Sticks (Agarbattis) and Safety Matches have grown at an impressive pace over the past several years.
Today, your Companyâs vibrant portfolio of brands represents an annual consumer spend of nearly Rs, 16000 crores in aggregate. These brands have been built organically by your Company over a relatively short period of time - a feat unparalleled in the Indian FMCG industry. In terms of annual consumer spend, âAashirvaadâ is today over Rs, 4000 crores; âSunfeastâ over Rs, 3500 crores; âBingo!â over Rs, 2000 crores;
âClassmateâ and âYiPPee!â over Rs, 1000 crores each and âVivelâ, âMangaldeepâ and âCandymanâ over Rs, 500 crores each. These world-class Indian brands support the competitiveness of domestic value chains of which they are a part, ensuring creation and retention of value within the country.
Your Companyâs FMCG brands have achieved impressive market standing in a relatively short span of time. Today, Aashirvaad is No. 1 in Branded Atta, Bingo! is No. 1 in Bridges segment of Snack Foods (No.2 overall), Sunfeast is No. 1 in the Premium Cream Biscuits segment, Classmate is No. 1 in Notebooks, YiPPee! is No. 2 in Noodles, Engage is No. 2 in Deodorants (No. 1 in womenâs segment) and Mangaldeep is No. 2 in Agarbattis (No. 1 in Dhoop segment).
Your Company remains extremely agile and responsive to the emerging trends shaping the future of the industry. Some of the noteworthy consumer trends include the emergence of health and wellness products as a key consumer need; increasing preference for products rooted to âIndiannessâ and with regional/cultural connects; increasing need for customized products and bespoke experiences; growth in demand for âon-the-goâ consumption formats and rising influence of social media and digitalization on consumer preferences and shopping behavior. Similarly, the FMCG market construct is likely to undergo rapid change driven by exponential growth in tier - II/III towns and rural India and the emergence of relatively new channels such as Modern Trade and e-commerce.
The Indian FMCG market is at an inflection point and your Company seeks to rapidly scale up the FMCG Businesses leveraging its institutional strengths viz. deep consumer insight, proven brand building capability, agri-commodity sourcing expertise, cuisine knowledge, strong rural linkages, a deep and wide distribution network and packaging know-how. In addition, your Company continues to make significant investments in Research & Development, focus on consumer insight discovery and harness digital technology to develop and launch disruptive and breakthrough products in the market place.
Highlights of progress in each category are set out below.
Branded Packaged Foods
Demand conditions in the Branded Packaged Foods industry remained sluggish during the year due to slowdown in private consumption expenditure growth and supply chain disruptions during the transition to GST. The year was marked by heightened competitive intensity with industry players resorting to aggressive consumer promotions and trade schemes in a bid to garner volumes.
Against the backdrop of a challenging operating environment as foretasted, your Company sustained its position as one of the fastest growing branded packaged foods businesses in the country leveraging a robust portfolio of brands, a range of distinctive products customized to address regional tastes and preferences along with an efficient supply chain and distribution network that ensures benchmark levels of visibility, availability and freshness of products in the market. The Business implemented several initiatives encompassing cost management, supply chain optimization, smart procurement and recipe optimization which helped in mitigating the escalation in input costs and enhancing profitability.
Your Companyâs Branded Packaged Foods Businesses continued to make significant investments towards brand building and supporting the launch of new variants apart
from absorbing the gestation costs of new categories viz. Dairy, Juices, Chocolates and Coffee.
Your Companyâs vibrant and successful food brands such as âAashirvaadâ, âSunfeastâ, âBingo!â, âYiPPee!â and âB Naturalâ amongst others, enable strong forward linkages for domestic agri-value chains, thereby enhancing their competitiveness and making a meaningful contribution to boost farmer earnings.
Relentless focus on delivering superior quality products to consumers remains a key source of competitive advantage for the Branded Packaged Foods Businesses. In this context, the Businesses continue to leverage your Companyâs agri-commodity sourcing expertise to procure high quality raw materials thereby ensuring the highest level of quality and safety of its products.
In addition, each of your Companyâs branded packaged food products is manufactured in HACCP/ISO-certified manufacturing locations ensuring compliance with all applicable laws and adherence to the highest quality norms.
The Business launched several innovative, distinctive and first-to-market products during the year leveraging robust product development processes, the capabilities of your Companyâs Life Sciences and Technology Centre and the cuisine expertise resident in your Companyâs Hotels Business.
Several manufacturing units of your Companyâs Branded Packaged Foods Businesses, competing with both the best within and outside the industry, received several awards and accolades during the year bearing testimony to your Companyâs focus on manufacturing excellence, safety and quality.
Your Company continues to make investments towards augmenting the manufacturing and sourcing footprint across categories with a view to improving market responsiveness and reducing the cost of servicing proximal markets. During the year, two new owned manufacturing facilities - Kapurthala in Punjab and Panchla in West Bengal - were commissioned while capacity utilization was progressively scaled up at the Uluberia, Mysuru and Guwahati units that commenced operations in the second half of FY17. Plans are on the anvil to commission new lines at the Kapurthala, Panchla and Guwahati facilities in the ensuing year. The manufacturing unit at Pudukkottai, Tamil Nadu is at an advanced stage of completion and is expected to be commissioned shortly.
- The Staples Business posted robust performance during the year, growing well ahead of the industry. In the Staples category, Aashirvaad atta posted healthy growth and fortified its leadership position while maintaining its pricing premium in the market. The value-added product portfolio, comprising Multigrains, Select and Sugar Release Control atta, continued to record robust growth.
This was achieved despite increasing competitive pressures triggered by the imposition of 5% GST on branded atta (compared to nil VAT in most States under the erstwhile tax regime) while non-branded atta (incl. branded atta on which actionable claim or enforceable right has been foregone voluntarily) remained at nil duty. During the year, the Business also had to contend with a concerted attack on Aashirvaad atta on social media with rumour mongers circulating malicious videos and falsely alleging that Aashirvaad atta contains plastic.
The Business launched a 360 degree campaign to reassure consumers and dispel the baseless rumours surrounding Aashirvaad atta.
The communication clearly highlighted that as per FSSAI standards, atta must contain not less than 6% of wheat protein on a dry weight basis and that elasticity is a natural property of the protein without which it is not possible to bind the atta. Simultaneously, complaints were filed with the police authorities and injunction orders restraining circulation of such videos on social media were also obtained from the civil court. These interventions helped in effectively mitigating the short-term impact of the malicious videos on sales momentum, with the brand staging progressive recovery subsequently.
Your Company takes utmost care in manufacturing of its products at HACCP/ISO-certified manufacturing locations ensuring compliance with all applicable laws and adherence to the highest quality norms. Powered by the trust reposed by over 2.5 crore households, your Company is confident of sustaining Aashirvaadâs position as Indiaâs No. 1 atta brand going forward.
Supported by its new positioning, âCreated by Sun and Sea - pure just like nature intended it to beâ and new pack design, Aashirvaad Salt posted robust performance during the year. In the branded Spices category, the Aashirvaad range of spices registered steady volume growth. In line with its commitment to deliver products with the highest quality and safety standards to Indian consumers, the Business continued to reinforce the value proposition of the recently launched ITC Master Chef âSuper Safe Spicesâ, which are tested for over 470 pesticide residues in accordance with European standards as compared to only nine required under Indian regulations.
- In the Snacks and Meals Business, the Bingo! range of snacks recorded robust growth during the year driven by Tedhe Medhe and potato chips.
The Business achieved market leadership on an All-India basis in the Bridges segment driven by a robust portfolio of products under the Tedhe Medhe, Mad Angles and Tangles sub-brands. The potato chips portfolio recorded impressive market share gains and emerged as the leader in the South markets leveraging an optimized portfolio, revamped pack and fresh communication. During the year, the Business forayed into the extruded snacks segment with the launch of âNo Rulzâ - a-first-of-its-kind offer comprising four different shapes of the product in a single pack. The product has received excellent response and continues to gain traction with consumers. The Bingo! range was augmented during the year with the launch of several variants customized for regional taste palates, viz. Mad Angles Kolkata Kasundi, Tedhe Medhe Lime Chatpata, Tomato Masti and Pudina Twist.
In the Instant Noodles category, YiPPee! noodles sustained its robust growth momentum during the year despite increasing competitive intensity including from several regional discount players. The year also saw the launch of âMood Masalaâ - an innovative variant comprising two masala mix sachets in a pack providing the consumer the option to add masala to âmatch his moodâ. Mood Masala received encouraging consumer response, further strengthening the brand imagery of YiPPee! amongst tweens and young adults.
- The Confections Business scaled up operations and improved its market standing during the year. In the Biscuits category, the Business continued to focus on premiumising its product portfolio, enhancing brand affinity, strengthening the supply chain and expanding distribution reach. Consistent and impactful communication, coupled with focused marketing inputs helped improve penetration and brand health metrics. Dark Fantasy Choco Fills sustained its clear market leadership position in the Super-Premium Creams segment across the country. Brand architecture in the biscuits category was optimized with the migration of Delishus & Yumfills under the Momâs Magic and Dark Fantasy brands respectively. The Business augmented its product portfolio in the health segment with the launch of Protein Power, a unique variant based on roasted Bengal gram flour and Digestive five grains biscuits under the Farmlite brand. The Momâs Magic range was expanded with the addition of âFruit & Milkâ variant. Your Company continues to leverage the biscuits manufacturing unit owned by North East Nutrients Private Limited, a joint venture company, to record impressive gains in market standing in the North East markets.
In the Confectionery category, in line with its strategy of premium sing the portfolio, the Business launched several unique offers in the âRe. 1 & aboveâ price points including Cola Josh, Crunchy and Clear Candy under the Candyman brand, Jelimals Sour Slides and two exciting variants under the âmint-oâ brand. These products have received encouraging consumer response.
- In the Dairy & Beverages Business, the âB Naturalâ range of juices continues to gain traction amongst its target consumers aided by a clutter-breaking media campaign, on-ground trial generation initiatives and visibility & availability enhancement drives.
The journey towards making juices concentrate-free, which commenced last year with the launch of âB Natural 100% Pomegranate Juiceâ, continued during the year with the entire range of B Natural juices being migrated to the ânot from concentrateâ platform. This first-of-its-kind initiative in India, was anchored on the twin resolve to provide consumers a more nutritive and natural tasting experience and promote the use of fruit pulp procured from Indian farmers, thereby supporting the Indian farm and food processing sector. The Business also introduced âBaelâ and âPhalsaâ variants during the year catering to regional tastes and preferences which were well received by consumers. In the Dairy segment, âAashirvaad Svastiâ Ghee was extended to Delhi NCR markets during the year, gaining healthy consumer traction. During the year, the Business also forayed into the Pouch Milk segment with the launch of âAashirvaad Svastiâ milk in select markets in Bihar in the vicinity of your Companyâs Munger dairy plant.
- In the Chocolates category, the âFabelleâ range of luxury chocolates was scaled up during the year with a view to redefining the luxury chocolate segment in India. The range is available in eight Fabelle Chocolate Boutiques located within ITC hotels and several outlets in premium malls and food stores. Product portfolio was augmented with the launch of two delectable variants of centre-filled chocolate bars - âHazelnut Mousseâ, & âDark Choco Mousseâ which have received excellent response from discerning consumers. Towards deepening engagement with consumers, the Business launched a unique experience platform during the year christened - âFabelle Societe de Chocolatâ - across
Fabelle boutiques with Ms. Billie McKay, winner of MasterChef Australia 2015, as the mentor. âSunbeanâ gourmet coffee, launched across all ITC Hotels last year, continues to receive excellent response from discerning consumers and plans are on the anvil to scale up presence in the ensuing years.
Your Company remains focused on establishing itself as the âmost trusted provider of food products in the Indian marketâ driven by superior product quality, a differentiated product portfolio, deep understanding of consumer needs and preferences, R&D, innovation and operational excellence across the value chain. Your Company will continue to make investments towards establishing a distributed manufacturing footprint, driving cost efficiencies in a structural manner and focus on supply chain optimization to support the rapid and profitable growth of the Branded Packaged Foods Businesses in the years ahead.
Personal Care Products
Your Companyâs Personal Care Products Business delivered a robust performance and enhanced its market standing during the year against a backdrop of significant disruption to trade and supply chain following the roll out of GST. This was driven largely by sustained focus on innovation, product mix enrichment, expansion of distribution reach, proactive cost management and enhancing supply chain responsiveness.
The Business continued to focus on innovation and to delight consumers by launching a range of exciting offerings during the year. In the Fragrance category, the recently launched innovative perfume variants under the brand âEngage ONâ and âEngage ON â, designed to drive on-the-go consumption, garnered robust consumer traction. The Business also launched a Sport range of deodorants with long lasting fragrance and a selection of premium Eau de Parfums for both men and women. In the Personal Wash category, the Business introduced a unique Gel Creme range under the âFiamaâ brand combining the best of gel and cream for both soap and liquid bathing products, and Vivel Lotus Oil - a unique offering enriched with Lotus Oil and Vitamin E for soft glowing skin. âSavlonâ handwash continued to gain ground, with the launch of a new small pack at an attractive price point.
These new innovations received excellent response from consumers during the year and were supported with refreshing communication and engaging consumer activations.
Your Companyâs key brands, namely Vivel, Engage and Savlon continue to gain salience with target consumers and win industry recognition.
The Business continued to leverage innovative brand campaigns and social media platforms towards deepening consumer engagement. The recent interventions of restaging key brands anchored on Women Empowerment in the case of Vivel and Healthier Kids, Stronger India in the case of Savlon have received positive response from consumers resulting in a pick-up in sales momentum. Savlon won seven Cannes Lions Awards at the coveted Cannes Lions 2017. Considered to be the highest global accolade that recognises creative excellence in advertising and communications, Savlon won the prestigious awards for its unique and innovative âHealthy Hands Chalk Sticksâ initiative.
The âHealthy Handsâ initiative also received the Global PR SABRE as one of the Top 10 Best PR campaigns in the world. Vivelâs proposition of empowerment of women through its âAb Samjhauta Nahinâ message, won
certificates of excellence at the South Asia PR SABRE awards for its integrated campaign thought and initiatives. âEngageâ won a Gold at Abby (Indiaâs biggest advertising and creative award) for its social and digital campaign christened âPocketful Oâ Storiesâ. The âEngageâ campaign designed to introduce the Engage ON pocket perfume on social media also won two Golds at the Content Marketing Awards, South Asia for Best Use of contextual content and Best Use of Digital (Content).
âEngageâ recorded impressive gains in the Fragrance category, consolidating its leadership position in the womenâs segment and No. 2 position overall. The roll out of innovative pocket perfumes, Sport range of deodorants and the Eau de Parfums range have helped the brand grow its consumer equity significantly among both men and women besides premium sing the portfolio. âSavlonâ hand wash recorded significant gains during the year across brand health metrics and emerged as the fastest growing brand in the market. In the body wash segment, the âFiamaâ range of shower gels continued to garner increasing consumer franchise and is the fastest growing and the second largest brand nationally. The Business also launched moisturizing skin creams under the recently acquired âCharmisâ brand and plans are afoot to strengthen your Companyâs skincare portfolio in the near to medium term.
During the year, your Companyâs manufacturing facility in the North East, which was commissioned in March last year, achieved 90% capacity utilization within a short period of time. This has led to strengthening the supply chain and has enabled efficient servicing of proximal markets in the North East.
Input prices remained stable in the first half of the year, with an uptick in the latter half. The Business continued to pursue strategic cost management initiatives including product cost optimization through innovation, proactive sourcing, alternative vendor development and value capture through supply chain efficiencies which resulted not only in containing inflation but also in enhancing profitability.
Your Company continues to strengthen its presence in the Personal Care space in view of the robust long-term prospects of the industry given the low levels of per capita consumption currently, rising disposable incomes, increasing urbanization and growing consumer preference for enhanced personal grooming. Your Company is well positioned to seize the emerging opportunities and continues to invest in creation of vibrant brands, innovative consumer-centric products and a robust supply chain to emerge as a significant player in this space.
Education and Stationery Products
The Stationery industry was impacted during the year with the roll out of GST coinciding with the school opening season and trade operating with lower inventory levels due to uncertainties around the new tax regime. Despite these challenging conditions, the Business sustained its leadership position in the Indian Education and Stationery Products industry anchored on a portfolio of world-class products and brands.
The Business continued to leverage its dedicated product development cell and your Companyâs Life Sciences & Technology Centre to develop & launch innovative and superior products in the market. During the year, the product portfolio was augmented with the launch of several new products including a spiral range of notebooks under Classmate, Classmate All Purpose Paper, âArchimedesâ premium geometry boxes with âspur gearâ divider and compass for higher precision and several offerings in the pens, mechanical pencils and scholastics categories. The Business also scaled up presence in the value segment of the notebook industry through its brand âSaathiâ with a view to consolidating its leadership position.
During the year, the Business launched âClassmateshop.comâ - a first-to-market initiative that offers consumers the option to personalize the images to be printed on notebook covers. The Business continued to focus on enhancing brand affinity by leveraging the âClassmate Spellbeeâ and âClassmate Handwriting Competitionâ platforms. These competitions collectively reach out to nearly a million children across 1000 schools in 30 cities.
The âBe Better Than Yourselfâ campaign launched during the year under the Classmate brand across television, out-of-home, digital and social media platforms hit the right note with consumers, receiving positive reviews. The campaign seeks to drive tangible changes in society by encouraging children to realize their full potential by pursuing their personal goals and ambitions rather than comparing them with peers in terms of their marks and other achievements. The campaign has helped generate conversations amongst parents on this critical topic and garnered over seven million views across social media platforms.
In the area of supply chain, initiatives on quality and cost management through network optimization yielded superior product quality and enhanced operational efficiency. The thrust on expanding distribution continued with specific focus on institutional channel and enhancing market penetration and outlet coverage. Sales and distribution systems were strengthened further through technology interventions such as sales force automation and Customer Relationship Management system for the institutional channel.
Classmate and Paper raft notebooks leverage your Companyâs world-class fibre line at Bhadrachalam - Indiaâs first ozone treated elemental chlorine free facility - and embody the environmental capital built by your Company in its paper business. During the year, the Business scaled up the Paper raft range of notebooks using Forest Stewardship Council (FSC) certified paper, made at your Companyâs paper mill, matching the best quality paper in the world.
The Indian Education and Stationery Products industry is poised for exponential growth driven by growing literacy, increasing enrolment ratios, governmentâs thrust on the education sector through various policy initiatives like Sarva Shiksha Abhiyan, Right to Education etc. and a favourable demographic profile of the countryâs population. Your Company, with its strong brands and robust product portfolio, and collaborative linkages with small & medium enterprises is well poised to strengthen its leadership position in the Indian stationery market.
Lifestyle Retailing Business
2017-18 was another challenging year for the Branded Apparel industry. Transition to GST regime triggered a premature end to the Spring Summer 2017 season with most players announcing an early âend-of-seasonâ sale period which was extended in a bid to liquidate pre-GST merchandise. On the other hand, e-commerce players continued with their aggressive push to capture market share amongst value seeking consumers by offering heavy discounts and launching exclusive labels and brands. The performance of your Companyâs Lifestyle Retailing Business was adversely impacted against the backdrop of the challenging environment as foretasted.
The Business continued to execute the structural interventions initiated in the previous year across channels and processes including restructuring the retail foot print, rationalization of stores, modifying the design language of its offerings, restructuring of terms of trade with business partners and sharpening working capital management. The Business refreshed the offers under Wills Lifestyle and John Players adopting a unique âStory-based Looks creationâ approach.
This initiative entailed re-crafting the merchandise range architecture, channel specific offerings and special focus on enhancing the portfolio of core merchandise. Distinct and time bound colour stories were introduced aimed at providing freshness to consumers in the retail stores on a continual basis.
The âWills Lifestyleâ range was augmented during the year with the launch of pure superfine linens and flat knits. The brand is available in 350 outlets across multiple channels including national and regional large format stores, exclusive and multi-brand outlets including six exclusive boutique stores across ITC Hotels.
The John Players brand is available at around 750 points-of-sale across leading national and regional department stores, exclusive stores and multi-brand outlets. During the year, the range was made more vibrant and distinct with the launch of outdoor smart casual products made of innovative fabrics. The John Players Jeans range was strengthened by using unique knitted structure fabrics in denims with differentiated washes, laser printing, travel jeans with mobile charger pockets, trendy joggers in camouflage prints, Indigo shirts in checks, prints & dobbies and youthful trendy polo range in indigo, engineered designs & stretch fabrics.
During the year, the Business enhanced its core portfolio, augmented marketing activities including windows and visual merchandising, improved manufacturing productivity and efficacy of replenishment mechanisms. Analytics based on ERP and point-of-sale systems enabled enhancing consumer experience besides further strengthening inventory and receivables management.
The Business will continue to sharpen its design focus, market representation and supply chain responsiveness with a view to improving operating efficiency going forward.
Incense Sticks (Agarbattis) and Safety Matches
The Agarbatti category witnessed increase in competitive intensity during the year with industry players resorting to aggressive media and promotion spends in a bid to garner market share. The continued presence of counterfeit products and supply chain disruptions due to transition to GST also weighed on industry performance. Against the backdrop of these challenging conditions, Mangaldeep sustained its position as the leader in the Dhoop segment and the second largest brand in the Agarbatti segment. During the year, the Business augmented its product portfolio with the launch of new variants and enhanced its distribution reach. Investments in media coupled with on-ground activation activities were made during the year towards enhancing Mangaldeepâs salience as the most preferred brand in the devotional space. Product mix enrichment and cost optimization initiatives continued to be the other key focus areas for the Business.
During the year, the Business upgraded its unique and highly innovative Mangaldeep App in partnership with
several subject matter experts with the introduction of new features which were carefully curated to cater to regional nuances. Currently available in nine languages on both the Android & iOS platforms, the Appâs content caters to the everyday devotional needs of consumers by providing detailed information and steps to perform various pujas and has innovative features such as a collection of popular devotional songs, a panchang (Hindu calendar and almanac), an innovative chant counter and temple locator amongst others. The App has received excellent response with over 3,00,000 downloads and an average rating of 4.6 out of 5.0.
The Agarbatti industry continues to import raw battis primarily from Vietnam and China, although bamboo and charcoal - the principal raw materials - are available in India in plenty. This is resulting in loss of livelihood creation opportunities for women and tribals in rural areas, particularly in the North East. In this regard, the recently announced restructured National Bamboo Mission which seeks to bring more than 1,00,000 hectares under plantation and amendment in the Indian Forests Act excluding bamboo grown in non-forest areas from the definition of a âtreeâ, will inter alia encourage manufacture of raw battis from indigenous bamboo and facilitate creation of sustainable livelihood opportunities amongst small and marginal farmers.
In line with your Companyâs commitment to enhancing the competitiveness of Indian value chains linked to its operations, the Business has implemented several measures including facilitating the mechanization of agarbatti manufacturing and backward integration into raw batti manufacturing using indigenous inputs at vendor locations.
While demand conditions remained sluggish during the year in the Safety Matches category, the Business sustained its leadership position by leveraging a robust portfolio of offerings across market segments.
The Business focused on enriching its product mix by enhancing the share of value-added products in the portfolio. âAIMâ continues to be the largest selling brand in the industry.
Introduction of GST has led to the harmonization of tax rates in the Safety Matches industry by eliminating the tax differential that existed under the erstwhile indirect tax regime between semi-mechanised and mechanized operations. This, coupled with the effective implementation of the recently introduced E-way bill, is expected to facilitate levelling the playing field and in triggering the required investments towards modernizing and enhancing the long-term sustainability and competitiveness of the industry.
Trade Marketing & Distribution
Your Companyâs Trade Marketing & Distribution (TM&D) vertical has over the years developed critical insights into customer behavior and channel-specific trends in the FMCG industry. Given the diverse needs of your Companyâs FMCG businesses, the TM&D vertical has crafted a differentiated and comprehensive market/outlet specific strategy to address the opportunities in the FMCG industry.
During the year, the TM&D vertical strengthened its formidable distribution network covering over one lakh markets and over six million retail outlets (directly and indirectly) across various trade channels. This further enhanced the reach and availability of your Companyâs large and diverse FMCG product portfolio comprising several world-class brands and hundreds of SKUs.
In urban markets, your Company continued its customized servicing / engagement programmes for the top outlets through dedicated infrastructure.
This resulted in enhancing trade relationships and improving the market standing of your Companyâs FMCG products. In rural markets, your Company continued to roll out market specific interventions including augmentation of supervision structure and increase in direct coverage, to achieve growth rates higher than industry and support enhanced scale of operations going forward.
During the year, your Company sustained its leadership position in the convenience channel while consolidating its market standing in premium grocery outlets. TM&Dâs trade loyalty programmes - âFirst Clubâ for retail outlets and âShubh Laabhâ for the wholesale channel - continued to gain traction during the year. Sales of your Companyâs FMCG products in the Modern Trade channel continued to grow on the strength of extensive deployment of in-store merchandisers, consumer connect programmes coupled with joint business planning during large-scale customer activation drives, channel specific SKUs, extensive sampling initiatives etc. Your Company continued to make progress during the year in scaling up presence of your Companyâs FMCG portfolio in the chemist channel. Your Company worked closely with leading e-commerce companies towards enhancing the availability of its products on their online platforms, aiding sell-out through enhanced visibility and strengthening operational capabilities to service customer requirements. As a result of these initiatives, your Companyâs business in the e-commerce segment witnessed robust growth during the year.
The scale and diversity of your Companyâs distribution network continues to be a critical lever to enhance market presence, gain valuable consumer/trade insights and facilitate seamless execution of new product/category launches. During the year, TM&D executed more than 60 new launches across geographies apart from extending distribution reach of several existing products in the portfolio. Technology enablement in the form of customized mobility solutions, data analytics comprising insightful visualization tools & predictive analysis are being leveraged increasingly towards enabling quick and accurate data capture, informed decision making and scientifically designing trade promotion schemes.
TM&Dâs supply chain and logistics function continues to play a vital role in enabling superior market servicing while continuously reducing cost of market servicing. During the year, several initiatives were undertaken to enhance supply chain responsiveness and cost competitiveness. These include reducing distance to market, enhancing flexibility to cater to new launches and contingencies, and reconfiguring market servicing infrastructure. In addition, innovative distribution models were implemented to optimize inventory holding and improve distribution efficiency of trade channel partners, and reduce transit time by increasing direct market servicing. Your Company is also in the process of setting up several state-of-the-art warehouses co-located with the Integrated Consumer Goods Manufacturing facilities. These modern warehouses are expected to provide long-term benefits by improving operating efficiency and enhancing product freshness in the market.
During the year, the TM&D vertical proactively engaged with its trade partners to help them re-engineer their business processes to be compliant with GST requirements besides continuing to collaborate with them to improve the frequency of servicing, reduce inventory holding and the incidence of out-of-stock situations.
TM&D continues to invest in augmenting the depth and width of your Companyâs distribution network while adopting a differentiated approach to address the unique needs of your Companyâs diverse FMCG product portfolio, market segments and trade channels.
With its best-in-class systems and processes, agile and responsive supply chain and synergistic relationship with trade, TM&Dâs distribution highway is a source of sustainable competitive advantage for your Companyâs FMCG Businesses and is well poised to support the rapid scale up of operations in the ensuing years.
HOTELS
The operating environment in the hospitality sector showed signs of improvement with foreign tourist arrivals crossing the ten million mark in 2017. While growth in Segment Revenue during the year was subdued at 5.6% reflecting inter alia the overhang of excess room inventory and the impact of highway liquor ban, performance during the second half was significantly better driven by increase in ARR and robust growth in Food & Beverage revenue. Improvement in room rates and operating leverage aided faster growth of 26% in Segment Results, notwithstanding the gestation costs of ITC Grand Bharat and the recently commissioned Welcome Hotel Coimbatore.
Your Companyâs Hotels business remains amongst the fastest growing hospitality chains in the country with over 104 properties under four distinct brands - âITC Hotelâ in the Luxury segment, âWelcomHotelâ in the Upper-Upscale segment, âFortuneâ in the Mid-market to Upscale segment and âWelcomHeritageâ in the Leisure & Heritage segment. The Business continues to focus on strengthening the equity and differentiation of the ITC Hotels brand anchored on unique and path-breaking âResponsible Luxuryâ initiatives, culinary excellence and personalisation of guest services through hotels that are the truest representation of the regionâs culture and ethos.
âClub ITCâ, your Companyâs pan-ITC consumer loyalty programme, continues to gain franchise amongst the premium clientele of ITC hotels and Wills Lifestyle. The programme continues to leverage its strategic partnership with Starwood Preferred Guest (SPG) - the global loyalty programme of Marriott International. The dining loyalty programme, âClub ITC Culinaireâ, has grown rapidly in popularity registering robust growth in membership base during the year.
During the year, the Business further strengthened its digital presence through targeted e-commerce activations for direct conversions, leading to increased reach and engagement with customers in both domestic and international markets. The Business also focused on social media marketing and online reputation management towards enhancing brand salience and market standing. During the year, the Business rolled out a chain-wide #soulofcity campaign, amplifying its brand proposition of âHotels that define the destinationâ, generating appx. 4.4 million impressions. The Business received global accolades and recognition at The Global Social Hotel Awards for âBest Use Of A Visual Networkâ and â2nd Best Online Reputation Managementâ for 2017.
The world-class ambience of your Companyâs luxury hotels continues to be leveraged for the gourmet luxury chocolates range under the âFabelleâ brand with exclusive boutiques across eight ITC hotels. In addition to selling premium packaged chocolates from the Branded Packaged Foods Business, the Fabelle chocolate boutiques offer a range of exquisitely crafted desserts and cocoa beverages, created live by Fabelle Master Chocolatiers. The initiative has received encouraging response and will go a long way in establishing the Fabelle brand at the luxury end of the market.
The Fabelle Societe de Chocolat, an exclusive
chocolate-making programme designed by the master chocolatiers of Fabelle chocolates at ITC luxury hotels, provides chocolate lovers and budding chocolatiers an opportunity to foster the love for chocolate and appreciate the fine nuances of chocolate making.
The initiative has received excellent response from discerning chocolate consumers and is planned to be scaled up in the ensuing year.
âSunbeanâ gourmet coffee, launched last year, established itself as the beverage of choice in your Companyâs luxury hotels. The bespoke brand experience was brought alive for the guests through âSunbean Ambassadorsâ - specially trained master baristas who demonstrated the brand story, supported by delightful creations.
Your Companyâs Hotels Business sustained its pre-eminent position in the hospitality industry receiving several coveted accolades and recognitions during the year. ITC Hotels featured as the âSectoral Leaderâ, for the fourth time in the Business World âMost Respected Companiesâ listing. The Travel Leisure magazine acknowledged the chain as the âBest Luxury Hotel Chainâ at the âIndiaâs Best Awardsâ. The U.S. Green Building Council presented ITC Hotels with a âLeadership Awardâ for its commitment to Green Building Design. The Responsible Luxury Fellowship enumerating ITC Hotelsâ guiding principles through video blogs won the brand the âBest Digital Videoâ award by HOTELS magazine USA. Your Companyâs world-class properties continued to receive international and domestic accolades - ITC Grand Bharat was ranked amongst the Top 10 resorts in Asia by Conde Nast Traveler USA and the âBest Luxury Hotelâ by Travel Leisure India & South Asia, while ITC Maurya was adjudged the âMost Eco Friendly Hotelâ by the Ministry of Tourism at the National Tourism Awards.
| In view of the long-term potential of the I remains committed to enhancing th
The Food & Beverage segment continues to be a major strength of your Companyâs Hotels Business with some of the most iconic brands in the country. Your Companyâs culinary brands retained their leadership position with âBukharaâ, âDum Pukhtâ, âRoyal Vegaâ, âDakshinâ, âAvartanaâ, âK&Kâ, âOttimoâ, âEDOâ, âPan Asianâ and âWest Viewâ receiving the coveted Times Food Awards. âAvartanaâ, a Southern Indian mosaic brand at the ITC Grand Chola was recognized as the âBest Restaurantâ in Chennai at the Times Food Awards, within the first year of its opening. âFabelleâ swept the Times Food Awards as the âBest Confectionery Destination in the Fine Dining categoryâ in Mumbai, New Delhi, Bengaluru and Chennai & the âBest Chocolatierâ in Kolkata.
Your Companyâs internationally acclaimed spa brand, âKaya Kalpâ was recognized at the GEOSPA Asia Spa India Awards with the âMost Luxurious Spa Resortâ award for ITC Grand Bharat and âBest Hotel Spaâ award for ITC Grand Chola.
Your Companyâs Hotels Business continuously strives to reduce water and energy consumption and enhance the usage of renewable energy to meet its overall energy requirements. Such commitment to the Triple Bottom Line is manifest in the Businessâs âResponsible Luxuryâ ethos making it a trailblazer in green hoteliering globally. Over 60% of the total electrical energy consumption of the Business is currently met through renewable sources.
In view of the long-term potential of the Indian hospitality sector, your Company remains committed to enhancing the scale of the Business by adopting an âasset-rightâ strategy that envisages building world-class tourism assets for the nation and growing the footprint of managed properties by leveraging its hotel management expertise. The Business made steady progress during the year in the construction of luxury hotels at Hyderabad, Kolkata and Ahmadabad. Construction of ITC Kohenur in Hyderabad is nearing completion and is expected to be commissioned in the first quarter of 2018-19.
In addition, your Companyâs wholly-owned subsidiary in Sri Lanka made steady progress towards setting up a luxury hotel christened âITC Oneâ and a super-premium residential apartment complex, âSapphire Residences - Colombo 1â, situated at a strategic location in Colombo.
In the Upper-Upscale segment, the âWelcomHotelâ brand continues to build on its âasset-rightâ strategy with its distinctive âcharmingly localâ positioning. During the year, the Business commissioned the 103-room WelcomHotel Coimbatore and expanded presence in business and leisure destinations adding managed properties in Chennai, Bengaluru, Pahalgam and Mussoorie. The Business seeks to scale up the brand going forward with the addition of new hotels under construction at Amritsar, Guntur and Bhubaneswar along with a robust pipeline of managed properties.
The âFortuneâ brand sustained its pre-eminent position in the Mid-market to Upscale segment, with a sharpened brand positioning of âFirst class, full service hotels - an affordable alternativeâ. The Fortune brand presently comprises 45 hotels across 37 cities. The âWelcomHeritageâ brand remains the countryâs most successful and largest chain of heritage hotels with 34 operational hotels.
As reported earlier, your Company was declared the successful bidder for a 250-room luxury beach resort located in South Goa operating under the name Park Hyatt Goa Resort and Spa, following an auction held by IFCI Limited in February 2015 in terms of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Subsequent to your Company making full payment of the bid amount, IFCI issued the requisite Sale Certificates in favour of your Company on 25th February, 2015.
However, based on an appeal by the erstwhile owners, the sale had been struck down by the Honourable Bombay High Court. Your Company and IFCI had contested the said order before the Honourable Supreme Court. On 19th March, 2018, the Honourable Supreme Court upheld the sale of the property by IFCI Limited to your Company and directed that the hotel property be handed over within six months. Accordingly, the property is expected to be handed over to your Company in the coming months.
Your Companyâs Hotels Business, with its world-class properties, iconic cuisine brands, globally benchmarked levels of service excellence and customer centricity, is well positioned to sustain its leadership status in the Indian Hospitality industry.
PAPERBOARDS, PAPER AND PACKAGING
The domestic Paperboards, Paper and Packaging industry remained impacted by sluggish demand conditions prevailing in the FMCG, liquor and legal Cigarette industry. The transition to GST also caused short-term disruptions especially during the first half of the year. This, coupled with zero duty imports under ASEAN Free Trade Agreement, cheap imports from China and unabsorbed capacity in the industry weighed on the performance of the Business. On the positive side, relatively benign input costs, higher substitution of imported pulp with in-house pulp and continued focus on product mix enrichment resulted in margin expansion. Consequently, while Segment Revenue de-grew by 2.1%, Segment Results grew at a faster pace of 7.9% during the year.
Paperboards & Specialty Papers
Global demand for Paper & Paperboard in 2017 grew by 1% appx. to 410 million tonnes, with the paperboard segment growing by 2%. Going forward, global demand
for Paper & Paperboard is projected to grow at 0.5% to 1.0% CAGR driven by Asia, Africa and North America. The Writing & Printing and Newsprint segments, on the other hand, are expected to remain under pressure largely due to increasing adoption of digital media and proliferation of smart phone usage.
Domestic demand for Paperboard remained subdued due to sluggish off take by end-user industries besides being temporarily impacted in the first half of the year due to the transition to GST. Writing & Printing paper demand remained firm due to steady off take from the education segment, while prices witnessed an uptrend largely on account of supply disruptions due to operational discontinuities at certain mills.
Over the next five years, the domestic industry is projected to grow at 6% to 7% CAGR to reach 20 million tonnes by 2022 with the Paperboard (48% of the market) and Writing & Printing paper (30% of the market) segments estimated to grow at around 7.5% CAGR and 6.0% CAGR respectively. Within Paperboards, demand for Value-Added Paperboards (VAP) in India is projected to grow at a healthy rate of around 10.5% CAGR driven by growth in demand from the FMCG, Pharma, Publishing, and Food & Beverage industries. In the Writing & Printing paper segment, cut-size paper is projected to register the fastest growth at 9.5% CAGR, driven by the education and office stationery segments.
During the year, import of paper and paperboard from China, ASEAN and South Korea grew by 57% while overall paper imports increased by 38%. As highlighted in previous yearsâ reports, imports from ASEAN countries have been growing at a rapid pace since the implementation of zero duty on such imports with effect from 1st January, 2014, under various trade agreements. The trade agreement with South Korea also allows import at zero duty from January 2017. Disruption in domestic supplies during the year due to operational discontinuities at certain mills owned by competitors provided further impetus to imports.
The current import policy and extant regulations governing commercial and social forestry in the country have put the Indian Paper and Paperboard industry at a disadvantage vis-a-vis imports. The economic viability of domestic manufacturers has been severely impacted leading to the closure of several paper mills in the recent past. There is clearly a need to review the current import duty structure and re-examine the existing Free Trade Agreements (FTAs) and the new ones under formulation towards providing a level playing field to the domestic industry and encourage commercial farming of wood in India. Legislative changes along with appropriate environmental safeguards need to be implemented to enable private sector participation in commercial forestry on drylands and wastelands.
Your Company remains the clear leader in the VAP segment and continues to consolidate its preferred supplier status amongst leading end-use customers and brands. Further, your Companyâs expansion project in the VAP segment at Bhadrachalam unit is nearing completion. The Specialty Papers portfolio was also expanded with the launch of new grades to service the needs of customers. The Business sustained its leadership position in the sale of eco-labelled products, volumes of which grew by appx. 12% during the year. Your Company has been recognized for its environmental transparency and improvement across parameters such as responsible fibre sourcing, clean manufacturing etc. in the WWF Environmental Paper Company Index 2017, which is considered to be the benchmark in the area of responsible pulp and paper manufacturing.
The Business continues to be a leading quality player in the Writing & Printing paper segment, leveraging strong forward linkages with your Companyâs Education and Stationery Products Business. In the Specialty Papers segment, your Company sustained its leadership position in the pharma leaflets and thin printing segments. In order to meet the growing demand of quality decor papers, the decor machine at the Tribeni unit has been completely refurbished incorporating latest technology features including superior profile control and smoothness for high print resolution along with capacity expansion. The Business has recently launched an exciting range of decor papers, becoming a one-stop solution for all decor paper needs.
Your Company continues to source its wood requirements from sustainable sources. Your Companyâs research on clonal development has resulted in the introduction of high yielding and disease resistant clones that are adaptable to a wide variety of agro-climatic conditions. In this context, your Companyâs Life Sciences & Technology Centre is engaged in developing higher yielding second generation clones with enhanced pest & disease resistance attributes.
The Ministry of Road Transport and Highways, Government of India has promulgated the Green Highways (Plantation, Transplantation, Beautification and Maintenance) Policy, 2015, to develop green corridors along national highways through plantation and allied activity on medians, avenues and other available nearby land patches. During the year, your Company worked closely as the knowledge and technical partner of National Green Highways Mission under National Highway Authority of India (NHAI) to develop new models of plantations to expand this commendable initiative which would go a long way in enhancing the green cover of the nation and generate employment opportunities for rural communities.
Your Company has the distinction of being the first in India to have obtained the Forest Stewardship
Council-Forest Management (FSC-FM) certification, which confirms compliance with the highest international benchmarks of plantation management across the dimensions of environmental responsibility, social benefit and economic viability. Till date, your Company has received FSC-FM certification for 33,500 hectares of plantations involving over 30,000 farmers. During the year, nearly 60,000 tonnes of FSC-certified wood were procured from these certified plantations. All four manufacturing units of the Business have obtained the FSC Chain of Custody certification and have complied with all requirements during the year, thereby sustaining your Companyâs position as the leading supplier of FSC-certified paper and paperboard in India.
All manufacturing units of the Business continue to recycle nearly 100% of the solid waste generated during operations by converting the same into lime, fly ash bricks, grey boards, egg trays etc. In addition, the Business procured and recycled 1,31,000 tonnes of waste paper during the year, thereby sustaining your Companyâs overall positive solid waste recycling footprint.
The manufacturing facilities at Bhadrachalam and Kovai continue to receive industry recognition for their green credentials and safety standards in line with your Companyâs focus on sustainable business practices. The Bhadrachalam unit won the prestigious award for being the best performer in the âPulp & Paper Sectorâ under PAT Cycle 1 of the Perform Achieve and Trade (PAT) Scheme, a component of the National Mission for Enhanced Energy Efficiency (NMEEE). Organized by the Bureau of Energy Efficiency (BEE), the award was presented by the Director General of BEE for the outstanding efforts made by the unit under PAT Cycle 1. The plant has been identified as the highest achiever in energy savings above the stipulated target as set by BEE in the Pulp & Paper sector. The Kovai unit received
the National Award for Excellence in Energy Management 2017 from CII GBC (Green Business Centre) and the 1st prize in State level safety from Director of Industrial Safety, Government of Tamil Nadu. The Bollaram unit received 4 Star rating in EHS Excellence by CII Southern region.
The Business had commissioned a 46 MW wind energy project in Andhra Pradesh in July 2014, which has been generating wind power since then. As reported in previous years, permission for inter-state wheeling of power was not granted by the authorities post bifurcation of the State of Andhra Pradesh. After several representations and discussions with the concerned authorities on the matter, your Company received permission last year for wheeling of power from Andhra Pradesh to Telangana, thereby enabling the Bhadrachalam mill to utilise wind energy to meet its energy requirements. During the year, inter-state wheeling was extended to the Bollaram unit in Telangana and also your Companyâs units in Karnataka. Usage of wind energy has led to a reduction of carbon foot print by lowering consumption of coal by 33000 tonnes during the year. While considerable progress has been made in streamlining the deviation settlement process for multiple inter-state transactions, the regulatory framework for levy of charges and banking of power is still evolving. Consequently, your Company continues to bear charges/levies at multiple points which have adversely impacted the expected returns on this large investment. Your Company continues to engage with State and Central regulatory authorities towards seeking relief from such additional levies/charges and remains hopeful of a favorable resolution of the matter.
In line with the objective of enhancing the share of renewable energy in its operations, the Business has implemented several initiatives including investments in a green boiler, soda recovery boilers, high pressure & efficiency circulating fluidised bed boiler, solar & wind energy and increased usage of bio-fuel. With these initiatives, renewable sources presently account for nearly 45% of total energy consumed at the Bhadrachalam, Bollaram, Tribeni and Kovai units.
The Business continues to make structural interventions in the areas of strategic cost management and import substitution. These include augmentation of in-house pulp manufacturing capacity, efficiency improvements of existing equipment and developing alternative sources of supply for key inputs on an ongoing basis. Operations of the Bleached Chemical Thermo Mechanical Pulp mill (BCTMP) at the Bhadrachalam unit stabilized during the year with progressive improvement in capacity utilization leading to reduced dependence on imported pulp and cost savings. During the year, technology interventions made in the pulp mill resulted in higher pulp production, improvement in pulp quality and reduction in chemical consumption.
Your Company has been practicing principles of TPM, Lean and Six Sigma for almost a decade now and has reaped substantial benefits through its Business Excellence initiative. During the year, the Business embarked on an âIndustry 4.0â journey, focusing on areas such as Internet of Things (IoT), Advanced Analytics and Artificial Intelligence. Interventions planned in this area have significant potential to enhance product quality and deliver structural cost savings going forward.
The integrated nature of the business model comprising access to high-quality fibre from the economic vicinity of the Bhadrachalam mill, in-house pulp mill and state-of-the-art manufacturing facilities along with clear market leadership in value-added paperboards and a robust forward linkage with the Education and Stationery Products Business strategically positions your Company to further consolidate and enhance its leadership status in the Indian Paperboard and Paper industry.
Packaging and Printing
Your Companyâs Packaging and Printing Business is a leading provider of superior value-added packaging for the consumer packaged goods industry. The Business also provides strategic support to your Companyâs FMCG Businesses by facilitating faster turnaround for new launches, design changes, ensuring security of supplies and delivering benchmarked international quality at competitive cost.
The Business caters to the packaging requirements of leading players across several industry segments viz. Food & Beverage, Personal Care, Home care, Footwear, Consumer Electronics, Pharma, Liquor and Tobacco. With its comprehensive capability-set across multiple platforms, coupled with in-house cylinder making and blown film manufacturing lines, the Business continues to provide innovative solutions to several key customers in India and overseas. With recent investments in rigid boxes and flexo corrugated packaging, the Business has consolidated its position as a âone-stop shop for packaging solutionsâ.
As in previous years, the Business won several awards for operational excellence and creative packaging solutions. The Business continues to be acknowledged as a key associate by several large FMCG companies in the country for providing superior packaging solutions. The manufacturing facilities at Tiruvottiyur, Haridwar and Munger maintained the highest standards in Quality and Environment, Health & Safety (EHS). All the three units are certified as per the Integrated Management System, consisting of ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007 and have also received Social Accountability Certification (SA 8000:2008). Both the
Tiruvottiyur and Haridwar units received the highest âGrade Aâ BRC/IOP certification (British Retail Consortium/ Institute of Packaging), for global standards in packaging and packaging materials - a key enabler for supplies to the packaged foods industry. During the year, Haridwar Unit was adjudged first runners up in National Safety Competition organized by CII IQ (Institute of Quality). The Risk Management Framework of the Business was re-certified under ISO 31000:2009 during the year. The 14 MW wind energy farm in Tamil Nadu, set up in 2008, continues to provide clean energy to the Tiruvottiyur facility, contributing towards reducing your Companyâs carbon footprint.
The Packaging and Printing Business has established itself as a one-stop shop offering a wide range of superior and innovative packaging solutions. With world-class technology across a diverse range of packaging platforms, best-in-class quality management systems and a distributed manufacturing footprint, the Business is well positioned to rapidly grow its external business while continuing to service the requirements of your Companyâs FMCG Businesses.
NOTES ON SUBSIDIARIES
The following may be read in conjunction with the Consolidated Financial Statements prepared in accordance with Indian Accounting Standard 110. Shareholders desirous of obtaining the report and accounts of your Companyâs subsidiaries may obtain the same upon request. Further, the report and accounts of the subsidiary companies will also be available under the âShareholder Valueâ section of your Companyâs website, www.itcportal.com, in a downloadable format.
During the year, no company became or ceased to be your Companyâs subsidiary, joint venture or associate company.
ITC Global Holdings Pte. Limited, Singapore (âGlobalâ), a subsidiary of your Company, is under winding up in terms of the Order of the High Court of the Republic of Singapore dated 30th November, 2007. Consequently, your Company is not in a position to consolidate the accounts of Global for the financial year ended 31st December, 2017.
The Policy for determining Material Subsidiaries, adopted by your Board, in conformity with Regulation 16, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, can be accessed on your Companyâs corporate website at http://www.itcportal.com/aboutitc/policies/
policy-on-material-subsidiaries.aspx. Presently, your Company does not have any material subsidiary.
Surya Nepal Private Limited
The fiscal year ended July 2017 witnessed normalization of economic activity with GDP growth of 6.9% (previous year 0.01%) aided by low base effect, good monsoons and improved energy output leading to higher industrial activity. However, severe floods in August 2017 have since impacted the agriculture sector and growth estimates for the fiscal year ending July 2018 remain subdued at appx. 6%. On the external front, widening trade deficit, muted growth in remittances from overseas and weak balance of payments position continue to weigh on macroeconomic stability.
During the year under review, Nepal completed its transition to a federal structure with successful completion of elections for all three levels of government i.e. local level, provincial assemblies and federal parliament. Significant reforms such as legislation of the new Labour Act and Social Security Act were implemented during the year. These measures, in conjunction with other enabling policies across all the three levels of government, are expected to enhance the ease of doing business in the country and provide a fillip to economic growth in the near term.
The legal cigarette industry contributes 84% of Governmentâs revenue from the tobacco sector and 10% of the total excise revenue collected by the Government. Further, the industry provides livelihoods, directly and indirectly, to more than four lakh farmers, farm workers and others engaged in the cultivation of tobacco and the tobacco trade. However, the legal cigarette industry in Nepal continues to be adversely impacted by a harsh regulatory regime and discriminatory tobacco taxation policy which is fueling the growth of illegal cigarettes and smokeless tobacco products. This in turn is not only adversely impacting Government revenues but also compromising the tobacco related health objectives of the Government.
During the year, the companyâs Revenue from Operations at Nepalese Rupees (NRs.) 3181 crores (previous year NRs. 2873 crores) and Profit After Tax at NRs. 857 crores (previous year NRs. 741 crores) recorded a growth of 11% and 16% respectively. The company continues to be one of the largest contributors to the exchequer, accounting for about 3% of the total revenues of the Government of Nepal.
The companyâs Cigarette business continued to consolidate its leadership position by leveraging a portfolio of world-class products anchored on innovation and benchmarked quality backed by a robust distribution network. Adoption of best-in-class manufacturing technologies and benchmarked practices ensured delivery of products of international quality. The manufacturing systems of the company continued to maintain the targeted benchmarks in the areas of quality, productivity and sustainability. During the year, the company strengthened its quality processes, protocols and hygiene standards and introduced new metrics to facilitate ongoing monitoring in these areas.
In the Branded Apparel business, âJohn Playersâ has established itself as a leading brand at the premium end of the branded menswear segment in Nepal, with a significant presence across markets through exclusive branded outlets, departmental chains and multi-brand outlets. In the Safety Matches business, the company strengthened its market leadership by leveraging its superior trade marketing & distribution reach. The company is now the largest player in both wax and wooden matches segments. In the Agarbatti business, the company scaled up operations and enhanced its market standing by offering a wide portfolio across consumer segments and improving product availability and visibility across markets.
With the objective of creating new drivers of growth, the company commenced import of confectionery products under the âToffichooâ and âmint-oâ brands on a test basis with the approval of the Department of Industry, Nepal. Launched in June 2017, the products have received encouraging consumer response. The company is in the process of setting up a manufacturing facility towards scaling up the business.
The company continues to support and invest in initiatives aimed at enhancing the social and economic capital of the nation. All the initiatives are woven around and are in alignment with the sustainable development goals of the Government of Nepal. Accordingly, the company continues to:
- assist farmers, proximate to the Simara factory, in agro forestry through (a) high quality Poplar plantation promoting âGrow Wood Grow Foodâ concept through inter cropping and (b) providing vegetable seeds and constructing vermi-compost pits to increase productivity and provide alternative sources of income generation;
- support animal husbandry extension services covering animal breeding, health and nutrition towards driving milk yield improvement and generating higher returns for underprivileged farmers;
- focus on providing community health services through various âSuswasthyaâ programmes such as periodic health camps and awareness programmes in the vicinity of the manufacturing units.
The company declared a dividend of NRs. 351.50/- per equity share of NRs. 100/- each for the year ended 15th July, 2017 (31st Ashadh, 2074) amounting to NRs. 708.62 crores.
ITC Infotech India Limited and its subsidiaries
The IT services industry continues to witness rapid transformation driven by increasing adoption of digital technologies, emergence of new models of customer value delivery, enhanced focus on experience journeys and client demands for efficiency, especially in traditional service lines through automation.
The Indian IT Services and Business Process Management (BPM) industry remained under significant pressure in 2017-18 which was marked by increasing headwinds in the form of continued rhetoric on protectionism, labour mobility issues, Brexit related uncertainty and subdued traction in the US Banking and Financial Services Industry. The challenging operating environment for the Indian IT industry is manifest in the continued deceleration in growth rates reported during the year by most of the Indian IT majors, with margins coming under increasing pressure.
Technology spending is witnessing a clear shift in favour of digital technologies, which are estimated to account
for 80% of incremental IT spends. With traditional lines of businesses and business models coming under increasing pressure, the fragmented IT Services market is gearing up to meet these challenges by strengthening alternative delivery models and accelerating investments in digital capabilities.
In this context, ITC Infotech remains focused on providing specialized services led by business and technology consulting. During the year, revenue from emergent technologies (Data & Digital) saw robust growth. The company has sharply defined its Digital strategy and is on course to consolidate and drive the Digital line of business.
During the year, the companyâs strategic collaboration with PTC Inc. was strengthened with the launch of the âDigital Solutions Innoruption Centerâ and âThingWorx® Co-Innovation Labâ. This intervention will facilitate the creation of Augmented Reality solutions across industries such as manufacturing, automotive, industrial, retail, consumer goods, healthcare and hospitality.
During the year, the companyâs consolidated Total Income was Rs, 1652.10 crores (previous year Rs, 1554.38 crores), with Profit Before Tax of Rs, 81.69 crores (previous year Rs, 62.44 crores). Net Profit stood at Rs, 40.42 crores (previous year Rs, 37.95 crores). Revenue growth was driven by new client additions and increasing traction with existing customers especially in Europe, Asia-Pacific, Africa, Middle East and India markets. However, INR appreciation vis-a-vis the US Dollar and a subdued demand environment in the USA impacted overall revenue. Consolidation of sales focus in the Asia-Pacific, India, Middle East and Africa markets enabled synergies and led to strong growth in these regions. For the year under review:
a) ITC Infotech India Limited recorded Revenue from Operations of Rs, 1002.93 crores (previous year Rs, 911.99 crores) and Net Profit of Rs, 27.68 crores (previous year Rs, 17.89 crores). For the year under review, the company paid a dividend of Rs, 6/- per Equity Share of Rs, 10/- each aggregating Rs, 51.12 crores (previous year: Nil).
b) ITC Infotech Limited, UK, (ITC Infotech UK), a wholly-owned subsidiary of the company, recorded
Revenue of GBP 42.44 million (previous year GBP 37.00 million) and Net Profit of GBP 1.27 million (previous year GBP 1.17 million).
c) ITC Infotech (USA), Inc., (ITC Infotech USA), a wholly-owned subsidiary of the company, together with its wholly-owned subsidiary Indivate Inc., recorded Revenue of US$ 88.11 million (previous year US$ 91.44 million) and Net Profit of US$ 1.97 million (previous year US$ 1.21 million). For the year under review, ITC Infotech USA paid a maiden dividend of US$ 8 per share on 1.82.000 Common Shares (without par value) aggregating US$ 1.46 million.
The companyâs superior service delivery capability continues to earn global recognition. During the year, the company was featured in the leaderâs category of â2018 Global Outsourcing 100â by the International Association of Outsourcing Professionals (IAOP) for the twelfth consecutive year. The company was also recognized by Information Service Group (ISG) in its Provider Lens: ADM Quadrant Report US 2017 and Provider Lens: Managed Digital Workplace Services Quadrant Report US 2017 as a âProduct Challengerâ in the categories of End-to-End Application Development & Maintenance, Application Support & Maintenance, Application Testing and Managed Digital Workplace Services.
During the year, the company successfully organized i-Tech 2017, the third edition of its annual technology event with âExperience Intelligenceâ as the theme, focusing on emerging technologies around Artificial Intelligence. The event generated strong interest among students, start-ups as well as professional developers to create solutions for complex business applications as part of a programming âCodeathonâ.
The outlook for the Indian IT Industry in the near term continues to remain subdued with NASSCOM projecting a growth rate between 7% and 9% for 2018-19. This is mainly attributable to global protectionist measures in major markets on the one hand and increasing complexities in rebuilding new age skill sets required to cater to the fast changing technology landscape on the other. The company remains committed to its transformation journey with a sharper focus on select industry verticals and technology areas. The company will continue to focus on building domain specific digital solutions across identified areas and driving efficiencies through automation in delivery and other internal processes.
Technico Pty Limited and its subsidiaries
The company continues to focus on up gradation and commercialization of its TECHNITUBER® seed technology and customizing its application across various geographies. Besides, the company is engaged in the marketing of TECHNITUBER® seed to global customers produced at the facilities of its subsidiaries in China and Canada and Technico Agri Sciences Limited, India, a wholly-owned subsidiary of your Company. The Canadian subsidiary of the company is also engaged in field multiplication of seeds.
For the year under review:
a. Technico Pty Limited, Australia registered a turnover of Australian Dollar (A$) 2.52 million (previous year A$ 2.46 million) and a Net Profit of A$ 1.45 million (previous year A$ 1.36 million).
b. Technico Asia Holdings Pty Limited, Australia, Technico Technologies Inc., Canada and Technico Horticultural (Kunming) Co. Limited, China - There were no significant events to report with respect to these companies.
Technico Agri Sciences Limited
The companyâs leadership in production of early generation seed potatoes and strength in agronomy continues to support the Bingo! range of potato chips of your Company and in servicing the seed potato requirements of the farmer base of your Companyâs Agri Business.
The year under review was an extremely challenging one for potato farmers and the seed potato industry. Potato production for the year stood at about 50 million tonnes representing a significant growth of 11% over the previous year. This excess production resulted in a sharp fall in potato prices compelling most farmers/producers to sell their inventory below cost, especially in November/December 2017 as the fresh potato crop reached markets. The situation was exacerbated by farmers not buying new seeds and using leftover potatoes / cheap seeds mainly due to tight liquidity conditions in the market. Consequently, the seed potato industry came under significant pressure during the year.
The companyâs Revenue from Operations for the year stood at Rs, 76.89 crores (previous year Rs, 108.35 crores) with a Net Loss of Rs, 14.07 crores (previous year Net Profit Rs, 14.52 crores). Total Comprehensive Income for the year stood at (-) Rs, 14.02 crores (previous year Rs, 14.48 crores).
During the year, the company declared a dividend of Rs, 41.12 crores (including Dividend Distribution Tax of Rs, 6.95 crores).
WelcomHotels Lanka (Private) Limited
WelcomHotels Lanka (Private) Limited (WLPL), a wholly-owned subsidiary of your Company was incorporated in Sri Lanka with the objective of developing and operating a mixed-use development project (âProjectâ) comprising a luxury hotel and a super-premium residential apartment complex situated on 5.86 acres of prime sea-facing land in Colombo.
The Project has been accorded âStrategic Development Projectâ status entitling the company to various fiscal benefits in Sri Lanka. Further, the Project is also exempt from Sri Lankan foreign exchange regulations.
During the year, the company made steady progress on construction of the project. Construction work is in full swing in both the hotel and residential towers.
The Experience Centre, showcasing the features of the super-premium residential apartments, is nearing completion. The company also appointed internationally renowned interior designers and consultants for marketing the super-premium residential apartments internationally.
Your Companyâs investment in WLPL stood at US$ 147 million as at 31st March, 2018.
Landbase India Limited
The company owns âITC Grand Bharatâ - a 104-key all-suite luxury Retreat at Gurugram, which has been licensed to your Company. The Retreat, an oasis of unhurried luxury, is co-located with the companyâs prestigious Classic Golf & Country Club, a 27-hole Jack Nicklaus Signature Golf Course.
ITC Grand Bharat has received several accolades, establishing itself amongst the top luxury resort destination hotels in the world. During the year, the Retreat was ranked # 10 amongst the âTop 50 Resorts in Asiaâ by Conde Nast Traveler, USA, and also adjudged the best Luxury Hotel at the âIndiaâs Bestâ Awards by Travel Leisure India & South Asia.
During the year, the Classic Golf & Country Club hosted various prestigious tournaments and sustained its leadership position in the corporate tournament segment. The Club enjoys strong brand equity with its members, guests and the golfing fraternity and continues to receive the patronage of professional and amateur golfers in the country.
During the year ended 31st March 2018, the company recorded Total Income of Rs, 30.54 crores (previous year Rs, 21.75 crores) and Net Profit of Rs, 9.84 crores (previous year Rs, 2.10 crores). Total Comprehensive Income for the year stood at Rs, 9.89 crores (previous year Rs, 2.10 crores).
Srinivasa Resorts Limited
The companyâs hotel âITC Kakatiyaâ in Hyderabad improved its performance during the year on the back of higher room occupancy rates and robust growth in Food and Beverages revenue. However, overall room rates remained under pressure.
The company recorded Total Income of Rs, 58.37 crores (previous year Rs, 54.43 crores) for the year ended 31st March, 2018 with Net Profit of Rs, 0.48 crore (previous year Net Loss of Rs, 1.52 crores). Total Comprehensive Income for the year stood at Rs, 0.40 crore (previous year (-) Rs, 1.50 crores).
During the year, ITC Kakatiya received the Times Food Guide awards for âDakshinâ (Best South Indian Fine
Dining) and âMarco Poloâ (Best Resto Bar).
Trip Advisor, a renowned hotel review website, rated âKebabs & Kurriesâ and âDakshinâ as the best restaurants in Hyderabad, ranking them No.1 and No.3 respectively.
The companyâs 101-key full service hotel in Amritsar, located on a land parcel assigned to the company by ITC Limited, is under development. Civil works are nearing completion and interior work is underway.
Fortune Park Hotels Limited
The company, which caters to the âMid-market to Upscaleâ segment through a chain of Fortune hotels, continues to forge new alliances and expand its footprint. Currently, the company has an aggregate inventory of nearly 4,200 rooms spread over 54 properties of which 45 are operating hotels. Of the balance nine properties, five are slated to be commissioned in the ensuing year while four are in various stages of development. Three hotels were migrated to the WelcomHotel brand during the year.
The company has established âFortuneâ as the premier âvalueâ brand in the Indian hospitality sector. The brand remains a frontrunner in its operating segment and is well positioned to sustain its leadership position in the industry.
During the year, the company bagged the âTodayâs Traveller Award 2017â as well as the âHospitality India & Explore The World Annual International Travel Award 2017â in the âBest First Class Business Hotel Chainâ category. It was also awarded the âVersatile Excellence Travel Award (VETA) 2018â in the âBest Business Hotel Chainâ category by Travelscapes.
During the year ended 31st March, 2018, the company recorded Total Income of Rs, 27.59 crores (previous year Rs, 29.53 crores) and Net Profit of Rs, 1.93 crores (previous year Rs, 2.44 crores). Total Comprehensive Income for the year stood at Rs, 2.05 crores (previous year Rs, 2.39 crores).
The Board of Directors of the company has recommended a dividend of Rs, 12.50 per Equity Share of Rs, 10/- each for the year ended 31st March, 2018.
Bay Islands Hotels Limited
Fortune Resort Bay Island, the companyâs hotel in Port Blair, with its strategic location, excellent architectural design and superior service quality, continues to offer a unique gateway to the Andamans. A comprehensive renovation and expansion programme towards enhancing the market standing of the hotel is currently underway with the first phase (24 rooms) expected to be commissioned shortly.
During the year ended 31st March, 2018, the company recorded Total Income of Rs, 1.33 crores (previous year Rs, 1.98 crores) and Net Profit of Rs, 0.97 crore (previous year Rs, 0.76 crore). Total Comprehensive Income for the year stood at Rs, 0.97 crore (previous year Rs, 0.76 crore).
The Board of Directors of the company has recommended a dividend of Rs, 70/- per Equity Share of Rs, 100/- each for the year ended 31st March, 2018.
Wimco Limited
The companyâs business activities comprise fabrication and assembly of machinery for tube filling, cartoning, wrapping, material handling and conveyor solutions for the FMCG and Pharmaceutical industries.
The companyâs order book was impacted during the year due to sluggish demand conditions prevailing in the FMCG and Pharmaceutical industries. Consequently, the companyâs Revenue from Operations for the year declined to Rs, 8.77 crores (previous year Rs, 16.15 crores) with a Net Loss of Rs, 3.03 crores (previous year Rs, 0.07 crore). Total Comprehensive Income for the year stood at (-) Rs, 3.01 crores (previous year (-) Rs, 0.09 crore).
The company is focusing on strengthening its business model, widening its customer base and developing superior solutions towards addressing customer requirements.
North East Nutrients Private Limited
Your Company holds 76% equity stake in North East Nutrients Private Limited (NENPL), a company formed with the objective of setting up a food processing facility in Mangaldoi, Assam to cater to the fast-growing biscuits market in Assam and other north-eastern States.
In August 2015, the company commissioned a state-of-the-art facility comprising three biscuit manufacturing lines in Mangaldoi, Assam.
During the year, the company implemented several initiatives which resulted in improvement in operational efficiency, processing yield and productivity.
The company was awarded the âTrophy for Outstanding performance in Food Safety Excellenceâ by the Confederation of Indian Industry.
Revenue from Operations for the year stood at Rs, 150.30 crores (previous year Rs, 138.05 crores). The company recorded a Net Profit of Rs, 3.15 crores (previous year Net Loss Rs, 1.81 crores) while Total Comprehensive Income for the year stood at Rs, 3.30 crores (previous year (-) Rs, 1.83 crores).
Russell Credit Limited
During the year, the company registered Total Revenue of Rs, 82.48 crores (previous year Rs, 59.67 crores) and Net Profit of Rs, 63.82 crores (previous year Rs, 34.22 crores). Total Revenue and Net Profit during the year includes Rs, 33.78 crores and Rs, 18.28 crores respectively attributable to the sale of Non-Convertible Preference Shares of ICICI Bank. Temporary surplus liquidity of the company is mainly deployed in bonds, debt mutual funds and bank fixed deposits. The company continues to explore opportunities to make strategic investments for the ITC Group.
Gold Flake Corporation Limited
During the year, the company registered Total Income of Rs, 3.44 crores (previous year Rs, 3.46 crores) and Net Profit of Rs, 2.37 crores (previous year Rs, 2.55 crores). The company holds 50% equity stake in ITC Essentra Limited - a joint venture with Essentra Group, UK.
Greenacre Holdings Limited
During the year, the company recorded Total Income of Rs, 5.45 crores (previous year Rs, 6.34 crores) and Net Profit of Rs, 1.87 crores (previous year Rs, 2.25 crores). The company continues to provide maintenance services for commercial office buildings.
ITC Investments & Holdings Limited
The company, a Core Investment Company within the meaning of the Core Investment Companies (Reserve Bank) Directions, 2011, recorded Total Revenue of Rs, 0.06 crore during the year (previous year Rs, 0.07 crore) and Net Profit of Rs, 0.03 crore (previous year Rs, 0.05 crore).
MRR Trading & Investment Company Limited
The company, a wholly-owned subsidiary of ITC Investments & Holdings Limited, holds tenancy rights in a commercial building located in Mumbai and also provides estate maintenance services. During the year, the company recorded Total Income of Rs, 0.07 crore (previous year Rs, 0.07 crore).
Pavan Poplar Limited
The operations of the company continue to be adversely impacted pursuant to the Order of the Honourable High Court of Uttarakhand at Nainital in February 2014 dismissing the writ petition filed by the company against the Order of the District Magistrate authorising the State authorities to take possession of the land leased to the company. The appeal filed by the company against the aforestated Order was admitted in April 2014 and the matter is pending before the Honourable High Court.
During the year, the company recorded Total Revenue of Rs, 0.16 crore (previous year Rs, 0.20 crore) and Net Loss of Rs, 0.29 crore (previous year Rs, 0.32 crore).
Prag Agro Farm Limited
The operations of the company continue to be adversely impacted pursuant to the Order of the Honourable High Court of Uttarakhand at Nainital in February 2014 dismissing the writ petition filed by the company against the Order of the District Magistrate authorising the State authorities to take possession of the land leased to the company. The appeal filed by the company against the aforestated Order was admitted in April 2014 and the matter is pending before the Honourable High Court.
During the year, the company recorded Total Revenue of Rs, 0.07 crore (previous year Rs, 0.05 crore) and Net Loss of Rs, 0.004 crore (previous year Rs, 0.06 crore).
ITC Global Holdings Pte. Limited
ITC Global Holdings Pte. Ltd (under Judicial Management, hereinafter âGlobalâ) has withdrawn its suit filed in 2002 claiming US$ 18.10 million from the Company.
After protracted litigation of over 15 years, the Company was approached by the Liquidator of Global with an offer to settle the said suit upon payment of US$ 2 million.
Subsequently, the Liquidator agreed to receive a sum of US$ 200,000, discontinue the suit, unconditionally withdraw all claims and take all steps to complete dissolution of Global expeditiously. Your Company, without admission of any liability, remitted the sum of US$ 200,000 to Global after receiving RBIâs approval for the same.
NOTES ON JOINT VENTURES ITC Essentra Limited
The relentless pressure on volumes of the legal cigarette industry on account of the steep increase in taxes and intense regulatory burden continues to adversely impact the demand for cigarette filters. Despite such adverse business conditions, the company retained its leadership position of being the preferred supply chain partner for several well-known national and international brands leveraging its core strengths - strong customer relationships, access to world-class innovation, superior execution, consistent delivery and best-in-class quality.
During the year ended 31st March, 2018, on a comparable basis, the companyâs Gross Sales Value (net of rebates/discounts) stood at Rs, 272.16 crores (previous year Rs, 277.79 crores). Net Profit during the year stood at Rs, 16.45 crores (previous year Rs, 9.94 crores).
During the year, in line with its philosophy of developing internal capabilities on an ongoing basis, the company established capability for manufacturing capsule filters to cater to the anticipated growth in this segment. Investments continue to be made in technology induction and capability building towards sustaining the companyâs position as the innovation and quality benchmark in the
Indian cigarette filter industry. The company continues to focus on scaling up exports by leveraging a portfolio of high quality products. The Board of Directors of the company has recommended a dividend of Rs, 12.00 per Ordinary Share of ''10/- each for the year ended 31st March, 2018.
Maharaja Heritage Resorts Limited
Maharaja Heritage Resorts Limited, a joint venture of your Company with Jodhana Heritage Resorts Private Limited, currently operates 34 heritage properties across 13 States in India. The company, with its WelcomHeritage brand portfolio comprising âLegend Hotelsâ,
âHeritage Hotelsâ and âNature Resortsâ, provides uniquely differentiated offerings to guests in the cultural, heritage and adventure tourism segments respectively.
During the year ended 31st March, 2018, the company recorded Total Income of Rs, 4.06 crores (previous year Rs, 3.49 crores) and Net Loss of Rs, 0.33 crore (previous year Net Loss Rs, 0.77 crore). Total Comprehensive Income for the year was a Loss of Rs, 0.33 crore (previous year Loss at Total Comprehensive Income level was Rs, 0.78 crore).
The âWelcomHeritage Hotelsâ brand was awarded the âBest Heritage Hotel Chainâ by Todayâs Traveller Awards 2017.
Espirit Hotels Private Limited
Espirit Hotels Private Limited (EHPL) is a joint venture between your Company and the Ambience Group, Hyderabad for developing a luxury hotel complex at Begumpet, Hyderabad. Under the terms of the Joint Venture Agreement, your Company acquired 26% equity stake in EHPL and will, inter alia, provide hotel operating services, upon commissioning of the hotel.
As reported in the previous year, the Ambience Group has expressed its desire to review the timing of further investments in EHPL, citing concerns about the viability of the project in view of the challenging economic environment and the sluggish demand conditions currently prevailing in Hyderabad.
Your Company continues to explore its options in this regard.
Your Companyâs investment in EHPL stood at Rs, 46.51 crores as at 31st March, 2018.
Logix Developers Private Limited
Logix Developers Private Limited (LDPL) is a joint venture between your Company and Logix Estates Private Limited for developing a luxury hotel-cum-service apartment complex at the companyâs site located at Sector 105 in NOIDA. Under the terms of the Joint Venture Agreement, your Company acquired 26% equity stake in LDPL and will, inter alia, provide hotel operating services, upon commissioning of the hotel by LDPL.
As reported in the previous year, your Company reiterated its position with the JV partner that it was committed to developing a luxury hotel-cum-service apartment complex as envisaged under the JV Agreement and that it was not interested in progressing with any alternative project plans proposed by the JV partner. However, the JV partner refused to progress the project and instead expressed its intent to exit from the JV by selling its stake to your Company.
Subsequently, the JV partner proposed that both parties should find a third party to sell the entire shareholding in LDPL. In view of these developments, your Company had filed a petition before the Company Law Board (CLB) submitting that the affairs of the JV entity were being conducted in a manner that was prejudicial to the interest of your Company and the JV entity. The matter is currently before the National Company Law Tribunal (NCLT) which replaced the erstwhile CLB. The JV partner had also filed a petition before the Honourable Delhi High Court for winding up the JV company, which was transferred to the NCLT during the year by the Honourable Delhi High Court. The matters were heard before the NCLT on several occasions during the year and hearing for final arguments for both the matters have been scheduled on 23rd May, 2018.
During the year ended 31st March, 2018, the company recorded a Net Loss of Rs, 24.87 crores (previous year Rs, 22.75 crores). The Net Worth of the company stood at (-) Rs, 1.89 crores as at 31st March, 2018 (previous year Rs, 22.98 crores). Your Companyâs total investment in LDPL was Rs, 41.95 crores and it currently owns 27.90% of the equity capital of the company. During the year, in view of the aforestated developments, your Company made a provision of Rs, 23.45 crores towards diminution in the carrying value of investment in LDPL.
The financial statements of LDPL for the year ended 31st March, 2018 are yet to be approved by its Board of Directors. In the absence of audited financial statements of LDPL, the Consolidated Financial Statements of your Company for the year ended 31st March, 2018 have been prepared based on financial statements prepared by the management of LDPL.
NOTES ON ASSOCIATES International Travel House Limited
The company offers a full range of travel services including air ticketing, car rentals, inbound and outbound tourism, domestic holidays, conferences, events and exhibition management and foreign exchange services to travellers.
During the year ended 31st March, 2018, the company recorded Total Income of Rs, 207.69 crores (previous year Rs, 205.74 crores) and Net Profit of Rs, 6.95 crores (previous year Rs, 11.17 crores). Total Comprehensive Income for the year stood at Rs, 6.02 crores (previous year Rs, 10.46 crores).
The Board of Directors of the company has recommended a dividend of Rs, 4.25 per Equity Share of Rs, 10/- each for the year ended 31st March, 2018.
Gujarat Hotels Limited
The companyâs hotel, âWelcomHotel Vadodaraâ, at Vadodara is operated by your Company under an Operating License Agreement.
During the financial year ended 31st March, 2018, the company recorded Total Income of Rs, 5.02 crores (previous year Rs, 5.12 crores), Net Profit and Total Comprehensive Income of Rs, 3.37 crores (previous year Rs, 3.86 crores).
The Board of Directors of the company has recommended a dividend of Rs, 3.50 per Equity Share of Rs, 10/- each for the year ended 31st March, 2018.
ATC Limited (an associate of Gold Flake Corporation Limited)
The company is a contract manufacturer of cigarettes. During the year, the company recorded Total Revenue of Rs, 23.13 crores (previous year Rs, 21.03 crores) and Net Profit of Rs, 0.66 crore (previous year Rs, 0.22 crore).
The company continued to maintain high levels of operational responsiveness, benchmark quality and cost efficiency during the year. The company was conferred the âSuraksha Puraskarâ by the National Safety Council of India and the âLong Term Nil Lost Time Accident Awardâ by the Tamil Nadu State Government.
Associates of Russell Credit Limited Russell Investments Limited
During the year, the company recorded Total Revenue of Rs, 7.59 crores (previous year Rs, 3.72 crores) and Net Profit of Rs, 6.75 crores (previous year Rs, 2.78 crores). The company continues to explore opportunities to make investments.
Divya Management Limited
During the year, the company recorded Total Revenue of Rs, 0.49 crore (previous year Rs, 0.52 crore) and Net Profit of Rs, 0.21 crore (previous year Rs, 0.20 crore). The company continues to explore opportunities to make investments.
Antrang Finance Limited
During the year, the company recorded Total Revenue of Rs, 0.28 crore (previous year Rs, 0.30 crore) and Net Profit of Rs, 0.10 crore (previous year Rs, 0.09 crore). The company continues to explore opportunities to make investments.
INTERNAL FINANCIAL CONTROLS
The Corporate Governance Policy guides the conduct of affairs of your Company and clearly delineates the roles, responsibilities and authorities at each level of its three-tiered governance structure and key functionaries involved in governance. The ITC Code of Conduct commits management to financial and accounting policies, systems and processes.
The Corporate Governance Policy and the ITC Code of Conduct stand widely communicated across the enterprise at all times, and, together with the âStrategy of Organisationâ, Planning & Review Processes and the Risk Management Framework provide the foundation for Internal Financial Controls with reference to your Companyâs Financial Statements.
Such Financial Statements are prepared on the basis of the Significant Accounting Policies that are carefully selected by management and approved by the Audit Committee and the Board. These Policies are supported by the Corporate Accounting and Systems Policies that apply to the entity as a whole to implement the tenets of Corporate Governance and the Significant Accounting Policies uniformly across the Company. The Accounting Policies are reviewed and updated from time to time. These, in turn, are supported by a set of divisional policies and Standard Operating Procedures (SOPs) that have been established for individual businesses.
Your Company uses ERP Systems as a business enabler and also to maintain its Books of Account. The SOPs in tandem with transactional controls built into the ERP Systems ensure appropriate segregation of duties, tiered approval mechanisms and maintenance of supporting records. The Information Management Policy reinforces the control environment. The systems, SOPs and controls are reviewed by divisional management and audited by Internal Audit whose findings and recommendations are reviewed by the Audit Committee and tracked through to implementation.
Your Company has in place adequate internal financial controls with reference to the Financial Statements. Such controls have been assessed during the year taking into consideration the essential components of internal controls stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by The Institute of Chartered Accountants of India. Based on the results of such assessment carried out by management, no reportable material weakness or significant deficiencies in the design or operation of internal financial controls was observed. Nonetheless your Company recognizes that any internal control framework, no matter how well designed, has inherent limitations and accordingly, regular audit and review processes ensure that such systems are reinforced on an ongoing basis.
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 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 Companyâs 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.
Independent consultants have confirmed compliance of Internal Audit systems and processes with the Standards on Internal Audit (SIA) issued by the Institute of Chartered Accountants of India (ICAI). Although the Standards are recommendatory in nature, such validation evidences the contemporariness of the Internal Audit function.
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 design, planning and execution of all ongoing projects involving significant expenditure to ensure that project management controls are adequate and yield âvalue for moneyâ.
Processes in the Internal Audit function have been continuously strengthened for enhanced effectiveness and productivity including the deployment of best-in-class tools for analytics in the Audit domain, certification as complying with ISO 9001:2015 Quality Standards in its processes, ongoing knowledge improvement programmes for staff, etc. The Audit methodology is also designed to validate effectiveness of critical IT controls that are embedded in the business systems, leading to greater alignment with the business process environment.
The Audit Committee of your Board met eight 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 Companyâs 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 Companyâs risk management systems and discharging of statutory mandates.
Mar 31, 2017
The following sections outline your Companyâs progress in pursuit of the âTriple Bottom Lineâ.
FINANCIAL PERFORMANCE
Your Company delivered a steady performance during the year in the backdrop of a persistently sluggish demand environment, continuing pressure on the legal cigarette industry due to the cumulative impact of steep increase in taxation and regulatory pressures, sharp hike in input costs and gestation costs relating to new products/categories especially in the non-cigarette FMCG segment. The operating environment was rendered particularly challenging in the second half of the year with the currency crunch impacting the incipient recovery in demand. The business environment in the Hotels industry also remained subdued, with only a marginal improvement in room rates reflecting the overhang of excess room inventory in key markets. The Paperboards, Paper and Packaging segment also had to contend with a weak demand and pricing environment.
Despite the challenging business environment as foretasted, Gross Revenue at Rs, 55001.69 crores grew by 6.6% primarily driven by an 8.0% growth in the non-cigarette FMCG segment, 10.8% growth in Agri Business and 5.1% growth in the Cigarettes segment. Profit Before Tax registered a growth of 7.4% to Rs, 15502.96 crores while Profit After Tax at Rs, 10200.90 crores increased by 9.4%. Total Comprehensive Income for the year stood at Rs, 10277.90 crores (previous year Rs, 9261.79 crores). Earnings Per Share for the year stood at Rs, 8.43 (previous year Rs, 7.74). Cash flows from Operations aggregated Rs, 15214.98 crores, compared to Rs, 14039.64 crores in the previous year.
Your Directors are pleased to recommend an Ordinary Dividend of Rs, 4.75 per share (previous year Ordinary Dividend of Rs, 4.33 per share and Special Dividend of Rs, 1.33 per share; adjusted for Bonus Issue) for the year ended 31st March, 2017. Total cash outflow in this regard will be Rs, 6944.65 crores including Dividend Distribution Tax of Rs, 1174.64 crores.
Your Directors approved a transfer of Rs, 1030.00 crores (previous year Rs, 990.00 crores) to General Reserve. Consequently, Retained Earnings as at 31st March, 2017 stands at Rs, 17576.81 crores (previous year Rs, 16589.89 crores).
VALUE-ADDED AND CONTRIBUTION TO EXCHEQUER
Over the last five years, the Value-Added by your Company, i.e. the value created by the economic activities of your Company and its employees, aggregated Rs, 188384 crores and grew at a compound annual rate (CAGR) of 11.8%. During this period, your Companyâs Contribution to the Exchequer aggregated Rs, 138375 crores growing at 12.2% CAGR. It is pertinent to note that 75% of the incremental Value-Added during this period accrued to the Exchequer.
Including the share of dividends paid and retained earnings attributable to government owned institutions, your Companyâs contribution to the Central and State Governments represents 80% of its Value-Added during the year.
Your Company remains amongst the Top three Indian corporate in the private sector in terms of Contribution to Exchequer.
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. Foreign exchange earnings of the ITC Group over the last ten years aggregated nearly US$ 7.0 billion, of which agri exports constituted 56%. Earnings from agri exports, which effectively link small farmers with international markets, are an indicator of your Companyâs contribution to the rural economy.
During the financial year 2016-17, your Company and its subsidiaries earned Rs, 4609 crores in foreign exchange. The direct foreign exchange earned by your Company amounted to Rs, 3961 crores, mainly on account of exports of agri-commodities. Your Companyâs expenditure in foreign currency amounted to Rs, 1828 crores, comprising purchase of raw materials, spares and other expenses of Rs, 1301 crores and import of capital goods at Rs, 527 crores.
PROFITS, DIVIDENDS AND RETAINED EARNINGS
(Rs, in Crores)
PROFITS |
2017 |
2016 |
a) Profit Before Tax |
15502.96 |
14434.07 |
b) Tax Expense |
||
- Current Tax |
5285.65 |
4896.06 |
- Deferred Tax |
16.41 |
209.64 |
c) Profit for the year |
10200.90 |
9328.37 |
d) Other Comprehensive Income |
77.00 |
(66.58) |
e) Total Comprehensive Income |
10277.90 |
9261.79 |
STATEMENT OF RETAINED EARNINGS |
||
a) At the beginning of the year |
16589.89 |
14257.63 |
b) Add: Profit for the year |
10200.90 |
9328.37 |
c) Add: Other Comprehensive Income (net of tax) |
(24.92) |
(35.21) |
d) Add: Transfer from share option on exercise and lapse |
14.58 |
7.64 |
e) Less: Dividends |
||
- Ordinary Dividend of '' 6.50 (2016: '' 6.25) per share. [Adjusted for Bonus Issue, Ordinary Dividend of'' 4.33 (2016 -'' 4.17) per share] |
5230.68 |
5009.70 |
- Special Dividend of '' 2.00 (2016: '' Nil) per share. [Adjusted for Bonus Issue, Special Dividend of '' 1.33 (2016 - '' Nil) per share] |
1609.44 |
|
- Income tax on Dividend paid |
1333.52 |
968.84 |
f) Less: Transfer to General Reserve |
1030.00 |
990.00 |
g) At the end of the year |
17576.81 |
16589.89 |
FMCG Cigarettes
The legal cigarette industry continues to be severely impacted due to the cumulative impact of steep increase in taxation, intense regulatory pressures and the tight liquidity conditions - especially in the wholesale channel - prevailing in the market during the latter half of the year. While legal cigarette industry volumes remain under pressure, illegal trade continues to grow unabated resulting in significant revenue loss to the Exchequer.
Over the last five years, the incidence of Excise Duty and VAT on cigarettes, at a per unit level, has gone up cumulatively by 131% and 157% respectively, thereby exerting severe pressure on legal industry volumes. Due to the steep hike in taxation over the past several years, at levels well above the rate of inflation, duty-paid cigarettes have become less affordable in the country, leading to a drop in volumes.
Year |
Total Domestic Consumption including Illegal Cigarettes (Million Kgs) |
Legal Cigarette Consumption (Million Kgs) |
% Share of Legal Cigarettes in Total Tobacco Consumption |
1981/82 |
406 |
86 |
21% |
2009/10 |
499 |
73 |
15% |
2014/15 |
562 |
62 |
11% |
Although legal cigarettes account for only about 11% of total tobacco consumption in the country, they
Research indicates that a significant number of cigarette consumers in India are dual consumers, in that they also consume some other tobacco product. The high incidence of taxation and a discriminatory regulatory regime on cigarettes in India have over the years only served to divert consumption of tobacco to lightly taxed or tax-evaded tobacco products like bidis, chewing tobacco, guthka and illegal cigarettes. In fact, Indiaâs per capita cigarette consumption is amongst the lowest in the world and is significantly lower in comparison to Russia, Japan, China, United States, and even neighboring countries like Pakistan and Bangladesh.
Thus, while tobacco consumption has been growing steadily in the country over the years, the share of legal cigarettes in total tobacco consumption has been on the decline as would be apparent from the figures given in the table below.
contribute more than 87% of tax revenue from the tobacco sector. The other types of tobacco products contribute barely 13% of tax revenue from the tobacco sector despite accounting for 89% of total tobacco consumption. Since these products are predominantly manufactured in a fragmented manner in the unorganized sector, there is rampant tax evasion. Moreover, most of these products escape regulatory oversight as well and tend to be manufactured in unhygienic conditions with ingredients of questionable quality. Consequently, most of these products are of inferior quality and their growing volumes undermine the health objectives of tobacco control.
Further, the high rates of tax on cigarettes also provide attractive tax arbitrage opportunities to unscrupulous players. Consequently, the illegal cigarette market, consisting of duty-evaded cigarettes manufactured within the country and offered to consumers at '' 1 / '' 2 per stick and the contraband international brands of cigarettes have been growing rapidly over the years. The illegal cigarette segment is the only segment that has been growing year on year and currently accounts for one-fifth of the market. According to an independent study conducted by Euro monitor International, India is today the 4th largest market for illegal cigarettes in the world. It is estimated that almost 68% of the tobacco consumed in the country remains outside the tax net on account of evasion1. The proliferation of these tax-evaded products have resulted in significant losses to the Exchequer, in excess of Rs, 9000 crores per annum according to an independent study conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI). Seizures of large quantum of smuggled cigarettes by enforcement agencies across the country over the past couple of years confirm the growing menace of illegal cigarette trade in the country.
A conducive policy framework, which effectively reduces the huge tax arbitrage opportunity enjoyed by
1 Report on the impact of current tax framework on the tobacco sector in India and suggestions for its improvements - 2014, by ASSOCHAM and KPMG.
unscrupulous players presently, is critical to arrest the unabated growth of illegal cigarette trade in the country.
As reported last year, the significant decline in legal cigarette volumes and the consequent reduction in the utilisation of Indian Flue-cured Virginia (FCV) tobacco has adversely impacted the livelihoods of over 45 million tobacco farmers, farm workers and others dependent on the tobacco sector. Besides, the soft demand for Indian FCV tobacco has prompted consecutive reductions in the authorised tobacco crop size in 2015-16 and 2016-17. This, in turn, has also led to lower exports of tobacco. Consequently, the acute distress of the tobacco farming community continues unabated, particularly in Andhra Pradesh with an estimated drop of over Rs, 900 crores in earnings in 2016-17. This distress is expected to be aggravated by the unprecedented drought in Andhra Pradesh during the year.
Unfortunately, the taxation policy of the country is largely cigarette centric and based on western models of tobacco taxation. This policy is not suitable for India since duty-paid cigarettes account for only about 11% of tobacco consumption in the country as compared to the global average of more than 90%. Your Company continues to engage with policy makers for a tobacco taxation policy that is non-discriminatory, helps combat the problem of illegal cigarettes and addresses the issues of all stakeholders, particularly tobacco farmers, Exchequer and consumers. Such a policy will not only help maximization of the revenue potential of tobacco even in a shrinking basket of tobacco consumption but also address the tobacco control and health objectives of the Government.
The Goods and Services Tax (GST) is expected to be implemented with effect from 1st July 2017.
The Government has enunciated the principle of revenue neutrality for all products including cigarettes while transitioning to the GST regime. In this context, as per the schedule of rates published pursuant to the GST Councilâs meeting on 18th May 2017, cigarettes are likely to be taxed at the peak rate of 28%. Additionally, a GST Compensation Cess, comprising a 5% ad-valorem component and a specific component based on cigarette length, is likely to be imposed.
It may be noted that the GST Council is yet to finalize the GST rate applicable for bidis. It would be imperative to implement an appropriate taxation structure for bidis under the GST framework, rectifying the discriminatory treatment meted out to the legal cigarette industry under the present tax regime. A level playing field for the legal cigarette industry would go a long way in realizing the revenue potential of the tobacco sector and supporting the millions of livelihoods that are dependent on it.
In addition to the punitive taxation landscape, the legal cigarette industry in India continues to grapple with an increasingly stringent regulatory framework. As reported last year, the proposal for increasing the size of the 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 cigarette package with effect from 1st April 2015 was kept in abeyance pending the recommendations of the Parliamentary Committee on Subordinate Legislation (PCOSL), which had been entrusted with the responsibility of examining the issues consequent to introduction of a larger GHW. However, even before the PCOSL submitted their final report on the matter, the larger health warnings were notified for implementation with effect from 1st April 2016. In the interim, on 15th March, 2016 the PCOSL, in its final report recommended that the size of the GHW should be restricted to 50% on both sides of the cigarette package and not 85% as proposed by the Government. Pursuant to the order of the Honorable Supreme Court, the Honorable High Court of Karnataka has heard your
Companies and other writ petitions challenging the revised GHW and has reserved its judgment.
The 85% GHW is excessively large, extremely gruesome and unreasonable. There is no evidence that cigarette smoking would cause the diseases depicted in the pictures or that large GHW will lead to reduction in consumption. As reported last year, this inadequacy of evidence prompted an appeals court in USA to hold the US FDAâs proposal for introduction of similar GHW in that country as unconstitutional. It is pertinent to note that the global average size of GHW is only about 30% coverage of the principal display area. Further, over 100 countries representing 60% of the signatories to the Framework Convention on Tobacco Control (FCTC) have not adopted GHW2 . In fact, the three countries that account for about 51% of the worldâs cigarette consumption viz. USA, Japan and China, have not adopted pictorial / graphic warnings and have prescribed only text-based warnings on cigarette packages. Moreover, several major tobacco producing countries, including the USA, are either not parties to the FCTC or are very recent signatories. These countries have taken into consideration the interests of their tobacco farmers in deciding whether or not to adopt large or excessive pictorial warnings.
The excessively large GHWs prevent consumers from making an informed choice in a competitive market, since they are denied adequate information about the brand on the cigarette packages. Your Company believes that such GHW also devalues the Intellectual Property Rights of brand owners and sub-optimizes the large investments made over the years in creating and nurturing the brands. Additionally, studies by independent market research agencies show that consumers tend to prefer the smuggled brands of international cigarettes which do not carry the GHWs mandated by Indian Laws. The absence of GHWs on packages of such contraband
2 Canadian Cancer Society - Cigarette Package Health Warnings, International Status Report, Fourth Edition, September 2014.
cigarettes makes consumers perceive them to be a âsafer alternativeâ notwithstanding the fact that the origins and age of such contraband stocks are not determinable. The absence of GHWs along with the significantly lower cost of these contraband cigarettes, due to reasons of tax evasion, only serve to accelerate the growth of the illegal cigarette segment.
The unintended consequences of the extant tobacco taxation and regulatory framework may be summarized as follows:
- Progressive decline in legal cigarette volumes in favor of lightly taxed and tax-evaded tobacco products resulting in sub-optimization of the revenue potential of the tobacco sector and significant loss to the Exchequer.
- About 68% of the tobacco consumption in the country remaining outside the tax net.
- Availability of illegal cigarettes and other tobacco products of dubious quality and hygiene to consumers at extremely affordable prices.
- Adverse impact on the livelihood of tobacco farmers and others dependent on tobacco for their livelihood.
- Fillip to the growth of illegal cigarettes in the absence of statutory GHW on smuggled international brands.
Your Company continues to represent to the Government for the implementation of an equitable, evidence based and pragmatic tobacco taxation and regulatory framework that cognizes for the economic imperatives of the country whilst, simultaneously, supporting the tobacco control objectives of the Government.
Despite the extremely challenging operating environment, your Company retained its leadership position in the industry and improved its standing in key competitive markets across the country. This demonstrates the resilience of your Companyâs strong
portfolio of brands, superior execution of competitive strategies, relentless focus on value creation through innovation and deep consumer insights. Some of the strategic initiatives during the year include the launch of Gold Flake Kings Blue Tropical Switch, Classic Citric Burst, Classic Tangy Burst, Classic Fine Taste Plus Low Smell, American Club, Players Fruity Cool Flavour, Flake Mint Capsule, Silk Cut Mint Capsule and Navy Cut Mint Capsule.
The Business continued to make investments in manufacturing facilities towards sustaining its competitive advantage. State-of-the-art, on-line quality oversight systems and cutting-edge technology for innovative packaging were inducted during the year. Long Term Agreements with the unionized workforce were concluded successfully for the Kidderpore and Munger cigarette factories during the year. In addition to grant of patents in previous years, the ongoing initiatives in research and development have resulted in your Company being granted two more international patents during the year in respect of cigarettes.
It is a matter of deep satisfaction that the Business won several awards during the year for its focus on manufacturing excellence, commitment to sustainability and superior standards in Environment, Health and Safety (EHS) in line with your Companyâs commitment to the âTriple Bottom Lineâ. The Ranjangaon cigarette factory was awarded âPlatinum Ratingâ at the India Manufacturing Excellence Awards 2016 (IMEA) by Frost & Sullivan, a global consulting firm. This highly acclaimed award acknowledges Indian manufacturing capability and its global competitiveness. The Munger cigarette factory was awarded âEminent Supply Chain and Logistics Unitâ at CII National Supply Chain and Logistics Excellence Awards 2016 in recognition of its consistent achievement of benchmark performances in supply chain and logistics. The Business received industry recognition and several accolades for its commitment towards excellence in sustainability. With the Kidderpore cigarette factory receiving the Indian Green Building Council (IGBC) Platinum Rating under Green Factory Building certification during the year, all cigarette factories of your Company are today IGBC Green Platinum rated. The Bengaluru and Munger factories also received the âExcellent Energy Efficiency Unitâ award under the CII National Awards for Excellence in Energy Management 2016 whilst the Saharanpur cigarette factory received the first prize in FICCI Water Awards under âIndustrial Water Use Efficiencyâ category.
In recognition of the growing trend of consumers seeking alternative sources of nicotine like Electronic Vaping Devices (EVD), your Company expanded its EON brand of EVDs to several new markets during the year. The rechargeable variant, âEON Chargeâ, launched in the previous year was extended to several new markets and a disposable variant, âEON ZIPâ, was launched during the year. Initial consumer response to this variant has been positive. The market for this category is, however, at an embryonic stage globally and, as reported last year, the regulatory oversight is still evolving. Accordingly, your Company remains engaged with policy makers for an opposite regulatory framework for this emerging category.
In the Nicotine Gum category, the Business extended the KwikNic brand to several new markets and has received encouraging response from consumers.
The operating environment for the legal cigarette industry, marked by a punitive taxation and discriminatory & increasingly stringent regulatory regime, 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 strong brand portfolio and robust strategic initiatives - based on excellence in product quality and innovation in manufacturing and operations - will enable it to sustain its leadership position in the market.
Corporate Social Responsibility (CSR)
Your Companyâs 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, your Company adopted a comprehensive CSR policy in 2014-15 outlining programmes, projects and activities that 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, 2014.
The key elements of your Companyâs CSR interventions are to:
- Deepen engagement in identified core operational geographies to promote holistic development, designed to respond to the most prominent development challenges of your Companyâs stakeholder groups.
- Strengthen capabilities of Non-Government Organizations (NGOs) / Community Based Organizations (CBOs) in all the project catchments for participatory planning, ownership and sustainability of interventions.
- Drive the Development agenda in a manner that benefits the poor and marginalized communities in our factory and agri-catchments thereby significantly improving Human Development Indices (HDI).
- Move beyond mere asset creation to behavior change through focus on demand generation for all interventions thereby enabling participation, contribution and asset creation for the community.
- Continue to strive for scale by leveraging government partnerships and accessing the most contemporary knowledge / technical know-how.
Your Companyâs 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 Companyâs Social Investments Programme (SIP) are appropriately designed to build their capacities and promote sustainable livelihoods.
The footprint of your Companyâs projects is spread over 26 States / Union Territories covering 182 districts.
Social Forestry
Your Companyâs pioneering afforestation initiative through the Social Forestry programme is currently spread across 19 districts in six States covering 2.55 lakh acres in 4,809 villages, impacting over 96,500 poor households. Together with your Companyâs Farm Forestry programme, this initiative has greened over 6.20 lakh acres till date, and generated over 113 million person days of employment for rural households, including poor tribal and marginal farmers. Integral to the Social Forestry programme is the Agro-Forestry initiative, which currently extends to over 82,255 acres and ensures food, fodder and wood security. .
Besides enhancing farm level employment, generating incomes and increasing green cover, the Social and Farm Forestry initiative of your Company, through a multiplier effect, has led to improvement in pulpwood availability in Andhra Pradesh and Telangana. This initiative is also contributing meaningfully towards the nationâs Endeavour in creating additional carbon sinks for tackling climate change.
During the year, your Companyâs Social Forestry programme was extended to West Tripura district and Malkangiri district (Odisha). In Tripura, your Company plans to promote bamboo plantations covering an area of 5,000 acres over the next five years, which would benefit around 2,000 families. In addition, your Company aims to promote 10,000 acres under Agro-Forestry in Malkangiri district of Odisha in order to provide livelihood opportunities to small and marginal farmers.
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 45 districts across 12 States. During the year, the area under watershed increased by 1.36 lakh acres taking the cumulative coverage area till 2016-17 to over 7.76 lakh acres. 2,101 water harvesting structures were built during the year, taking the total number of water harvesting structures to 10,099.
Biodiversity
The focus of the programme is on reviving ecosystem services provided to agriculture by nature, comprising natural regulation of pests, pollination, nutrient cycling, soil retention and genetic diversity, which have witnessed considerable erosion in recent decades. During the year, your Companyâs biodiversity conservation initiative covered 2,060 acres, in seven States and 15 districts, taking the cumulative area under biodiversity conservation to 11,803 acres. While the conservation work is being carried out in select plots of village commons, this intervention significantly benefits agricultural activity in the vicinity of these plots through soil moisture retention, carbon sequestration and by acting as hosts to insects and birds.
Sustainable Agriculture
The Sustainable Agriculture programme attempts to de-risk farmers from erratic weather events through the promotion of climate smart agriculture premised on dissemination of relevant package of practices, adoption of appropriate mechanization and provision of institutional services. Spread in 60 districts across 16 States,
1,280 Farmer Field Schools (FFS) disseminated advanced agri-practices covering over 1.50 lakh acres under different crops. 326 Agri Business Centres (ABCs) delivered extension services, arranged agri-credit linkages and established collective input procurement and agricultural equipment on hire. In pursuit of your Companyâs long-term sustainability objective of increasing soil organic carbon, a total of 3,931 compost units were constructed during the year taking the total number till date to 34,799 units. In addition, the âChoupal Pradarshan Khetâ programme promoted field demonstrations of improved seed varieties and effective production practices covering around 1.5 lakh acres and directly benefitting more than 69,000 farmers with a multiplier effect of 10X in terms of adoption by the farming community.
With the addition of 23 model villages during the year, the âVillage Adoption Programmeâ pioneered by your Companyâs Leaf Tobacco Business presently covers 108 model villages. This initiative comprises several focused farm level interventions towards enhancing quality and productivity, promoting sustainable agriculture practices and community empowerment. The programme has resulted in generating significant economic surplus for the farming community including creating sustainable rural livelihoods.
Livestock Development
The programme provides an opportunity for farmers to convert an existing asset into a substantial supplementary income with the potential of growing into a sustainable source of livelihood. The programme provided extension services, including breeding, fodder propagation and training of farmers in order to increase their incomes through enhanced productivity of milch animals across 25 districts in seven States. During the year, 2.28 lakh Artificial Inseminations (AIs) were carried
out which led to the birth of 1.01 lakh cross-bred progeny. Cumulatively, the figures for AI and calving stand at 20.19 lakh and 6.72 lakh respectively.
In addition, pilot projects on indigenous breed promotion were initiated during the year in Madhya Pradesh in partnership with 13 existing gaushalas. Your Company has also implemented a project in Punjab to demonstrate to dairy farmers the commercial viability of having cattle farms with indigenous breeds with the intent of encouraging them to preserve indigenous cattle varieties.
Women Empowerment
This initiative is designed to provide a range of gainful entrepreneurial opportunities to poor women supported with financial assistance by way of loans and grants. Strong market linkages are attempted to ensure long-term sustainability.
Currently spread across eight districts in six States, the programme covers over 10,200 ultra-poor women who have been trained in entrepreneurial skills and provided with assets for income generation, taking the cumulative number of women impacted to 13,800. In addition, during the year 496 Self-Help Groups (SHGs) with 6,398 members were formed, in 11 states and 28 districts. Over 46,000 women were linked to individual bank accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and life insurance schemes under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY).
Education
The Primary Education Programme aims to provide children from weaker sections of society access to education with focus on learning outcomes and retention in your Companyâs factory catchment areas in 19 districts across 11 States. Over 49,000 children were covered during the year under this initiative comprising âRead India Plusâ programme and 210 Supplementary Learning Centres to mainstream out-of-school children into regular schools. Till date, these programmes have reached out to over 5.14 lakh children in aggregate.
In addition, 160 government primary schools were provided infrastructure support comprising boundary walls, additional classrooms, sanitation units, and furniture, taking the total number of government primary schools covered till date to 1,482. To ensure sustainable operations and maintenance of infrastructure provided, School Management Committees were strengthened in 276 schools and 215 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, 12,338 youth were enrolled for training under different courses like Hospitality, Bedside Assistance, Electricals, Industrial Sewing Machines etc., offered as part of this programme. Of the total students enrolled, 11,344 (92% of enrolled) completed training and 8,084 (71% of trained) students were provided placement. The students trained included a healthy mix of women and SC/ST candidates. The initiative is spread across 29 districts covering 17 States and has enrolled over 43,700 youth cumulatively.
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, 63 trainee chefs in five 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, 8,550 household toilets were constructed during the year in collaboration with the Governmentâs Swachh Bharat
Abhiyan. With this, a total of 23,979 low-cost sanitary units have been constructed so far in your Companyâs catchment areas covering 22 districts in 14 States. In areas with water quality problems, 85 Reverse Osmosis plants have been installed providing safe drinking water to nearly 1 lakh rural households in Andhra Pradesh.
Efforts to enhance awareness on various health issues continued through âSwasthya Choupalâ, your Companyâs e-Choupal Rural Health initiative. A network of 300 women Village Health Champions (VHCs) across seven Districts in Uttar Pradesh and three in Madhya Pradesh reached out to nearly two lakh women, adolescent girls and school children during the year. The VHCs conducted over 5,000 village meetings and participated in over 2,000 group events apart from making door-to-door visits focusing on aspects like sanitation, menstrual and personal hygiene, family planning, diarrhoea prevention and nutrition.
Through your Companyâs âSavlon Swasth India Missionâ, a mix of audio-visual aids, games and practical training was leveraged to encourage healthy hygiene habits. More than nine lakh children from around 1,900 schools in 23 cities were covered during the year. Under the âFirst Cry Programmeâ, 60,000 mothers were made aware of hygienic practices in 1,500 hospitals.
Solid Waste Management
Your Companyâs solid waste recycling programme, âWOW - Well Being Out of Wasteâ, helps in the creation of a clean and green environment through awareness and education of citizens on source segregation and recycling of dry waste. It also promotes sustainable livelihoods for ragpickers and waste collectors. During the year, in addition to Hyderabad, Coimbatore, Chennai and Bengaluru, the programme was expanded to Delhi, Tirupati and Muzaffarpur. The quantum of dry waste collected aggregated 33,982 MT from 417 wards. The programme covers over 64 lakh citizens, 25 lakh school children and 2,000 Corporates and creates sustainable livelihoods for 13,500 ragpickers and waste collectors by propagating source segregation and facilitating effective collection in collaboration with municipal corporations. Besides, the intervention has also created over 60 social entrepreneurs who are involved in maximizing value capture from the dry waste collected.
In addition, another programme on solid waste management under the Mission Sunehra Kal initiative has spread to 10 districts of seven states covering 61,200 households and collected 6,033 MT of waste during the year. This programme focuses on home composting in addition to recycling of dry waste. Under this programme, 4,161 MT wet waste was composted and 459 MT of dry waste recycled in 2016-17.
ITC Sangeet Research Academy
The ITC Sangeet Research Academy (ITC SRA), which was established in 1977, is a true embodiment of your Companyâs sustained commitment to a priceless national heritage. Your Companyâs pledge towards ensuring enduring excellence in Classical Music education has helped ITC SRA uphold the age-old âGuru-Shishya Paramparaâ - 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 Academyâs campus. This has helped young talent who have limited access to the newer modes of music education, to train under the tutelage of the countryâs most distinguished stalwarts who are helping create the next generation of musical masters.
Forging Partnerships with NGOs
The substantial progress made by your Companyâs Social Investments Programme in contributing to address some of the countryâs key development challenges, has been possible in significant measure, due to your Companyâs partnerships with globally renowned NGOs such as BAIF, DB Tech, DSC, FES, MYRADA, Pratham, SEWA Bharat, Outreach, WASH Institute 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 mobilization skills of NGOs, will continue to provide innovative grassroots solutions to some of Indiaâs 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 Companyâs Environment, Health & Safety (EHS) strategies are directed towards achieving the greenest and safest operations across all your Companyâs units by optimizing natural resource usage and providing a safe and healthy workplace. Systemic 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 Companyâs 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 verified 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 utilization, maximizing water use efficiencies and rain water harvesting, maximizing reuse and recycling of waste and utilizing 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 50% of its total energy requirements from renewable sources by 2020.
Significant progress has been made in enhancing the renewable energy portfolio and during 2016-17 over 48% of your Companyâs total energy requirements was met from carbon neutral fuels such as biomass, and wind and solar. Your Company has drawn up action plans based on a feasible balance of energy conservation and renewable energy investments to progressively move towards meeting the foretasted target.
Water Security
With water scarcity increasingly becoming an area of serious concern, your Company continues to focus on an integrated water management approach that includes 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 interventions to improve water use efficiencies by adopting latest technologies and increasing reuse and recycling practices within the fence while also working with farmers and other community members towards improving agricultural water use efficiencies. The supply side interventions include enhanced capture and storage of rainwater (in soil and storage ponds) and recharging aquifers. These initiatives, have resulted in the creation of rainwater harvesting potential that is over three times the net water consumption of your Companyâs operations.
Greenhouse Gases and Carbon Sequestration
The greenhouse gas (GHG) inventory of your Company for the year 2016-17 compiled as per the ISO 14064 standard, has been assured, as in the earlier years, at the highest âReasonable Levelâ by a third party assurance provider. During the year, your Company was determined as having achieved âLeadershipâ position in the Climate Change disclosure of CDP. The CDP Global Climate Change Report âOut of the Starting Blocksâ, has commended your Company for decoupling emission growth with financial growth (having reduced 10% or more GHG emission over five years while simultaneously growing revenue by 10%).
Reaffirming your Companyâs commitment to the ethos of âResponsible Luxuryâ, all luxury hotels of your Company are LEED® Platinum certified, making it the âgreenest luxury hotel chainâ in the world. In order to continually reduce your Companyâs energy footprint, green features are integrated in all new constructions and also incorporated in existing hotels, manufacturing units, warehouses and office complexes.
Your Companyâs Social and Farm Forestry initiatives enabled 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 utilization and also in achieving almost total recycling of waste generated in operations. In this way, your Company has prevented waste reaching landfills and the associated problems of 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% of the total waste generated in your Company, recycling 99.9% of the total waste generated by its operations. During the year, this Business also recycled around 1,15,074 tonnes of externally sourced post-consumer waste paper, thereby creating yet another positive environmental footprint.
Safety
Your Companyâs 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 Companyâs approach is to institutionalize safety as a value-led concept with focus on inculcating a sense of ownership at all levels to drive behavioral change. In line with this approach, several of your Companyâs operating units are progressively implementing behavioral-based safety initiatives and customized risk assessment programmes to strengthen their safety culture. Your Company continuously strives to improve on safety performance by incorporating best-in-class engineering standards in the design and project execution phase itself for all investments in the built environment, besides optimizing costs. During the year, the total number of on-site lost time accidents (LTA) reduced by 11.1% over the last year. 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 âCII-ITC Centre of Excellence for Sustainable Developmentâ, established by your Company in 2006 in collaboration with the Confederation of Indian Industry (CII), continues to focus on its Endeavour to promote sustainable business practices amongst Indian enterprises. The major highlights during the year include the 11th Sustainability Summit held on 14th-15th September 2016 in New Delhi. Some eminent personalities who addressed the delegates included Late Mr. Anil Madhav Dave, Minister for Environment, Forests and Climate Change, Mr. Piyush Goyal, Minister for Power, New & Renewable Energy, Coal and Mines, Mr. Amitabh Kant, CEO, NITI Aayog, Mr. Yuri Afanasiev, UN Resident Coordinator & UNDP Resident Representative in India.
The 11th CII-ITC Sustainability Awards were handed over by Mr. Prakash Javadekar, Union Minister of Human Resources to 23 winning companies for excellence in sustainable business in different categories. Your Company participated in the Business and Biodiversity Forum organized by Convention on Biological Diversity (CBD) COP 13, Mexico on 2nd - 3rd December 2016. The India Business & Biodiversity Initiative (IBBI) also released a case study publication âReimagining Business for Biodiversity Enhancement: Case Studies from Indian Industryâ which featured your Company.
R&D, QUALITY AND PRODUCT DEVELOPMENT
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 and is presently resourced with nearly 350 highly qualified scientists, world-class measurement systems and state-of-the-art facilities to conduct experimental research, rapid prototyping and process development. Several Centres of Excellence have been established over the past few years in these areas in LSTC. In addition, a number of areas centred around these capabilities have secured global quality certifications of the highest order.
The Agrisciences R&D team continues to engage in evaluating and introducing several germplasm lines of identified crops including Casuarina and Eucalyptus to increase the genetic and trait diversities in these species. This intervention would facilitate the development of new varieties with higher yields, better quality and other traits relevant for your Companyâs Businesses.
LSTC continues to evaluate and build research collaborations with globally recognized Centres of Excellence to remain contemporary and fast-track its journey towards demonstrating multiple âproofs of conceptâ. 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 LSTCâs efforts in creating future generations of these crops with greater genetic and trait diversities leading to significant benefits for your Companyâs Businesses. Further, these outcomes have a strong potential to contribute towards augmenting the nationâs ecological capital and biodiversity as well. Several âproof of conceptâ studies have been accomplished at 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. The Agrisciences team continues to focus on delivering world-class solutions using contemporary technologies in crops such as wheat, soya, potato and rice.
Recognising the unique construct of your Company in terms of its strong presence in Agri, Branded Packaged Foods and Personal Care Product 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 skin care and hair care.
LSTC has a clear vision and road map for long-term R&D, backed by a well-crafted Intellectual Property strategy. With scale, speed, science and sustainability considerations, LSTC is poised to deliver long-term competitive advantage for your Company.
In line with your Companyâs 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 Companyâs Hotels Business leveraged its âLeanâ and âSix Sigmaâ 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 âTotal Productive Maintenanceâ (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 âHazard Analysis Critical Control Pointsâ (HACCP) / ISO 22000 standards. Additionally, the quality of all FMCG products of your Company is regularly monitored through âProduct Quality Ratings Systemsâ (PQRS).
PROCEEDINGS INITIATED BY THE ENFORCEMENT DIRECTORATE
In the proceedings initiated by the Enforcement Directorate in 1997, 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.
In respect of some of the remaining memoranda, your Company, has filed writ petitions before the Honorable Calcutta High Court challenging their validity. These petitions are pending. Meanwhile, some of the prosecutions launched by the Enforcement Directorate have been quashed by the Honorable Calcutta High Court while others are pending.
TREASURY OPERATIONS
During the year, your Companyâs treasury operations continued to focus on deployment of surplus liquidity and management of foreign exchange exposures within a well-defined risk management framework.
During the year, Reserve Bank of India (RBI), reduced policy interest rates by 50bps. This coupled with the surplus banking system liquidity, post demonetization of Specified Bank Notes, led to decline in market interest rates. Consolidation in Fiscal / Current Account Deficits and persistent decline in headline inflation during the year also contributed to the positive sentiment in Debt Markets.
All investment decisions relating to deployment of surplus liquidity continued to be guided by the tenets of Safety, Liquidity and Return. Proactive rebalancing of portfolio mix during the year in line with the evolving interest rate environment helped improve treasury performance. Your Companyâs risk management processes ensured that all deployments were made with proper evaluation of underlying risk while remaining focused on capturing market opportunities.
The foreign exchange market remained stable for most part of the year barring periods of heightened volatility induced by global / domestic events such as the surprise outcome of UK referendum to exit the European Union, escalation of geo-political tensions with Pakistan,
US Presidential elections and demonetization of Specified Bank Notes. These events led to depreciation of the Indian Rupee (INR) to a lifetime low of '' 68.86 per US$ in November 2016. However, the INR recovered significantly in February and March 2017 to close the year at '' 64.84 per US$. During the year, INR outperformed most of its emerging market peers and appreciated by 2.1% vs. the US Dollar on the back of stability in domestic macro-economic and political environment and sharp increase in capital inflows mainly from foreign institutional investors. In this scenario, your Company adopted a proactive forex exposure management strategy, which included the use of foreign exchange forward contracts and plain vanilla options, to protect business margins and reduce risks / costs.
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 independent check of 100% of transactions, by your Companyâs Internal Audit department.
DEPOSITS
Your Companyâs erstwhile Public Deposit Scheme closed in the year 2000. As at 31st March, 2017, there were no deposits due for repayment except in respect of two deposit holders totaling to '' 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 Companyâs 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.
DIRECTORS Changes in Directors
Mr. Yogesh Chander Deveshwar shed his executive role on completion of term as Chairman and Wholetime Director on 4th February, 2017. Mr. Deveshwarâs period of Executive Chairmanship witnessed transformation of your Company into one of Indiaâs most admired and valuable corporations. His vision to make your Company an engine of growth for the Indian economy, keeping societal value creation as an integral part of business purpose, has led to the creation of multiple drivers of growth, world-class Indian Brands and recognition of your Company as a global exemplar in Sustainability. Your Directors would like to place on record their deep appreciation for Mr. Deveshwarâs invaluable contribution in the transformation of your Company under his leadership as Executive Chairman.
It may be recalled that Mr. Deveshwar, at the request of the Nomination & Compensation Committee and the Board of Directors of your Company (âthe Boardâ), recognizing the need for orderly transition in a company of ITCâs size and complexity, agreed to continue as Chairman in non-executive capacity and also play the role of Mentor to the new executive management.
Mr. Deveshwar was appointed 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, as approved by the Members at the 105th Annual General Meeting (âAGMâ) held on 22nd July, 2016.
On the recommendation of the Nomination & Compensation Committee, the Board at the meeting held on 27th January, 2017 appointed Mr. Sanjiv Puri, Whole time Director, also as Chief Executive Officer of the Company with effect from 5th February, 2017 to take independent charge of the executive leadership of your Company.
Mr. Robert Earl Lerwill [representing Tobacco Manufacturers (India) Limited (âTMIâ), a subsidiary of British American Tobacco p.l.c.] resigned from the Board
on medical grounds with effect from 22nd June, 2016. Mr. Angara Venkata Girija Kumar [representing General Insurersâ (Public Sector) Association of India (âGIPSAâ)], on completion of his term, ceased to be Non-Executive Director of your Company on conclusion of the 105th AGM. Mr. Krishnamoorthy Vaidyanath, on completion of his term, also ceased to be Non-Executive Director of your Company with effect from close of business on 28th July, 2016. Mr. Anil Baijal ceased to be an Independent Director of your Company with effect from 30th December, 2016, consequent to his appointment as Lt. Governor of Delhi. Your Directors would like to record their appreciation for the services rendered by Messrs. Lerwill, Girija Kumar, Vaidyanath and Baijal.
On the recommendation of the Nomination & Compensation Committee, Mr. Zafir Alam (representing GIPSA), Mr. David Robert Simpson (representing TMI), and Mr. Ashok Malik (representing Specified Undertaking of the Unit Trust of India), were appointed by the Board as Additional Non-Executive Directors with effect from 26th October, 2016, 27th January, 2017 and 11th April, 2017, respectively.
By virtue of the provisions of Article 96 of the Articles of Association of your Company and Section 161 of the Companies Act, 2013 (âthe Actâ), Messrs. Alam, Simpson and Malik will vacate office at the ensuing AGM of your Company.
On the recommendation of the Nomination & Compensation Committee, your Board at the meeting held on 26th May, 2017 recommended for the approval of the Members, the appointment of Messrs. Alam, Simpson and Malik as Non-Executive Directors of your Company, liable to retire by rotation.
Requisite Notices under Section 160 of the Act have been received for the appointment of Messrs. Alam, Simpson and Malik, 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 106th 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. Suryakant Balkrishna Mainak will retire by rotation at the ensuing AGM and being eligible, offers himself for re-election. Your Board has recommended his re-election.
Number of Board Meetings
Six meetings of the Board were held during the year ended 31st March, 2017.
Attributes, Qualifications & Independence of Directors and their Appointment
As reported in earlier years, criteria for determining qualifications, positive attributes and independence of Directors were approved by the Nomination & Compensation Committee pursuant to the Act and the Rules there under, in respect of Directors, including Independent Directors. The Corporate Governance Policy also, inter alia, requires that Non-Executive 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 and as may be determined by the Board from time to time. 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 re-election.
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 the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
The Companyâs Policy on remuneration of Directors, Key Managerial Personnel and other employees is provided under the section âReport on Corporate Governanceâ in the Report and Accounts.
Board Evaluation
As reported in earlier years, the Policy on Board evaluation, evaluation of Board Committeesâ functioning and individual Director evaluation was approved by the Nomination & Compensation Committee. In keeping with ITCâs 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 Companyâs Governance Policy. The parameters for Board performance evaluation have been derived from the Boardâs core role of trusteeship to protect and enhance shareholder value as well as fulfill 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 realizing 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 before the Board by the Committee Chairmen.
AUDIT COMMITTEE & AUDITORS
The composition of the Audit Committee is provided under the section âBoard of Directors and Committeesâ in the Report and Accounts.
Statutory Auditors
The Auditors, Messrs. Deloitte Haskins & Sells, Chartered Accountants (âDHSâ), were appointed with your approval at the 103rd AGM to hold such office till the conclusion of the 108th AGM. On the recommendation of the Audit Committee and pursuant to Section 139 of the Act, the Board recommended for the ratification of the Members, the appointment of DHS from the conclusion of the ensuing AGM till the conclusion of the 107th AGM. On the recommendation of the Audit Committee and pursuant to Section 142 of the Act, the Board also recommended for the approval of the Members, the remuneration of DHS for the financial year 2017-18. Appropriate resolution for the purpose is appearing in the Notice convening the 106th AGM of the Company.
Cost Auditors
Your Board, as recommended by the Audit Committee, appointed for the financial year 2017-18:
(i) Mr. P. Raju Iyer, Cost Accountant, for audit of Cost Records maintained by the Company in respect of âPaper and Paperboardâ and âNicotine Gumâ products.
(ii) Messrs. Shome & Banerjee, Cost Accountants, for audit of Cost Records maintained in respect of all applicable products of the Company, other than âPaper and Paperboardâ and âNicotine Gumâ products.
Pursuant to Section 148 of the Act read with the Companies (Audit and Auditors) Rules, 2014, appropriate resolutions seeking your ratification to the remuneration of the said Cost Auditors are appearing in the Notice convening the 106th AGM of the Company.
Secretarial Auditor
Your Board appointed Messrs. S. M. Gupta & Co., Company Secretaries, to conduct secretarial audit of the Company for the financial year ended 31st March, 2017. The report of Messrs. S. M. Gupta & Co. is provided in the Annexure forming part of this Report, pursuant to Section 204 of the Act.
CHANGES IN SHARE CAPITAL
During the year, the following changes were effected in the Share Capital of your Company:-
a) Increase in Authorized Share Capital
The Authorized Share Capital of your Company was increased from Rs, 1000 crores to Rs, 2000 crores divided into 2000,00,00,000 Ordinary Shares of Rs, 1/- each, with effect from 27th June, 2016.
b) Issue of Bonus Shares
402,66,57,100 Ordinary Shares of Rs, 1/- each, fully paid-up, were issued and allotted as Bonus Shares, in the proportion of 1 (One) Bonus Share of Rs, 1/each for every existing 2 (Two) fully paid-up Ordinary Shares of Rs, 1/- each held on 4th July, 2016, being the Record Date determined by the Board for the purpose. The Bonus Shares were allotted on 7th July, 2016.
c) Issue of Shares under ITC Employee Stock Option Schemes 7,35,18,980 Ordinary Shares of Rs, 1/- each, fully paid-up, were issued and allotted during the year upon exercise of 73,51,898 Options under the Companyâs Employee Stock Option Schemes.
Consequently, the Issued and Subscribed Share Capital of your Company, as on 31st March, 2017, stands increased to Rs, 1214,73,83,071/- divided into 1214,73,83,071 Ordinary Shares of Rs, 1/- each.
The Ordinary Shares issued during the year rank pari passu with the existing Ordinary Shares of your Company.
EMPLOYEE STOCK OPTION SCHEMES
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 (âthe Regulationsâ), are available in the Notes to the Financial Statements and can also be accessed on the Companyâs corporate website âwww.itcportal.comâ under the section âShareholder Valueâ. During the year, there has not been any material change in the Companyâs Employee Stock Option Schemes.
Your Companyâs Auditors, Messrs. Deloitte Haskins & Sells, have certified that the Employee Stock Option Schemes of the Company have been implemented in accordance with the Regulations and the resolutions passed by the Members in this regard.
INVESTOR SERVICE CENTRE
The Investor Service Centre of your Company (âISCâ), registered with Securities and Exchange Board of India as Category II Share Transfer Agent for providing in-house share registration and related services, maintains its position as an exemplar in investor servicing. ISC with its experienced team of professionals, supported by contemporary infrastructure, continues to provide best-in-class services to the investors.
During the year, the ISO 9001:2008 Quality Management System certification for investor servicing by ISC was renewed by Messrs. Det Norske Veritas, accredited agency for ISO certification, up to 15th September, 2018. ISC achieved the highest âLevel 5â rating for the eighth consecutive year - a testimony to the excellence achieved by ISC in providing quality investor services.
RELATED PARTY TRANSACTIONS
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 Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. 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.
DIRECTORSâ RESPONSIBILITY STATEMENT
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 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, 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 effectively.
CONSOLIDATED FINANCIAL STATEMENTS
Your Companyâs Board of Directors is responsible for the preparation of the consolidated financial statements of your Company & its Subsidiaries (âthe Groupâ), Associates and Joint Venture entities, in terms of the requirements of the Companies Act, 2013 and in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under Section 133 of the Act.
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 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 foretasted.
OTHER INFORMATION Compliance with conditions of Corporate Governance
The certificate from your Companyâs Auditors, Messrs. Deloitte Haskins & Sells, confirming compliance of the conditions of Corporate Governance as stipulated under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, is annexed.
Compliance with requirements relating to downstream investments
Your Companyâs 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 provided in the Annexure forming part of this Report.
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 4, 5, 6, 9 and 27 (v) (a) (ii) to the Financial Statements.
Particulars relating to Conservation of Energy and Technology Absorption
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.
Employees
The total number of employees as on 31st March, 2017 stood at 25,883.
There were 59 employees, who were employed throughout the year and were in receipt of remuneration aggregating Rs, 102 lakhs or more or were employed for part of the year and were in receipt of remuneration aggregating Rs, 8.5 lakhs per month or more during the financial year ended 31st March, 2017. 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.
Dividend Distribution Policy
The Dividend Distribution Policy of the Company, adopted by your Board pursuant to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, is provided in the Annexure forming part of this Report.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements that involve risks and uncertainties. When used in this Report, the words âanticipateâ, âbelieveâ, âestimateâ, âexpectâ, âintendâ, âwillâ 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
Inspired by the super ordinate purpose to serve national priorities, your Company redefined its Vision two decades ago to transform itself into a vibrant engine of growth that would make a substantial contribution to the Indian economy, whilst rewarding shareholders by creating growing value for the Indian society.
Over the last 21 years, your Company has created multiple drivers of growth by developing a portfolio of world-class businesses across all sectors of the national economy spanning agriculture, manufacturing and services. Your Company ranks amongst the top three in the private sector in terms of Contribution to the Exchequer. Over the last 21 years, your Companyâs Value Addition aggregated Rs, 3.6 lakh crores of which nearly 75% accrued to the Exchequer at the Central and State levels. During this period, your Companyâs Gross Revenue and Post-tax profit have recorded an impressive compound annual growth of 12.0% and 19.1% respectively. Total Shareholder Returns, measured in terms of increase in market capitalization and dividends, have grown at a compound rate of 23.6% per annum during this period, placing your Company amongst the foremost in the country in terms of efficiency of servicing financial capital.
Your Companyâs non-cigarette businesses have grown over 18-fold since 1996 and presently constitute 58% of net segment revenue. In aggregate, the non-cigarette businesses account for nearly 80% of your Companyâs operating capital employed, about 90% of the employee base and over 80% of annual investments.
Your Company today, is the leading FMCG marketer in India, a pre-eminent hotel chain and a globally acclaimed icon in green hoteliering, the clear market leader in the Indian Paperboard and Packaging industry, a pioneering trailblazer in farmer and rural empowerment through its Agribusiness and a global exemplar in sustainable business practices. Additionally, its wholly-owned
subsidiary, ITC Infotech India Limited, is a player of promise in the field of Information Technology.
Aligned with the Governmentâs Make in India Vision, your Company is building national assets in the manufacturing and tourism sector. As stated earlier in this Report, around 20 world-class Integrated Consumer Manufacturing & Logistics facilities are being built to deliver sustainable competitive advantage to your Companyâs FMCG businesses. In total, 65 projects with an outlay of Rs, 25,000 crores are in various stages of implementation / planning across the length and breadth of the country facilitating regional and national economic development. Recognizing that tomorrowâs world will belong to those who create, own and nurture intellectual capital, your Company continues to invest in augmenting the capability of its globally benchmarked Life Sciences and Technology Centre to ensure that its Businesses are future-ready and contribute to building intellectual property assets for the nation.
Your Companyâs Board and employees are inspired by the Vision of sustaining ITCâs position as one of Indiaâs most admired and valuable companies, creating enduring value for all stakeholders, including the shareholders and the Indian society. The vision of enlarging your Companyâs contribution to the Indian economy is driven by its âLetâs Put India Firstâ credo anchored on the core values of Trusteeship, Transparency, Empowerment, Accountability and Ethical Citizenship, which are the cornerstones of ITCâs 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
26th May 2017 Y C. DEVESHWAR
Chairman
Kolakta S. PURI Chief Executive Officer & Director
India R. TANDON Director & Chief Financial Officer
Mar 31, 2015
The Directors submit their Report for the financial year ended 31st
March, 2015.
SOCIO-ECONOMIC ENVIRONMENT
2014 marked yet another year of modest global economic growth.
According to the International Monetary Fund's April 2015 World
Economic Outlook, world output grew by 3.4% - at par with the growth
recorded in 2013. While economic growth picked up in the Advanced
Economies, the Emerging Market & Developing Economies witnessed further
deceleration in growth. The US economy posted a strong performance
during the year averaging an annualised growth of 4% in the last three
quarters of 2014, driven by growth in consumption expenditure on the
back of steady job creation and income growth, lower oil prices and
improved consumer confidence. The Euro Area also displayed signs of
recovery, growing by 0.9% during 2014 compared to a contraction of 0.5%
in the previous year, aided by lower oil prices, higher net exports and
supportive financial conditions. However, risks of prolonged
deflationary conditions and low growth persist. The Emerging Market &
Developing Economies slowed down further - from 5% in 2013 to 4.6% in
2014 with China recording a decline in growth rate - from 7.8% in 2013
to 7.4% in 2014. Other major constituent economies like Brazil, Russia,
and South Africa also recorded deceleration in growth rates.
Global growth prospects remain moderate in 2015. As per IMF estimates,
world GDP is projected to grow modestly from 3.4% in 2014 to 3.5% in
2015 and 3.8% in 2016 largely driven by the Advanced Economies, where
growth is expected to increase from 1.8% in 2014 to 2.4% in 2015 and
2016. Within Advanced Economies, growth is likely to be strongest in
the US at 3.1% in 2015 driven by lower energy prices, benign inflation,
reduced fiscal drag and improving household, corporate and bank balance
sheets. Building on the stronger growth momentum at the end of 2014,
overall Euro Area growth is expected to increase to 1.5% in 2015, aided
by lower oil prices, a weakening currency and the European Central
Bank's massive asset purchase programme to unshackle the economy from
its low growth and low inflation state. Emerging Market & Developing
Economies are likely to see another year of deceleration in growth -
from 4.6% in 2014 to 4.3% in 2015 - before recovering to 4.7% in 2016.
GDP growth in China is projected to slow down further to 6.8% in 2015
with decline in investment growth.
Despite the improved prospects in certain sections of the world
economy, global economic recovery remains fragile. Geopolitical
tensions, stagnation and deflationary conditions in Advanced Economies,
continued slowdown in growth rates in China and its consequent adverse
impact on commodity exporting countries represent some of the key
downside risks to global economic recovery.
While domestic macro-economic variables improved over the previous
year, aided by the collapse of global crude oil prices, the Indian
economy witnessed yet another challenging year with only a marginal
pick-up in economic growth. The weakness in the broader economy was
manifest in your Company's operating segments  particularly in the
FMCG and Hospitality space. While the new data, rebased to 2011-12,
released by the Central Statistics Office (CSO) has pegged GDP growth
at 7.4% for 2014-15 compared to 6.9% in 2013-14, there appears to be a
significant divergence between the reported growth rates and on-ground
economic activity. While growth in Private Final Consumption
Expenditure (PFCE) has been estimated at 7.1% for 2014-15 (Vs. 6.2% in
2013-14), leading indicators like rural demand headwinds, muted sales
of tractors and two wheelers, depressed production of consumer goods
and a marked deceleration in corporate sales growth point to a
persistent weakness in private consumption demand. Similarly, while
industrial growth based on the new data series is estimated at 5.9%,
Index of Industrial Production (IIP) data reflects a relatively subdued
performance. As stated by the RBI in its Monetary Policy Report of
April 2015, while the new GDP data embodies better coverage and
improved methodology as per international best practices, an accurate
assessment of the state of the business cycle and forecasting is
handicapped by the lack of sufficient historical data based on the new
data series.
There was good news on the inflation front, which declined
significantly aided by low global crude oil and commodity prices. While
Wholesale Price Index (WPI) for 2014-15 stood at 2% as against 6% in
2013-14, Core CPI inflation also eased to 5.5% in 2014-15 as compared
to 8.8% in 2013-14. The fall in inflation provided the much needed
space for monetary accommodation, with the RBI reducing policy rates by
a cumulative 50 bps in Q4 2014-15. Food inflation, however, has
displayed an uptrend in recent months and remains a key monitorable
given the adverse impact of unseasonal rains in March 2015 on the
winter crop and early indications of the likelihood of El Nino weather
conditions during the forthcoming south-west monsoon season.
There was significant improvement on the 'twin deficit' front as well.
Fiscal Deficit was contained within target at 4.0% of GDP in 2014-15
driven by decline in oil subsidies, once-off proceeds from spectrum
auctions and compression in Government expenditure. The Current Account
Deficit narrowed further to an estimated 1.3% of GDP as compared to
1.7% in the previous year, primarily aided by a lower import bill on
account of the steep fall in crude oil prices. Healthy capital flows on
the back of improved investor sentiment and favourable global liquidity
conditions helped shore up foreign exchange reserves leading to a
relatively stable Rupee and propelling the Sensex to record highs.
The broad-based decline in retail inflation since September 2014,
depressed commodity prices and the Government's plans to step up
infrastructure investments and focus on improving the ease of doing
business in India have improved the prospects for growth in 2015-16.
However, the pace of growth is unlikely to witness significant
acceleration in the short term given the inherent time lag involved for
business confidence and reforms to translate into higher levels of
capital investment and a significant pick-up in Private Consumption
Expenditure. As per median estimates, based on the Survey of
Professional Forecasters conducted by RBI, the Indian economy is likely
to grow by 7.9% in 2015-16 as compared to 7.4% in 2014-15 (based on
2011-12 data series). A sharp reversal in crude oil and global
commodity prices, heightened geopolitical risks, low agricultural
output due to sub-normal monsoons, and protracted stagnation in the
Euro Area represent some of the key downside risks going forward. An
accelerated rollout of policy reforms and fast track clearances of
large projects would go a long way in stimulating the private
investment cycle and turn around the manufacturing sector.
While India remains one of the fastest growing major economies in the
world, the rate of economic growth in recent years has remained far
below the desired levels and the country's potential. Given the low
levels of per capita income and the fact that a significant proportion
of our population lives below the poverty line, it is imperative that
the economy reverts to a high growth trajectory sooner than later.
Domestic consumption remains one of the key growth engines of the
Indian economy. With a large and growing population, rising affluence
and literacy, and increasing urbanisation - the structural drivers for
rapid growth in consumption are in place. Even so, the subdued growth
in private consumption over the last few years is a cause for concern.
Equally, given the significant additions to the working age population,
there is an urgent need to focus on new job creation and skill
development to address the unsustainable levels of unemployment
especially amongst the youth. Stagnation in the manufacturing sector
needs to be reversed at the earliest towards the creation of
sustainable livelihoods and absorption of the increasing working age
population of the country. In this context, the Government's 'Make in
India' initiative to turn India into a global manufacturing hub is a
step in the right direction as it seeks to enhance transparency, speed
up the approvals process, resolve policy issues by working in tandem
with the States and foster greater levels of value addition within the
country. Boosting agricultural productivity and value addition to
international standards while simultaneously improving market linkages
remain critical for the growth of the Agricultural sector. Supportive
policies in the areas of food processing and agro-forestry can
significantly contribute to job creation, enhance rural incomes, help
manage food inflation and promote sustainable agriculture.
For a country like India which has a disproportionately low share of
global natural resources relative to its large population, where
millions continue to live in abject poverty, and a young demographic
profile which entails 12 million people entering the job market every
year, the focus both at the national and corporate level should be on
fashioning strategies that foster sustainable, equitable and inclusive
growth. Policies and regulations must be aligned towards encouraging
businesses to adopt a low-carbon growth path and support the creation
of sustainable livelihoods and societal capital. Differentiated and
preferential incentives, in the form of fiscal or financial benefits to
companies that adopt sustainable business practices would act as a
force multiplier towards achieving this critical national goal. It is
your Company's belief that businesses can bring about transformational
change by pursuing innovative business models that synergise the
creation of sustainable livelihoods and the preservation of natural
capital with enhancing shareholder value. This 'Triple Bottom Line'
approach to creating larger 'stakeholder value', as opposed to merely
ensuring uni-dimensional 'shareholder value', is the driving force that
defines your Company's sustainability vision and its growth path into
the future.
Your 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 13 years),
'carbon positive' (for 10 years), and 'solid waste recycling positive'
(for 8 years).
The following sections outline your Company's progress in pursuit of
the 'Triple Bottom Line'.
FINANCIAL PERFORMANCE
Your Company delivered another year of steady performance in the
backdrop of continuing sluggishness in the macro-economic environment,
exacerbated by a steep increase in taxes/duties on cigarettes which led
to unprecedented pressure on legal cigarette industry sales volumes.
Your Company also had to contend with start-up costs relating to the
launch of new products and categories in the non-cigarette FMCG
segment, input cost pressures in the Paperboards, Paper & Packaging
Businesses and a weak demand and pricing environment in the Hotels
Business.
Gross Revenue for the year grew by 7.0% to Rs. 49964.82 crores. Net
Revenue at Rs. 36083.21 crores grew by 9.7% primarily driven by a 11.3%
growth in the non-cigarette FMCG segment, 8.1% growth in the
Agribusiness segment and 8.7% growth in the Cigarettes segment. Profit
Before Tax registered a growth of 10.6% to Rs. 13997.52 crores while Net
Profit at Rs. 9607.73 crores increased by 9.4%. After adjusting for
liability written back in Q2 FY14 (towards Rates and Taxes and Interest
thereon pertaining to earlier years, aggregating Rs. 192.68 crores)
underlying growth in Profit Before Tax and Net Profit for the year grew
by 12.3% and 11.0% respectively. Earnings Per Share for the year stood
at Rs. 12.05 (previous year Rs. 11.09). Cash flows from Operations
aggregated Rs.13534.65 crores compared to Rs. 10759.50 crores in the
previous year.
Your Directors are pleased to recommend a Dividend of Rs. 6.25 per share
(previous year Rs. 6.00 per share) for the year ended 31st March, 2015.
Total cash outflow in this regard will be Rs. 6029.56 crores (previous
year Rs. 5582.90 crores) including Dividend Distribution Tax of Rs. 1019.86
crores (previous year Rs. 810.99 crores).
Your Board further recommends a transfer to General Reserve of Rs. 970.00
crores (previous year Rs. 880.00 crores). Consequently, the Surplus in
Statement of Profit and Loss as at 31st March, 2015 would stand at Rs.
8767.35 crores (previous year Rs. 6139.09 crores).
FOREIGN EXCHANGE EARNINGS
Your Company continues to view foreign exchange earnings as a priority.
All Businesses in the ITC portfolio are mandated to engage with
overseas markets with a view to testing and demonstrating international
competitiveness and seeking profitable opportunities for growth. The
ITC Group's contribution to foreign exchange earnings over the last ten
years aggregated nearly US$ 6.6 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 2014-15, your Company and its subsidiaries
earned Rs. 5901 crores in foreign exchange. The direct foreign exchange
earned by your Company amounted to Rs. 5096 crores, mainly on account of
exports of agri-commodities. Your Company's expenditure in foreign
currency amounted to Rs. 1969 crores, comprising purchase of raw
materials, spares and other expenses of Rs. 1676 crores and import of
capital goods at Rs. 293 crores. Details of foreign exchange earnings and
outgo are provided in Note 31 to the Financial Statements.
PROFITS, DIVIDENDS AND SURPLUS
(Rs. in Crores)
PROFITS 2015 2014
a) Profit Before Tax 13997.52 12659.11
b) Tax Expense
 Current Tax 4020.99 3791.13
 Deferred Tax 368.80 82.77
c) Profit for the year 9607.73 8785.21
SURPLUS IN STATEMENT OF PROFIT AND LOSS
a) At the beginning of the year 6139.09 3788.10
b) Less: Loss for the period from
1st April, 2013 8.01 Â to 31st March,
2014 adjusted pursuant to the
Scheme of Arrangement
[Refer Note 31(x)]
c) Add: Unrecognised Net
Deferred Tax 45.84 Â
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 Â
Schedule II of the Companies Act,
2013 on Tangible Fixed Assets
(Net of Deferred Tax Rs.24.88 crores)
[Refer Note 31(xi)]
e) Add : Profit for the year 9607.73 8785.21
f) Less:
 Transfer to General Reserve 970.00 880.00
 Proposed Dividend
[2015 Rs.6.25 5009.70 4771.91
(2014 - Rs. 6.00) per share]
 Income Tax on Proposed Dividend
- Current Year 1019.86 810.99
- Earlier year's provision no (30.58) (28.68)
longer required
g) At the end of the year 8767.35 6139.09
BUSINESS SEGMENTS
A. FAST MOVING CONSUMER GOODS
FMCG - Cigarettes
The legal cigarette industry in India continues to be impacted by a
punitive taxation and discriminatory regulatory regime. The operating
environment for the legal cigarette industry in India was rendered even
more challenging during the year, with two rounds of sharp increase in
Excise Duty  in July 2014 and February 2015. This includes a
cumulative increase of 115% on filter cigarettes of 'length not
exceeding 65 mm', which has widened the price differential between
legal and illegal cigarettes and made it extremely difficult for the
legal cigarette industry to counter the unabated growth of illegal
cigarettes in the country.
Over the last 3 years, the incidence of Excise Duty and VAT on
cigarettes, at a per unit level, has gone up cumulatively by 98% and
104% respectively. It is pertinent to note that Kerala, Tamil Nadu and
Assam, which together account for a significant portion of your
Company's sales volumes, sharply increased VAT rate on cigarettes
during the year.
The combined impact of the sharp increase in Excise Duty and VAT as
stated above, is exerting unprecedented pressure on legal industry
sales volumes. Besides adversely impacting the performance of the legal
cigarette industry, this has led to sub-optimisation of the revenue
potential from the tobacco sector.
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 88% 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 below 12%
in 2014-15 even as overall tobacco consumption has increased in India.
As per a recent independent study1, it is estimated that products
representing 68% of overall tobacco consumption in the country escape
taxation as they are manufactured in the unorganised sector with little
statutory oversight. While India accounts for around 17% of world
population and constitutes over 84% of global consumption of smokeless
tobacco, it has a miniscule share of only 1.8% of global cigarette
consumption. As a result, revenue collections from the tobacco sector
are sub-optimised even as the overall tobacco control and health
objectives remain substantially unfulfilled. The requirement therefore
is an India-centric tax and policy framework for tobacco that cognises
for the unique tobacco consumption pattern in the country.
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 arresting the growth of illegal
trade.
According to an independent study conducted by Euromonitor
International - a renowned global research organisation - India is now
the 5th 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 resulting in a huge revenue loss of
over Rs. 7000 crores per annum to the national exchequer.
To combat this menace, 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 to.
There is an urgent need for stability in tax rates on cigarettes to
reverse the undesirable consequences of
a punitive and discriminatory tobacco taxation policy. It is also
relevant to note that despite being one of the largest producers of
tobacco in the world, India's share of global tobacco trade remains
meagre at approx. 7%. A stable, fair and equitable cigarette taxation
policy would be imperative to provide a strong domestic demand base to
the Indian farmer, insulating him from the volatilities typically
associated with international markets. Such a policy would be the key
catalyst in realising the full economic potential of the tobacco sector
in India and protect the interest of the Indian tobacco farmer. This
assumes critical significance especially in view of the fact that there
are few economically viable alternative crops to farmers in the regions
where tobacco is grown in India.
Your Company continues to engage with the concerned authorities, both
at the Central and State Government level, highlighting the need for
moderation in tax rates on cigarettes to maximise the revenue potential
from the tobacco sector and contain the growth of the illegal segment.
As per the draft Constitution Amendment Bill 2014 on Goods and Services
Tax (GST), cigarettes are likely to come under the purview of the
proposed GST framework while continuing to be subjected to the levy of
Central Excise Duty. It is imperative that revenue sensitive goods like
cigarettes are subjected to uniform standard rates of tax applicable to
general category of goods to ensure revenue buoyancy and rein in the
growth of the illegal segment. Further, the combined incidence of
Excise Duty and GST should be revenue neutral i.e. maintained at
current levels and all existing State level taxes should be subsumed
into GST. Your Company, along with industry bodies and other
stakeholders, continues to make representations to the Government in
this regard.
A recent Government notification, originally proposed to be effective
from 1st April 2015, mandates larger graphic health warnings covering
85% of the surface area of both sides of the pack as compared to the
current requirement of covering 40% of the area of one side of the
pack. The proposed graphic health warnings are amongst the most
stringent in the world and far larger than those in the top 5 cigarette
markets viz. China, Russia, Indonesia, USA and Japan. It is apprehended
that the introduction of the new graphic health warnings would inter
alia lead to a spurt in the sale of illegal cigarettes which will not
carry the new warnings. Besides the consequential loss of revenue to
the exchequer, this will also adversely impact the livelihoods of
Indian tobacco farmers as illegal cigarettes either do not use Indian
tobacco at all or use domestically sourced tobacco of dubious and
inferior quality.
It is estimated that about 60% of the countries in the world which have
ratified the WHO Framework Convention on Tobacco Control either do not
have any health warnings on cigarette packets or prescribe a 'text
only' warning (i.e. without any graphics). In fact, China, USA and
Japan which together account for more than 51% of global cigarette
sales volumes, prescribe 'text only' warnings.
The Committee on Subordinate Legislation, which is examining the issue
of introduction of larger graphic health warnings on cigarette packs in
India, has in its report dated 16th March 2015 stated that a large
number of representations have been received from Members of Parliament
as well as various people / organisations and stakeholders involved in
the tobacco industry against the introduction of the new warnings and
serious apprehensions have been expressed about the adverse impact of
the modified rules on the livelihoods of a large number of people
directly or indirectly involved in tobacco trade. The Committee has
sought more time to review the issues in detail and has recommended to
the Government to defer the implementation of the notification, till
such time it finalises the examination of the subject and arrive at
appropriate conclusions. The Government has accordingly deferred the
implementation of the new graphic health warnings.
The Tobacco industry in India supports the livelihoods of over 41
million people including vulnerable sections of the society like
farmers, farm labour, rural poor, women, tribals etc. and contributes
around Rs. 28000 crores to the national exchequer apart from generating
valuable foreign exchange earnings of around Rs. 6000 crores. It is
pertinent to note that other tobacco producing countries have taken a
balanced view keeping in mind their domestic interests and have not
adopted over-sized and excessive health warnings.
The proposed graphic health warnings would impede the ability to
compete in the market by leaving insufficient space for your Company's
distinctive trademarks and pack designs besides depriving consumers of
their valuable right to be informed about a legitimate product they
intend to purchase and consume.
Notwithstanding the challenging regulatory and taxation environment,
your Company strengthened its product portfolio across segments to
reinforce its leadership position in the industry. During the year,
specific emphasis was laid on developing and launching products with
differentiated tobacco blends, special filters and flavour bouquets.
Several innovative variants like 'Classic Blue Leaf with Jet Flo
Filter', 'Gold Flake Gold with Quad Core Filter', 'Classic Ice Burst
with Capsule Filter' and 'Classic Fine Taste with Triple Solid Filter'
were launched during the year in line with your Company's philosophy to
offer world-class products to the Indian consumer.
During the year, your Company expanded the market presence of KwikNic
nicotine chewing gum adding the pharmaceutical channel to the product's
distribution footprint. The year also saw your Company's foray into the
Electronic Vaping Device (EVD) category under the 'EON' brand. After
its initial launch in Hyderabad and Kolkata, the brand was
progressively extended to Bengaluru, Delhi and Goa. EON is also
available in the e-commerce channel.
Your Company's objective of providing consumers with a comprehensive
range of world-class products has led to increasing complexity in
manufacturing operations over the years. Towards this, your Company has
focused on building flexibility and agility across the supply chain to
ensure delivery of volume and variety in a timely and cost-effective
manner. Structural interventions in the area of manufacturing network
planning, technology and people systems have helped enhance
responsiveness. During the year, the first phase of modernisation of
the Kolkata factory was successfully completed. This involved induction
of new technologies, automation of shop floor processes and
introduction of new segments.
During the year, the Bengaluru and Saharanpur factories won the
'Platinum' and 'Gold' awards respectively in the prestigious 'India
Manufacturing Excellence Awards' (IMEA) instituted by Frost & Sullivan
and The Economic Times. These awards bear testimony to your Company's
standing among India's best manufacturing organisations.
Your Company's manufacturing facilities continue to receive recognition
for excellence in sustainability. During the year, the Bengaluru
factory was awarded the 'Overall Leader Award' for Green Manufacturing
Excellence by Frost & Sullivan, while the Munger, Ranjangaon and
Bengaluru factories won the 'CII National Award for Excellence in
Energy Management'.
In recognition of excellence in safety management at its factories,
your Company received several awards during the year. These include the
'Suraksha Puraskar (Bronze)', under the manufacturing sector category
from the National Safety Council of India for Ranjangaon Factory, first
prize for Saharanpur factory from FICCI in the 'Safety Systems
Excellence Awards for manufacturing sector  Large Scale' category and
'Safety Innovative Award 2014' by Institute of Engineers (India) for
Kolkata Factory.
With steep increase in taxation, rising illegal trade and increasing
regulatory pressures, the year ahead will indeed be challenging.
Despite the severe pressures, your Company remains confident in
sustaining its leadership position in the industry by leveraging its
robust business strategies, a world-class product portfolio and
superior execution capabilities.
FMCG - Others
The FMCG industry continued to grow at a muted pace during the year in
the backdrop of a challenging macro-economic environment, with most of
your Company's operating segments recording deceleration in growth
rates. Categories involving discretionary spends or with relatively
high penetration levels remained subdued during the year.
While there are incipient signs of revival of demand, it is expected to
take a few more quarters for the industry to revert to a higher growth
trajectory. The FMCG industry in India, however, is poised to bounce
back over the medium-term driven by increasing affluence, urbanisation,
a young workforce, and relatively low levels of penetration and per
capita usage.
Your Company's FMCG-Others Businesses clocked Segment Revenue of Rs. 9038
crores during the year, representing a growth of 11% over the previous
year. This was achieved in the backdrop of sluggish demand conditions
as aforestated and intense competitive activity with industry players
stepping up consumer and trade offers with a view to garnering volumes,
offsetting the benefit accruing from benign inflation in input costs.
Segment Results for the year stood at Rs. 34 crores after absorbing the
start-up costs of two new categories viz., Juices and Gums, scale-up
costs of Deodorants launched in 2013, besides a host of new launches in
existing categories.
Your Company continued to make investments during the year towards
enhancing brand salience and consumer connect while simultaneously
focusing on implementing strategic cost management measures across the
value chain and adopting a judicious pricing approach. Several
initiatives were also implemented during the year towards leveraging
the rapidly growing e-commerce channel for enhanced reach of your
Company's products and harnessing digital and social media platforms
for deeper consumer engagement.
Your Company continued to strengthen its formidable distribution
highway comprising a large and diverse product portfolio, multiple
brands, hundreds of SKUs covering over 1 lakh markets and directly
servicing over 2 million retail outlets across trade channels. The
Trade Marketing & Distribution vertical of your Company, based on
customer and channel insight developed over the years, has crafted
differentiated service packs customised for each type of retail outlet.
Your Company remains a leader in the convenience channel and is rated
as the benchmark supplier in premium grocery outlets. Extensive
deployment of in-store merchandisers and consumer contact programmes to
aid demand creation coupled with a relentless pursuit of execution
excellence has resulted in your Company sustaining its position as one
of the fastest growing FMCG companies in the Modern Trade channel. The
scale and diversity of your Company's distribution network continues to
be leveraged to enhance market presence and serve as a valuable source
of consumer/trade insight, facilitating the seamless execution of new
product and category launches. Technology enablement in the form of
customised mobility solutions and predictive analytics are being
increasingly leveraged towards enabling quick and accurate data
capture, informed decision making in real time, and scientific
designing of geography-specific trade promotion schemes. Supply chain
optimisation and capability augmentation of customers (wholesale
dealers) and their sales force remain key focus areas.
In addition to scaling up outsourced manufacturing capacity across key
categories during the year, your Company progressed the construction of
state-of-the-art owned integrated consumer goods manufacturing and
logistics facilities across regions in line with long-term demand
forecasts. Currently, over 20 projects are underway and in various
stages of development  from land acquisition / site development to
construction of buildings and other infrastructure.
The new FMCG Businesses comprising Branded Packaged Foods, Personal
Care Products, Education and Stationery Products, Lifestyle Retailing,
Incense Sticks (Agarbattis) and Safety Matches have grown at an
impressive pace over the past several years, with Segment Revenue
crossing the Rs. 9000 crores mark during the year.
Your Company's vibrant portfolio of brands viz., 'Aashirvaad',
'Sunfeast Dark Fantasy', 'Sunfeast Dream Cream', 'Sunfeast Delishus',
'Sunfeast Bounce', 'Bingo!', 'Yumitos', 'YiPPee!', 'Candyman',
'mint-o', 'GumOn', 'Kitchens of India' in the Branded Packaged Foods
space; 'Classmate' and 'Paperkraft' in Education & Stationery products
market; 'Essenza Di Wills', 'Fiama Di Wills', 'Vivel', 'Superia' and
'Engage' in the Personal Care products segment; 'Wills Lifestyle' and
'John Players' in the Lifestyle Retailing Business; 'Mangaldeep' in
Agarbattis, 'Aim' in Matches, amongst others continue to garner
consumer franchise and enhance market standing. These brands, which
represent an annual consumer spend of over Rs. 11000 crores in aggregate,
have been built organically by your Company over a relatively short
period of time - a feat perhaps unrivalled in the Indian FMCG industry.
This includes 4 brands  Aashirvaad, Sunfeast, Classmate, Bingo! -
which exceed Rs. 1000 crores each  and several brands that are more than
Rs. 500 crores each in terms of annual consumer spend. These world-class
Indian brands support the competitiveness of domestic value chains of
which they are a part, ensuring creation and retention of value within
the country.
In line with the corporate strategy of creating multiple drivers of
growth, your Company seeks to rapidly scale up the FMCG Businesses
leveraging its institutional strengths viz. deep consumer insight,
proven brand building capability, a deep and wide distribution network,
strong rural linkages and agri-commodity sourcing expertise, packaging
knowhow and cuisine knowledge. In addition, your Company continues to
make significant investments in Research & Development to develop and
launch disruptive and breakthrough products in the market place.
Highlights of progress in each category are set out below.
Branded Packaged Foods
Demand conditions in the Branded Packaged Foods industry remained
subdued for the second year in succession with consumers seeking
value-for-money offers and curbing discretionary spending. Against the
backdrop of a sluggish demand environment, your Company sustained its
position as one of the fastest growing branded packaged foods
businesses in the country leveraging a robust portfolio of brands,
differentiated range of products customised to regional tastes and
preferences along with enhanced product visibility and availability in
key markets.
While input cost inflation remained moderate during the year, the high
intensity of consumer promos and trade schemes resorted to by industry
players in a bid to garner volumes exerted pressure on margins. Your
Company's Branded Packaged Foods Businesses mitigated such margin
pressure by focusing on product mix enrichment, value engineering
initiatives, dynamic sourcing based on close monitoring of market
trends, structural interventions in manufacturing technology and supply
chain optimisation.
The Branded Packaged Foods Businesses continue to invest in the areas
of consumer insight discovery, R&D and product development and
differentiated technology platforms to effectively address the diverse
tastes and preferences of consumers across the country. Investments
continue to be made towards augmenting the manufacturing and sourcing
footprint across categories with a view to improving market
responsiveness and reducing the cost of servicing proximal markets.
During the year, an integrated manufacturing and logistics facility was
commissioned at Malur, Karnataka. Significant progress was also made
during the year towards setting up an integrated manufacturing facility
at Uluberia, West Bengal, a Dairy plant at Munger, Bihar and a biscuit
manufacturing factory at Mangaldoi, Assam (through a joint venture
company viz., North East Nutrients Pvt. Ltd.). These facilities are
expected to become operational in the ensuing year.
 In the Bakery and Confectionery Foods
Business, your Company increased the scale of its operations and
improved its market standing. The Sunfeast range of biscuits was
augmented during the year with the launch of 'Mom's Magic' in the
premium cookies space in two variants - 'Rich Butter' and 'Cashew &
Almond'. In addition to the several product development and brand
enhancement initiatives undertaken during the year, the Business
migrated the popular range of cream biscuits under a new sub-brand -
'Bounce' - which emerged as the largest cream brand in the industry and
helped sustain your Company's leadership position in the overall creams
segment. The Business also forayed into the Cakes segment with the
launch of 'Yumfills Whoopie Pie'- a premium chocolate-enrobed cake -
which has seen good traction.
In the Confectionery category, the Business continued to leverage the
'Candyman' and 'mint-o' brands and focused on premiumising its product
portfolio by enhancing the share of variants priced at 'Re. 1 & above'
in the sales mix. The Business augmented manufacturing capability in
the hard boiled candy and jelly segment, which will facilitate
introduction of innovative and premium products going forward. The year
also marked your Company's foray into the Gums segment with the launch
of 'GumOn' brand, which has garnered impressive consumer franchise in
launch markets. The product is being rolled out to target markets.
 Your Company's Staples, Spices and Ready-to-Eat Foods Business posted
a robust performance during the year, growing well ahead of the
industry. In the Staples category, 'Aashirvaad' atta consolidated its
leadership position in the industry and grew at a rapid pace driven by
the value-added portfolio comprising the 'Multigrain', 'Select' and
'Superior MP' variants. The Business also augmented its product range
during the year with the launch of 'Aashirvaad Atta with Methi' in the
value-added segment. Brand salience was strengthened further on the
back of impactful communication and marketing investments.
 In the Snack Foods Business, your Company recorded impressive gains
in market standing in the Savoury Snacks, Noodles & Pasta categories.
In the Noodles category, 'Sunfeast YiPPee!' clocked a healthy revenue
growth far exceeding the industry growth rate. During the year,
Sunfeast YiPPee! entered the league of Top 100 FMCG brands in India  a
reflection of its growing stature in the fast growing Noodles category.
With the commissioning of the new facility at Malur, Karnataka, the
Business expanded its manufacturing footprint to all the four regions
of the country which will facilitate more efficient servicing of demand
going forward. Sunfeast YiPPee! Tricolor Pasta, a differentiated
premium offering launched last year, continued to grow at a fast pace
and gain consumer franchise.
In the Savoury Snacks category, the Business registered significant
growth in its Bingo! range of finger snacks driven by the 'Mad Angles'
and 'Tedhe Medhe' sub-brands through sustained expansion of
distribution, activation of passive channels in the North and East
markets and measured brand investments. In the potato chips portfolio,
'Bingo! Yumitos' also grew at a robust pace on the strength of
region-specific interventions.
 Your Company forayed into the fast-growing Juices category during the
year with the launch of 7 exciting variants under the 'B Natural' brand
in January 2015. These highly innovative and differentiated products,
including the unique offering 'Jamun Joy', have received promising
consumer response. Your Company seeks to leverage its agri-sourcing
expertise and deep distribution reach and rapidly scale up the B
Natural brand in the years ahead.
Your Company is well positioned to establish itself as the 'most
trusted provider of food products in the Indian market' leveraging a
strong portfolio of world-class brands, deep understanding of the
diverse tastes and preferences of Indian consumers, focus on
best-in-class quality and operational excellence across the value
chain. Your Company will continue to make investments towards
establishing a distributed manufacturing footprint, structural
interventions with a view to reducing operating costs and focus on
supply chain optimisation to support the rapid and profitable growth of
the Branded Packaged Foods Businesses. In line with this objective,
your Company is in the process of implementing a new 'Strategy of
Organisation' towards bringing about sharper focus, greater agility and
responsiveness and facilitating the development of deeper specialisms
in each operating category.
Personal Care Products
Your Company's Personal Care Products Business posted robust growth in
revenue during the year driven by increasing consumer franchise for its
products and a series of new launches and range extensions. During the
year, the Business rolled out several differentiated product offerings
in the Deodorants, Soaps, Shower Gel and Skin Care categories under the
'Engage', 'Fiama Di Wills', 'Vivel', and 'Superia' brands, and improved
in-store brand salience of offerings under the 'Essenza Di Wills'
brand.
In February 2015, your Company acquired the 'Savlon' and 'Shower to
Shower' trademarks and other intellectual property rights for
identified markets from the Johnson & Johnson group. Savlon is an
established brand with a rich heritage and is associated with personal
care products in the fast-growing antiseptic/anti-bacterial categories.
Shower to Shower has a strong consumer franchise in the prickly heat
talcum powder category. Your Company intends to leverage these assets
to strengthen its position in the personal care space by expanding its
existing product portfolio and gaining access to newer consumer
segments and markets.
The year saw the successful introduction of a new range of soaps at the
premium end under the 'Vivel' franchise with the launch of 'Vivel Love
& Nourish' and 'Vivel Glycerin'. As part of a brand modernisation
exercise, 'Superia Deluxe' and 'Superia Naturals' were launched to
address the emerging needs of distinct consumer segments. The year also
witnessed the launch of the next edition of the Signature series of
'Fiama Di Wills Shower Gels - Shower Jewel' designed by celebrity
designer, Masaba Gupta. In the fast-growing Deodorants category,
'Engage' has emerged as the No.2 player in the country within a
relatively short span of 2 years since launch. The year also saw the
launch of '0% gas' variants of 'Engage Cologne Sprays' thereby
providing consumers a wider repertoire of choice. These interventions
have been well received by consumers strengthening your Company's
presence in the Personal Care industry.
As in previous years, the Business received accolades for its product
quality and innovation initiatives. 'Fiama Di Wills Shower Gel' was
voted the best shower gel at the Nykaa.com Femina Beauty Awards.
'Vivel' won the Afaqs Buzziest Brand Award where it was ranked No. 1
in the Personal Care category. 'Superia Silk' was ranked as the No. 1
soap on quality and skin moisturising ability among Grade 1 toilet
soaps by Consumer Voice, a Government of India recognised comparative
product testing organisation. These awards, amongst others, bear
testimony to your Company's relentless focus on quality and delivering
world-class products to Indian consumers.
Industry growth remained subdued during the year, with leading players
passing on the benefit of softening input prices - primarily of crude
palm oil - to consumers with a view to reviving demand. Your Company
outperformed the market by launching several value-added products,
focusing on a richer product mix, managing costs by developing
alternative sources of supply and further improving supply chain
responsiveness.
The Indian Personal Care industry is poised for rapid growth given the
relatively low levels of per capita consumption in the country as
compared to other emerging economies, increasing urbanisation, rising
disposable incomes and the increasing consumer preference for enhanced
personal grooming. Your Company is well positioned to seize the
emerging opportunities in this rapidly evolving industry with its
unrelenting focus on creating vibrant brands, world-class product
quality, development of innovative and consumer-centric products based
on deep consumer understanding leveraging dedicated R&D capabilities as
well as partnerships with key institutions in the scientific community.
Education & Stationery Products
Your Company consolidated its leadership position in the Education and
Stationery products industry in India. In the Notebooks category, the
Business fortified its market standing and expanded its product
portfolio with the launch of several differentiated offerings under the
'Classmate', 'Classmate Pulse', 'Paperkraft' and 'Saathi' brands. The
Business launched a premium 'Signature' range of products under the
Paperkraft brand exclusively in the e-commerce space. The Classmate
portfolio of notebooks was enriched with refreshing designs, finishes
and binding styles. Complementary categories comprising writing
instruments, art stationery and scholastic products witnessed robust
growth during the year leveraging the strong equity of Paperkraft and
Classmate brands.
The Business continued to focus on innovation and new product
development with a dedicated product development cell working in tandem
with your Company's Life Sciences & Technology Centre.
On the distribution front, the Business expanded the availability of
its products through a multi-pronged approach of channel proliferation,
market penetration and outlet coverage increase. The Business also
implemented a specific distribution network to cater to the Saathi
brand in the value segment and expanded presence amongst leading
e-tailers.
In the area of supply chain, the focus was on strengthening the
delivery, quality and cost competitiveness of outsourced manufacturers.
During the year, the Business deployed state-of-the-art supply chain
planning and optimiser tools that are expected to lower overall cost of
servicing demand. Your Company continues to provide technical support
and training to nearly 40 vendors in the small-scale sector,
facilitating a majority of them being certified to ISO 9001:2008
standards.
The Classmate notebook is a manifestation of the environmental capital
built by your Company in its paper business. While the notebook cover
is made from recycled board sourced from your Company's Forest
Stewardship Council (FSC) certified Kovai mill, the paper used in the
notebooks leverages your Company's world-class fibre line at
Bhadrachalam which is India's first ozone treated elemental chlorine
free facility.
Growing literacy, increasing scale of government spend and
public-private initiatives in education and higher corporate spends in
the education sector are expected to drive rapid growth of the Indian
Education & Stationery Products industry. Your Company, with its
collaborative linkages with small & medium enterprises, a robust
product portfolio and unparalleled distribution network, is well poised
to strengthen its leadership position in the rapidly globalising Indian
stationery market.
Lifestyle Retailing
During the year, the performance of your Company's Lifestyle Retailing
Business was impacted by the continuing slowdown in discretionary
consumption expenditure. The rise of online apparel retail, aided by
heavy discounting and consumer offers, also impacted performance.
In the Premium segment, Wills Lifestyle with its high fashion imagery,
increasing appeal and rich product mix, continues to enjoy strong
market standing and consumer bonding. Brand equity was enhanced with
heightened focus on premium product platforms. 'Wills Classic'
'Luxuria' and 'Regalia' - a finely crafted range of super premium
formals - and the Wills Classic 'Ecostyle' collection in natural-fibre
products such as linens, sharpened the premium imagery of the brand and
aided higher value capture. The Wills Classic 'Modernist' range, 'Wills
Sport' and 'Wills Clublife' attracted newer and younger franchise
leveraging high-fashion imagery and design language. The women's
collection was strengthened by offering an enhanced range of exclusive
designer wear, co-created with India's leading designers. The Business
also crafted a range of wardrobe essentials across categories to
enhance sell through duly supported by robust replenishment
infrastructure and processes. The Wills Lifestyle brand continued to
receive industry recognition, including the 'Superbrand' certification.
During the year, sales of Wills Lifestyle products to 'Club ITC'
members increased significantly, reflecting the brand's enhanced
bonding with premium consumers.
Retail presence of Wills Lifestyle was expanded during the year with
the brand currently present in 104 exclusive stores in 44 cities and
more than 500 'shop-in-shops' in leading departmental stores, regional
chain stores and multi-brand outlets. The brand is also present in 6
Wills Lifestyle boutique stores in select ITC Hotels enhancing its
availability to high-end and leisure travellers.
In the 'Youth fashion' segment, 'John Players' enhanced its market
standing by driving fashion imagery anchored on bold and edgy fashion.
John Players has emerged as a leading brand in this segment driven by
youthful products such as denims, knits and jackets, earning the
distinction of being featured amongst the top 5 brands in the apparel
category in 'Brand Equity - The Most Exciting Brands' list published by
The Economic Times.
During the year, the Business reformulated its retail presence towards
enhancing brand reach and acquiring new consumers. Business processes
for creation of winning designs and enhancing supply chain efficiency
were further strengthened during the year along with implementation of
several initiatives towards improving retail and manufacturing
productivity.
Your Company's brands  Wills Lifestyle and John Players  continue to
be driven on digital platforms to enhance reach, increase awareness and
tap online sales potential including through social media and specific
e-commerce portals.
The Business will continue to focus on enhancing the premium and
fashion quotient of its offerings based on deep consumer insight, and
delivering products of world- class quality. Further investments are
being made in building brand salience, enhancing product vitality,
implementing contemporary information technology solutions, improving
supply chain responsiveness and delivering a superior shopping
experience.
Safety Matches and Incense sticks (Agarbattis)
Your Company recorded yet another year of impressive revenue growth in
the Agarbatti category, growing well ahead of the industry. Growing
franchise for the 'Mangaldeep' brand, superior consumer experience and
enhanced distribution reach contributed to a robust performance during
the year. Product portfolio was strengthened during the year with a
series of new launches and range extensions such as 'Mangaldeep Â
Flora' and 'Mangaldeep - Dhoop Cones' in the premium segment.
Mangaldeep continues to be the fastest growing agarbatti brand in the
country driven by a well-crafted portfolio of offerings born out of
deep consumer understanding and increasing brand salience. Your Company
also consolidated its leadership position in the 'Dhoop' segment.
Investments were made during the year to enhance quality, availability
and improving supply chain responsiveness.
The manufacture of agarbattis was reserved for the small-scale &
cottage sector in India considering its importance in employment
generation. However, import of raw battis (the principal raw material)
is still being allowed at low Customs Duty rates. This is resulting in
bulk of the raw batti consumption in India being of imported origin
leading to a loss of livelihood creation opportunities. Suitable policy
changes in arresting this trend would go a long way in creating
sustainable livelihoods especially among rural Indian women and
tribals.
In the Safety Matches category, your Company sustained its market
leadership leveraging a strong portfolio of offerings across market
segments. However, sustained escalation in prices of raw materials on
the one hand and proliferation of cheaper low quality products on the
other, continued to exert severe pressure on sales volumes and margins.
The Business implemented several measures such as value engineering,
supply chain optimisation and developing alternate sources of supply to
mitigate margin pressure. In this regard, the Business continues to
focus on developing new products and growing the value-added segment
towards enhancing the profitability of the business. Your Company's
safety matches brand 'Aim' continues to be the largest selling brand in
this industry.
During the year, pursuant to the scheme of demerger of the
Non-Engineering Business of Wimco Limited being effective on 27th June
2014, the Safety Matches Business of Wimco Limited was seamlessly
integrated with your Company's Safety Matches Business. The Business
rationalised its manufacturing operations and implemented a Voluntary
Separation Scheme at the Bareilly factory with all permanent workmen
and trainees opting for the same. The Business scaled up sourcing from
the small-scale sector to meet its requirements and progressively
regionalised its sourcing footprint with the induction of units in the
North and West towards more efficient servicing of the market.
Technology induction in manufacturing is crucial for the long-term
sustainability of the Safety Matches Industry. A uniform taxation
framework which provides a level playing field to all manufacturers is
necessary to trigger the required investments for modernising this
industry and creating a safer working environment for the workforce
engaged in this industry. Introduction of GST is expected to create
this supportive environment to enable the industry to become globally
competitive.
B. HOTELS
The hospitality sector continues to be impacted by a weak pricing
scenario in the backdrop of excessive room inventory in key domestic
markets and sluggish macro-economic environment both in India and major
source markets. While there was marginal improvement in occupancy rate,
average room rates remained under pressure in the backdrop of the
addition of 8000 rooms in the key markets of Delhi / National Capital
Region, Mumbai, Bengaluru, and Chennai over the last 2 years.
Consequently, Segment Revenues recorded a modest increase of 4.8%
during the year. Segment Results were impacted mainly on account of the
relatively weak pricing scenario, higher depreciation charge for the
year due to revision in the useful life of fixed assets in accordance
with the provisions of Schedule II to the Companies Act, 2013 and
gestation costs of the newly opened properties - ITC Grand Bharat, near
Gurgaon and My Fortune Bengaluru.
Your Company's Hotels Business continues to be rated amongst the
fastest growing hospitality chains in India, with over 100 properties
across the country under 4 distinct brands - 'ITC Hotels' in the Luxury
segment, 'WelcomHotel' in the upper-upscale segment, 'Fortune Hotels'
in the upscale & mid-market space and 'WelcomHeritage' in the leisure &
heritage segment. In addition to these brands, the Business has
licensing and franchising agreements for two brands - 'The Luxury
Collection' and 'Sheraton' - with Starwood Hotels & Resorts.
Your Company launched My Fortune Bengaluru, a flagship property under
the Fortune banner in the 'upscale' segment, in May 2014 which has been
well received by guests. In November 2014, the Business unveiled its
latest offering in the super premium segment - ITC Grand Bharat near
Gurgaon under a licensing arrangement from Landbase India Ltd. - a
wholly-owned subsidiary of your Company. Uniquely
positioned as an 'oasis of unhurried luxury', this sprawling 'Luxury
Collection' resort is situated in an idyllic expanse amidst the Classic
Golf Resort - a 27-hole Jack Nicklaus designed signature golf course -
surrounded by the majestic Aravalis and dotted with pristine lakes. ITC
Grand Bharat delivers the finest luxury experience to guests with 100
Deluxe Suites and 4 Presidential Villas, a wide range of fine dining
restaurants, signature spa 'Kaya Kalp - The Royal Spa', a host of
recreational and cultural activities and a world-class meeting /
banqueting venue. The resort has received glowing accolades in the
domestic and international press including from CNN Travel which has
rated the Classic Golf Resort among the Top 10 city golf clubs in the
world, while ITC Grand Bharat received the Outlook Traveller Award for
the 'Indian Hotel Debut of the year'.
In line with its 'asset-right' growth strategy, the Business commenced
providing operating services at WelcomHotel Jodhpur from August 2014,
taking the total number of rooms under the management contract model in
the 5 Star category to 1200.
Your Company was declared the successful bidder for a 250-room luxury
beach resort located in South Goa operating under the name Park Hyatt
Goa Resort and Spa, following an auction held by IFCI Limited in
February 2015 in terms of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002.
Subsequent to your Company making full payment of the bid amount, IFCI
issued the requisite Sale Certificates in favour of your Company on
25th February, 2015. The erstwhile owners of the property have
thereafter challenged the sale. The matter is pending before the
Honourable Bombay High Court, and the hearing is in progress.
The Food & Beverage segment continues to be a major strength of your
Company with some of the most iconic brands in the country. Your
Company's prestigious brand 'Bukhara' once again featured in the
'S.Pellegrino Asia's Best 50' list while 'Dum Pukht' featured in the
global selection of the 'World's 50 Best Restaurants Academy' list.
During the year, the Business added
'Tian' Â an Asian cuisine studio offering innovative flavours from East
Asia and beyond  to its international food & beverage brand portfolio
comprising 'West View', 'Pan Asian', 'Edo', 'Shanghai Club' and
'Ottimo'. 'The Royal Vega', a pan-Indian offering of delectable
vegetarian food from the royal kitchens of India, continues to delight
Indian and foreign travellers alike.
In line with your Company's commitment to the 'Triple Bottom Line', the
Hotels Business targets a continuous reduction in energy and water
consumption. Further, the Business continues to enhance usage of
renewable energy sources which now stands at 58% of total energy
requirements of the Business. The bespoke 'WelcomAqua' water programme
has been extended to all properties in the Luxury Collection. These
interventions stand testimony to the 'Responsible Luxury' positioning
of your Company's Hotels Business and reinforce ITC Hotels' position as
the 'greenest luxury hotel chain' in the world.
'Club ITC', your Company's pan-ITC consumer loyalty programme with a
current membership base of 2.4 lakh premium consumers, continues to
gain franchise amongst the premium clientele of ITC Hotels and Wills
Lifestyle. A new dining loyalty programme  'Club ITC Culinaire'  was
launched during the year and is fast gaining popularity.
In view of the positive long-term outlook for the Indian Hotel industry
coupled with the prospect of sustained growth in both global and
domestic economy, your Company remains committed to its investment-led
growth strategy. Steady progress is being made on construction of new
hotels at Kolkata, Hyderabad and Coimbatore. Requisite clearances from
the Sri Lankan authorities have been received by WelcomHotels Lanka
(Private) Ltd., a wholly-owned subsidiary of the Company, to progress
your Company's first overseas project in Colombo. Excavation and allied
works commenced in November 2014.
The 'Fortune' brand which caters to the 'mid-market to upscale' segment
continued to lead this segment and expanded its presence with the
addition of 5 new hotels during the year, taking the overall number of
operational hotels to 46 hotels across 34 cities. Plans are on the
anvil to extend the upscale My Fortune brand to 9 more cities in
addition to Chennai and Bengaluru. The 'WelcomHeritage' brand remains
the country's most successful and largest chain of heritage hotels with
34 operational hotels.
Your Company's Hotels Business, with its world-class properties,
globally benchmarked levels of service excellence and customer
centricity, is well positioned to sustain its leadership status in the
Industry and to emerge as the largest hotel chain in the country over
the next few years.
C. PAPERBOARDS, PAPER AND PACKAGING
During the year, the Paperboards, Paper and Packaging segment was
impacted by the continuing slowdown in the FMCG industry and input cost
pressures. Consequently, the Segment Revenue and Profits grew a muted
2.2% and 3.3% respectively.
Paperboards & Specialty Papers
Global demand for Paper and Paperboard in 2014 remained stagnant at 401
million tonnes. While demand for Paperboard grew by 1.5% during the
year, the Writing & Printing paper (W&P) and Newsprint segments
continued to decline. During the period 2008 to 2013, global Paper and
Paperboard demand grew marginally by 0.5% CAGR on the back of subdued
economic growth and structural decline in W&P demand in developed
economies like North America and Western Europe with the increasing
adoption of digital media. Emerging economies in Asia, the Middle-East
and Africa continue to grow at a faster pace. Over the next 5 years,
overall demand is estimated to grow at a slightly faster pace of 1.1%
per annum driven mainly by Paperboard on the back of economic recovery
in developed economies and lower rate of decline in the W&P segment. In
view of the subdued demand conditions as aforestated and significant
surplus capacity in China  as a result of huge capacity additions
since 2012 and declining economic growth rate  the pricing scenario is
expected to remain weak over the medium term.
While India remains one of the fastest growing Paper and Paperboard
markets in the world, overall industry demand was adversely impacted
for a major part of the year in view of the weak economic environment
prevailing in the country. Over the next 5 years, overall demand is
expected to grow at 6.6% CAGR, with Paperboard (42% of the market) and
W&P (31% of the market) estimated to grow at 7.5% CAGR and 6.2% CAGR
respectively.
 Within Paperboards, demand for Value Added Paperboards (VAP) is
expected to grow at 10% CAGR during this period. The faster rate of
growth in VAP grades is expected to be driven by the increasing demand
for branded packaged products, growth in organised retail and the use
of packaging as a key differentiator, especially in the FMCG sector.
Food, pharmaceuticals, publishing & notebooks and beverages are
expected to be the major end-use segments driving demand growth.
 In the W&P paper segment, communication grades for notebooks, school
stationery and publishing are likely to be the key drivers of growth
fuelled by increasing investments in the education sector and rising
literacy levels.
The huge market potential and relatively high rates of growth in India
is attracting new capacities despite the recent raw material shortages
and pressure on industry profitability. This is evidenced by the
significant investments in capacity addition and technology upgradation
by industry players over the last 5 years. In the VAP segment,
capacity of about 3 Lakh tonnes per annum, representing 50% of the
current market size of the segment, is expected to be commissioned over
the next 12 to 18 months.
Reduction of import duties under various regional Free Trade Agreements
(FTA), especially with ASEAN which became effective from 1st January
2014, continue to impact the profitability of the domestic Paper &
Paperboard industry and the economic viability of small paper mills.
The current import policy as aforementioned and extant regulations
governing commercial and social forestry in the country, put the Indian
Paper and Paperboard industry at a disadvantage vis-Ã -vis imports. In
order to provide a level playing field to the domestic industry and
encourage farming of wood in India, there is clearly a need to review
the current import duty structure on paper and paperboard and
re-examine existing FTAs and the new ones under formulation. It is also
recommended to open up commercial forestry on drylands and wastelands
with appropriate environmental safeguards and put in place a suitable
mechanism that incentivises environment-friendly operations and
adoption of sustainable business practices.
Despite a challenging operating environment and heightened competitive
intensity, your Company continued to drive volume growth, improve
realisations and sustain its market standing during the year. This was
achieved by focusing on identified end-use segments, investments in
quality systems and processes, and enhancing customer service levels.
The Business consolidated its clear market leadership position in the
VAP segment with the entire capacity of the recently commissioned
paperboard machine (PM7) being dedicated to the manufacture of VAP
grades since the beginning of the year.
The Business expanded its presence in the hosiery, apparels and
publishing segments during the year. Product portfolio was
strengthened with the launch of new products which were developed to
address the specific needs of end-users. In line with its 'Green India'
approach, the Business sustained its leadership position in sales of
eco-labelled products, which are certified to be environmentally
friendly. The Business also strengthened its distribution network
during the year with the addition of new distributors and stockists.
Service levels also improved on the back of strategically located
'quick service centres'.
The Business has emerged as a leading player in the W&P paper segment
leveraging strong forward linkages with your Company's Education and
Stationery
Products SBU. In the Specialty Papers segment, your Company
consolidated its leadership position in the Decor grades segment by
focusing on product quality and mix enrichment.
Your Company continues to pursue the strategy of promoting farm
forestry with a view to improving the availability of pulpwood. Over
the last 2 years, your Company has stepped up plantation coverage, well
in excess of its own requirements, leading to improvement of pulpwood
availability during this year in Andhra Pradesh and Telangana. This has
also led to enhanced farmer incomes and increase in green cover.
During the year, your Company sold / distributed high quality saplings
and seeds to farmers that enabled planting of over 165 million saplings
on 29,900 hectares of plantations. With this, your Company's
bio-technology based research initiatives have cumulatively resulted in
the planting of nearly a billion saplings leading to significant
wasteland development, greening of over 195,000 hectares. This
path-breaking initiative has generated nearly 90 million person days of
employment for tribal and marginal farmers. The state-of-the-art clonal
sapling production facility, which was commissioned recently towards
accelerating the pace of plantation activity, is operating at full
capacity. The facility is a critical enabler of your Company's
objective to augment pulpwood availability and to meet the ever growing
demand for high quality saplings from the farming community.
Your Company's research on clonal development has resulted in the
introduction of high yielding and disease resistant clones which are
adaptable to a wide variety of agro-climatic conditions. Your Company's
Life Sciences & Technology Centre is actively collaborating with
several expert agencies to further leverage bio-technology and site
specific nutrient management systems for enhancing farm productivity,
wood yields and improved fibre and pulp properties. Systems are also
being developed to ensure integrated pest and disease management across
your Company's forestry initiatives.
Your Company has the distinction of being the first in India to have
obtained the Forest Stewardship
Council - Forest Management (FSC-FM) certification which confirms
compliance with the highest international benchmarks of plantation
management in terms of being environmentally responsible, socially
beneficial and economically viable. Till date, your Company has
received FSC-FM certification for more than 22,000 hectares of
plantations involving over 25,000 farmers with another 2,500 hectares
in the pipeline. During the year, more than 25,000 tonnes of
FSC-certified wood were procured from these certified plantations.
Plans are on the anvil to steadily increase coverage under FSC-FM
certification. All four manufacturing units of your Company have
obtained the FSC Chain of Custody certification. These certifications
make your Company the leading supplier of FSC-certified paper and
paperboard in India.
Your Company continues to focus on recycling initiatives including
solid waste recycling. While all manufacturing units have already
achieved near 100% solid waste recycling by its usage for making
products like lime, fly ash bricks, grey boards, egg trays etc., the
procurement and recycling of about 1,05,000 tonnes of waste paper
during the year has further consolidated the Business's overall
positive solid waste recycling footprint.
During the year, the Bhadrachalam and Kovai units received the
'Excellent Energy Efficient Unit 2014' award from the Confederation of
Indian Industry (CII). The Kovai unit has received 'Green Award 2013 -
1st Place' from the Tamil Nadu Pollution Control Board. The Tribeni
unit was awarded 'Certificate of merit in the Pulp & Paper Sector'
(National Energy Conservation Award  2014) by The Ministry of Power,
Government of India.
Your Company continues to focus on various safety initiatives including
induction of safety stewards, strengthening systems, spreading
awareness and integrating Environment, Health and Safety (EHS) as part
of the overall Total Productive Maintenance (TPM) initiative. With
regard to energy and water consumption, strategies to contain usage
across units continue to be pursued with good results.
In line with your Company's objective of meeting 50% of its energy
requirements from renewable sources, the
Business has implemented several initiatives including investment in a
green boiler, soda recovery boilers and solar & wind energy. The 7.5 MW
wind energy unit in Coimbatore, continues to operate at optimum levels
providing clean energy to the Kovai unit. The new 12 MW Turbine
Generator and 72 tonnes per hour (TPH) Boiler commissioned at the
Tribeni unit in the previous year is fully operational, catering to
energy requirements of the facility at a reduced cost.
Your Company successfully commissioned a 46 MW wind energy project in
Andhra Pradesh in July 2014, which has been generating wind power since
then. However, due to the bifurcation of the state of Andhra Pradesh
and the resultant need for inter-state wheeling of power  permissions
for which have not been granted, the majority of the intended benefits
from this large investment have not fructified. Consequently, only a
minor proportion of the power generated from this wind energy unit is
being used currently by your Company's units in Andhra Pradesh with the
balance output being sold to the State power grid at nominal rates,
leading to sub-optimal returns. Your Company has made several
representations to the concerned authorities on this issue and has also
approached the Central Electricity Regulatory Commission to secure
inter-state wheeling permission. Your Company remains hopeful of an
expeditious resolution of the matter.
The year under review witnessed severe cost pressures in major inputs
such as wood, pulp and chemicals. Your Company, with its integrated
operations and strategic cost management initiatives, was able to
minimise the adverse impact of such cost escalations. The Business is
in the process of setting up a Bleached Chemical Thermo Mechanical Pulp
mill at its Bhadrachalam unit. Once commissioned, the mill will
further reduce the dependence on imports besides reducing your
Company's carbon footprint.
The integrated nature of the business model comprising access to
high-quality fibre from the economic vicinity of the Bhadrachalam mill,
in-house pulp mill and state-of-the-art manufacturing facilities
coupled with robust forward linkage with the Education and Stationery
Products Business and focus on Value Added Paperboards - strategically
positions the Business to further consolidate and enhance its
leadership status in the Indian Paperboard and Paper industry.
Packaging and Printing
Your Company's Packaging and Printing Business continues to be a
leading supplier of value-added packaging in the carton and flexibles
formats leveraging state-of-the-art technology and processes. The
Business provides strategic support to your Company's FMCG Businesses
by facilitating faster turnaround of new pack designs, ensuring
security of supplies and delivering benchmarked international quality
at competitive cost.
Sales of flexibles and cartons packaging recorded healthy growth during
the year, driven by increased offtake by existing customers and new
business development. Your Company's world-class facility at Haridwar
is operating at benchmark standards and has strengthened the Business's
ability to service demand in the northern markets more effectively.
During the year, the Business augmented in-house printing cylinder
manufacturing capacity at the Haridwar unit for speedier customer order
fulfilment and enhanced competitiveness.
As in previous years, the Business won several awards for operational
excellence, innovation and creativity. These include 4 'World Star
Awards' from the World Packaging Organisation, 4 'Asia Star Awards'
from the Asian Packaging Federation and 17 'India Star Awards' from the
Indian Institute of Packaging for excellence in packaging solutions.
The 14 MW wind energy farm in Tamil Nadu, set up in 2008, provides
clean energy to your Company's packaging unit in Chennai, contributing
towards reducing your Company's carbon footprint. Wind energy
generation from this facility, however, continued to be affected during
the year due to external infrastructural deficiencies impacting
connectivity to the State power grid.
The factories at Chennai, Haridwar and Munger continued to maintain the
highest standards in Quality and
Environment, Health & Safety (EHS). All the three units are certified
as per the Integrated Management System, consisting of ISO 9001:2008,
ISO 14001:2004, OHSAS 18001:2007. The Chennai and Haridwar units have
also received Social Accountability certification (SA 8000:2008).
During the year, the Haridwar unit received the 'Gold' rating from
Indian Green Building Council for its sustainability features. Both the
Chennai and Haridwar units received the highest 'Grade A' BRC / IOP
certification (British Retail Consortium Institute of Packaging), for
global standards in packaging and packaging materials - a key enabler
for supplies to the packaged foods industry. The Business continues to
be acknowledged as a key associate by several large FMCG companies in
the country for providing packaging solutions.
With investments in world-class technology, best-in-class quality
management systems, multiple locations and a wide packaging solutions
portfolio, the Packaging and Printing Business has established itself
as a one-stop shop offering superior packaging solutions. The Business
is well positioned to rapidly grow its external business while
continuing to service the requirements of your Company's FMCG
Businesses.
D. AGRI BUSINESS
Leaf Tobacco
The global legal cigarette industry continues to be under pressure with
cigarette consumption declining in most geographies. Production of
global Flue Cured Tobacco varieties (excluding China), on the other
hand, registered a growth of around 10% in 2014 with Zimbabwe, USA,
India and Tanzania recording higher crop output. Driven by remunerative
farm gate prices during 2013, Indian Flue Cured production grew by 14%
to touch 317 Million Kgs. - the second highest crop output ever.
In the backdrop of a declining trend in cigarette consumption and
record crop output, and high levels of uncommitted stocks globally and
in India, leaf tobacco export from India is estimated to have degrown
by 11% during 2014-15 to around 210 Million Kgs.
Despite the challenging business environment, your Company sustained
its pre-eminent position as the leading exporter of unmanufactured
tobacco from India through focused strategies aimed at strengthening
trade with existing customers and robust new business development.
The Business continued to provide strategic sourcing support to your
Company's Cigarette Business meeting all requirements at competitive
prices. Large scale deployment of farm yield enhancing measures,
extensive farmer training campaigns on agricultural best practices and
sustainable agriculture, and customised growing programmes for non-Flue
cured varieties were some of the key initiatives undertaken during the
year. These interventions also contributed towards improving the
competitive positioning of Indian leaf tobacco in international
markets.
Your Company has built an enduring partnership with the farming
community in the tobacco growing areas in India. Over several decades
now, your Company has been actively engaging with growers and
collaborating with key public institutions towards deployment of high
yielding varieties, upgrading crop growing and curing practices and
post-harvest product management technologies. Your Company continues to
play a lead role in driving Research and Development in the areas of
productivity enhancement, quality improvement, input cost reduction,
process and product development.
Your Company is the single largest integrated source of quality Indian
tobaccos, co-creating and delivering value at every stage of the leaf
tobacco value chain. The Business continues to be at the forefront of
facilitating the long-term sustainability of farming through focused
interventions in sustainable agriculture, quality and productivity
enhancement and community empowerment. These initiatives are anchored
around the 6 dimensions of sustainability encompassing soil, water,
labour, fuel, bio-diversity and community development with a specific
focus on soil fertility management, soil moisture conservation,
seedling production, micro irrigation, farm mechanisation, energy
conservation and bio-diversity protection.
During the year, the Business designed and administered customised
Sustainable Agricultural Practices (SAP) Certification Training
programmes, aimed at progressive growers in Flue Cured and non-Flue
Cured tobacco growing regions. The Business plans to scale up these
training programmes in the years ahead.
The Business also launched Project Safal, an innovative web and mobile
based platform, which seeks to enhance traceability and visibility of
farm operations and provides customised crop advisory and farm
extension support. The initiative won the prestigious 'Manthan Award'
(runner-up) in the Agriculture & Ecology category at the 11th Manthan
Awards for South Asia held in New Delhi.
The Business continues to focus on enhancing supply chain efficiency
through structural interventions in the areas of network planning,
warehousing and transportation. These initiatives continue to generate
substantial savings in costs apart from enhancing the agility and
responsiveness of the supply chain.
The Business continues to set benchmarks in leaf threshing operations
through focused initiatives and innovative technological solutions.
Investments continue to be made in your Company's Green Leaf Threshing
plants (GLT) at Anaparti, Chirala and Mysuru towards delivering
world-class quality and upgrading processing technology. In line with
your Company's strategy to adopt a low-carbon growth path, the Chirala
and Anaparti units commenced using energy generated by the wind energy
farm set up in Anantapur, Andhra Pradesh from October 2014. With this,
all three GLTs meet a significant portion of their energy needs from
renewable sources.
Your Company's GLTs remain committed to the highest standards of
Environment, Health & Safety and Quality and continue to win
recognition in these areas. During the year, the Chirala unit won the
'Shreshtha Suraksha Puraskar' from the National Safety Council of India
while the Anaparti unit won 'Gold' and 'Silver' awards from the Quality
Circle Forum of India and the 'Gold' award at the International
Convention for Quality Control Circles held in Sri Lanka.
The Anaparti unit also won the 1st prize at the 'National Productivity
Competition' held by the Indian Institution of Industrial Engineering,
Visakhapatnam. During the year, the Mysuru unit was assessed and
accredited in accordance with the ISO / IEC17025:2005 standard by the
National Accreditation Board for Testing and Calibration Laboratories
(NABL) for moisture testing and chemical analysis. The Mysuru unit also
received the 'Gold' rating from the Indian Green Building Council.
The Business has been awarded a 'Certificate of Compliance' for its
Risk Management Framework as per the requirements of ISO 31000 - a
global standard in risk management principles and procedures. The
certificate has been issued based on an independent assessment by an
external agency and covers the entire value chain covering crop
development, procurement, processing and sales.
With its unmatched R&D capability, state-of-the-art facilities, crop
development & extension expertise and a deep understanding of customer
and farmer needs, your Company is well poised to leverage the emerging
opportunities for Indian leaf tobacco and sustain its position as a
world-class leaf tobacco organisation. The Business will continue to
extend strategic support to your Company's Cigarette Business while
sustaining its leadership position as the leading exporter of quality
Indian tobacco, thereby catalysing the multiplier impact of increased
farmer incomes to benefit the rural economy.
Other Agri Commodities
Food grain production in India is estimated to have declined by 3.2% in
2014-15 to 257 million tonnes. While wheat output at 96 million tonnes
remained at previous year's level, rice output at 103 million tonnes
was lower by 3.4% primarily due to the delayed onset of monsoons.
Oilseeds production recorded a significant drop of 8.9% to 30 million
tonnes mainly due to lower groundnut output. Soya production dipped by
1.9% to 11.6 million tonnes due to delayed monsoons.
During 2014-15, world wheat production increased by 9 million tonnes to
about 725 million tonnes mainly due
to higher production in Russia and Canada. Increased production and
surplus inventory in the global markets impacted wheat exports from
India, which dropped to 1.8 million tonnes from 3.5 million tonnes in
the previous year. Despite fewer opportunities for international
trading, your Company's wheat exports grew strongly to 7 lakh tonnes as
against 5 lakh tonnes in the previous year. This was achieved through
competitive sourcing of premium varieties for key customers and by
garnering volumes from new customers. On the domestic front, the
Business continued to expand its presence amongst brand owners, private
labels, food processors and millers.
Your Company's deep rural linkages and expertise in agri-commodity
sourcing is a critical source of competitive advantage for the Branded
Packaged Foods Businesses. Given the volatile market conditions caused
by climatic variations, changes in Government policies and global
demand-supply dynamics, your Company has invested significantly in
building competitively superior agri-commodity sourcing expertise
comprising multiple business models, wide geographical spread and
customised infrastructure. These capabilities and infrastructure have
created structural advantages that facilitate competitive sourcing of
agri raw materials for your Company's Branded Packaged Foods
Businesses. The Business continues to focus on increasing the
efficiency of procurement and logistics operations by consistently
pursuing cost optimisation initiatives including reducing distance
travelled and eliminating non value-adding activities.
Towards scaling up wheat sourcing from areas that are in close
proximity of atta manufacturing plants, the Business is collaborating
with research organisations such as the Indian Agricultural Research
Institute, Directorate of Wheat Research, Punjab Agricultural
University and Agharkar Research Institute. As part of its wheat crop
development programme, your Company has introduced location-specific
new and improved seed varieties along with appropriate package of
practices in over 50,000 acres across Rajasthan, Uttar Pradesh, Bihar,
West Bengal, Madhya Pradesh, Maharashtra and Karnataka. With a view to
supporting the future requirements of your Company, the Business
continues to focus on building deeper capabilities in proprietary crop
intelligence, sourcing & delivery network and crafting multiple
customer-centric blends through cost-quality optimisation.
In the area of potato sourcing, the Business continued to source
highest quality chip stock potato at competitive prices for your
Company's Bingo! Yumitos brand. In addition, the Business is working
closely with farmers towards improving quality and yield and
introducing chip stock in newer geographies proximal to manufacturing
centres.
Your Company recently forayed into the Juices category with the launch
of 7 exciting variants under the 'B Natural' brand. The Business
leveraged its widespread sourcing network, associated infrastructure in
key growing areas and well-entrenched farmer linkages to source quality
fruit pulp. The processed fruits business continued to focus on
building its portfolio of organic and certified mango products,
sustaining its leadership position in 'Fairtrade' mango pulp exports
from India. The Business is working closely with small and marginal
farmers across 5 States in building scale and sourcing options.
Your Company's Spices Business endeavours to provide food safe spices
through quality differentiation across the value chain and leverage
export opportunities in the US, EU and South-East Asian countries. The
Business also provides sourcing support to your Company's Aashirvaad
range of spices. Over the last few years, the Business has developed
robust Chilli crop development programmes, designed to 'produce the
buy' along with IT driven traceability systems. Your Company's world-
class processing unit in Guntur is certified to the highest grade of
global food safety standards under the BRC (British Retail Consortium)
Food certification regime while the quality lab is certified to the ISO
17025 standard.
Your Company believes that it is imperative to take an integrated and
holistic view of the agricultural value chain towards stimulating
agricultural growth in the country. This requires a participatory
approach from all stakeholders such as farmers, input vendors, traders,
processors and the government agencies. More than a decade ago, your
Company conceptualised and rolled out the e-Choupal network as a
platform towards empowering the farming community by dis-intermediating
the value chain, making available accurate weather related information,
enabling price discovery in a transparent manner and disseminating best
practices relating to farming. Your Company continues to focus on
providing various services in rural areas towards enhancing the
competitiveness of Indian agriculture and plays a critical enabling
role in integrating farmers, input vendors and government agencies
besides facilitating the necessary market linkages.
The unique 'Choupal Haat' platform seeks to create awareness and
improve access of the rural community to a broad range of areas -
ranging from financial services and pharmaceuticals to commercial
vehicles and white goods. Along with Choupal Saagars (integrated rural
services hubs), this platform fosters round-the-year and large scale
engagement with the rural community thereby enhancing the vitality of
your Company's e-Choupal network.
The Business will continue to leverage its deep rural linkages and
agri-commodity sourcing expertise towards providing your Company's
Branded Packaged Foods Businesses a distinct competitive advantage. The
e-Choupal platform will also be increasingly leveraged to provide rural
marketing and agri services and serve as a unique delivery mechanism
towards enhancing agricultural growth and productivity, and fostering
sustainable rural development.
NOTES ON SUBSIDIARIES
The following may be read in conjunction with the Consolidated
Financial Statements prepared in accordance with Accounting Standard
21. Shareholders desirous of obtaining the report and accounts of your
Company's subsidiaries may obtain the same upon request. Further, the
report and accounts of the subsidiary companies will also be available
under the 'Shareholder Value' section of your Company's website,
www.itcportal.com, in a downloadable format.
During the year, no company became or ceased to be your Company's
subsidiary, joint venture or associate company.
ITC Global Holdings Pte. Limited, Singapore ('Global'), a subsidiary of
your Company, is under winding up in terms of the Order of the High
Court of the Republic of Singapore dated 30th November, 2007.
Consequently, your Company is not in a position to consolidate the
accounts of Global for the financial year ended 31st December, 2014.
The Policy for determining Material Subsidiaries, adopted by your
Board, in conformity with Clause 49 of the Listing
Agreement with Stock Exchanges, can be accessed on the Company's
corporate website at
http://www.itcportal.com/about-itc/policies/policy-on-
material-subdidiaries.aspx. Presently, the Company does not have any
material subsidiary.
Surya Nepal Private Limited
Nepal's GDP growth accelerated to 5.2% during the fiscal year ended
July 2014 compared to 3.5% a year earlier, primarily on the strength of
a favourable monsoon that boosted agricultural output and a marked
increase in inward remittances that fuelled increased spending in the
Services sector. Growth in Agriculture and Services stood at 4.7% and
6.1% respectively  the highest in the last 6 years. The Industry
sector, however, grew only marginally by 2.7% as long hours of power
outages and other supply side constraints weighed on domestic
manufacturing, leading to higher import-led consumer spending in the
economy.
Overall economic progress of the country is likely to be halted over
the short to medium term, in the aftermath of the severe earthquakes in
April and May 2015 which have affected 8 million people including the
loss of over 8000 precious lives. Initial estimates peg the economic
loss to the country at US$ 20 billion - equivalent to the country's
annual GDP - with reconstruction costs of around US$ 5 billion over the
next 5 years.
The employees and other assets of the company have remained largely
protected from the extreme effects of the disaster. Minor damages to
the company's properties have been reported to insurance companies for
survey. Technical assessment of post-earthquake structural stability
of company's owned/leased buildings is being conducted to take
corrective measures, if required.
While the Government of Nepal along with its relief partners are
focusing on rescue operations, public safety and health, economic
activity in the country is gradually returning to normalcy. The company
and its employees are committed to work closely with the Government of
Nepal and its relief partners in this hour of crisis in order to
overcome the effects of this large scale disaster.
During the year under review, the legal cigarette industry in Nepal
continued to be adversely impacted by increased tax incidence and
regulatory pressures, and the unabated rise in illegal trade. While
Excise Duty on cigarettes was increased by 10% during the year, the
regulatory environment turned harsher for the legal cigarette industry
with the implementation of Tobacco Products (Control & Regulation) Act,
Rules & Directives. This has led to a decline in legal cigarette
industry volumes with consumption shifting to tax-evaded tobacco
products from the unorganised sector including illegal cigarettes,
which do not carry the mandatory graphic health warnings on packs.
Consequently, the tobacco industry's contribution to the Government
exchequer declined during the year.
Punitive taxation combined with excessive tobacco regulations focused
on cigarettes, have led to livelihood related concerns and anxieties
for tobacco farmers, farm labour, retailers and other stakeholders who
are dependent on the tobacco industry. Further, the Ministry of Health
and Population, Government of Nepal, has proposed to revise the
existing tobacco legislation and introduce further measures in the near
future which, due to their arbitrary, unreasonable and impractical
nature, are likely to disrupt more than 4 lakh livelihoods
directly/indirectly dependent on the industry. All stakeholders of the
industry have been representing to the Government for reconsideration
or withdrawal of the new measures. The company supports effective,
evidence based regulations that meet public health objectives, which
enable differentiation of its products vis-Ã -vis competition, recognise
its legal rights and do not lead to unintended consequences such as
increased illegal trade.
Amidst this challenging business environment, the company recorded
Gross Revenue of Nepalese Rupees (NRs.) 2033 crores (previous year Â
NRs. 1957 crores) and Profit After Tax (PAT) of NRs. 451 crores
(previous year  NRs. 425 crores) representing a growth of 3.9% and
6.1% respectively. The company improved its market standing in all
major operating segments viz. Cigarettes, Branded Apparel, Safety
Matches and the recently launched Agarbatti business.
The company continues to be one of the largest contributors to the
national exchequer, accounting for about 14% of excise collections and
approximately 3% of the total revenues of the Government of Nepal. The
company constitutes approximately 17% of manufacturing GDP of the
country, making it the largest private sector manufacturing company in
Nepal.
In the Cigarettes business, the company consolidated its market
standing by focusing on delivering world-class quality and
strengthening its product portfolio.
The new state-of-the-art cigarette factory near Pokhara commenced
operations in May 2014. The design of the factory incorporates
best-in-class features in ergonomics, energy efficiency, usage of
natural light and management of ambient conditions. Machines based on
leading-edge technology are being leveraged through contemporary
manufacturing practices, systems and people processes. The factory is
being developed as a benchmark facility in terms of productivity,
quality and sustainability. The new leaf redrying plant, which was
commissioned at Simara during the year, will strengthen the company's
domestic leaf operations by improving productivity and quality of
processed leaf. The plant's environmentally sustainable design enables
it to harness green energy sources for ventilation, lighting and waste
treatment processes. The company successfully commissioned a 20 kWp
solar roof top project at the Simara cigarette factory, thereby
expanding its green footprint.
In line with Company's proactive approach to employee relations
management, the company successfully concluded a Long Term Agreement
with the workmen at the Simara cigarette factory, thus ensuring
harmonious and efficient operations.
In the Branded Apparel business, the company's brands 'John Players'
and 'Springwood' sustained their position as the preferred choice of
consumers in the premium and economy segments. In the Safety Matches
business, the company's brand 'Tir' sustained its market leadership
position in the wax matches segment. The year also marked the company's
entry into the Agarbatti market, with the launch of the 'Mangaldeep'
brand  licensed from ITC Ltd. - in the premium and popular segments.
The company leveraged its marketing and distribution infrastructure to
make the brand available across the country in a relatively short span
of time. The products have been well received by consumers and plans
are on the anvil to scale up the business in the forthcoming years.
The company is focusing on further strengthening processes and
improving productivity in all areas of its operations to reduce costs
and improve profitability. As part of this initiative, the company has
rolled out an Enterprise Resource Planning system during the year.
The company continues to support and invest in initiatives that enhance
the social and economic capital of the nation. These initiatives are
aligned with the stated priorities of the Government of Nepal and are
based on identified societal needs. Accordingly, the company continues
to:
- partner tobacco farmers in Nepal to enhance productivity and improve
quality at the farm level through the induction of agricultural best
practices. The adoption of such practices and other inputs provided by
the company has led to consistent improvement in quality of domestic
grades of tobacco thereby improving marketability of the crop and
enhancing farmer returns.
- assist farmers in cultivating high quality Poplar saplings in the
vicinity of the Simara factory. Under the 'Grow Wood, Grow Food'
programme that this initiative promotes, farmers are encouraged to
adopt agro-forestry while simultaneously inter-cropping with
traditional crops.
- support the animal husbandry extension services initiative with a
view to driving yield improvement and enhancing returns of
underprivileged farmers.
- partner the Nepal Tourism Board in hosting Nepal's premier
professional golf tournament - the 'Surya Nepal Private Limited
Masters' with the objective of promoting Nepal as an attractive tourism
destination.
- focus on building local supply chain capability towards sourcing its
agarbatti requirements from domestic small and medium enterprises,
thereby providing employment and skill building opportunities to the
economically deprived sections of society, especially women.
The company declared a dividend of NRs. 200.00 per equity share of NRs.
100/- each for the year ended 16th July 2014 (32nd Ashad 2071).
ITC Infotech India Limited and its subsidiaries
2014-15 witnessed the beginnings of major shifts in how businesses use
and deploy technology to better understand and service their customers,
and use the growing volume, variety and velocity of data flow to gain
competitive advantage. With corporates increasingly crafting newer
digital business models, business users are replacing the Chief
Information Officer (CIO) as the key decision-maker for purchase of
information technology products and services. Similarly, the
traditional software licensing model is being challenged by
'subscription-based' and 'as-a-service' revenue models.
Against this backdrop, the global IT industry grew by 4.6% in 2014 Â
significantly higher than the preceding two years.
During the year, the company's Consolidated Total Revenue grew by 15%
to Rs. 1476.40 crores, while Net Profit grew by 23% to Rs. 106.30 crores.
The company's strategies and operating approach are anchored on the
following key elements: (i) focusing sharply on domain expertise,
delivery excellence, digital and data towards achieving meaningful,
differentiated and specialised scale (ii) building solutions and
capabilities around products of global software vendors and partnering
with them to take these products to market (iii) focusing on
geographical expansion to develop new markets and acquire customers,
(iv) driving cost management and resource optimisation while balancing
growth-led investment imperatives and (v) creating future-ready
business verticals while improving overall profitability.
For the year under review:
a) ITC Infotech India Limited recorded Total Revenue of Rs. 1006 crores
(previous year Rs. 926 crores) and Net Profit of Rs. 122 crores (previous
year Rs. 101 crores). For the year under review, the company paid a
dividend of Rs. 9.00 per Equity Share of Rs. 10/- each aggregating Rs. 76.68
crores (previous year: Nil);
b) ITC Infotech Limited, UK, (ITC Infotech UK), a wholly-owned
subsidiary of the company, recorded Total Revenue of GBP 28.69 million
(previous year GBP 25.29 million) and Net Profit of GBP 0.68 million
(previous year GBP 1.18 million). For the year under review, ITC
Infotech UK declared a dividend of GBP 4.25 (previous year GBP 3.00)
per Ordinary Share of GBP 1/- each on 685,815 shares, amounting to GBP
2,914,714 (previous year GBP 2,057,445);
c) ITC Infotech (USA), Inc., (ITC Infotech USA), a wholly-owned
subsidiary of the company, together with its wholly-owned subsidiary
Pyxis Solutions LLC, recorded Total Revenue of US$ 81.62 million
(previous year US$ 70.61 million) and Net Profit of US$ 0.82 million
(previous year US$ 0.17 million).
During the year, the company implemented a new organisation structure
for better alignment with the company's strategic direction. A new
Independent
Business Unit (IBU) focused on Product Engineering Services and Data
Analytics was also set up during the year. The IBU has seen significant
growth within a short span of time with a healthy pipeline of
customers.
During the year, the company witnessed robust growth in the
Asia-Pacific region aided by a combination of partner-driven
initiatives as well as a direct sales approach. The company also gained
traction in the Middle-East region during the year and generated
significant interest amongst prospective clients in that region.
The company continues to expand its service lines, sales channels and
presence in Europe and USA. Robust business traction in the USA over
the past few years has made that region the highest contributor to the
consolidated revenues of the group.
The company's superior service delivery capability continued to earn
global recognition. The company featured for the 9th consecutive year
in the 'Leaders Category' in the '2015 Global Outsourcing 100' list
compiled by the International Association of Outsourcing Professionals
(IAOP). The company won the 2014 European Outsourcing award (under the
category 'Delivering Business Value in European Outsourcing') from the
European Outsourcing Association in recognition of its long-term
engagement with the Banking sector.
With enhanced focus on encompassing newer technologies and driven by
domain knowledge and delivery excellence, the company is poised to
garner a higher share of India-based IT exports and sustain its growth
trajectory. Towards attracting high quality human resources, the
company has broadened its channels for sourcing quality talent and has
strengthened its capability building processes through college
affiliations, technology incubation cells and employee ideation panels,
thereby ensuring seamless and scalable business operations.
The outlook for the Indian IT industry remains buoyant with NASSCOM
forecasting a growth of 12% to 14% in 2015-16. The company is poised to
leverage its leadership in knowledge-centric IT services and increasing
global presence in attaining its strategic and financial objectives.
Technico Pty Limited and its subsidiaries
The company continues to focus on upgradation and commercialisation of
TECHNITUBER® seed technology and customising its application across
various geographies. Besides, the company is engaged in the marketing
of TECHNITUBER® seeds to global customers from the production
facilities of its subsidiaries in India and China. The Indian and
Canadian subsidiaries of the Company are also engaged in field
multiplication of seeds.
Technico's leadership in production of early generation seed potatoes
and strength in agronomy continue to be leveraged for sourcing chip
stock for the 'Bingo! Yumitos' range of potato chips and servicing the
seed potato requirements of the farmer base of your Company's Agri
Business.
For the year under review:
a) Technico Pty Limited, Australia registered Turnover of Australian
Dollar (A$) 2.2 million (previous year A$ 2.2 million) and Net Profit
of A$ 0.78 million (previous year A$ 0.44 million).
b) Technico Agri Sciences Limited, India registered Net Revenue of Rs.
105.08 crores (previous year Rs. 73.24 crores) and Net Profit of Rs. 45.25
crores (previous year Rs. 14.09 crores). During the year, potato prices
rose sharply primarily due to lower crop output. Consequently, demand
for good quality seed potato increased significantly. This coupled
with the strength of its brand, superior product quality, better
on-field performance and strong trade and customer relationships
enabled the company to realise better prices during the year.
c) Technico Asia Holdings Pty Limited, Australia, Technico Technologies
Inc., Canada and Technico Horticultural (Kunming) Co. Limited, China Â
There were no significant events to report with respect to the above
companies.
Srinivasa Resorts Limited
The company's hotel ITC Kakatiya in Hyderabad continued to be impacted
by a challenging economic environment exacerbated by sluggish demand
conditions in the city pursuant to the bifurcation of the State of
Andhra Pradesh.
The company recorded Total Revenue of Rs. 52.74 crores (previous year Rs.
53.28 crores) during the year ended 31st March, 2015 and Net Loss of Rs.
0.72 crores (previous year Net Profit of Rs. 3.33 crores). Included in
the Net Loss for the year is an incremental depreciation charge of Rs.
2.74 crores on account of revision in the useful lives of fixed assets
in accordance with the provisions of Schedule II to the Companies Act,
2013.
During the Year, ITC Kakatiya received the 'Times Food Guide' awards
for 'Dakshin' (Best South Indian Fine Dining), Kebabs & Kurries (Best
Indian Barbeque), and Marco Polo (Best Bar). TripAdvisor, a renowned
hotel review site, also recognised Dakshin and Kebabs & Kurries as the
best restaurants in Hyderabad, ranking them No.1 and No.2 respectively.
During the year, the hotel was also awarded the '3 Star Rating for
Appreciation in EHS Practices' by CII.
Last year, a land parcel measuring about 4.27 acres in Amritsar was
assigned to the company by ITC Ltd. towards the development and
operation of a full service hotel. During the year, the company
obtained the necessary approvals from various authorities and has
commenced civil works at the site. Excavation of the site to construct
a 100-key full service hotel was completed during the year.
Fortune Park Hotels Limited
During the year ended 31st March, 2015, the company recorded Total
Revenue of Rs. 27.19 crores (previous year Rs. 24.85 crores) and earned Net
Profit of Rs. 5.74 crores (previous year Rs. 6.25 crores).
The company, which caters to the 'mid-market to upscale' segment
through a chain of Fortune hotels, continues to forge new alliances and
expand its footprint. Currently, the company has an aggregate
inventory of nearly 6,000 rooms spread over 76 properties of which 46
are operating hotels. Of the balance 30 properties,
5 hotels are slated to be commissioned in the ensuing year and 25 hotel
projects are under various stages of development.
Two hotels have already been operationalised under the flagship 'My
Fortune' brand at Chennai and Bengaluru. Plans are on the anvil to
launch 9 more hotels under the My Fortune brand over the next few
years.
During the year, the company bagged the Travel
6 Hospitality Award 2014 for the 'Most Outstanding Mid- Market Hotel
Chain', Today's Traveller Award
2014 for the 'Best First Class Business Hotel Chain',
Safari India Award 2014 for the 'Best First Class Business Hotel
Chain', Hotel Build India Award 2014 in the 'Best Mid-Market Hotel'
category by Hotelier India and ITP Publishing Group India and
Hospitality India Award 2014 for the 'Best First Class Hotel Chain'.
The company has established 'Fortune' as the premier 'value' brand in
the Indian hospitality sector. The brand remains a frontrunner in its
operating segment and is well positioned to sustain its leadership
position in the industry.
The Board of Directors of the company has recommended a dividend of Rs.
12.50 per equity share of Rs. 10/- each for the year ended 31st March,
2015.
WelcomHotels Lanka (Private) Limited
WelcomHotels Lanka (Private) Limited (WLPL), a wholly-owned subsidiary
of your Company, was incorporated in Sri Lanka with the objective of
developing and operating a mixed-use development project ('Project')
including a luxury hotel on 5.86 acres of prime sea-facing land in
Colombo, which was allotted by the Board of Investment of Sri Lanka on
a 99-year lease to the company for this purpose.
The Project has been accorded 'Strategic Development Project' status
entitling the company to various fiscal benefits in Sri Lanka. Further,
the Project is also exempt from Sri Lankan foreign exchange
regulations.
During the year, the company obtained necessary approvals to commence
construction activity and all major consultants and architects have
been appointed. The ground breaking ceremony for the Project was held
on 19th November, 2014 and excavation and allied works, which were
commenced immediately thereafter, are progressing satisfactorily.
Your Company's investment in WLPL stood at US$ 82.8 million as at 31st
March, 2015.
Bay Islands Hotels Limited
Fortune Resort Bay Island, the company's hotel in Port Blair, with its
great location, excellent architectural design and superior service
quality, continues to offer a unique gateway to the Andamans. The
company has commenced a comprehensive renovation and expansion
programme with a view to enhancing the market standing of the hotel.
During the year ended 31st March, 2015, the company recorded Total
Revenue of Rs. 1.58 crores (previous year Rs. 1.62 crores) and Net Profit
of Rs. 0.99 crores (previous year Rs. 1.03 crores).
The Board of Directors of the company has recommended a dividend of Rs.
70.00 per equity share of Rs. 100/- each for year ended 31st March, 2015.
Landbase India Limited
During the year, the company completed the construction of a 104-key
luxury hotel, the 'ITC Grand Bharat', at the Classic Golf Resort.
The hotel, which has been licensed to ITC Ltd., commenced operations in
November 2014. The company also owns and operates the Classic Golf &
Country Club, a 27-hole Jack Nicklaus Signature Course.
During the year ended 31st March 2015, the company recorded Total
Revenue of Rs. 17.40 crores (previous year Rs. 12.85 crores) and Net Profit
of Rs. 1.07 crores (previous year Net Loss Rs. 2.76 crores). During the
year, the company issued and allotted to ITC Ltd., 2,80,00,000 Equity
Shares of Rs. 10/- each for cash at par, aggregating Rs. 28 crores. The
proceeds from the share issue were utilised by the company for the
construction of the destination luxury resort hotel.
King Maker Marketing, Inc.
King Maker Marketing, Inc. (KMM) is a wholly-owned subsidiary of your
Company registered in the State of New Jersey, USA. Its main business
is to import and distribute tobacco products to licensed wholesalers
and retailers throughout the USA. Your Company is KMM's sole supplier
of tobacco products.
Despite the continuing decline in consumption in the US market, the
company's Net Sales grew by 9% during the year, driven by robust growth
in volumes on the back of focused market interventions. The company
recorded Net Sales of US$ 29.3 million (previous year US$ 26.9 million)
and earned a Net Income of US$ 0.14 million (previous year US$ 0.07
million) during the financial year ended 31st March, 2015. During the
year, KMM also paid a dividend of US$ 2.0 million to your Company.
Increasing presence of major cigarette manufacturers in the discount
segment  in direct competition with KMM, illicit trade driven by tax
differentials between various States in USA, non-compliant cigarette
imports and Native American manufacture continue to pose significant
challenges for the company.
Wimco Limited
The scheme of arrangement involving the demerger of the company's
Non-Engineering Business into ITC Ltd. with effect from 1st April 2013,
became effective from 27th June 2014.
Pursuant to the demerger as aforestated, the company's business
activities are mainly focused on fabrication and assembly of machinery
for tube filling, cartoning, wrapping, material handling and conveyor
solutions for the FMCG and Pharmaceutical industry.
The company's order book remained subdued during the year with
customers holding back capital expenditure in view of the sluggish
demand conditions prevailing in the FMCG and Pharmaceutical industry in
India.
Consequently, the company's Net Revenue for the year declined to Rs.
12.90 crores (previous year Rs. 17.17 crores on a comparable basis) and
reported a Net Loss of Rs. 0.48 crores (previous year Net Profit Rs. 1.67
crores on a comparable basis).
The company is focusing on building a robust business model, widening
its customer base and developing superior solutions towards addressing
customer requirements.
North East Nutrients Private Limited
Your Company holds 76% of the equity stake in North East Nutrients
Private Limited (NENPL), a company formed with the objective of setting
up a food processing facility in Mangaldoi, Assam to cater to the
fast-growing biscuits market in Assam and other north-eastern States.
Construction work on the manufacturing facility is currently in
progress and commercial production is expected to start in the ensuing
year.
Your Company's investment in NENPL stood at Rs. 48.13 crores as at 31st
March 2015.
Russell Credit Limited
During the year, the company registered Total Revenue of Rs. 70.81 crores
(previous year Rs. 65.52 crores) and Net
Profit of Rs. 56.38 crores (previous year Rs. 34.57 crores). The company
paid a dividend of Rs. 1.40 per equity share aggregating Rs. 90.51 crores
for the year ended 31st March, 2015.
Temporary surplus liquidity of the company is mainly deployed in debt
mutual funds and bank fixed deposits. The company continues to explore
opportunities to make strategic investments for the ITC group.
Gold Flake Corporation Limited
The company registered Total Revenue of Rs. 4.20 crores during the year
under review (previous year Rs. 4.37 crores). The company paid a dividend
of Rs. 9.00 per equity share aggregating Rs. 14.40 crores for the year
ended 31st March, 2015.
The company holds 50% equity stake in ITC Essentra Ltd. Â a joint
venture with Essentra group, UK.
Wills Corporation Limited
The company recorded Total Revenue of Rs. 0.89 crore during the year
(previous year Rs. 0.93 crore). The company paid a dividend of Rs. 7.00 per
equity share aggregating Rs. 3.42 crores for the year ended 31st March,
2015.
Greenacre Holdings Limited
During the year, the company recorded Total Revenue of Rs. 3.51 crores
(previous year Rs. 3.31 crores) and Net Profit of Rs. 1.04 crores (previous
year Rs. 0.87 crore). The company continues to provide maintenance
services for commercial office buildings.
ITC Investments & Holdings Limited
The company, a Core Investment Company within the meaning of the Core
Investment Companies (Reserve Bank) Directions, 2011, recorded Total
Revenue of Rs. 0.48 crore during the year (previous year Rs. 0.32 crore)
and Net Profit of Rs. 0.33 crore (previous year Rs. 0.31 crore).
During the year, the company purchased the entire shareholding (50,000
equity shares) of MRR Trading & Investment Company Limited from BFIL
Finance Limited, a fellow subsidiary, at an aggregate consideration of
Rs. 4.52 crores. Consequently, MRR Trading & Investment Company Limited
became a wholly-owned subsidiary of the company with effect from 30th
March, 2015.
BFIL Finance Limited
The company registered Total Revenue of Rs. 0.34 crore during the year
(previous year Rs. 0.81 crore). Net Loss for the year stood at Rs. 4.37
crores (previous year Net Profit Rs. 0.61 crore) mainly on account of
payment of interest on loan from the parent entity. The company is
actively pursuing various legal cases initiated against defaulting
clients for recoveries.
MRR Trading & Investment Company Limited
The company holds tenancy rights in a commercial building located in
Mumbai and also provides estate maintenance services. During the year,
the company recorded Total Revenue of Rs. 0.07 crore (previous year Rs.
Nil).
Pavan Poplar Limited
The scheme of arrangement involving the demerger of Wimco Limited's
Non-Engineering Business into ITC Ltd. with effect from 1st April 2013,
became effective from 27th June 2014. As a result, the company, which
was earlier a wholly-owned subsidiary of Wimco Ltd., became a direct
wholly-owned subsidiary of ITC Ltd. with effect from 27th June 2014.
The operations of the company remained impacted during the current year
pursuant to the order of the Uttarakhand High Court in February 2014
dismissing the writ petition filed by the company against the order of
the District Magistrate authorising State authorities to take
possession of the land leased to the company. The appeal filed by the
company against the aforestated order was admitted in April 2014 and
the matter is pending before the Honourable High Court.
Consequently, the company's Total Revenue declined from Rs. 0.96 crore in
the previous year to Rs. 0.02 crore in the current year. The company
reported a Net Loss of Rs. 0.47 crore during the year (previous year Net
Loss of Rs. 4.47 crores after considering an aggregate provision of Rs.
4.55 crores made towards inventory and fixed assets).
Prag Agro Farm Limited
The scheme of arrangement involving the demerger of Wimco Limited's
Non-Engineering Business into ITC Ltd. with effect from 1st April 2013,
became effective from 27th June 2014. As a result, the company, which
was earlier a wholly-owned subsidiary of Wimco Ltd., became a direct
wholly-owned subsidiary of ITC Ltd. with effect from 27th June 2014.
The operations of the company remained impacted during the current year
pursuant to the order of the Uttarakhand High Court in February 2014
dismissing the writ petition filed by the company against the order of
the District Magistrate authorising State authorities to take
possession of the land leased to the company. The appeal filed by the
company against the aforestated order was admitted in April 2014 and
the matter is pending before the Honourable High Court.
Consequently, the company's Total Revenue declined from Rs. 0.70 crore in
the previous year to Rs. 0.04 crore during the current year. The company
reported a Net Loss of Rs. 0.08 crore during the year (previous year: Net
Loss of Rs. 4.05 crores after considering an aggregate provision of Rs.
4.00 crores made towards inventory and fixed assets).
ITC Global Holdings Pte. Limited
As has been stated in the previous years' reports, the Judicial
Managers had been conducting the affairs of ITC Global Holdings Pte.
Limited ('Global') since 8th November, 1996, under the authority of the
High Court of Singapore.
Pursuant to the application of the Judicial Managers, the Singapore
High Court on 30th November, 2007 ordered the winding up of Global,
appointed a Liquidator and discharged the Judicial Managers.
The Judicial Managers commenced proceedings against your Company in
November 2002 before the Singapore High Court claiming approximately
US$ 18.10 million. Pursuant to legal advice, your Company has filed
its defence in the proceedings.
On 22nd July, 2013, the Liquidator filed an application, to amend the
Statement of Claim filed in the proceedings to include an additional
claim of US$ 1.03 million against your Company, which was dismissed by
the Assistant Registrar. The Liquidator's appeal against the said
dismissal was also dismissed on 29th May, 2014, by the Singapore High
Court.
Your Company is contesting the claims contending that the same are not
sustainable and your Company does not accept any liability in this
regard. The proceedings are pending.
NOTES ON JOINT VENTURES
ITC Essentra Limited
The company recorded Gross Revenue of Rs. 328.60 crores (previous year
Rs. 292.74 crores) and Net Profit of Rs. 12.22 crores (previous year
Rs. 13.77 crores) for the financial year ended 31st December, 2014.
During the year, the company consolidated its leadership position in
the backdrop of a challenging operating environment which saw
increasing taxation and regulatory pressures on the cigarette industry.
The company countered the challenges posed by these difficult market
conditions by focusing on innovation, superior execution, consistent
delivery and world-class quality. Although the company garnered
additional volumes, adverse sales mix and higher interest cost impacted
the performance for the year. During the year, the company fully
operationalised its new state-of-the-art manufacturing line at
Doddaballapur, Karnataka.
Given that a significant portion of the company's sales are to
customers in the domestic cigarette industry which is facing
unprecedented pressure on volumes due to steep increase in
taxes/duties, the year ahead will indeed be challenging. In this
context, the company is also focusing on growing exports with
best-in-class delivery of high quality products to customers at
competitive prices. Besides, the company continues to diversify the
sourcing base for its principal raw material - acetate tow - towards
ensuring security of supplies and optimising costs.
A sustained drive to develop contemporary and value added cigarette
filter solutions coupled with integrated online quality control systems
have enabled the company to consolidate its position as the preferred
supply chain partner for several well-known national and international
brands. The company remains focused on sustaining its position as the
innovation and quality benchmark in the cigarette filter market.
The Board of Directors of the company has recommended a dividend of Rs.
9.00 per Ordinary Share of Rs. 10/- each for the year ended 31st
December, 2014.
Maharaja Heritage Resorts Limited
Maharaja Heritage Resorts Limited, a joint venture of your Company with
Jodhana Heritage Resorts Private Limited, currently operates 34
heritage properties across 13 States in India. The company, with its
WelcomHeritage brand portfolio comprising 'Legend Hotels', 'Heritage
Hotels' and 'Nature Resorts', provides uniquely differentiated
offerings to guests in the cultural, heritage and adventure tourism
segments respectively.
During the year ended 31st March, 2015, the company recorded Total
Revenue of Rs. 3.80 crores (previous year Rs. 3.46 crores) and Net Profit
of Rs. 0.24 crores (previous year Rs. 0.10 crores).
The 'WelcomHeritage Hotels' brand was awarded the 'Best Heritage Hotel
Chain' by Today's Traveller Awards 2014.
Espirit Hotels Private Limited
Espirit Hotels Private Limited (EHPL) is a joint venture between your
Company and the Ambience Group, Hyderabad for developing a luxury hotel
complex at Begumpet, Hyderabad. Under the terms of the Joint Venture
Agreement, your Company acquired 26% equity stake in EHPL and will,
inter alia, provide hotel operating services under an Operating
Services Agreement, upon commissioning of the hotel.
The Ambience Group has expressed its desire to review the timing of
further investments in EHPL, citing concerns about the viability of the
project in view of the challenging economic environment and the
sluggish demand conditions currently prevailing in Hyderabad pursuant
to the bifurcation of the State of Andhra Pradesh. In this regard, your
Company is examining the way forward under the Joint Venture Agreement.
Your Company's investment in EHPL stood at Rs. 46.51 crores as at 31st
March, 2015.
Logix Developers Private Limited
Logix Developers Private Limited (LDPL) is a joint venture between your
Company and Logix Estates Private Ltd., NOIDA for developing a luxury
hotel-cum-service apartment complex at Sector 105 in NOIDA. Under the
terms of the Joint Venture Agreement, your Company acquired 26% equity
stake in LDPL and will, inter alia, provide hotel operating services
under an Operating Services Agreement, upon commissioning of the hotel.
Pursuant to an equity cash call aggregating Rs. 14.87 crores made by LDPL
during the year, your Company invested Rs. 3.87 crores in LDPL. However,
the JV partner did not subscribe to its share of the cash call.
Consequently, your Company's total investment in LDPL increased to Rs.
41.95 crores as at 31st March 2015, taking its equity stake to 27.9% in
the company.
Logix Estates Private Ltd., the JV partner, has communicated to your
Company that it would like to explore alternative project development
plans, failing which, it proposes to exit the joint venture by selling
its shareholding in LDPL to your Company. Your Company is exploring its
options in this regard.
NOTES ON ASSOCIATES
International Travel House Limited
During the financial year ended 31st March, 2015, the company recorded
Total Revenue of Rs. 183.48 crores (previous year Rs. 176.44 crores) and
Net Profit of Rs. 18.38 crores (previous year Rs. 18.11 crores).
The Company offers a full range of travel services including air
ticketing, car rentals, inbound and outbound tourism, domestic
holidays, conferences, events and exhibition management and foreign
exchange services to travellers.
The Board of Directors of the company has recommended a dividend of Rs.
4.25 per equity share of Rs. 10/- each for the year ended 31st March,
2015.
Gujarat Hotels Limited
During the financial year ended 31st March, 2015, the company recorded
Total Revenue of Rs. 4.31 crores (previous year Rs. 4.51 crores) and Net
Profit of Rs. 2.73 crores (previous year Rs. 3.27 crores).
The company's hotel, 'WelcomHotel Vadodara' at Vadodara is operated by
ITC Ltd. under an Operating License Agreement.
The Board of Directors of the company has recommended a dividend of Rs.
3.50 per equity share of Rs. 10/- each for the year ended 31st March,
2015.
ATC Limited (an associate of Gold Flake Corporation Limited)
The company is a contract manufacturer of cigarettes. During the year,
the company recorded Total Revenue of Rs. 23.16 crores (previous year Rs.
21.95 crores) and Net Profit of Rs. 0.91 crore (previous year Rs. 0.84
crore).
During the year, the company exhibited robust operational performance
with benchmark scores in product quality
and material utilisation. The company won the 'Platinum Award' from The
Economic Times for manufacturing excellence, a 'Certificate of
Appreciation' from FICCI for excellence in quality systems and various
safety awards for outstanding track record in safety.
Associates of Russell Credit Limited
Classic Infrastructure & Development Limited
The company recorded Total Revenue of Rs. 0.45 crore during the year
(previous year Rs. 0.41 crore) and Net Profit of Rs. 0.20 crore (previous
year Rs. 0.35 crore).
The company continues to explore growth opportunities.
Russell Investments Limited
During the year, the company recorded Total Revenue of Rs. 5.66 crores
(previous year Rs. 2.42 crores) and Net Profit of Rs. 5.42 crores (previous
year Net Loss Rs. 0.20 crore).
The company continues to explore opportunities to make investments.
Divya Management Limited
During the year, the company recorded Total Revenue of Rs. 0.24 crore
(previous year Rs. 0.23 crore) and Net Profit of Rs. 0.08 crore (previous
year Rs. 0.10 crore).
The company continues to explore opportunities to make investments.
Antrang Finance Limited
During the year, the company recorded Total Revenue of Rs. 0.30 crore
(previous year Rs. 0.28 crore) and Net Profit of Rs. 0.20 crore (previous
year Rs. 0.20 crore).
The company continues to explore opportunities to make investments.
INTERNAL FINANCIAL CONTROLS
The Corporate Governance Policy guides the conduct of affairs of your
Company and clearly delineates the roles, responsibilities and
authorities at each level of its three-tiered governance structure and
key functionaries involved in governance. The ITC Code of Conduct
commits management to financial and accounting policies, systems and
processes. The Corporate Governance Policy and the ITC Code of Conduct
stand widely communicated across the enterprise at all times, and,
together with the 'Strategy of Organisation', Planning & Review
Processes and the Risk Management Framework provide the foundation for
Internal Financial Controls with reference to your Company's Financial
Statements.
Such Financial Statements are prepared on the basis of the Significant
Accounting Policies that are carefully selected by management and
approved by the Audit Committee and the Board. These Policies are
supported by the Corporate Accounting and Systems Policies that apply
to the entity as a whole to implement the tenets of Corporate
Governance and the Significant Accounting Policies uniformly across the
Company. The Accounting Policies are reviewed and updated from time to
time. These, in turn are supported by a set of divisional policies and
Standard Operating Procedures (SOPs) that have been established for
individual businesses.
Your Company uses ERP Systems as a business enabler and also to
maintain its Books of Account. The SOPs in tandem with transactional
controls built into the ERP Systems ensure appropriate segregation of
duties, tiered approval mechanisms and maintenance of supporting
records. The Information Management Policy reinforces the control
environment. The systems, SOPs and controls are reviewed by divisional
management and audited by Internal Audit whose findings and
recommendations are reviewed by the Audit Committee and tracked through
to implementation.
Your Company has in place adequate internal financial controls with
reference to the Financial Statements. Such controls have been tested
during the year and no reportable material weakness in the design or
operation was observed. Nonetheless your Company recognises that any
internal financial control framework, no matter how well designed, has
inherent limitations and accordingly, regular audit and review
processes ensure that such systems are reinforced on an ongoing basis.
RISK MANAGEMENT
As a diversified enterprise, your Company continues to focus on a
system-based approach to business risk management. The management of
risk is embedded in the corporate strategies of developing a portfolio
of world-class businesses that best match organisational capability
with market opportunities, focusing on building distributed leadership
and succession planning processes, nurturing specialism and enhancing
organisational capabilities through timely developmental inputs.
Accordingly, management of risk has always been an integral part of the
Company's 'Strategy of Organisation' and straddles its planning,
execution and reporting processes and systems. Backed by strong
internal control systems, the current Risk Management Framework
consists of the following key elements:
 The Corporate Governance Policy approved by the Board, clearly lays
down the roles and responsibilities of the various entities in relation
to risk management covering a range of responsibilities, from the
strategic to the operational. These role definitions, inter alia,
provide the foundation for your Company's Risk Management Policy and
Framework that is endorsed by the Board and is aimed at ensuring
formulation of appropriate risk management procedures, their effective
implementation across your Company and independent monitoring and
reporting by Internal Audit.
 The Corporate Risk Management Cell, through focused interactions with
businesses, facilitates the identification and prioritisation of
strategic and operational risks, development of appropriate mitigation
strategies and conducts periodic reviews of the progress on the
management of identified risks.
 A combination of centrally issued policies and divisionally-evolved
procedures brings robustness to the process of ensuring that business
risks are effectively addressed.
 Appropriate structures are in place to proactively monitor and manage
the inherent risks in businesses with unique / relatively high risk
profiles.
 A strong and independent Internal Audit function at the Corporate
level carries out risk focused audits across all businesses, enabling
identification of areas where risk management processes may need to be
strengthened. The Audit Committee of the Board reviews Internal Audit
findings, and provides strategic guidance on internal controls. The
Audit Compliance Review Committee closely monitors the internal control
environment within your Company including implementation of the action
plans emerging out of internal audit findings.
 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 operation.
 A robust and comprehensive framework of strategic planning and
performance management ensures realisation of business objectives based
on effective strategy implementation. The annual planning exercise
requires all businesses to clearly identify their top risks and set out
a mitigation plan with agreed timelines and accountability. Businesses
are required to confirm periodically that all relevant risks have been
identified, assessed, evaluated and that appropriate mitigation systems
have been implemented.
The combination of policies and processes as outlined above adequately
addresses the various risks associated with your Company's businesses.
The Company during the year has also constituted a Risk Management
Committee, as required by revised Clause 49 of the Listing Agreement.
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 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.
The Audit Committee of your Board met eight times during the year. The
Terms of Reference of the Audit Committee inter alia included reviewing
the adequacy and effectiveness of the internal control environment,
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 discharge of statutory mandates.
HUMAN RESOURCE DEVELOPMENT
Your Company believes that it is the quality and dynamism of its human
resource that enables it to make a significant contribution to
enhancing stakeholder value. In order to sustain its position as one
of India's most valuable corporations, your Company works relentlessly
towards being customer-focused, competitively-superior,
performance-driven and future-ready.
The talent management strategy of your Company strives to deliver its
unique talent promise - 'Building Winning Businesses. Building Business
Leaders. Creating Value for India.' Your Company is guided by a
holistic approach to talent management - focusing on synchronising the
multiple elements of talent sourcing, work design, performance
management, remuneration, individual growth and development  to
deliver breakthrough outcomes. Human Resource Development practices in
your Company are guided by the principles of relevance, consistency and
fairness based on the premise that 'what' is done is as critical as
'how' it is done. Taken together, these initiatives and processes have
made a significant impact on talent attraction, retention and
commitment.
Your Company has assiduously built a culture of continuous learning,
innovation and collaboration across the organisation by judiciously
leveraging cutting-edge learning and development practices with
coaching, mentoring and on-the-job training. Based on the premise that
action learning is a more effective approach to development of human
resources, learning and development interventions stress less on
classroom learning and more on workplace projects. These interventions
are therefore fashioned along the lines of longer term journeys rather
than short term events.
Your Company's strategic Learning and Development agenda is geared to
building front-line managerial capability, middle-management functional
leadership and strategic leadership capability of senior management.
Apart from this, your Company's 'Strategy of Organisation' serves as an
excellent platform to build distributed leadership. This two-pronged
approach to leadership development has ensured that each of your
Company's businesses is managed by a team of competent, passionate and
inspiring leaders, capable of building a high-performance and
future-ready organisation.
Your Company continues to invest in the time-tested approach of
progressive employee relations based on the core principles of
trusteeship, fairness, equity, industrial democracy and partnership
with enlightened trade unions. This has enabled your Company
consistently set a fine record of industrial harmony, highlighted not
merely by the absence of strife, but by the more positive outcome of
high productivity and superior quality. A productive and innovative
workplace is a key requirement of successful business performance.
Hence the push for embracing commitment-enhancing people processes that
seek and nurture employee participation and involvement in managing the
shop floor. Your Company's belief in the mutuality of interests of key
stakeholders, aligns all employees to a shared purpose and vision, thus
providing it with the vital force to win in the market and enhance
value creation.
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 realising your Company's vision of creating
enduring value - for the nation and for the institution that is ITC.
WHISTLEBLOWER POLICY
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 the 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 of the
Board and no employee has been denied access to the Committee. The
Whistleblower Policy is available on the Company's corporate website
www.itcportal.com.
SUSTAINABILITY Â CONTRIBUTION TO THE 'TRIPLE BOTTOM LINE'
Your Company's vision to sub-serve larger national priorities and
create enduring societal value is the inspiration behind its
multi-dimensional sustainability initiatives that are today
acknowledged as global exemplars. Your Company's sustainability
strategy aims to significantly enhance value creation for the nation
through superior 'Triple Bottom Line' performance that builds and
enriches the country's economic, environmental and societal 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.
It is a matter of immense satisfaction that your Company's models of
sustainable development and value chains designed to promote
livelihoods, have supported the creation of around 6 million
sustainable livelihoods, largely among the marginalised sections of
society. Your Company has sustained its position of being the only
Company in the world of comparable dimensions to have achieved the
global environmental distinction of being carbon positive (for 10
consecutive years), water positive (for 13 years in a row) and solid
waste recycling positive (for 8 years in succession).
Your Company's renewable energy portfolio ensures that over 43% of its
total energy requirements are met from renewable energy sources - a
remarkable achievement given the large manufacturing base of your
Company. Further, premium luxury 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. The broad objectives with which your
Company has rolled out these policies include strengthening the
mechanisms of engagement with key stakeholders, the identification of
material sustainability issues and the efforts towards monitoring and
mitigating the impacts along the value chain of each Business, wherever
relevant.
Your Company's 11th Sustainability Report, published during the year
detailed the progress made across all dimensions of the 'Triple Bottom
Line' for the year 2013-14. Your Company's Sustainability Report in
conformance with the new Global Reporting Initiative (GRI) G4
Guidelines was amongst the first in India under "In Accordance -
Comprehensive" category with "Materiality Matters" confirmation from
GRI and also the first in India that has been third party assured at
the highest criteria of "reasonable assurance" as per International
Standard on Assurance Engagements (ISAE) 3000. The 12th Sustainability
Report, covering the sustainability performance of your Company for the
year 2014-15, is being prepared in accordance with the GRI guidelines Â
G4 and will be available to you 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 2014, 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, inspired by a vision to sub-serve a larger
national purpose and abide by the strong value of trusteeship, 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 that defines
the framework for your Company's Social Investments Programme.
Your Company's Social Investments Programme has identified three
important stakeholder groups: (a) Rural communities in the Company's
operational areas who seek viable solutions to some of the major
challenges that threaten the sustainability of their farming systems;
(b) Communities residing in close proximity to our production units who
expect help in the creation of the necessary socio-economic
infrastructure for the emergence of a healthy, educated and skilled
work force and the promotion of entrepreneurship, especially amongst
women, to generate additional income streams; and (c) Central and State
governments, which encourage Public Private Partnerships to demonstrate
scalable and replicable models of development. Your Company's
stakeholders are confronted with multiple, but inter-related, issues at
the core of which is the challenge of securing sustainable livelihoods.
Interventions therefore are appropriately designed to respond to their
unique multi-dimensional development challenges in order to accomplish
the goal of empowering stakeholder communities to promote sustainable
livelihoods.
The footprint of your Company's CSR projects promoted under the Social
Investments Programme is spread over 14 states covering 71 districts.
The interventions reach out to over 6,70,000 households in more than
10,600 villages.
Social Forestry
Your Company's pioneering initiative of wasteland development through
the Social Forestry Programme cumulatively covers 67,536 hectares in
3,720 villages, impacting over 70,000 poor households. This is part of
the Social and Farm Forestry initiative that has together greened
nearly 200,000 hectares to date and generated nearly 90 million person
days of employment for rural households, including poor tribal and
marginal farmers. The agro-forestry initiative, that ensures food,
fodder and wood security, cumulatively covered about 9,800 hectares
during the year and 17,600 hectares till date.
Soil and Moisture Conservation
The coverage of your Company's Soil and Moisture Conservation
programme, designed to assist farmers in identified moisture-stressed
areas, increased by an additional 51,397 hectares taking the total area
covered under the watershed programme to 200,186 hectares. 1,490
water-bodies were built during the year, taking the total number of
water harvesting structures to 6,464.
Bio Diversity
In the catchments of your Company's agri-business operations, your
Company scaled up bio-diversity conservation in 57 plots covering 504
hectares with the objective of protecting native flora and fauna and
providing other eco-system services. Cumulatively, the area under
bio-diversity now stands at 3,191 hectares. Reports of some of the
bio-diversity conservation initiatives were published in the
International Journal of Biodiversity & Endangered Species  Spain 2014
and also featured as a case study in the India Business & Biodiversity
Initiative (IBBI) report published by the CII-ITC Centre of Excellence
for Sustainable Development and the Ministry of Environment, Forests &
Climate Change. Your Company has promoted bio-diversity conservation
on 22 hectares in Telangana and Andhra Pradesh. Your Company has also
collaborated with the Telangana Government to strengthen and benchmark
bio-diversity conservation in the KBR National Park in Hyderabad
covering an area of 140 hectares, thereby enabling FSC certification of
the said park.
Sustainable Agriculture
Your Company's sustainable agriculture programme aims to introduce
advanced knowledge and technology through different packages of farm
practices and increase awareness of farmers on optimum use of natural
resources in order to increase farm productivity and minimise cost of
cultivation. During the year, 521 farmer field schools disseminated
advanced agri-practices to over 21,000 farmers through 7,736
demonstration plots covering over 18,000 hectares under different
crops.
In pursuit of your Company's long term sustainable objective of
increasing soil organic carbon, a total of 3,668 compost units were
constructed during the year taking the total number till date to 23,554
units. In addition, the 'Choupal Pradarshan Khet' promoted field
demonstrations of seed varieties and production practices for improved
yield and quality in soybean, wheat, rice, summer pulses and
horticultural crops in more than 1,200 villages covering around 21,000
hectares and more than 60,000 farmers with focus on sustainable farm
practices like moisture conservation, promotion of bio-fertilisers,
zero-tillage, prophylactic pest management, etc.
Livestock Development
Livestock development remains a key focus area of your Company's CSR
initiatives. The programme for genetic improvement of cattle through
artificial insemination to produce high-yielding crossbred progenies is
implemented through 256 Cattle Development Centres (CDCs) covering over
10,000 villages. These CDCs facilitated 2,24,000 artificial
inseminations during the year, taking the total to 15,61,000 artificial
inseminations performed till date. Your Company's CSR initiatives
aimed at enhancing milk production, increasing dairy farm productivity
and ensuring remunerative prices to farmers in multiple locations
continued to make good progress. The Dairy Development programme is
currently sourcing an average of 32,000 litres per day (lpd) of milk,
with a peak of 57,000 lpd, in Munger and Saharanpur from 6,470 farmers.
As part of this initiative, an end-to-end mobile enabled farm
automation and IT solution for productivity enhancement, real-time
management of cattle herds' health, fertility, milk quality,
productivity and providing farm management inputs to farmers was
piloted during the year and currently covers 1,000 animals.
Women Empowerment
The women's micro-enterprise programme was specifically designed for
women from economically weaker sections to provide a range of gainful
employment opportunities and support with financial assistance by way
of loans and grants. Over 23,000 women have been covered through 2,057
Self-Help Groups (SHG) with total savings of over Rs. 4 crores. A major
thrust was given to financial inclusion of women members by opening
bank accounts for 1,335 women this year. Cumulatively, over 40,000
women were gainfully employed either through micro-enterprises or
assisted with loans to pursue income generating activities.
Education
The Primary Education programme is designed to provide children from
weaker sections, access to education with focus on quality and
retention. During the year, 36,000 children were covered by the 'Read
India Programme' and another 34,000 children were covered by
Supplementary Learning Centres, taking the cumulative total of children
covered to 4,06,000. A total of 147 government primary schools
(including Anganwadis) were provided infrastructure support comprising
boundary walls, additional classrooms, sanitation units, furniture and
electrical fittings, thus taking the total number of government primary
schools covered till date to 1,158.
Skilling & Vocational Training
Given the inadequate availability of skilled manpower and the
Government's efforts to promote vocational education and training, your
Company's Vocational Training programme played an active role in
building and upgrading skills of marginalised youth to better meet the
emerging needs of the job market. 13,180 youth were enrolled for
training under different courses during the year. Of the total students
enrolled, 10,378 (79% of enrolled) completed training and 3,280 (32% of
trained) students were provided placement. The students trained
included a healthy mix of women and SC/ST candidates.
To cater to the ever growing need for professionally trained human
resources in the hospitality industry, your Company continues to work
with the Welcomgroup Graduate School of Hotel Administration together
with Dr. TMA Pai Foundation. This institution continues to be ranked
among the top educational institutions in the sector. Graduates of the
institution are today part of several leading hotel chains of the
world. In addition, your Company also opened a Culinary Institute at
Chhindwara in 2014, where cooking skills are imparted to youth from
disadvantaged sections of society.
Leveraging its core competencies in the FMCG sector, your Company
launched an employability programme to skill unemployed youth in FMCG
sales and distribution across various locations of the country.
Candidates who successfully completed the programme were certified by
the National Skill Development Corporation and have been gainfully
employed in the FMCG sector.
A programme to promote entrepreneurship for self-help groups from
economically weaker sections of society was launched in select
districts of Odisha. This initiative targeted to equip unemployed
rural youth to become entrepreneurs and small businessmen capable of
generating independent earnings by selling products on a direct-to-home
sale model. This initiative has resulted in generating a sustained
supplementary income for economically disadvantaged youth and will be
further scaled up in the future.
Health & Sanitation
Your Company invested in impacting public health through multiple
routes. To promote a hygienic environment through prevention of open
defecation and reduce incidence of water-borne diseases, 3,578
individual household toilets were constructed during the year. With
this, a total of 8,254 low-cost sanitary units have been constructed so
far in your Company's factory catchment areas. In areas with water
quality problems, 19 plants providing safe drinking water to about
28000 rural households have been installed 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 new districts in Madhya Pradesh with a coverage of over
450 villages.
Solid Waste Management
Your Company's Solid Waste Management programme, christened 'WOW Â
Wellbeing Out of Waste' inculcates the habit of source segregation and
recycling among school children, housewives and general public as well
as industries and business enterprises. The WOW movement today extends
to Hyderabad, Chennai, Bengaluru, Coimbatore and some towns of
Telangana, enjoying the support of over 3 million citizens, 500,000
school children, 350 corporates, more than 1,000 commercial
establishments and around 200 industrial plants.
On the occasion of the 3rd anniversary of National Recycling Day, your
Company launched a novel pilot programme in 12 selected wards of
Bengaluru with the support of the Bruhat Bengaluru Mahanagara Palike
(BBMP) and a similar programme in 30 wards of
Coimbatore to create sustainable livelihoods for rag pickers and waste
collectors by propagating source segregation at each household and
facilitating effective collection mechanisms in collaboration with
Municipal corporations.
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
adhere to the age-old 'Guru-Shishya Parampara' Â 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 development
challenges, has been possible in significant measure, to your Company's
partnerships with globally renowned NGOs like BAIF, DB Tech, DSC, FES,
MYRADA, Pratham, LabourNet, SEWA, SRIJAN and Outreach, 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 codes and practices and verifying compliance through
regular audits.
Your Company has addressed 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 increasing use of 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. Substantial progress has been made in
enhancing the renewable energy portfolio and during 2014-15 over 43% 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 at least 50% of its total energy
requirements from renewable sources by 2020.
Water Conservation
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 Â
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. These initiatives, along with
your Company's CSR interventions in the area of integrated watershed
management, have resulted in the creation of rainwater harvesting
potential that is over twice 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 2014 published under the aegis of
the Carbon Disclosure Project from 85% in 2013-14 to 94% in 2014-15,
placing it amongst the top 10 Indian organisations who have been so
evaluated. The greenhouse gas (GHG) inventory of your Company for the
year 2014-15 compiled as per the ISO 14064 standard, has been assured
at the highest 'Reasonable Level' by an independent 3rd party assurance
provider, a significant achievement considering the scale and spread of
your Company's operations. This is also evidence of the importance
accorded to GHG management by your Company.
Reaffirming your Company's commitment to the ethos of 'Responsible
Luxury', all luxury hotels of your Company are LEED® Platinum certified
(certification in progress for ITC Grand Bharat which was opened
recently) 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 has made 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 91.2% of the total waste generated in your Company,
recycling 99.8% of the total waste generated by its operations. During
the year, this Business also recycled around 114,563 tonnes of
externally sourced post-consumer waste paper, thereby creating yet
another positive environmental footprint.
Safety
Your Company's commitment to provide a safe and healthy workplace to
all has been reaffirmed by the significant reduction in the number of
accidents and 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 and driving behavioural
change leading to the creation of a safety culture. In line with this
approach, several behavioural based safety initiatives and custom-made
risk based training programmes were rolled out at your Company's
operating units, resulting in a noticeable improvement in safety
performance. 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. 2014-15 was a
zero fatal accident year and there was also a 56% drop in Loss Time
Accidents, over the previous year. These statistics cover all
categories of employees working on-site at ITC premises, including
employees of service providers.
Promoting Thought Leadership in Sustainability
The 'CIIÂITC Centre of Excellence for Sustainable Development' (the
Centre), 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 annual
Sustainability Summit, held on 16th & 17th September 2014 in New Delhi,
which was inaugurated by Shri Prakash Javadekar, Minister of
Environment, Forests and Climate Change (MoEFCC), and chaired by Shri Y
C Deveshwar. The Summit was attended by over 300 participants.
On 19th December 2014, the 9th CII-ITC Sustainability Awards were
handed over by Shri Prakash Javadekar to the 27 winning companies as
India's Most Sustainable.
On the invitation of the MoEFCC, the Centre is hosting the India
Business & Biodiversity Initiative (IBBI) with the support of German
International Cooperation. Launched on the occasion of International
Day for Biological Diversity on 22nd May 2014 in New Delhi, the IBBI
serves as a national platform for business and its stakeholders for
dialogue, sharing and learning, ultimately leading to mainstreaming
sustainable management of biological diversity into businesses. On the
sidelines of the 12th meeting of the Conference of the Parties (COP) to
the Convention on Biological Diversity (CBD), the IBBI launched the
publication "Business and Biodiversity in India: 20 Illustrations" in
Pyeongchang, Republic of Korea. The report features initiatives of 20
companies across diverse sectors in biodiversity management.
The Centre has introduced integrated reporting to India by setting up a
business network called
The Centre has been building capacities of companies on the new CSR
legislation as per the Companies Act, 2013. In 2014, the Centre
conducted 7 open workshops in New Delhi, Mumbai, Lucknow, Bhubaneswar,
Chennai, Visakhapatnam and Goa. The Centre is also offering services to
companies in baseline studies, measurement of human development
indicators, and social return on investments.
R&D, QUALITY AND PRODUCT DEVELOPMENT
The 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. Presently, the
LSTC team has evolved with over 350 world-class scientists augmented by
world-class experimental and measurement system capabilities. During
the year, LSTC's capability was further enhanced with the
operationalisation of state-of-the-art facilities for performing
experimental research. In addition to the several Centres of Excellence
that have been created over past few years, 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 and which are being advanced to
large scale field trials in multiple locations.
Recognising the unique construct of your Company in terms of its strong
presence in agriculture, 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. The initial
activities related to VAA have already commenced with a focus on soya.
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.
Pursuing your Company's relentless commitment to 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 to 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).
RECOVERY OF DUES FROM THE CHITALIAS AND PROCEEDINGS INITIATED BY THE
ENFORCEMENT DIRECTORATE
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. Last year, the US
Trustee of EST Fibers Inc., USA, a Chitalia group entity, made a small
interim distribution of estate funds to your Company.
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.
TREASURY OPERATIONS
During the year, your Company's treasury operations continued to focus
on deployment of temporary surplus liquidity and management of foreign
exchange exposures within a well-defined risk management framework.
The year under review was characterised by falling interest rates on
the back of improvement in the domestic macro-economic environment.
Easing inflation and improvement on the Fiscal and Current Account
deficit front, enabled the Reserve Bank of India to reduce policy rates
by a cumulative 50 basis points in Q4 2014-15. However, muted growth in
bank deposits and intermittent tightness in banking liquidity brought
about spikes in market interest rates.
All investment decisions in deployment of temporary surplus liquidity
continued to be guided by the tenets of Safety, Liquidity and Return.
Proactive management of portfolio duration helped improve treasury
performance. During the year, investment portfolio mix was continuously
rebalanced in line with the evolving interest rate environment.
Further, the quantum of investment in Bank Fixed Deposits was increased
towards the year end, taking advantage of spikes in market interest
rates and in line with expectations of lower interest rates going
forward. 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 US Dollar witnessed unprecedented
strength against all major global currencies during the year on the
back of strengthening US economic recovery amidst persistent weakness
in the other major economies like the Euro Area, Japan and China.
Divergence in monetary policy stance between the US and rest of the
developed economies coupled with rising geopolitical tensions in
Ukraine/Russia and the Middle-East added to US Dollar strength. Against
this backdrop, the Indian Rupee remained relatively range bound, with a
depreciating bias. In this scenario, your Company adopted an
appropriate forex management strategy, which included the use of
foreign exchange forward contracts and plain vanilla options, to
protect business margins and reduce risks / costs.
As in earlier years, commensurate with the large size of 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
department.
DEPOSITS
Your Company's erstwhile Public Deposit Scheme closed in the year 2000.
As at 31st March, 2015, there were no deposits due for repayment except
in respect of 2 deposit holders totalling Rs. 20,000 which have been
withheld on the directives received from government agencies.
There was no failure to make repayments of Fixed Deposits on maturity
and the interest due thereon in terms of the conditions of your
Company's erstwhile Schemes.
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.
DIRECTORS
Changes in Directors
Mr. Anthony Ruys [representing Tobacco Manufacturers (India) Limited, a
subsidiary of British American Tobacco p.l.c., the ultimate holding
company] ceased to be Non-Executive Director of your Company with
effect from 24th July, 2014, on completion of his term. Your Directors
would like to record their appreciation of the services rendered by Mr.
Ruys.
Messrs. Anil Baijal, Arun Duggal, Serajul Haq Khan, Sunil Behari
Mathur, Pillappakkam Bahukutumbi Ramanujam and Sahibzada Syed
Habib-ur-Rehman and Ms. Meera Shankar were appointed by the Members
with effect from 15th September, 2014 as Independent Directors of the
Company under Section 149 of the Companies Act, 2013 ('the Act').
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. Kurush
Noshir Grant and Mr. Krishnamoorthy Vaidyanath will retire by rotation
at the ensuing Annual General Meeting ('AGM') of your Company and being
eligible, offer themselves for re-election. The Board of Directors of
your Company ('the Board') has recommended their re-election.
Number of Board Meetings
During the year ended 31st March, 2015, seven meetings of the Board
were held.
Attributes, Qualifications & Independence of Directors and their
Appointment
The Nomination & Compensation Committee of the Board approved 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 other Directors as
applicable. 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 or provided under any statute.
One-third of the Directors who are liable to retire by rotation, retire
every year and are eligible for re-election.
The Independent Directors of your Company have confirmed that they meet
the criteria of independence as prescribed under Section 149(6) of the
Act and the Listing Agreement with Stock Exchanges.
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 Listing Agreement 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 each 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 Chairman before the Board.
Key Managerial Personnel
During the year there was no change in the Key Managerial Personnel of
your Company.
AUDIT COMMITTEE & AUDITORS
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
105th 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
2015-16. Appropriate resolution in respect of the above is appearing
in the Notice convening the 104th AGM of the Company.
Cost Auditors
Your Board, on the recommendation of the Audit Committee, appointed -
(i) Messrs. Shome & Banerjee, Cost Accountants, for audit of cost
records maintained by the Company
 in respect of 'Soyabean Oil' and 'Face wash' for the financial year
2014-15, and
 in respect of all applicable products of the Company, other than
'Paper and Paperboard' for the financial year 2015-16.
(ii) Mr. P. Raju Iyer, Cost Accountant, for audit of cost records
maintained by the Company in respect of 'Paper and Paperboard' for the
financial year 2015-16.
In terms of Section 148 of the Act read with the Companies (Audit and
Auditors) Rules, 2014, appropriate resolution seeking your ratification
of the remuneration of Messrs. Shome & Banerjee and Mr. P. Raju Iyer is
appearing in the Notice convening the 104th AGM of the Company.
Secretarial Auditors
Your Board, during the year, appointed Messrs. S. M. Gupta & Co.,
Company Secretaries, to conduct secretarial audit of the Company for
the financial year ended 31st March, 2015. The Report of Messrs. S. M.
Gupta & Co. in terms of Section 204 of the Act is provided in the
Annexure forming part of this Report.
CHANGES IN SHARE CAPITAL
During the year the following changes were effected in the Share
Capital of your Company:- a) Issue of Shares under the ITC Employee
Stock Option Schemes:
6,22,48,830 Ordinary Shares of Rs. 1/- each, fully paid-up, were issued
and allotted during the year upon exercise of 62,24,883 Options under
your Company's Employee Stock Option Schemes.
b) Issue of Shares upon Demerger of the Non- Engineering Business of
Wimco Limited into the Company:
87,761 Ordinary Shares of Rs. 1/- each, fully paid- up, were issued and
allotted on 29th August, 2014
pursuant to the Scheme of Arrangement for demerger of the
Non-Engineering Business of Wimco into the Company.
Consequently, the Issued and Subscribed Share Capital of your Company,
as on 31st March, 2015, stands increased to Rs. 801,55,19,541/- divided
into 801,55,19,541 Ordinary Shares of Rs. 1/- each.
The Ordinary Shares issued during the year rank pari passu with the
existing Ordinary Shares of your Company.
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 erstwhile SEBI (Employee Stock
Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as
replaced by the SEBI (Share Based Employee Benefits) Regulations, 2014
and the resolutions passed by the Members in this regard.
INVESTOR SERVICE CENTRE
The Investor Service Centre (ISC) of your Company, backed by
state-of-the-art infrastructure and experienced team of professionals,
caters to the increasing expectations of investors by keeping its
services contemporary and efficient.
ISC achieved the highest 'Level 5' rating for the sixth consecutive
year, accorded by Messrs. Det Norske Veritas  a testimony to the
excellence achieved by ISC in providing quality investor services.
RELATED PARTY TRANSACTIONS
All contracts or arrangements with related parties, entered into or
modified during the financial year, were on an arm's length basis and
in the ordinary course of business. 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. Accordingly, no transactions are being reported in Form
No. AOC-2 in terms of Section 134 of the Act read with Rule 8 of the
Companies (Accounts) Rules, 2014.
Your Company's Policy on Related Party Transactions, as adopted by your
Board, can be accessed on the corporate website at
http://www.itcportal.com/about- itc/policies/policy-on-rpt.aspx.
DIRECTORS' RESPONSIBILITY STATEMENT
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 are adequate and were
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
effectively.
CONSOLIDATED FINANCIAL STATEMENTS
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.
OTHER INFORMATION
Compliance with Clause 49 of the Listing Agreement - Corporate
Governance
The certificate of the Auditors, Messrs. Deloitte Haskins & Sells,
confirming compliance of conditions of Corporate Governance as
stipulated under Clause 49 of the Listing Agreement with the Stock
Exchanges in India, is annexed.
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.
Extracts 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
annexed.
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
Absorption
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.
Employees
The total number of employees as on 31st March, 2015 stood at 25787.
There were 143 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, 2015. 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.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements that involve risks and
uncertainties. When used in this Report, the words 'anticipate',
'believe', 'estimate', 'expect', 'intend', 'will' and other similar
expressions as they relate to the Company and/or its businesses are
intended to identify such forward-looking statements. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise. Actual results, performances or
achievements could differ materially from those expressed or implied in
such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements that speak only as
of their dates. This Report should be read in conjunction with the
financial statements included herein and the notes thereto.
CONCLUSION
Your Company's Board and employees are inspired by the Vision of
sustaining 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 inspired 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.
The Directors and employees look forward to the future with confidence,
powered by your Company's world- class brands, spirit of innovation,
focus on game changing R&D, strong rural linkages that have earned the
trust of millions of farmers, unique strengths in trade marketing &
distribution, world-class manufacturing, superior service delivery and
its track record as a global exemplar in sustainable business
practices.
On behalf of the Board
22nd May, 2015 Y. C. DEVESHWAR
Chairman
Kolkata
India K. N. GRANT
Director
Mar 31, 2014
The Directors submit their Report for the financial year ended 31st
March, 2014.
FINANCIAL PERFORMANCE
Your Company continued to deliver strong financial performance with
healthy growth in revenues and high quality earnings. This performance
is particularly commendable when viewed against the backdrop of the
extremely challenging business context in which it was achieved,
namely, a sluggish macro-economic environment which saw GDP growth
remaining below 5% for the second year in succession, high inflation
and a marked deceleration in the rate of growth of Private Final
Consumption Expenditure; steep increase in taxes/duties on Cigarettes
for two years in a row; weak demand conditions in the FMCG industry;
gestation costs relating to the new FMCG businesses; sharp escalation
in input costs in the Paperboards, Paper & Packaging Businesses and a
weak demand & pricing environment in the Hotels business.
Gross Revenue for the year grew by 11.7% to Rs. 46712.62 crores. Net
Revenue at Rs. 32882.56 crores grew by 11.1% primarily driven by a 16.0%
growth in the non-cigarette FMCG segment, 14.7% growth in Paperboards,
Paper and Packaging segment and 10.6% growth in the Cigarettes segment.
Profit Before Tax registered a growth of 18.5% to Rs. 12659.11 crores
while Net Profit at Rs. 8785.21 crores increased by 18.4%. Earnings Per
Share for the year stood at Rs. 11.09 (previous year Rs. 9.45). Cash flows
from Operations aggregated Rs. 10759.50 crores compared to Rs. 9596.24
crores in the previous year.
Your Company is one of India''s most admired and valuable corporations
with a current market capitalisation of over Rs. 270000 crores and has
consistently featured amongst the top 10 private sector companies in
terms of market capitalisation and profits. Over the last 18 years,
your Company''s Net Revenue and Profit After Tax recorded an impressive
compound annual growth rate of 15.3% and 21.6% respectively. During
this period, Return on Capital Employed improved substantially from
28.4% to 45.8% while Total Shareholder Returns, measured in terms of
increase in market capitalisation and dividends, grew at a compound
annual rate of 25.9%, placing your Company amongst the foremost in the
country in terms of efficiency of servicing financial capital.
Your Directors are pleased to recommend a Dividend of Rs. 6.00 per share
(previous year Rs. 5.25 per share) for the year ended 31st March, 2014.
Total cash outflow in this regard will be Rs. 5582.90 crores (previous
year Rs. 4853.49 crores) including Dividend Distribution Tax of Rs. 810.99
crores (previous year Rs. 705.03 crores).
Your Board further recommends a transfer to General Reserve of Rs. 880.00
crores (previous year Rs. 750.00 crores). Consequently, the Surplus in
Statement of Profit and Loss as at 31st March, 2014 would stand at Rs.
6139.09 crores (previous year Rs. 3788.10 crores).
FOREIGN EXCHANGE EARNINGS
Your Company continues to view foreign exchange earnings as a priority.
All businesses in the ITC portfolio are mandated to engage with
overseas markets with a view to testing and demonstrating international
competitiveness and seeking profitable opportunities for growth. The
ITC Group''s contribution to foreign exchange earnings over the last ten
years amounted to nearly US$ 6.0 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 2013-14, your Company and its subsidiaries
earned Rs. 5068 crores in foreign exchange. The direct foreign exchange
earned by your Company amounted to Rs. 4290 crores, mainly on account of
exports of agri-commodities. Your Company''s expenditure in foreign
currency amounted to Rs. 2073 crores, comprising purchase of raw
materials, spares and other expenses of Rs. 1343 crores and import of
capital goods at Rs. 730 crores. Details of foreign exchange earnings and
outgo are provided in Note 31 to the Financial Statements.
PROFITS, DIVIDENDS AND SURPLUS
(Rs. in Crores)
PROFITS 2014 2013
a) Profit Before Tax 12659.11 10684.18
b) Tax Expense
- Current Tax 3791.13 2934.79
- Deferred Tax 82.77 331.00
c) Profit for the year 8785.21 7418.39
SURPLUS IN STATEMENT OF PROFIT AND LOSS
a) At the beginning of the year 3788.10 1972.59
b) Add : Profit for the year 8785.21 7418.39
c) Less:
- Transfer to General Reserve 880.00 750.00
- Proposed Dividend 4771.91 4148.46
[Rs. 6.00 (2013 - Rs. 5.25) per share]
- Income Tax on Proposed Dividend
- Current Year 810.99 705.03
- Earlier year''s provision no (28.68) (0.61)
longer required
d) At the end of the year 6139.09 3788.10
TAXATION
As mentioned in the Report of the Directors of earlier years, your
Company had obtained Stay Orders from the Honourable Calcutta High
Court against re-opening of past assessments for the period 1st July,
1983 to 30th June, 1986. The Honourable Calcutta High Court has now
held in your Company''s favour by allowing the concerned Writ Petitions
and the impugned notices & the proceedings thereunder have been
quashed.
Also, as stated in the Report of the Directors of earlier years, in
respect of similar Income Tax notices for re-opening the past
assessments for the period 1st April, 1990 to 31st March, 1993, the
Honourable Calcutta High Court had admitted the Writ Petitions and
ordered that no final assessment orders be passed without the leave of
the Court. This status remains unchanged.
PUBLIC DEPOSITS
Your Company''s Public Deposit Scheme closed in the year 2000. As at
31st March, 2014, there were no deposits due for repayment except in
respect of 2 deposit holders totalling Rs. 20,000 which have been
withheld on the directives received from government agencies.
There was no failure to make repayments of Fixed Deposits on maturity
and the interest due thereon in terms of the conditions of your
Company''s erstwhile Schemes.
INVESTOR SERVICE CENTRE
The Investor Service Centre (ISC) of your Company maintains its
position as an exemplar in investor servicing.
During the year, SEBI granted your Company a Certificate of Permanent
Registration to act as Category II Share Transfer Agent for providing
in-house share registration and related services.
The ISO 9001:2008 Quality Management System Certification for investor
servicing by ISC was renewed during the year by Messrs. Det Norske
Veritas (DNV) for a further period of three years. ISC achieved the
highest ''Level 5'' rating for the fifth consecutive year  a testimony
to the excellence achieved by ISC in providing quality investor
services.
During the year, a Shareholder Satisfaction Survey was conducted by
your Company. An overwhelming number of Members who participated in the
Survey responded that they were extremely satisfied with the services
provided by ISC.
DIRECTORS
Mr. Hugo Geoffrey Powell [representing Tobacco Manufacturers (India)
Limited, a subsidiary of British American Tobacco p.l.c., the ultimate
holding company], Dr. Basudeb Sen, Mr. Balakrishnan Vijayaraghavan and
Mr. Dinesh Kumar Mehrotra (representing the Life Insurance Corporation
of India) ceased to be Non-Executive Directors of your Company with
effect from 30th July, 2013, 27th August, 2013, 27th August, 2013 and
27th October, 2013, respectively, on completion of their terms. Mr.
Shilabhadra Banerjee (representing the Specified Undertaking of the
Unit Trust of India) resigned as Non-Executive Director of your Company
with effect from 26th March, 2014. Your Directors would like to record
their appreciation of the services rendered by Mr. Powell, Dr. Sen, Mr.
Vijayaraghavan, Mr. Mehrotra and Mr. Banerjee.
Mr. Nakul Anand and Mr. Pradeep Vasant Dhobale, Wholetime Directors of
your Company since 3rd January, 2011, completed their terms on 2nd
January, 2014. Mr. Anand and Mr. Dhobale, on the recommendations of
the erstwhile Nominations Committee and the Compensation Committee,
were appointed by the Board of Directors of your Company (the ''Board'')
as Additional Directors with effect from 3rd January, 2014, and subject
to the approval of the Members, also as Wholetime Directors, liable to
retire by rotation, for a period of five years from 3rd January, 2014.
Mr. Robert Earl Lerwill [representing Tobacco Manufacturers (India)
Limited, a subsidiary of British American Tobacco p.l.c., the ultimate
holding company], on the recommendation of the erstwhile Nominations
Committee, was appointed by the Board as Additional Non-Executive
Director of your Company with effect from 18th November, 2013. Mr.
Suryakant Balkrishna Mainak (representing the Life Insurance
Corporation of India), on the recommendation of the Nomination &
Compensation Committee, was appointed by the Board as Additional
Non-Executive Director of your Company with effect from 25th April,
2014. Mr. Shilabhadra Banerjee, on the recommendation of the
Nomination & Compensation Committee, was also appointed by the Board as
Additional Non-Executive Director of your Company with effect from 24th
July, 2014. By virtue of the provisions of Article 96 of the Articles
of Association of your Company and Section 161 of the Companies Act,
2013, Messrs. Lerwill, Mainak and Banerjee will vacate office at the
ensuing Annual General Meeting (''AGM'') of your Company.
Your Board at its meeting held on 23rd May, 2014, on the recommendation
of the Nomination & Compensation Committee, has recommended for the
approval of the Members the appointment of Mr. Banerjee as an
Independent Director in terms of Section 149 of the Companies Act,
2013, with effect from the date of the ensuing AGM of your Company.
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 Mr. Lerwill and Mr. Mainak as Non-Executive
Directors of the Company, liable to retire by rotation, with effect
from the date of the ensuing AGM of your Company.
Notices under Section 160 of the Companies Act, 2013, have been
received for the appointment of Messrs. Anand, Dhobale, Banerjee,
Lerwill and Mainak 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 103rd AGM of the
Company.
In accordance with the provisions of Article 91 of the Articles of
Association of the Company, Mr. Krishnamoorthy Vaidyanath will retire
by rotation at the ensuing AGM of your Company and being eligible,
offers himself for re-election. The Board has recommended his
re-election.
Messrs. Anil Baijal, Serajul Haq Khan, Sunil Behari Mathur,
Pillappakkam Bahukutumbi Ramanujam, Sahibzada Syed Habib-ur-Rehman and
Ms. Meera Shankar, by virtue of being Independent Directors of your
Company in terms of the provisions of the Companies Act, 2013, will not
be liable to retire by rotation for the residual period of their
respective terms of appointment approved by the Members of the Company.
AUDITORS
Statutory Auditors
Your Company''s Auditors, Messrs. Deloitte Haskins & Sells, retire at
the ensuing AGM and, being eligible, have offered themselves for
re-appointment. The Board, on the recommendation of the Audit
Committee, has recommended the re-appointment of Messrs. Deloitte
Haskins & Sells for a period of five years in accordance with Section
139 of the Companies Act, 2013. Appropriate resolution seeking your
approval to the said re-appointment is appearing in the Notice
convening the 103rd AGM of the Company.
Cost Auditors
Your Company had appointed (i) Messrs. Shome & Banerjee, Cost
Accountants, Kolkata, for audit of cost records in respect of ''Paper''
products other than the cost records maintained by the Paperboards and
Specialty Papers Business. They were also appointed as the Cost
Auditors in respect of Plastics & Polymers, Apparel, Edible Oil Seeds &
Oil and Plantation products; (ii) Messrs. S. Mahadevan & Co., Cost
Accountants, Chennai, as Cost Auditor for audit of cost records
maintained in respect of Packaged Food Products; and (iii) Mr. P. Raju
Iyer, Cost Accountant, Chennai, as Cost Auditor for audit of cost
records maintained by the Paperboards and Specialty Papers business for
the financial year ended 31st March, 2013. The Cost Audit Report was
filed by the Cost Auditor on 20th September, 2013 within the due date
of 27th September, 2013.
In respect of the financial year ended 31st March, 2014, your Company
has appointed (i) Messrs. Shome & Banerjee, Cost Accountants, Kolkata,
for audit of cost records in respect of ''Paper'' products other than the
cost records maintained by the Paperboards and Specialty Papers
business. They are also appointed as the Cost Auditors in respect of
Plastics & Polymers, Apparel, Edible Oil Seeds & Oil, Plantation
products and Personal Care products including Soap; (ii) Messrs. S.
Mahadevan & Co., Cost Accountants, Chennai, as Cost Auditor for audit
of cost records maintained in respect of Packaged Food Products; and
(iii) Mr. P. Raju Iyer, Cost Accountant, Chennai, as Cost Auditor for
audit of cost records maintained by the Paperboards and Specialty
Papers business and for all other additional applicable product groups.
The due date for filing the Cost Audit Reports is 27th September, 2014.
EMPLOYEE STOCK OPTION SCHEME
Under your Company''s Employee Stock Option Schemes, 5,13,49,840
Ordinary Shares of Rs. 1/- each, were issued and allotted during the year
upon exercise of 51,34,984 Options; such shares rank pari passu with
the existing Ordinary Shares of your Company. Consequently, the Issued
and Subscribed Share Capital of your Company as at 31st March, 2014
stands increased to Rs. 795,31,82,950/- divided into 795,31,82,950
Ordinary Shares of Rs. 1/- each.
Details of the Options granted up to 31st March, 2014 and other
disclosures as required under Clause 12 of the Securities and Exchange
Board of India (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999 (the ''SEBI Guidelines'') are set out
in the Annexure to this Report.
Your Company''s Auditors, Messrs. Deloitte Haskins & Sells, have
certified that the Company''s Employee Stock Option Schemes have been
implemented in accordance with the SEBI Guidelines and the resolutions
passed by the Members in this regard.
DIRECTORS'' RESPONSIBILITY STATEMENT
As required under Section 217 (2AA) of the Companies Act, 1956, your
Directors confirm having:
a) followed in the preparation of the Annual Accounts, the applicable
accounting standards with proper explanation relating to material
departures if any;
b) selected such accounting policies and applied them consistently and
made judgements and estimates that are reasonable and prudent so as to
give a true and fair view of the state of affairs of your Company at
the end of the financial year and of the profit of your Company for
that period;
c) taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies
Act, 1956 for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities; and
d) prepared the Annual Accounts on a going concern basis.
CONSOLIDATED FINANCIAL STATEMENTS
In accordance with Accounting Standard 21 - Consolidated Financial
Statements, ITC Group
Accounts form part of this Report & Accounts. These Group Accounts also
incorporate the Accounting Standard 23 - Accounting for Investments in
Associates in Consolidated Financial Statements and Accounting Standard
27 - Financial Reporting of Interests in Joint Ventures as notified
under the Companies (Accounting Standards) Rules, 2006. These Group
accounts have been prepared on the basis of audited financial
statements received from Subsidiary, Associate and Joint Venture
Companies, as approved by their respective Boards.
OTHER INFORMATION
The total number of employees as on 31st March, 2014 stood at 25917.
The certificate of the Auditors, Messrs. Deloitte Haskins & Sells,
confirming compliance of conditions of Corporate Governance as
stipulated under Clause 49 of the Listing Agreement with the Stock
Exchanges in India, is annexed.
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.
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 135 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, 2014. 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.
CONCLUSION
Your Company is today, the leading FMCG marketer in India, a
trailblazer in ''green hoteliering'' and the second largest Hotel chain
in India, 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. Your Company''s
wholly-owned subsidiary, ITC Infotech India Limited, is one of India''s
fast-growing Information Technology companies in the mid-tier segment.
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 manifest in the
creation of unique business models that foster international
competitiveness not only of its businesses but also the entire value
chain of which they are a part.
Inspired by this Vision, driven by Values and powered by internal
Vitality, your Directors and employees look forward to the future with
confidence and stand committed to creating an even brighter future for
all stakeholders.
On behalf of the Board
23rd May, 2014 Y. C. DEVESHWAR
Chairman
New Delhi
India P. V. DHOBALE
Director
Mar 31, 2013
To The Members
FINANCIAL PERFORMANCE
The Company posted another year of strong performance across all
financial parameters, leveraging its corporate strategy of creating
multiple drivers of growth. This performance is even more encouraging
when viewed against the backdrop of the extremely challenging business
context in which it was achieved, namely, the continued economic
slowdown, steep increase in taxes /duties on Cigarettes, gestation
costs relating to the new FMCG businesses and recent investments in the
Paperboards, Paper and Packaging and Hotels businesses.
Gross Revenue for the year grew by 19.9% to Rs. 41809.82 crores. Net
Revenue at Rs. 29605.58 crores grew by 19.4% primarily driven by a
26.4% growth in the non-cigarette FMCG segment, 26.4% growth in Agri
business segment and 13.4% growth in the Cigarettes segment. Profit
before tax increased by 20.1% to Rs. 10684.18 crores while Net Profits
at Rs. 7418.39 crores registered a growth of 20.4%. Earnings Per Share
for the year stands at Rs. 9.45 (previous year Rs. 7.93). Cash flows
from Operations aggregated Rs. 9596.24 crores compared to Rs. 8333.56
crores in the previous year.
Continuing with your Companys chosen strategy of creating multiple
drivers of growth, your Company is today, the leading FMCG marketer in
India, a trailblazer in green hoteliering and the second largest
Hotel chain in India, the clear market leader in the Indian Paperboard
and Packaging industry and the countrys foremost Agri business
player. Your Companys wholly-owned subsidiary, ITC Infotech India
Limited, is one of Indias fast growing Information Technology
companies in the mid-tier segment. Your Company is one of Indias
most admired and valuable corporations with a current market
capitalisation of over Rs. 260000 crores and has consistently featured
amongst the top 10 private sector companies in terms of market
capitalisation and profits.
Additionally, over the last 17 years, your Companys Net Revenue and
Net Profit recorded an impressive compound growth of 15.6% and 21.8%
per annum respectively. During this period, Return on Capital Employed
improved substantially from 28.4% to 45.7% while Total Shareholder
Returns, measured in terms of increase in market capitalisation and
dividends, grew at a compound annual growth rate of over 26%, placing
your Company amongst the foremost in the country in terms of efficiency
of servicing financial capital.
Such an impressive performance track record, delivered consistently
over a long period of time, won global recognition during the year with
the Harvard Business Review ranking your Companys Chairman Mr.
Y.C.Deveshwar - under whose stewardship this was achieved - as the 7th
best performing CEO in the world.
Your Directors are pleased to recommend a Dividend of Rs. 5.25 per
share (previous year Rs. 4.50 per share) for the year ended 31st March,
2013. Total cash outflow in this regard will be Rs. 4853.49 crores
(previous year Rs. 4089.04 crores) including Dividend Distribution Tax
of Rs. 705.03 crores (previous year Rs. 570.75 crores).
Your Board further recommends a transfer to General Reserve of Rs.
750.00 crores (previous year Rs. 650.00 crores). Consequently, your
Board recommends leaving a surplus in Statement of Profit and Loss of
Rs. 3788.10 crores (previous year Rs. 1972.59 crores).
FOREIGN EXCHANGE EARNINGS
Your Company continues to view foreign exchange earnings as a priority.
All businesses in the ITC portfolio are mandated to engage with
overseas markets with a view to testing and demonstrating international
competitiveness and seeking profitable opportunities for growth. The
ITC groups contribution to foreign exchange earnings over the last
ten years amounted to nearly US$ 5.4 billion, of which agri exports
constituted 56%. Earnings from agri exports, which effectively link
small farmers with international markets, are an indicator of your
Companys contribution to the rural economy.
During the financial year 2012-13, your Company and its subsidiaries
earned Rs. 4388 crores in foreign exchange. The direct foreign
exchange earned by your Company amounted to Rs. 3807 crores, mainly on
account of exports of agri-commodities. Your Companys expenditure in
foreign currency amounted to Rs. 1966 crores, comprising purchase of
raw materials, spares and other expenses of Rs. 1345 crores and import
of capital goods at Rs. 621 crores. Details of foreign exchange
earnings and outgo are provided in Note 31 to the Financial Statements.
PROFITS, DIVIDENDS AND SURPLUS
(Rs. in Crores)
PROFITS 2013 2012
a) Profit Before Tax 10684.18 8897.53
b) Tax Expense
- Current Tax 2934.79 2664.29
- Deferred Tax 331.00 70.87
c) Profit for the year 7418.39 6162.37
SURPLUS IN STATEMENT OF PROFIT AND LOSS
a) At the beginning of the year 1972.59 548.67
b) Add : Profit for the year 7418.39 6162.37
c) Less:
-Transfer to General Reserve 750.00 650.00
- Proposed Dividend for the financial
year
- Ordinary Dividend of Rs. 5.25 per
ordinary share of Rs. 1/- each
(previous year Rs. 4.50 per share) 4148.46 3518.29
- Income Tax on Proposed Dividends
- Current Year 705.03 570.75
- Earlier years provision no (0.61) (0.59)
longer required
d) At the end of the year 3788.10 1972.59
BUSINESS SEGMENTS A. FAST MOVING CONSUMER GOODS FMCG - Cigarettes
Discriminatory and punitive taxation coupled with a growing incidence
of smuggling and illegal manufacture are the biggest challenges
confronted by the domestic cigarette industry. These challenges were
further compounded during the year by the steep increase of 22% in
cigarette Excise Duty rates announced in the Union Budget 2012 and the
arbitrary increases in Value Added Tax (VAT) on cigarettes by some
States. Such increases not only undermine the legal domestic cigarette
industry and sub-optimise revenue potential from this sector but also
fail to achieve the objective of tobacco control in the country.
The pattern of tobacco consumption in India is unique and is dominated
by non-cigarette products which are not only cheaper but also revenue
inefficient. With over 17% of the world population, India has a
miniscule share of only 1.8% of global cigarette consumption but
accounts for about 90% of the global consumption of smokeless tobacco.
According to the Global Adult Tobacco Survey, 2010 conducted by
Ministry of Health and Family Welfare, Government of India, while 34.6%
of all adults in India use tobacco in some form, only 5.7% of the adult
population consume cigarettes. It is also pertinent to note that while
cigarettes account for less than 15% of the overall tobacco consumption
(by weight) in the country, they contribute about 75% of the total tax
revenue from the tobacco sector accruing to the exchequer. In contrast,
other forms of tobacco are lightly taxed in India, and in some cases
are even tax exempt, leading to a high degree of potential tax loss.
According to various independent reports, there is a high degree of
dual consumption with an estimated 60% of cigarette consumers in India
also consuming other forms of tobacco. The high incidence of taxation
on cigarettes coupled with a large differential in Excise Duty rates
between cigarettes and other tobacco products has rendered the demand
for cigarettes highly price elastic and are driving consumers to shift
to cheaper and revenue-inefficient forms of tobacco leading to
sub-optimal revenue collections. The fact that cigarette consumption is
price elastic, while consumption of tobacco per se is not, is borne out
by the fact that the total tobacco consumption in the country increased
from 406 million kg in 1981-82 to 475 million kg in 2010-11 even as the
tobacco consumption in the form of cigarettes declined from 86 million
kg to 72 million kg during the same period. Thus, while overall tobacco
consumption is increasing in India, the share of cigarettes in overall
tobacco consumption has declined from 21% to 15%.
In fact, Indias annual per capita consumption of cigarettes is amongst
the lowest in the world.
The requirement therefore is an India-centric tax and policy framework
for tobacco that cognises for the unique consumption pattern in the
country.
A cross-country study of cigarette prices and affordability based on
evidence from the Global Adult Tobacco Survey, and published in Tobacco
Control (British Medical Journal), found that the price of cigarettes
was the highest in India relative to its income (in terms of Purchasing
Power Parity).
Interestingly, the Study also established the fact that bidis in India
were extremely affordable with a large price differential of more than
8 times as compared to cigarettes on account of the high levels of
taxation on cigarettes. At 2.25% of per capita GDP, cigarette taxes
(per 1000 cigarettes in most popular price category) in India are the
highest in the world. In comparison, tax incidence on cigarettes (per
1000 cigarettes in most popular price category) as a percentage of per
capita GDP in other countries such as Japan (0.37%), Germany (0.62%),
China (0.81%), Pakistan (0.85%), Thailand (1.20%) is much lower. Such
high taxes make cigarettes unaffordable to a large number of consumers.
The policy of high taxation narrowly focused on cigarettes has also led
to the rapid growth of the illegal cigarettes segment. This segment has
grown exponentially from 11 billion sticks in 2004 to 22 billion sticks
in 2012, of which, 2 billion sticks have been added in the last one
year alone. The illegal segment now accounts for 18% of cigarette trade
and India is now the 5th largest market in the world for illegal
cigarettes comprising smuggled foreign as well as domestic duty-evaded
cigarettes. Most of these illegal regular sized filter cigarettes are
offered to consumers at a convenient and low price of Rs. 1 per stick.
Such low consumer prices are feasible only if taxes are evaded, as the
Excise Duty component alone on a regular size filter cigarette is
significantly higher than the price point.
Increasing volumes of smuggled foreign cigarettes also result in the
decline in demand for Indian tobaccos since these cigarettes do not use
any tobacco grown by Indian farmers. On the other hand, illegal
cigarettes produced in India, use tobacco of dubious and inferior
quality. Consequently, the proliferation of duty-evaded cigarettes
leads to a drop in demand for high quality Indian tobaccos thereby
adversely impacting the incomes of farmers engaged in the cultivation
of tobacco in the country.
In addition, various media reports have highlighted the link between
cigarette smuggling and organised criminal syndicates as well as
terrorist organisations, which utilise the funds for anti-social and
unlawful activities. If not reined in quickly, illegal cigarette trade
has the potential of destroying the countrys social fabric.
The introduction of a new segment of filter cigarettes of length not
exceeding 65 mm announced in the Union Budget 2012, was a positive step
towards arresting the growth of illegal cigarette trade. The industry
has responded swiftly making significant investments and launched
several offerings in the new segment. While initial response from the
market has been encouraging, the high central Excise Duty rate of Rs.
689 per thousand cigarettes applicable to this segment coupled with a
steep increase in the rate and incidence of VAT, have made it difficult
for the legitimate industry to fully counter the menace of illegal
cigarettes.
An appropriate policy framework will enable the domestic legal
cigarette industry to offer viable products at competitive price points
to consumers. It is a well-established principle of fiscal policy that
moderate taxes enable widening of the tax base and higher compliance
leading to enhanced buoyancy in tax collection. Your Company along with
other stakeholders and industry bodies will continue to engage with
relevant authorities to ensure the implementation of a pragmatic and
equitable tax policy for the tobacco industry.
The imposition of discriminatory and punitive VAT rates by some States
provides an attractive tax arbitrage opportunity resulting in illegal
inter-State diversion of stocks by criminal elements thus depriving the
State Governments of their legitimate revenue share. Punitive tax rates
on cigarettes have proved detrimental to revenue collection and have
led to multi-fold increase in illegal trade of cigarettes without any
visible decrease in overall tobacco consumption.
Till the introduction of VAT in 2007, cigarettes were subject to single
point taxation by the Central Government. As per the provisions of
Additional Excise Duty (Goods of Special Importance) Act, 1957, apart
from Basic Excise Duty, tobacco products were subject to an Additional
Excise Duty (AED) in lieu of State level taxation. The proceeds from
this component were exclusively distributed among States.
For a revenue sensitive product like cigarettes, a revenue efficient
single point taxation system would provide the highest levels of
certainty in tax collection. In addition, it would help in removing
inter-State trade distortions and barriers and is aligned to the
principles of the proposed National Competition Policy which seeks to
create a single unified national market. Several expert committees such
as the Taxation Reform Committee headed by Dr. Raja Chelliah and
Indirect Tax Reform Committee headed by Dr. Vijay Kelkar have
recommended the single point taxation model for cigarettes.
If State level taxation of cigarettes needs to continue, it would be
appropriate to implement and adhere to the original principle
enunciated by the Empowered Committee of State Finance Ministers on VAT
where all goods (other than goods that were exempt or subjected to
concessional rate) were to be taxed at a common Revenue Neutral Rate.
Going forward, the implementation of the proposed Goods and Service Tax
(GST) should ensure that revenue sensitive goods like cigarettes are
subjected to uniform standard rate of tax applicable to general
category of goods. The combined incidence of Excise Duty and GST should
be revenue neutral i.e. maintained at current levels.
Despite such a challenging business scenario, your Company has
successfully enhanced its market standing through robust strategies and
excellence in execution. Your Company will continue to invest in
development of products that are best-in-class and offer superior
and differentiated value propositions to consumers.
As part of its efforts to continuously ensure product integrity and
consistently deliver superior quality, your Company has deployed
advanced tools like Six Sigma and template based quality
predictor systems. Modernisation of the factory in Kolkata is also at
an advanced stage and is expected to be completed during 2013-14.
With the long-term objective of enhancing skill availability, your
Company has established an in-house technical training centre in
collaboration with experts in the field of technical education. The
first batch of trainees has commenced training at the centre during the
year.
This intervention is expected to create a ready pool of technical
talent for your Companys operations in the years to come.
In line with your Companys pursuit of proactive employee relations
management, Long Term Agreements were successfully concluded at the
Bengaluru and Kolkata factories during the year. Systemic improvements
were made in the areas such as grievance resolution and better work
practices were introduced in the factories to ensure harmonious and
efficient operations.
Your Companys relentless focus on Safety, Health and Sustainability in
its operations led to several recognitions during the year. Your
Companys Bengaluru, Saharanpur, Kolkata and Ranjangaon factories have
received the British Safety Councils Sword of Honour award.
The Munger factory received the Shreshta Suraksha Puraskar from the
National Safety Council of India, Mumbai. The Bengaluru factory was
conferred the award for Industrial Water Efficiency at the
prestigious Federation of Indian Chambers of Commerce and Industry
(FICCI) Water Awards. The Munger factory also received the Energy
Efficient Unit award for excellence in energy management from the
Confederation of Indian Industry (CII).
Your Company is committed to the socio-economic upliftment of the
farming community through various Social Investments / Corporate Social
Responsibility programmes primarily in the economic vicinity of its
operations towards making a meaningful contribution to sustainable and
inclusive growth. Fragmented land holding, poor infrastructure,
restricted access to scientific knowledge and endemic inefficiencies of
the market have engulfed the farmers in a vicious cycle of low risk
taking ability, low productivity and low margins. To address some of
these challenges confronted by the farming community, your Company has
been involved in the creation of on and off-farm sustainable livelihood
opportunities which empower stakeholder communities to conserve and
manage their resources. A recent initiative in this direction has been
the dairy development programme in Munger, Bihar. This initiative
focuses on enhancing milk production in the area, increasing
productivity by adopting scientific techniques and ensuring
remunerative prices to farmers by creating marketing opportunities for
milk and milk products. A total of 87 Milk Producer Groups (MPGs) with
over 2,800 members were involved in the initiative during the year. The
dairy development programme also delivers a comprehensive package of
extension services such as veterinary care, breeding, supply of quality
cattle feed and feed supplement, fodder propagation and training to
farmers.
The pilot has been well received by the community in Munger. In order
to scale-up the Dairy initiative, your Company is in the process of
setting up a state-of-the- art Milk Processing Plant at Munger with a
capacity to handle upto 2 lakh litres of milk per day.
With steep Excise Duty hikes, discriminatory VAT taxes by various
States, rising illegal trade and heightened competitive intensity, the
year ahead will indeed be challenging. To serve the interests of all
stakeholders, your Company, will continue to engage with policy makers
for a balanced regulatory and fiscal framework for tobacco, equitable
and harmonious VAT rates across States and implementation of a uniform
GST rate.
Your Company remains confident that despite the severe pressures, its
robust product portfolio, world-class quality, innovation in processes
and investments in cutting-edge technology and superior execution of
competitive strategies will enable it to sustain and reinforce its
market standing in the years to come.
FMCG - Others
The size of the Indian FMCG industry is estimated at around Rs. 250000
crores representing nearly 2.5% of the countrys GDP. The industry has
tripled in size over the last 10 years and has grown at approximately
17% CAGR in the last 5 years driven by rising income levels, increasing
urbanisation, strong rural demand and favourable demographic trends.
These growth drivers, coupled with the low levels of penetration and
per capita usage in India, are expected to result in robust industry
growth in excess of 15% per annum over the medium-term.
Your Company continues to rapidly scale up its new FMCG businesses
leveraging its institutional strengths viz. deep consumer insight,
proven brand building capability, a deep & wide distribution network,
strong rural & agri-sourcing linkages, paper and packaging expertise
and cuisine knowledge.
The new FMCG businesses comprising Branded Packaged Foods, Personal
Care Products, Education and Stationery Products, Lifestyle Retailing,
Incense Sticks (Agarbattis) and Safety Matches have grown at an
impressive pace over the past several years, crossing Rs. 7000 crores
mark during the year. Your Companys new FMCG businesses have been
rated to be the fastest growing among top consumer goods companies
operating in India as per a recent Nielsen report.
Within a relatively short span of time, your Company has established
several vibrant consumer brands such as Aashirvaad,
Sunfeast, Bingo!, Yippee!, Candyman,
mint-o, Kitchens of India in the Branded Packaged Foods
space; Essenza Di Wills, Fiama Di Wills, Vivel and
Superia in the Personal Care products segment; Classmate
and Paperkraft in Education & Stationery products market;
Wills Lifestyle and John Players in the Lifestyle Retailing
business; Mangaldeep in Agarbattis, Aim in Matches and so
on. In terms of annualised consumer spend, Aashirvaad and Sunfeast are
today over Rs. 2000 crores each, Classmate at around Rs. 1000 crores
while Bingo!, Candyman and Vivel are more than Rs. 500 crores each.
These world-class Indian brands, which continue to gain increasing
consumer franchise, support the competitiveness of domestic value
chains of which they are a part and create and retain value within the
country.
The year under review saw a 26.5% growth in Segment Revenues and a
significant improvement in profitability as reflected by the positive
swing of Rs. 114 crores at the PBIT level. Segment Results reflect the
gestation costs of these businesses largely comprising costs associated
with brand building, product development, R&D and infrastructure
creation.
Your Companys relentless focus on quality, innovation and
differentiation backed by deep consumer insights, world-class R&D and
an efficient and responsive supply chain will further strengthen its
leadership position in the Indian FMCG industry.
Highlights of progress in each category are set out below.
Branded Packaged Foods Businesses
Your Companys Branded Packaged Foods businesses continued on a high
growth trajectory recording impressive growth in market shares and
enhanced market standing across segments. The businesses accelerated
investments in distributed capacities and capabilities to meet
anticipated growth and develop a differentiated and distinctive range
of products. Significant investments in R&D and product development
coupled with deep consumer insight have enabled launch of successful
innovative products catering to the varied regional tastes and
preferences of consumers across the country. Your Companys products
continue to be best-in-class in terms of product quality.
During the year, the Branded Packaged Foods businesses had to contend
with high levels of input costs. Global demand-supply dynamics, policy
uncertainties and adverse currency movement led to steep hike in prices
of key commodities such as wheat, maida, edible oils, packaging
material and industrial fuels particularly during the first half of the
year.
These cost pressures were however mitigated through a combination of
improvements in product and process efficiencies, smart sourcing and
supply chain initiatives.
In the Bakery and Confectionery Foods business, the Biscuits and
Confectionery categories gained significant scale and market standing
during the year. Sunfeast biscuits sustained its robust growth
trajectory, especially at the value-added and premium end. Product
range stood significantly augmented with the launch of several
first-to-market variants including Dark Fantasy Choco Fills -
Coffee, Dark Fantasy Choco Meltz, Butterscotch Zing,
Kaju Badam Cookies. During the year, the brand emerged as the
clear market leader in the highly competitive premium cream biscuits
segment. In the Confectionery category, Candyman and
mint-o continued to register strong growth during the year. The
business launched Creme Lacto and mint-o Ultramintz - a
sugar-free extra-strong mint in select markets. These products have met
with encouraging consumer response.
In the Snack Foods business, your Company continued to enhance market
standing and expand scale in the fast growing Savoury Snacks, Noodles
and Pasta categories. In the Savoury Snacks category, the market
standing of your Companys Bingo! brand has significantly
improved, leveraging an innovative product range, enhanced brand
building efforts, use of digital media to spur word-of-mouth and
clutter-breaking advertising campaigns. Your Companys
new-to-market format of Snacks, Bingo! Tangles, has been
well received in target markets and is gaining impressive consumer
traction. In the Instant Noodles and Pasta category, your Companys
brand Sunfeast Yippee! has been well received by consumers and is
the second largest brand in the market. Focused market research, deep
consumer insights and innovative product formats under the Sunfeast
Yippee! brand are expected to further strengthen consumer franchise
in this fast growing and highly competitive category.
In the Staples, Spices and Ready to Eat Foods business, your
Companys Staples and Ready to Eat categories continued to grow
rapidly. In the Staples category, Aashirvaad atta consolidated
its leadership position aided by the strong performance of Aashirvaad
Multi-grain atta. The premium Multi-grain and Select
variants continued to grow rapidly with an increasing proportion of
consumers shifting to these value-added offerings.
The Branded Packaged Foods businesses continue to invest in
manufacturing and distribution infrastructure to support larger scale
in view of the growing demand for their products and maximise the
benefits of distributed manufacture for efficient servicing of proximal
markets.
Buoyed by increasing consumer franchise for your Companys brands, it
is expected that the accelerated growth of the Branded Packaged Foods
businesses will be sustained in the years ahead. Your Company will
continue to rapidly scale-up the Branded Packaged Foods businesses
drawing upon the agri-sourcing strength of the e-Choupals, in-house
cuisine knowledge, product development capabilities, packaging
expertise and branding, sales & distribution competencies to establish
itself as the most trusted provider of food products in the Indian
market.
Personal Care Products
Your Companys Personal Care Products business continued to gain
consumer franchise during the year aided by a slew of new product
launches in the Personal Wash, Skin Care, Face Wash and Deodorants
categories. The business continues to leverage the umbrella brands,
namely, Essenza Di Wills, Fiama Di Wills, Vivel and
Superia and is focused on addressing various consumer benefits
with the introduction of new variants.
The launch of the Couture Spa range of soaps under the Fiama
Di Wills brand was one of the key interventions during the year. The
signature series, created in alliance with fashion guru Wendell
Rodricks, provides consumers an invigorating bathing experience. The
business also launched a Collectors Edition soap series in
association with the Lonely Planet Magazine under the Fiama Di Wills
Mens range. The six exciting Collectors Edition packs are
inspired by various water sports and destinations renowned for
rejuvenating and revitalizing experiences, in line with the brands
value proposition of rejuvenation. The year also marked your
Companys foray into the high growth Deodorants market with the
launch of Aqua Pulse Deodorant Spray under the Fiama Di Wills
Men franchise. The Skin Care range was also expanded during the year
with the launch of Vivel Cell Renew Body Lotion, Hand Creme /
Moisturizer and Vivel Perfect Glow Skin Toner in target markets.
The new product launches have received encouraging consumer response.
The business continues to increasingly leverage Laboratoire
Naturel - the state-of-the-art consumer and product interaction
centre located in Bengaluru - to connect the R&D and brand teams to the
Indian consumer with a view to launching products with unique and
differentiated benefits. As in previous years, in recognition of
excellence in product quality and innovation, two of your Companys
products - Fiama Di Wills Men Aqua Pulse De-Stressing & Brightening
Face Wash, and Vivel Cell Renew Fortify & Repair Moisturiser -
were voted Product of the Year in their respective categories.
Innovative consumer engagement continues to be at the centre of your
Companys personal care strategy. Several new initiatives such as
launch of the Couture Spa gel bathing bar, and a unique consumer
engagement programme - christened The Fabulous Hair Show - were
undertaken during the year. Your Company is at the forefront of
leveraging new age media for enhanced consumer engagement pioneering
campaigns such as Fiama Di Wills Men website launch via Google+
Hangout and Fiama Di Wills Men - Face of the Year campaign, to
name a few. A greater presence of your Companys brands on
traditional as well as digital media, direct consumer interaction
initiatives, and improved market presence contributed to your
Companys products being tried by over 7 crore households during the
year (as per IMRB Household Panel survey - January 2013). In addition,
Vivel was voted as one of the Top 5 Most Exciting Brands in
Personal Care in India by Brand Equity and Nielsens Annual Survey
for Most Exciting Brands.
Your Companys Personal Care Products business continued to grow at a
fast clip, distinctly ahead of industry despite competitive pressures
from entrenched players. This was achieved through a combination of
innovative and differentiated offers and by leveraging the distribution
network of your Company to reach target consumers.
Input materials, especially palm oil, witnessed significant levels of
price volatility during the year. The depreciation of the Indian Rupee
against the US Dollar added to inflationary pressure on other input
materials for a major part of the year. The business managed its raw
material costs effectively by adopting a proactive sourcing strategy
based on deep understanding of market trends, developing alternate
sources of supply, leveraging enhanced scale of operations and prudent
inventory management.
The Personal Care industry in India continues to be on a long-term
growth path driven by rising disposable incomes and changing consumer
preference for enhanced personal grooming. Your Company is well poised
to seize the emerging opportunities in this rapidly evolving industry
and continues to invest in creation of vibrant brands, cutting-edge
products, flexible and responsive manufacturing and supply chain
operations, and development of high quality human capital to build
sustainable competitive advantage.
Education & Stationery Products
The Stationery business recorded robust growth in revenues during the
year, consolidating your Companys position as the leading and
fastest growing player in the Indian Stationery market. Your
Companys flagship brands - Classmate for the student community
and Paperkraft for office and executive requirements - continue
to gain increasing consumer franchise.
Continuing investments in a superior product range, effective consumer
engagement and an efficient and responsive supply chain network has
enabled Classmate gain significant market share. During the year, brand
Classmate was strengthened through a series of interventions resulting
in improvement in brand health and market standing. A new television
commercial backed by on-ground activation and social media inputs,
repositioned Classmate as a brand that celebrates the uniqueness in
every child. The business also made good progress during the year in
the non-paper categories comprising pens, wood-cased & mechanical pens,
mathematical instruments, art stationery & scholastic products. Such
complementary products are helping position Classmate as a complete
student stationery brand.
Your Companys Social Investments Programme in primary education,
that has cumulatively benefited over 300,000 children, is showcased on
the back cover of every Classmate notebook. The Classmate notebook is
itself an embodiment of the environmental capital built by your Company
in its paper business. While the cover is made from recycled board
sourced from your Companys Forest Stewardship Council (FSC)
certified Kovai mill, the inner pages are made from virgin pulp sourced
from your Companys social & farm forestry programme that has greened
over 142,000 hectares - including substantial tracts of private waste
lands belonging to poor tribals and marginal farmers - and provided 64
million person days of employment. Further, used notebooks are
collected from schools in the catchment areas of your Companys paper
mill under the Wealth Out of Waste (WOW) programme where they are
converted to recycled board. This sets in motion a virtuous cycle that
continuously re-generates environmental capital. Additionally, the
collaborative supply chain established by the business comprising 800
customers and 30 outsourced manufacturers provides indirect employment
to over 5,000 people. The small-scale manufacturers, with support from
your Company, have built impressive quality and delivery capability,
resulting in a majority of them being certified to ISO 9001:2008
standards.
The education & stationery products industry is poised for exponential
growth driven by large investments in the education sector, growing
literacy and the increasing scale of government initiatives in
education. Your Company with its collaborative linkages with small &
medium enterprises and a strong product portfolio of notebooks &
writing instruments, is well poised to strengthen its leadership
position in the Indian stationery market.
Lifestyle Retailing
During the year, your Companys Lifestyle Retailing business posted
high growth in revenues and continued to strengthen its position in the
branded apparel market. While revenue growth was impacted in the
initial part of the year due to weak consumer sentiment, there was a
marked improvement as the year progressed. The restoration of
exemption of excise duty on branded readymade garments as announced in
the Union Budget 2013, is expected to provide the much needed impetus
for the industry.
In the Premium segment, Wills Lifestyle further strengthened its
consumer franchise on the back of significant improvements in product
variety, enhanced availability and impactful visibility. The retail
footprint of the brand was expanded to 90 Exclusive stores across 40
cities and more than 500 shop-in-shops in leading departmental
stores and multi-brand outlets. During the year, the premium imagery of
the brand was reinforced through the association with Wills
Lifestyle India Fashion Week, the countrys most prestigious fashion &
lifestyle event.
With the addition of a boutique store at the ITC Grand Chola, the brand
is now available in five ITC Hotels, thereby enhancing brand
availability to high-end business and leisure travellers. The Club
ITC loyalty program, with over 1 lakh members, leveraged synergies
between Wills Lifestyle and ITC Hotels to target and strengthen bonding
with the premium consumer.
Product appeal was enhanced through the introduction of differentiated
offerings across several premium product platforms. The Wills Classic
formal range now offers Wonderpress wrinkle-free shirts,
Regalia superfine fabrics, premium Ecostyle organic collection
and Creme de Cotton supersoft cottons. The Luxuria range of
high-end formals with luxurious fabrics and superior craftsmanship
continued to receive positive consumer response. The Wills Sport range,
with its vibrant and fashionable portfolio, strengthened its appeal
amongst the youth segment, widening the consumer franchise. The
Womens offering witnessed strong growth energised by an extensive
high-end range, stylised formals, trendy silhouettes and premium
accessories. The exclusive designer-wear offering, Wills Signature,
co-created with Indias leading designers, was strengthened with the
launch of Ritu Kumar creations, adding to the product equity.
In the Youth segment, John Players has established a strong
pan-India presence with availability in over 350 stores and 1,400
multi-brand outlets and departmental stores. Brand reach was further
augmented during the year with the launch of nearly 100 stores,
penetrating more markets and acquiring new franchise. The casual
portfolio registered strong growth as a result of an enhanced range,
premium differentiated washes and contemporary fits. The John Players
Jeans brand strengthened its positioning as a vibrant and fashionable
denim offering with impactful communication and the launch of exclusive
John Players Jeans stores and improved availability through
shop-in-shops. Social media and e-commerce platforms were activated to
engage with the youth and expand reach to new consumers seeking
affordable fashion.
Product portfolio was strengthened with new designs in the core range
and region-specific collections, robust replenishment infrastructure
and processes. During the year, the business operationalised its new
state-of-the-art product development facility in Manesar, Haryana.
Initiatives were undertaken to enhance range vitality, supply chain
responsiveness and superior customer service for a delightful shopping
experience.
The business continued to receive industry recognition during the year.
While Wills Lifestyle was accorded
Superbrand status, John Players was rated amongst the top 10
Most Trusted Apparel Brands 2012 by The Economic Times.
The business continues to focus on enhancing the premium quotient of
its offerings and strengthen processes for creation of winning designs
and enhancing supply chain responsiveness on the basis of a deep
understanding of consumer preferences.
Safety Matches and Incense sticks (Agarbattis)
The Agarbatti category recorded an impressive growth in revenues well
ahead of the industry, driven by increasing consumer franchise for the
Mangaldeep brand and enhanced distribution reach. Product
portfolio was augmented during the year with the launch of variants
such as Fragrance of Temple series and Dhoop 4-in-1, under
the umbrella brand Mangaldeep.
The business maintained its market leadership in the Safety Matches
category aided by continued consumer preference for its strong brand
portfolio across all market segments.
The Matches & Agarbatti business continues to contribute to your
Companys commitment to the Triple Bottom Line supporting over
18,000 livelihoods, mainly amongst rural women. The business sources
its products from over 50 small-scale and cottage sector units as well
as womens self-help groups. It continues to provide support to such
units through the introduction of scientific methods to enhance
productivity and product quality. Business initiatives of introducing
enabling tools and technology in the rural communities continue to
enhance product quality and increase the earning potential of agarbatti
rollers. These initiatives, along with the continuing association with
various State Governments for setting up sourcing centres, are creating
sustainable livelihood opportunities for rural women through agarbatti
rolling. Your Company continues to partner the small-scale sector by
sourcing a significant portion of its Safety Matches requirement from
multiple units in this sector. Your Company is helping improve the
competitive ability of these units by providing technical inputs
towards strengthening systems and processes.
While the manufacture of Agarbattis is reserved for the small-scale &
cottage sector in India considering its importance in employment
generation, imports of raw battis (the principal raw material) are
freely allowed at low Customs Duty rates. This is resulting in bulk of
the raw batti consumption in India being of imported origin leading to
a loss of livelihood creation opportunities. Suitable policy changes
in arresting this trend would go a long way in creating sustainable
livelihoods especially among rural Indian women and tribals in the
North-East.
B. HOTELS
The domestic tourism industry remained sluggish during the year in the
backdrop of a weak global and domestic economic environment. While
growth in foreign tourist arrivals slowed down to 2.8% during the year
versus 9.9% in 2011-12, domestic air travel recorded de-growth.
Industry performance was also affected due to the significant increase
in room inventory in some of the key domestic markets.
Such a challenging business environment adversely impacted business
performance leading to a muted growth in Segment Revenues during the
year. While your Companys Hotels business maintained its leadership
position in terms of operating margins, Segment Results were adversely
impacted largely by the relatively weak pricing scenario and the
gestation costs relating to ITC Grand Chola, which commenced operations
in September 2012.
Your Companys Hotels business continues to be rated amongst the
fastest growing hospitality chains with 93 properties at 64 locations
in India operating under 4 brands - ITC Hotel at the luxury end,
WelcomHotel in the 5 star segment, Fortune in the mid
market to upscale segment and WelcomHeritage in the heritage
leisure segment. In addition, the business has licensing and
franchising agreements for two brands - The Luxury Collection and
Sheraton with the Starwood Hotels & Resorts.
During the year, your Company unveiled its latest offering in the super
premium segment - ITC Grand Chola in Chennai. The hotel is part of the
ITC Hotel brand and has 522 plush hotel rooms and suites, 78
service apartments, 60,000 sq. ft. of conference & banqueting
facilities, 10 Food & Beverage outlets and the award winning spa
Kaya Kalp. The hotel has achieved the distinction of being the
worlds largest Leadership in Energy and Environmental Design
(LEED) Platinum rated hotel under the New Construction category and
Indias first 5 Star Green Rating for Integrated Habitat Assessment
(GRIHA) rated luxury hotel by the Ministry of New and Renewable Energy,
thereby bolstering the unique positioning of ITC Hotels as the
greenest luxury hotel chain in the world. The Food & Beverage segment
remains a major strength of your Company and its iconic brands
Bukhara, Dum Pukht and Dakshin continue to garner coveted
international awards and accolades. Other signature F&B brands viz.
West View, Kebabs & Kurries, Edo and Pan Asian have
firmly established themselves and continue to sustain leadership
position in their respective cities. During the year, the business
launched 2 new signature F&B offerings - Ottimo and Royal Vega
- focusing on exquisite Italian cuisine and delectable vegetarian food
from the magnificent royal kitchens of India, respectively.
In line with your Companys commitment to the Triple Bottom Line,
investments have been made in renewable energy to provide clean power
to your Companys hotels in Bengaluru (ITC Windsor and ITC Gardenia),
Chennai (ITC Grand Chola), Mumbai (ITC Maratha) and Jaipur (ITC
Rajputana). With these investments, your Companys Hotels business met
over half of its energy requirements from clean and renewable sources.
During the year, the business leveraged the recently launched pan-ITC
consumer loyalty programme - Club ITC to enhance revenues. The
business seeks to position Club ITC - targeted at the premium
clientele of Wills Lifestyle and ITC Hotels - as the greenest
and most admired customer loyalty programme over the next few years.
In view of the positive long-term outlook for the Indian Hotel
industry, your Company continues to sustain its investment-led growth
strategy. Construction activity of two new luxury properties at Kolkata
and at Classic Golf Resort near Gurgaon is progressing satisfactorily.
During the year, your Company invested in a newly formed wholly-owned
subsidiary incorporated in Sri Lanka which acquired a prime plot of
land in Colombo on a 99-year lease from the Government of Sri Lanka,
for developing a mixed-use project including a 5-star luxury hotel.
Further, several new projects, including joint ventures and management
contracts, are on the anvil to rapidly scale up the business across all
brands.
The Fortune brand which caters to the mid-market to upscale
segment continued its expansion by forging new alliances, taking the
total number of hotels in its fold to 69 with an aggregate inventory of
over 5,000 rooms. Of these, 30 properties are under various stages of
development with 3 hotels slated for commissioning in the coming year.
The WelcomHeritage brand continues to be the countrys most
successful and largest chain of heritage hotels with 39 operating
properties, spread across 13 States in India.
Your Companys Hotels business, with its globally benchmarked levels of
product and service excellence and customer centricity, is well
positioned not only to sustain its leadership status in the industry,
but also emerge as the largest hotel chain in the country over the next
few years.
C. PAPERBOARDS, PAPER AND PACKAGING
During the year, the Paperboards, Paper and Packaging segment recorded
a growth of 9% in revenues aided by higher volumes and product mix
enrichment. The relatively lower growth in Segment Results during the
year, reflects the steep hike in input prices particularly of wood,
coal and chemicals.
Paperboards & Specialty Papers
Global demand for paper & paperboard de-grew by 0.5% in 2012 primarily
due to the continuing weak economic environment prevailing in Western
Europe and the US. The domestic market also recorded a slowdown with
demand decelerating to around 5.9% during 2012-13 against 6.1% in the
previous year.
The global paper market continues to witness a structural shift with
emerging economies, particularly in Asia such as China and India,
driving the demand growth. While such structural shift in demand and
the relatively low levels of per capita consumption in India offers
attractive opportunities going forward, the Indian market is also
getting increasingly competitive drawing large investments especially
from global players. Though growth in demand is expected to absorb the
additional capacity, increasing market share and sustaining margins
will be a challenge in the short-term.
Further, reduction of import duties under various Regional Free Trade
Agreements especially with ASEAN is impacting the profitability of the
domestic paper industry and the economic viability of the small paper
mills. With the US and EU imposing anti-dumping duties against import
of paper / paperboards from China / Indonesia to protect their domestic
industries, the additional capacities created in these countries are
increasingly finding their way into India given the lower levels of
import duty. Clearly, there is a need to ensure that the current duty
structures are, at the very least, kept unchanged.
The domestic paperboard industry is expected to grow at around 7.5% per
annum over the medium-term. During the year, your Company consolidated
its pre-eminent position in the industry through new product launches
like Carte Lumina with best-in-class whiteness suited for
high-end FMCG and over-the-counter products and Nanobev for the
small paper cups segment. Paperboards developed for high-end cigarette
packaging needs are running seamlessly on the high speed packaging
machines at your Companys cigarette factories. The business also
strengthened its distribution network with the addition of new
distributors, authorised stockists and market development partners for
improved market servicing.
Your Company continues to focus on the value-added product segment in
which it is a clear market leader. The market for value-added
paperboard is expected to grow faster at a compound annual growth rate
of 12% driven by higher demand for branded packaged products in the
FMCG and Pharma sectors, increasing number of product categories
catering to aspirational lifestyles, higher rural demand, higher
penetration of organized retail and increasing salience of packaging in
driving brand awareness. Towards this end, your Company successfully
commissioned a state-of-the-art and highly energy efficient paper
machine with an installed capacity of over 1 lakh tonnes per annum at
the Bhadrachalam plant during the year. With this, the total capacity
of the Bhadrachalam plant stands at over 5.5 lakh tonnes per annum,
thereby sustaining its position as the single largest integrated pulp
and paperboard/paper unit in the Indian industry. Your Company has also
invested in a new 25 MW Turbine Generator and 130 tonnes per hour (TPH)
Boiler to meet the energy requirements of this expansion.
The Writing and Printing paper segment, currently estimated at
3.8 million tonnes per annum, is projected to grow at a compound annual
growth rate of around 7% over the medium term. Growth in the
value-added writing and printing paper segment will continue to be
fuelled by initiatives like Sarva Shiksha Abhiyan and Right of Children
to Free and Compulsory Education as well as by rising literacy levels,
changing demographic profiles and GDP growth. The business, with its
strong forward linkages with your Companys Education and Stationery
Products, has emerged as a leading player in this segment.
Your Company continues with its strategy of promoting social forestry
plantations for pulpwood as access to adequate supplies of pulpwood at
competitive prices remains a major challenge for the paper industry.
The industry is currently facing an acute shortage of pulpwood
especially in Andhra Pradesh, which is largely attributable to the
enhanced demand from new pulp capacities that have been set up without
adequate investments in pulpwood plantations and diversion of supplies
for alternative usage such as commercial poles, bio-fuel etc. With
demand far exceeding supplies, pulpwood procurement prices witnessed
steep hikes during the year, adversely impacting industry margins.
Your Company expects the current demand-supply skew to be corrected
over the next couple of years on the back of additional plantations by
farmers due to the prevailing remunerative price levels and renewed
efforts by pulp mills in promoting plantations in their core areas. In
the short to medium term, the business is exploring several options
including procurement of wood from other states, use of bamboo in a
limited scale etc. with a view to mitigating the cost pressure.
Your Company remains focused on promoting pulpwood plantations in its
core area of operations. During the year, the business sold /
distributed high quality saplings/seeds to farmers that enabled
planting of over 110 million saplings in 17500 hectares of plantations.
With this, your Companys bio-technology based research initiatives
have cumulatively resulted in the planting of about 656 million
saplings leading to significant wasteland development and greening of
over 142,000 hectares and generation of over 64 million person days of
employment for poor tribals and marginal farmers. With a view to
accelerating the pace of plantation activity, the business commissioned
a state-of-the-art clonal sapling production facility during the year.
The facility has a capacity to produce 25 million saplings with
improved survival rates and higher productivity and will go a long way
in supporting your Companys endeavour to augment pulpwood
availability.
Your Companys research on clonal development has resulted in the
introduction of high yielding and disease resistant clones which are
adaptable to a wide variety of agro-climatic conditions. Besides
securing the long-term supply of fibre at competitive costs, this
initiative also assists in generating farm incomes by utilisation of
marginal wastelands. Your Companys continued focus on clonal
plantations in core areas is expected to yield significant competitive
advantage in the years to come. Your Companys Life Sciences &
Technology team is actively collaborating with several expert agencies
to further leverage bio-technology for enhancing farm productivity,
wood yields and improving fibre and pulp properties.
Your Company continues to promote agro-forestry in pulpwood plantations
on wasteland as well as on land where mono-cropping is practised. In
Andhra Pradesh, mono-cropping is currently practised in cultivation of
cotton, tobacco, maize and pulses in more than 30 lakh hectares. During
the year under review, your Company facilitated the introduction of
agro-forestry models, in about 1,800 hectares, incorporating
inter-cropping practices where eucalyptus trees are grown adjacent to
agricultural crops. By integrating tree growing with crop production,
the problems of poor agricultural production, worsening wood shortages
and environmental degradation can be simultaneously addressed.
Furthermore, inter-cropping technologies / practices also help in
reducing the pressure on the remaining natural forests and increases
the diversity of vegetation on existing farms. Your Companys
initiatives under this model currently extend to nearly 2,500 hectares
assuring wood and food security to the farmer from the same unit of
land addressing long-term sustainability. The area covered under this
model is proposed to be substantially increased in the years to come.
Hitherto, in India, the subject domain of Biodiversity has remained
with the Ministry of Environment and Forests. For the first time in
the Indian paper industry, your Company has proactively attempted a
biodiversity conservation project on private lands. On a pilot basis,
11.52 hectares of farmer lands in Andhra Pradesh were selected and
afforestation, reforestation, reclamation, rehabilitation, protection
and conservation of biological resources were attempted. Further, your
Company promoted natural regeneration, enrichment planting with native
species and conserved threatened and endemic species. In order to
sustain these efforts, your Company is promoting local stewardship for
biodiversity through awareness programmes which will go a long way in
reversing the impact created by anthropogenic pressures, integrating it
with agriculture, pulpwood plantations, fishery, apiculture, medicinal
plants and creating sustainable livelihood to the tribal farmers. As a
responsible Corporate Citizen, your Company is willing to participate
in initiatives of this nature towards preserving biodiversity on an
ongoing basis.
In India only 25% of the paper consumed is recovered for recycling as
against about 70% in the western countries. Your Companys
collaborative initiative, christened Wealth Out of Waste (WOW),
continues to promote and facilitate waste paper recycling, with a view
to conserving scarce natural resources. The waste paper industry is
largely unorganised and a lot of effort has gone into establishing
processes and systems in the operational areas of collection, sorting
and grading of waste paper as well as on accounting, compliances and
controls. It is expected that such efforts would assist in the
availability of quality fibre on a sustainable basis at competitive
prices. About 48,000 tonnes of waste paper were collected during the
year and with continued focus on building capability it is expected
that the entire waste paper requirements of the business would be
sourced through this initiative within the next few years. In this
context, the second anniversary of National Recycling Day was
celebrated in Chennai on 1st July 2012 with widespread participation of
the general public and 14,000 school children. This initiative won
CIIs Best environmental project of the year 2012 and Most
Useful Environmental Project awards.
Your Company has the distinction of being the first paper company in
India to have obtained the Forest Stewardship Council - Forest
Management (FSC-FM) certification covering 8,000 hectares of social
forestry plantations involving about 9,000 farmers with another 14,000
hectares awaiting certification. FSC-FM certifies that the plantation
activities of an organisation are economically, socially and
environmentally viable.
To the extent of pulp produced from such certified plantations, your
Company will be able to commit to its customers, FSC certified paper &
paperboard. Environmentally conscious customers are already beginning
to show keenness to source such green products which in turn will
further increase the competitiveness of the business. Plans are afoot
to steadily increase coverage over the next few years.
All four manufacturing units of your Company have obtained the FSC
Chain of Custody certification.
Your Company has made significant investments in contemporary
technologies including environment-friendly Elemental Chlorine-Free
(ECF) and Ozone bleaching for pulp thereby improving the environmental
standards of its manufacturing operations. Such investments are
expected to provide customers with sophisticated products, way ahead of
legislation, thereby creating new benchmarks in environmental
stewardship. The Industry would welcome policies that lay down
environmental benchmarks in tune with other industries such as
automotives etc. and suitably reward those who achieve or exceed such
parameters.
Your Company continues to focus on recycling initiatives including
solid waste recycling. While all manufacturing units have already
achieved near 100% solid waste recycling by its usage for making
products like lime, fly ash bricks, grey boards, egg trays etc., the
procurement and recycling of about 120,000 tonnes of waste paper during
the year has further consolidated the businesss overall positive
solid waste recycling footprint. The Bhadrachalam unit is the first in
India to have been awarded the GreenCo Gold certificate by CII in
June 2012. The unit also won the Excellent Energy Efficient,
Excellent Water Efficient and Appreciation prize - State
Energy Conservation awards. The Bollaram unit won Silver for
FICCI Safety System Excellence award in manufacturing while the
Kovai unit won Best Water Efficient award at 9th National Water
Management meet. The business also won IPMA Environmental award
for Cleaner Technologies.
The above have been made possible as a result of continuous focus on
various safety initiatives including induction of safety stewards,
strengthening systems, spreading awareness and integrating environment,
health and safety (EHS) as part of the overall Total Productive
Maintenance (TPM) initiative. With regard to energy consumption,
strategies to contain usage across units continue to be pursued.
Further, the business is also investing in a new high pressure fuel
efficient boiler in its Tribeni unit, which will enable significant
reduction in coal consumption and usage of lower grades of coal.
The 7.5 MW wind energy farm in Coimbatore, continues to operate at
optimum levels providing clean energy to the Kovai unit. It is expected
that energy efficiency coupled with greater use of renewable sources of
energy will enable your Company to derive benefits from sale of
Renewable Energy Certificates (RECs) under the Electricity Act 2003 as
well as obtain benefits from newer initiatives like Perform, Achieve
and Trade (PAT) under the Energy Conservation Act 2001.
The year under review witnessed steep hikes in the cost of chemicals
and coal as well as curtailment in supplies of coal by the Government
through the reduction of allocations, forcing the industry to buy high
cost coal in the open market. These factors, together with the sharp
depreciation of the Indian Rupee, adversely impacted the industry.
However, your Company with its integrated operations and strategic cost
management actions was able to minimise the adverse impact of such cost
escalations.
The integrated nature of the business model - access to high-quality
fibre from the economic vicinity of the Bhadrachalam mill, in-house
pulp mill and state-of-the-art manufacturing facilities, focus on
value-added paperboards and a robust forward linkage with the Education
and Stationery Products business - strategically positions your Company
to further consolidate and enhance its leadership status in the Indian
paperboard and paper industry.
Packaging and Printing
Your Companys Packaging and Printing business continues to provide
contemporary and superior packaging solutions facilitated by its
state-of-the-art technology and processes. The business provides
strategic support to your Companys FMCG businesses through
innovative packaging solutions, faster speed-to-market for new launches
and security of supplies in addition to delivering benchmarked
international quality at competitive costs.
The business continued to leverage its multiple packaging platforms to
offer a wide range of packaging solutions and expand business both in
domestic and export markets. Your Company continues to be a leading
supplier of value-added packaging in cartons and flexibles.
During the year, the business augmented the capacity and capability of
its Haridwar plant with the successful commissioning of a new
state-of-the-art line for cigarette packaging, expansion of carton line
capacity and other downstream conversion facilities towards meeting the
growing demand from the northern markets. The business also made
investments in backward integration for key raw materials in the
flexibles segment, thereby enhancing competitiveness. These in-house
capabilities have enabled quicker turnaround of designs, pack changes
and reduced product launch timelines for your Companys FMCG
businesses, thereby providing a source of competitive advantage in the
market place.
The business won several awards during the year for operational
excellence, innovation and creativity. These include three World
Star Awards from the World Packaging Organisation, several India
Star Awards from the Indian Institute of Packaging and Golden
Peacock Award instituted by Institute of Directors for innovative
product / services.
The 14.1 MW wind energy farm in Tamil Nadu, set up in 2008, continues
to operate at optimum levels providing clean energy to the Chennai
unit. This initiative is a certified project under the Clean
Development Mechanism of the Kyoto Protocol and is in line with your
Companys commitment to reduce the carbon footprint of its operations.
The factories at Chennai, Haridwar and Munger continued to maintain the
highest standards in Environment, Health and Safety (EHS). The Chennai
unit was certified for BRC IoP (British Retail Consortium, Institute of
Packaging, global food packaging standard), SA 8000 (Social
Accountability Certification), and FSC (Forest Stewardship Council
Certification - Sustainable Forestry Practices). The Haridwar unit was
accredited with ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007 for the
new plant within six months of commissioning and also received the
13th Annual Greentech Environment Award in the Silver category. The
Munger unit won the Suraksha Puraskar at the National level from
National Safety Council and International Safety Award with Merit
from British Safety Council.
With substantial investments in world-class technology & quality
systems, and distributed & diversified manufacturing capability, the
business is well poised to sustain its position as one of the foremost
packaging houses in the country.
D. AGRI BUSINESS Leaf Tobacco
While overall global leaf tobacco crop output saw a decline in 2012,
the prevalent high levels of uncommitted inventory continued to limit
demand for the fresh crop. Global cigarette demand remained muted due
to the weak global economic scenario, regulatory pressures, enhanced
levels of taxation and growth in illegal trade. Cigarette-type tobacco
crop production in India was lower during 2012 mainly on account of the
severe drought that adversely impacted Mysore crop output and quality.
Your Companys focused crop development efforts at the farm level
towards ensuring adequate availability of seedlings, educating the
farmers on crop management and post harvest product management
techniques helped revive the crop substantially thereby improving
livelihoods particularly in the drought affected areas in rural
Karnataka.
Notwithstanding a sluggish global demand scenario, your Company
recorded robust growth in export volumes and revenues by servicing
customers based on their specific needs and leveraging strengths in
crop development, superior sourcing and processing capabilities. The
business not only strengthened its presence in existing markets but
also accessed customers in new markets. The business also made progress
during the year in growing the smokeless tobacco segment through
customized offerings.
The business continued to provide strategic sourcing support to your
Companys cigarette business.
Achieving enhanced productivity continues to be a focus area of
research and crop development initiatives of the business. Substantial
progress has been made in strengthening the pipeline of new hybrid
combinations for deployment in growth zones.
Your Company continues to engage in a pioneering role in promoting
sustainable agriculture practices in the tobacco growing regions in
Andhra Pradesh and Karnataka. Key interventions such as farm
mechanisation, soil health management, water conservation and seedling
production technologies through well researched dissemination models
continue to support the farmer towards enhancing quality of produce and
optimising costs. Your Companys efforts in this area have been
recognised in a number of international forums. The approach on
dissemination models of farm mechanisation has been published in the
International Journal of Sustainability Japan, while the float seedling
production initiative has been recognised by the World Academy of
Science, Engineering & Technology (WASET), Amsterdam for its
sustainability features & economic suitability to the farming
community. These efforts are not only helping secure global demand for
Indian leaf tobacco by providing enhanced value to global customers but
also in improving the socio-economic status of the small / tribal
farmer. Capitalising on your Companys R&D efforts on varietal
improvement, the area under coverage of flue-cured virginia hybrids was
substantially increased in collaboration with the Central Tobacco
Research Institute and the Tobacco Board of India.
Your Companys newly commissioned Green Leaf Threshing plant in
Mysore has stabilized and exceeded benchmarks on all operating
parameters of throughput, processing yield and quality. This investment
has enhanced the processing capability of the business and reduced
transportation costs given the factorys proximity to the tobacco
growing areas in Karnataka. The business is also actively engaged in
augmenting its warehousing capacities and re-engineering its supply
chain towards driving operational efficiencies and reducing costs.
Further, in line with your Companys commitment to sustainable
business practices, the business is investing in wind energy in
Karnataka to increase usage of renewable sources of energy. With this,
100% of the energy requirements of the newly commissioned plant at
Mysore will be met through renewable energy sources.
Your Company with its unmatched R&D capability, state-of-the-art
facilities, unique crop development and extension expertise, deep
understanding of customer and farmer needs, is well poised to leverage
emerging opportunities for Indian leaf tobacco and sustain its position
as a world-class leaf tobacco organisation.
Other Agri Commodities
Food grain production in India is estimated to have declined by around
1.5% to about 255 million tonnes during 2012-13 as compared to the
record 259 million tonnes in 2011-12. Output of major food grain items
such as rice and wheat are expected to be lower in 2012-13. While wheat
output is estimated to be lower by 1% at 94 million tonnes, rice output
at about 104 million tonnes represents a decline of 1% over the
previous year. While overall oilseed production during 2012-13 is
expected to remain at about 31 million tonnes, soya production is
expected to be higher at 14 million tonnes vis-a-vis 12 million tonnes
in 2011-12.
Adverse weather conditions in the major global wheat producing regions
of Black Sea (Ukraine, Russia), South America (Brazil, Argentina) and
Australia led to a dip in world production by about 40 million tonnes
to about 656 million tonnes. Given the shortage in global markets as
aforementioned, the business successfully leveraged the wheat export
opportunity recording robust growth in revenues and asset turns. On the
domestic front, the business continued to expand its presence with
brand owners, private labels, food processors and millers.
Global soya bean production, estimated at 270 million tonnes during the
current season, represents an increase of 12.5% over the previous
season. The increase is mainly attributable to higher output in South
American origins offset by a reduction in output in the United States.
Such a global oversupply situation coupled with higher domestic crop
production led to a steep correction in domestic soya prices.
Consequently, market arrivals of the domestic crop remained weak with
farmers holding back sale of soya bean in anticipation of improved
realisations.
Your Companys uniquely structured commodity sourcing business model
with strong competencies in multi-location sourcing, logistics and
supply chain management enabled achieving enhanced scale and value
capture in the wheat and soya market.
The business continued to source identity preserved and special
varieties of wheat through its e-Choupal network for your Companys
Branded Packaged Foods businesses. The continuous focus on cost-quality
optimisation through varietal and geographical arbitrage and driving
supply chain and logistics efficiencies provided a competitive
advantage to your Companys Aashirvaad Atta brand.
In the area of potato sourcing, the business continued to support your
Companys Bingo! brand of potato chips by procuring the highest quality
chip stock potatoes at competitive prices. The endeavour of partnering
with farmers to source locally grown potatoes in close proximity to
manufacturing units helped minimise logistics costs. The business
continued to engage with the farming community towards enhancing the
quality and variety of chip stock seed usage, adoption of best farming
practices and improving yields.
India is the worlds largest producer, consumer and exporter of spices.
The growing concerns around food safety and product integrity have
resulted in the increased demand for suppliers with end-to-end
capabilities having complete custody of the supply chain, supported by
appropriate technology, quality assurance and traceability management
systems. Your Company is well poised to garner an increasing share of
the fast growing domestic and export spices market leveraging its
processing unit which is certified to the highest grade of global food
safety standards under the BRC (British Retail Consortium) Food
certification regime and an embedded IT enabled farm to fork
traceability system. The business continues to provide support to your
Companys Aashirvaad range of spices.
An integrated and holistic view of the agricultural value chain is
essential towards providing the necessary fillip to stagnating
agricultural growth in the country. This requires a joint participatory
approach from all stakeholders such as farmers, input vendors, traders,
processors and the government agencies. Your Company plays a critical
role as a catalyst in integrating farmers, input vendors and government
agencies besides facilitating the necessary market linkages. Through
its Choupal Pradarshan Khet initiative, the business works with
various government and private bodies to promote new seed varieties,
adoption of farm technologies and practices among farmers towards
improving productivity of crops (food grains, oilseeds, cereals etc.)
while deepening relationship with the farming community. During the
year, new soya seed varieties with high yield, high protein and high
oleic acid were identified by your Companys Life Sciences & Technology
Centre in association with the Directorate of Soybean Research, India.
A number of farmer training programmes along with farm field
demonstration of new technology (seed varieties and process) were
conducted in more than 730 villages covering over 22,000 farmers
towards yield enhancement in soybean, barley and wheat. Promotion of
sustainability practices through the use of bio-fertilizers in paddy
and bajra in western UP were also taken up.
Your Company will continue to leverage the unique e-Choupal platform
towards achieving the superordinate goal of enhancing agricultural
growth and productivity in the country enmeshed with a strong
socio-economic model for rural development and sustainability even as
it provides structural and sustainable competitive advantage to the
Branded Packaged Foods businesses.
NOTES ON SUBSIDIARIES
The following may be read in conjunction with the Consolidated
Financial Statements enclosed with the Accounts, prepared in accordance
with Accounting Standard 21. In view of the general exemption granted
by the Ministry of Corporate Affairs, the report and accounts of
subsidiary companies are not required to be attached to your Companys
Accounts. Shareholders desirous of obtaining the report and accounts of
your Companys subsidiaries may obtain the same upon request. The
report and accounts of the subsidiary companies will be kept for
inspection at your Companys registered office and those of the
subsidiary companies. Further, the report and accounts of the
subsidiary companies will also be available under the Shareholder
Value section of your Companys website, www.itcportal.com, in a
downloadable format.
ITC Global Holdings Pte. Limited, Singapore (Global), a subsidiary
of your Company, is under winding up in terms of the Order of the High
Court of the Republic of Singapore dated 30th November, 2007.
Consequently, your Company is not in a position to consolidate the
accounts of Global for the financial year ended 31st December, 2012 or
to make available copy of the same for inspection by shareholders.
Surya Nepal Private Limited
During the year the operating environment in Nepal continued to remain
uncertain with the Constituent Assembly being dissolved in May 2012.
The caretaker Government has since made way for a new Council of
Ministers headed by the Chief Justice of Nepal, entrusted with the
mandate of conducting the Constituent Assembly elections.
On the economic front, the GDP for the year ended 15th July 12 grew
by 4.6% against 3.8% in the previous year on the strength of increased
agricultural production and growth in the services sector. However,
there was a marked slowdown in industrial production which decelerated
to 1.6% from 2.9% in the previous year. The company continues to
engage with policy makers for a pragmatic and purposeful policy and
regulatory framework that will fuel long-term investment and growth in
the countrys industrial sector including the operating segments of
the company.
Despite these challenging circumstances, the company continued to make
good progress and deliver superior performance. In the twelve-month
period ended 13th March 2013 (30th Falgun 2069), the company recorded a
15% growth in sales with Gross Turnover (net of VAT) increasing to
Nepalese Rupees (NRs.) 1665 crores from NRs. 1443 crores in the
previous year. Profit after Tax at NRs 370 crores increased by 29%
over the previous year. The company continues to be one of the largest
contributors to the exchequer accounting for about 16% of excise
collections and 3.3% of the total revenues of the Government of Nepal.
The company further consolidated its leadership position in the
cigarette market through continued investment in product quality and
value addition to its product portfolio. Its focus on remaining
contemporary through the induction of new generation technology
platforms and the enhancement of internal capabilities has strengthened
the competitiveness of the business and reinforced market standing. A
Long Term Agreement with employees of the Simara factory, premised on
the companys philosophy of harmonious employee relations management,
was concluded during the year. The second cigarette factory near
Pokhara is in an advanced stage of construction and will improve market
servicing in the long-term.
In the branded apparels business, the company focused on enhancing its
market standing, distribution infrastructure and supply chain of
John Players and Springwood. In the safety matches
business, the companys brand Tir continued to gain consumer
franchise.
The company remains committed to supporting and investing in endeavours
that augment social and economic capital in alignment with the stated
priorities of the Government of Nepal. Consistent with such commitment,
several initiatives that are expected to provide long-term multiplier
benefits have been initiated and sustained during the year.
Accordingly, the company:
(a) Continued to partner with Tobacco farmers in Nepal to ensure higher
productivity and quality enhancement at the farm level through the
induction of agricultural best practices. The adoption of such
practices and other inputs provided by the company has led to a
consistent improvement in quality of domestic grades of tobacco thereby
improving marketability of the crop and farmer returns.
(b) Initiated a programme to assist village farmers, proximate to the
Simara factory, in the plantation of high quality Poplar saplings to
improve farmer earnings.
(c) Supported an initiative in the animal husbandry sector by providing
extension services that will drive yield improvement and higher returns
for underprivileged farmers.
(d) Partnered with Nepal Tourism Board in hosting Nepals premier
professional golf tournament - the Surya Nepal Private Limited
Masters, with the objective of promoting Nepal as an attractive
golfing destination.
(e) Continued to sponsor the Surya Nepal Private Limited Asha Social
Entrepreneurship Awards, to recognize entrepreneurs who have created
employment opportunities amongst local communities.
The company declared a dividend of NRs. 139/- per equity share of NRs.
100/- each for the year ended 15th July 2012 (31st Ashad 2069).
ITC Infotech India Limited
A weak global economic scenario, particularly in the US and Europe,
continued to impact technology spends during the year. Although growth
of the Indian IT industry has slowed down in recent years given the
economic uncertainties, favourable exchange rates and market share
gains during the year enabled it to grow ahead of earlier estimates.
The companys consolidated Total Revenue grew well above the industry
average, clocking a growth of 23% to Rs. 1017.80 crores while its Net
Profit grew by 33% to Rs. 66.93 crores. This robust performance is an
outcome of the successful strategies adopted by the company in
(i) building world-class capabilities in each of its service lines,
(ii) investing in new technologies, (iii) building solutions and
capabilities around the products of global software vendors and
partnering with them to take the products to the market, and (iv)
rapidly growing the high potential accounts by putting in place
geographical and technological expansion plans.
For the year under review:
(a) ITC Infotech India Limited registered a Total Revenue of Rs. 706.65
crores (previous year Rs. 566.23 crores) and a Net Profit of Rs. 68.73
crores (previous year Rs. 28.69 crores);
(b) ITC Infotech Limited, UK, (I2B) a wholly owned subsidiary of the
company, registered a Total Revenue of GBP 25.03 million (previous year
GBP 24.35 million) and a Net Profit of GBP 1.86 million (previous year
GBP 2.13 million). During the year, I2B paid an Interim Dividend of GBP
3 (previous year : Nil) per Ordinary Share of GBP 1 each on 685,815
shares, amounting to GBP 2,057,445 (previous year: Nil) to the company;
(c) ITC Infotech (USA), Inc., (I2A) a wholly owned subsidiary of the
company, together with its wholly owned subsidiary Pyxis Solutions LLC,
registered Total Revenues of US$ 63.20 million (previous year US$ 49.85
million) and a Net Profit of US$ 0.91 million (previous year US$ 0.30
million).
During the year, the company achieved an all-time high and
best-in-class Customer Satisfaction Score based on a survey
conducted by a reputed external agency. Such a rating validates the
companys world-class quality of service and stands testimony to its
commitment to continuously raise the levels of service to meet growing
market expectations.
Apart from expanding the companys existing in-house domain solution
capabilities, specific development programmes were implemented to
embrace disruptive technologies such as cloud computing, social media
and mobile computing.
The company continued to enhance and strengthen its partnerships with
leading Independent Software Vendors (ISVs) by building niche solutions
to address white spaces and joint go-to-market initiatives. In this
regard, a number of initiatives were progressed during the year
including the launch of operations in new geographies, offering of
turnkey services - from licence sales to implementation, becoming
Authorised Training Partner in India and a consortium partner in
Customer Experience and Comprehensive Trade Management area.
During the year the companys renewed focus on Middle- East, Africa,
India and the larger Asia-Pacific region resulted in significant
traction in new customer acquisition, particularly in India and
Middle-East. The company has set up a branch office in Dubai to
increase market penetration in the region. The company is also
extending its service lines to specific markets in Western Europe.
In addition, as an important milestone in the evolution of its delivery
capability, the company commissioned a new Development Centre at
Trivandrum during the year.
The service delivery capability of the company continued to earn global
recognition. The company has featured for the 7th consecutive year
amongst the Leaders Category in the 2012 Global Outsourcing Top
100 by the International Association of Outsourcing Professionals
(IAOP). The company also featured for the 8th consecutive year in the
Global Services 100 survey, conducted by Global Services and Neo
Advisory.
The company achieved ISO 9001:2008 re-certification for all its
locations with its Pune centre getting certified within six months of
its commissioning.
On the talent management front, the approach and strategy were
continuously refined, realigned and revitalised in line with changing
business dynamics and the enhanced global operating footprint of the
company. Employee engagement, in particular, continues to receive the
necessary thrust and impetus to enable an interactive and knowledge
pooling environment. The company also embarked on development of new
centres in the country with a view to accessing specific skills and
talent and driving efficiencies in service delivery.
Going forward, the company will continue to review and reinforce its
strategies and action plans to rapidly scale up its global footprint.
Building additional technology niches remains a key focus area, and
SMAC (Social media, Mobility, Analytics and Cloud computing) is
currently at the forefront of this technology ecosystem. The company,
accordingly, continues to invest in SMAC technologies and in a new
industry leading Testing Framework.
While the outlook for the IT industry remains soft in the near term,
the company is poised for significantly superior growth in the coming
years aided by its strategies to expand to new markets, offer a
portfolio of differentiated solutions, provide superior customer
experience and deliver through strong project management capabilities,
knowledge management, solution accelerators and a robust quality
system.
Russell Credit Limited
During the year, the company registered a Total Revenue of Rs. 69.66
crores (previous year Rs. 40.58 crores) and a Net Profit of Rs. 58.96
crores (previous year Rs. 31.43 crores).
As stated in the Report of the Directors of the previous years, a
petition was filed by an individual in the High Court at Calcutta,
seeking an injunction against the companys counter offer to the
shareholders of VST Industries Limited, made in accordance with the
Securities and Exchange Board of India (Substantial Acquisition of
Shares & Takeovers) Regulations, 1997, as a competitive bid to a Public
Offer made by an Acquirer in 2001.
During the year, the High Court at Calcutta, vide Order dated 22nd
June, 2012, dismissed the aforesaid petition. Similar petitions filed
in the High Court of Delhi at New Delhi and High Court of Judicature of
Andhra Pradesh at Hyderabad had earlier been dismissed by the
respective High Courts.
The company, post dismissal of the aforesaid petition by the High Court
at Calcutta, sold its entire holding in VST Industries Limited to your
Company.
Wimco Limited
The company achieved a Net Revenue of Rs. 165.62 crores during the year
(previous year Rs. 169.70 crores) and posted a Net Profit for the year
of Rs. 1.90 crores against Rs. 45.99 crores loss in the previous year
which included a one-time cost of Rs. 36.87 crores primarily towards
restructuring its operations. During the year, the company allotted to
Russell Credit Limited the unsubscribed portion of the Rights Issue of
shares made in the previous year, thereby raising Rs. 1.69 crores.
Margins in the Safety Matches business continued to remain under
pressure mainly due to escalation in prices of raw materials like wood,
splints, paperboard, key chemicals and the continuing high tax
differential between the mechanised and non-mechanised sector. The
company continues to focus on cost rationalisation and margin
improvement.
During the year, the Agri (Forestry) business revenues grew by around
25%. Availability of critical raw materials like wood at competitive
prices remain crucial for the success of the Safety Matches business.
Towards this end, the Agri (Forestry) business supplied high quality
poplar ETPs (Entire Transplants) and eucalyptus saplings to farmers in
northern India to enhance availability at competitive prices. Apart
from creating a long-term sustainable supply of a critical raw
material, the companys initiative is helping create employment and
livelihood opportunities while improving the green cover in the region.
The Engineering business revenues grew by 6% during the year driven
mainly by improved value capture through continuous product development
in packaging machinery. The company plans to leverage new and improved
product design to offer superior packaging solutions to its customers.
The initiatives taken by the company during the past few years to
restructure its operations are expected to enhance operating
performance in the years to come.
Srinivasa Resorts Limited
During the financial year ended 31st March, 2013, the company recorded
a Total Revenue of Rs. 50.62 crores (previous year Rs. 57.66 crores)
and a Profit Before Tax of Rs. 5.54 crores (previous year Rs. 11.89
crores). Net Profit for the year stood at Rs. 4.44 crores (previous
year Rs. 9.40 crores).
The challenging environment in the State of Andhra Pradesh continues to
have an adverse impact on the performance of the companys hotel ITC
Kakatiya, Hyderabad. The hotel continued to focus on superior guest
experience and strategic cost management to sustain market standing and
protect margins.
For the fourth time in a row, the hotel received the Times Food
Guide awards for Kebabs & Kurries (Best North Indian) and
Dakshin (Best South Indian) - with both being rated as the best
restaurants in their respective categories. During the year, the hotel
also received the Best Landscaping Management Award from the
Department of Horticulture, Andhra Pradesh.
The Board of Directors of the company has recommended a dividend of Rs.
1.00 per equity share of Rs. 10/- each for the year ended 31st March,
2013.
Fortune Park Hotels Limited
During the financial year ended 31st March, 2013, the company recorded
a Total Revenue of Rs. 23.22 crores (previous year Rs. 20.78 crores)
and earned a Net Profit of Rs. 5.97 crores (previous year Rs. 4.96
crores).
The companys Fortune hotel chain that caters to the mid-market to
upscale segment continued its expansion by forging new alliances,
taking the total number of hotels in its fold to 69 with an aggregate
room inventory of over 5,000. The Fortune brand now has 39
operating hotels and another 3 hotels are slated to be commissioned in
the next financial year. The remaining 27 hotel projects are under
various stages of development. The brand remains a frontrunner in its
operating segment and is well positioned to sustain its leadership
position in the industry.
The company is well known for providing quality products and services
which have helped position Fortune as the premier value
brand in the Indian hospitality sector. The My Fortune brand,
representing a stylish lifestyle with efficient personalised
service, is the latest addition to the bouquet of brands offered by
Fortune Hotels.
During the year, the company bagged the Best First Class Business
Hotel Chain award at the Todays Traveller Awards 2012, SATTE
Award for leading Mid Market Hotel Chain and Best First Class
Full Service Business Hotel Chain in India by PATWA, ITB Berlin.
The Board of Directors of the company has recommended a dividend of Rs.
12.50 per equity share of Rs. 10/- each for the year ended 31st March,
2013.
Bay Islands Hotels Limited
During the financial year ended 31st March, 2013, the company recorded
a Total Revenue of Rs. 1.52 crores (previous year Rs. 1.37 crores) and
Net Profit of Rs. 0.97 crores (previous year Rs. 0.92 crores).
The companys hotel, Fortune Resort Bay Island in Port Blair,
commands patronage in the city primarily due to its fabulous location,
excellent architectural design and superior service quality. The
company is in the process of undertaking a comprehensive renovation and
expansion programme with a view to enhancing the market standing of the
hotel.
The Board of Directors of the company has recommended a dividend of Rs.
70.00 per equity share of Rs. 100/- each for the year ended 31st March,
2013.
Landbase India Limited
The company owns and operates the Classic Golf Resort, a Jack Nicklaus
Signature Course, near Gurgaon. As reported in the previous years, golf
based resorts present attractive long-term prospects in view of their
growing popularity all over the world. The work towards creating a
destination luxury resort hotel at the Classic Golf Resort is now
underway and the project is progressing satisfactorily.
During the financial year ended 31st March, 2013, the company recorded
a Total Revenue of Rs. 11.82 crores (previous year Rs. 10.57 crores)
and Net Loss of Rs. 3.81 crores (previous year Rs. 3.22 crores). During
the year, the company issued and allotted to your Company, 30,00,000
Redeemable Preference Shares of Rs. 100/- each for cash at par,
aggregating Rs. 30 crores. The proceeds from the Preference Share issue
are being utilised by the company for the construction of the
destination luxury resort.
WelcomHotels Lanka (Private) Limited
During the year, WelcomHotels Lanka (Private) Limited (WLPL) was
incorporated in Sri Lanka as a wholly-owned subsidiary of your Company
with the objective of constructing, building and operating a mixed-use
development project (Project) including a luxury hotel at
Colombo. The Board of Investment of Sri Lanka provided about 5.86 acres
of prime sea facing land in Colombo to the company on a 99-year lease
for this purpose. The Project has been declared as a Strategic
Development Project under the Strategic Development Projects Act No. 14
of 2008 of Sri Lanka.
Your Company has invested about US$ 75 million in WLPL by way of equity
and loan and WLPL is in the process of finalizing the design and
product configuration of the proposed Project.
Technico Pty Limited
The company continued to focus on upgradation and commercialisation of
TECHNITUBER® Technology and field multiplication through its wholly
owned subsidiaries in different geographies. The company is also
engaged in the marketing of TECHNITUBER® seeds to global customers
from the production facilities of its subsidiaries in India, China and
Canada.
The companys leadership in the production of early generation seed
potatoes and strength in agronomy continue to be leveraged by your
Company not only for sourcing chip stock for the Bingo! brand of
your Companys Branded Packaged Foods businesses but also for
servicing the seed potato requirements of the farmer base of your
Companys Other Agri Commodities business.
For the year under review:
a) Technico Pty Limited, Australia registered a Turnover of Australian
Dollar (A$) 1.39 million (previous year A$ 1.13 million) and a Net
Profit of A$ 0.14 million (previous year A$ 0.11 million). Turnover
and Net Profit have improved due to higher TECHNITUBER® seed volumes
and better price realization.
b) Technico Agri Sciences Limited, India registered a Net Revenue of
Rs. 64.04 crores (previous year Rs. 48.20 crores) and a Net Profit of
Rs. 17.48 crores (previous year Rs. 7.83 crores). Strong demand and
firm prices coupled with the strength of the companys brand, product
quality, on field performance and trade and customer relationships
drove a 33% increase in Net Revenue and 75% improvement in Profit
Before Tax. The company has taken credit for deferred tax assets of Rs.
3.80 crores in the year under review (previous year : Nil).
c) Technico Asia Holdings Pty Limited, Australia, Technico Technologies
Inc., Canada and Technico Horticultural (Kunming) Co. Limited, China -
There were no significant events to report with respect to the above
companies.
King Maker Marketing, Inc.
King Maker Marketing Inc. (KMM) is a wholly owned subsidiary of your
Company registered in the State of New Jersey, USA. It is engaged in
the distribution of your Companys tobacco products in the US market.
During the year, the cigarette industry in the US continued to witness
persistent volume decline compounded by tax increases and the
continuing growth of Other Tobacco Products, several of which are as
yet unregulated by the US Food and Drug Administration (FDA). A larger
thrust by major cigarette manufacturers into the value segment coupled
with increase in illicit sales driven by tax differentials between the
States, contributed further to an extremely challenging business
environment for the company. During the year, the company maintained
steady volumes through enhanced sales and marketing inputs while
Revenue declined by 2% due to pricing pressure. The resultant higher
costs of sales and marketing were offset by lower contributions under
the Master Settlement Agreement (MSA). Further, a favourable Arbitral
Award, memorializing a Partial Settlement between certain states and
the Participating Manufacturers to the MSA, on payments disputed in
previous years, increased the companys earnings during this year.
As a result, the company recorded Net Sales of US$ 26.37 million
(previous year US$ 26.95 million) and earned a Net Income of US$ 1.20
million (previous year US$ 0.48 million) during the financial year
ended 31st March 2013. During the year, KMM paid a Dividend of US$ 1.0
million to your Company.
Government regulations in the tobacco sector continue to take shape and
it is expected that the industry will consolidate further as US Food
and Drug Administration regulations evolve, including in the Other
Tobacco Product categories like Pipe Tobaccos and Cigars.
The company will continue to customise its strategies based on emerging
regulations in the market.
ITC Global Holdings Pte. Limited
The Judicial Managers had been conducting the affairs of ITC Global
Holdings Pte. Limited (Global) since 8th November, 1996 under the
authority of the High Court of Singapore. Pursuant to the application
of the Judicial Managers, the Singapore Court on 30th November, 2007
ordered the winding up of Global, appointed a Liquidator and discharged
the Judicial Managers.
As stated in the previous years Reports, the Judicial Managers of
Global had filed a Writ against your Company in November 2002 before
the Singapore High Court claiming approximately US$ 18.10 million.
Based on legal advice, your Company filed an appropriate application
for setting aside the said Writ. On 2nd March, 2006 the Assistant
Registrar of the Singapore High Court set aside the service of Writ of
Summons on your Company and some individuals. Subsequently in November
2006, your Company received a set of papers purportedly sent by Global
including what appeared to be a copy of the earlier Writ of Summons.
Your Company filed a fresh Motion in the Singapore High Court praying
for setting aside the said Writ of Summons, which was upheld by the
Assistant Registrar of the Singapore Court on 13th August, 2007.
Global filed an Appeal against this Order before the High Court of
Singapore, which on 30th January, 2009, set aside the order giving
leave to Global to serve the Writ out of Singapore against your Company
and also dismissed the said appeal. Thereafter on 14th December, 2009,
your Company received a binder purportedly sent by Global including
what appeared to be a copy of the same old Writ of Summons. Based on
legal advice, your Company again filed a Motion in the Singapore High
Court praying for setting aside the said Writ of Summons. On 18th
November, 2010, the Assistant Registrar of the Singapore High Court
passed an order dismissing your Companys motion to set aside the
Writ of Summons. Your Company filed an appeal against the Assistant
Registrars decision which appeal was dismissed by the Singapore High
Court. Pursuant to legal advice, your Company has since filed its
defence in the trial proceedings.
BFIL Finance Limited
The company continues to focus its efforts on recoveries through
negotiated settlements including property settlements and pursuit of
legal cases against various defaulters. The company has no external
liabilities outside the ITC group. The company will examine options for
further business opportunities at the appropriate time.
Gold Flake Corporation Limited, Wills Corporation Limited, Greenacre
Holdings Limited, ITC Investments & Holdings Limited and MRR Trading &
Investment Company Limited
There were no major events to report with respect to the above
companies.
NOTES ON JOINT VENTURES ITC Filtrona Limited
For the year ended 31st December 2012, ITC Filtrona Limited recorded a
Gross Revenue of Rs. 229.40 crores (Rs. 180.99 crores in 2011) and
Pre-tax profits of Rs. 19.39 crores (Rs. 15.63 crores in 2011). While
the Cigarette Filter industry had to contend with a steep hike in raw
material prices and adverse foreign exchange rates, the company saw an
overall improvement in sales volume along with a better product mix.
Continuous investment in filter making technology has enabled the
company maintain its leadership position, enhance its technological
edge over competition and cater to growth both in terms of product mix
and volumes.
In continuation with its philosophy of balancing the need to scale up
capacity and capability to service the growing demand and the return
expectation of shareholders, the Directors of the company have
recommended a dividend of Rs. 9.00 per ordinary share of Rs. 10/- each
for the year ended 31st December, 2012.
The company strives to be the quality benchmark in cigarette filters,
offer superior filter solutions to its customers and be the most
preferred supplier to its customers. With excellent product and market
development support from its joint venture partners, the company is
well positioned for the future.
Maharaja Heritage Resorts Limited
Maharaja Heritage Resorts Limited, a joint venture of your Company with
Jodhana Heritage Resorts Private Limited, currently operates 39
heritage properties across 13 States in India. The companys brand
portfolio comprising Legend, WelcomHeritage Hotels and
Nature Resorts, provides uniquely differentiated propositions to
guests in the cultural, heritage and adventure tourism segments
respectively.
During the financial year ended 31st March, 2013, the company recorded
a Total Revenue of Rs. 3.86 crores (previous year Rs. 3.36 crores) and
Net Profit of Rs. 0.44 crores (previous year Net Loss Rs. 0.26 crores).
The company has 9 properties under the upmarket Legend brand
which has carved a niche for itself on the basis of superior service
delivery and brand standards. The company also has 11 properties under
the Nature Resorts brand and 19 properties under the
WelcomHeritage Hotels brand which was recently awarded the
Best Heritage Hotel Chain by Todays Traveller Awards 2012.
Espirit Hotels Private Limited
In July 2010, your Company had entered into a joint venture for
developing a luxury hotel complex at Begumpet, Hyderabad. Under the
terms of the Joint Venture Agreement, your Company acquired 26% equity
stake in the joint venture company, Espirit Hotels Private Ltd. (EHPL)
and will, inter-alia, provide hotel operating services to EHPL under an
Operating Services Agreement upon commissioning of the hotel. Your
Companys investment in EHPL stood at Rs. 46.51 crores as at 31st
March, 2013.
While the site preparatory activity is underway, the company is in the
process of finalising the design and product configuration of the
proposed development.
Logix Developers Private Limited
In September 2011, your Company entered into a joint venture for
developing a luxury hotel-cum-service apartment complex at Sector 105
in NOIDA. Under the terms of the Joint Venture Agreement, your Company
acquired 26% equity stake in the joint venture company, Logix
Developers Private Ltd. (LDPL) at an initial investment of Rs. 36.84
crores. Your Company will, inter-alia, provide hotel operating services
to LDPL under an Operating Services Agreement, upon commissioning of
the hotel.
The company is in the process of finalising the design and product
configuration of the proposed development.
RISK MANAGEMENT
As a diversified enterprise, your Company has always had a system-based
approach to business risk management. Backed by strong internal control
systems, the current risk management framework consists of the
following elements:
- The Corporate Governance Policy clearly lays down the roles and
responsibilities of the various entities in relation to risk
management. A range of responsibilities, from the strategic to the
operational, is specified in the Governance Policy. These role
definitions, inter-alia, are aimed at ensuring formulation of
appropriate risk management policies and procedures, their effective
implementation and independent monitoring and reporting by Internal
Audit.
- The Corporate Risk Management Cell works with the businesses to
establish and monitor the specific profiles including both strategic
risks and operational risks. The process includes the prioritisation of
risks, selection of appropriate mitigation strategies and periodic
reviews of the progress on the management of risks.
- A combination of centrally issued policies and divisionally-evolved
procedures brings robustness to the process of ensuring business risks
are effectively addressed.
- Appropriate structures have been put in place to proactively monitor
and manage the inherent risks in businesses with unique / relatively
high risk profiles.
- A strong and independent Internal Audit function at the Corporate
level carries out risk focused audits across all businesses, enabling
identification of areas where risk management processes may need to be
improved. The 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 your Company and ensures that Internal Audit
recommendations are effectively implemented.
- At the business level, Divisional Auditors continuously verify
compliance with laid down policies and procedures, and help plug
control gaps by assisting operating management in the formulation of
control procedures for new areas of operations.
- A robust and comprehensive framework of strategic planning and
performance management ensures realisation of business objectives based
on effective strategy implementation. The annual planning exercise
requires all businesses to clearly identify their top risks and set out
a mitigation plan with agreed timelines and accountability. Businesses
are required to confirm periodically that all relevant risks have been
identified, assessed, evaluated and that appropriate mitigation systems
have been implemented.
The combination of policies and processes as outlined above adequately
addresses the various risks associated with your Companys businesses.
The senior management of your Company periodically reviews the risk
management framework to maintain its contemporariness so as to
effectively address the emerging challenges in a dynamic business
environment.
AUDIT AND SYSTEMS
Your Company believes that internal control is a necessary concomitant
of the principle of governance that freedom of management should be
exercised within a framework of appropriate checks and balances. Your
Company remains committed to ensuring an effective internal control
environment that provides assurance on the efficiency of operations and
security of assets.
Well established and robust internal audit processes, both at business
and corporate levels, continuously monitor the adequacy and
effectiveness of the internal control environment across your Company
and the status of compliance with operating systems, internal policies
and regulatory requirements. In the networked IT environment of your
Company, validation of IT security continues to receive focused
attention of the internal audit team which includes IT specialists.
The Internal Audit function consisting of professionally qualified
accountants, engineers and IT specialists reviews the quality of
planning and execution of all ongoing projects involving significant
expenditure to ensure that project management controls are adequate to
yield value for money.
Your Companys Internal Audit function is certified as complying with
ISO 9001:2008 quality standards in its processes.
The Audit Committee of your Board met nine times during the year. It
reviewed, inter-alia, the adequacy and effectiveness of the internal
control environment and monitored implementation of internal audit
recommendations including those relating to strengthening of your
Companys risk management policies and systems. It also engaged in
overseeing financial disclosures.
HUMAN RESOURCE DEVELOPMENT
Your Companys unique talent brand - Building Winning Businesses.
Building Business Leaders. Creating Value for India - backed by its
strong corporate equity, has enabled the attraction and retention of
high quality talent. This talent pool and its strong alignment with
your Companys Vision, has contributed to enhancing your Companys
standing as one of Indias most valuable corporations. The innovative
engagement initiatives with premier campuses and effective use of
social media has enabled your Company showcase the career and
leadership opportunities available and has attracted both high quality
entry-level talent from premier technology and management institutes as
well as talent from the market for middle and senior-level
opportunities. Your Companys unique Management Trainee programme has
over the years, developed a robust talent and leadership pipeline that
has enabled rapid growth of existing businesses and entry into new
businesses as well. In addition, your Companys comprehensive talent
development strategy has enabled the enhancement of the competitive
capability of each business.
Your Company believes that the achievement of its growth objectives
will depend largely on the ability to innovate continuously, connect
closely with the customer, and create and deliver superior and
unmatched customer value. Towards this end, your Company has
assiduously built a culture of continuous learning, innovation and
collaboration across the organisation by providing cutting-edge
learning and development inputs to its employees, along with a
judicious blend of coaching, mentoring and on the job training. 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 Companys human resource management systems and processes are
designed to empower employees and enable them adopt innovative
approaches to creating enduring value. These processes aim to create a
responsive, customer-centric and market-focused culture that enhances
organisational capability and vitality, so that each business is
internationally competitive and equipped to exploit emerging market
opportunities.
The strategy of organisation lays great emphasis on developing and
supporting distributed leadership and this has ensured that each of
your Companys businesses is managed by a team of competent,
passionate and inspiring leaders, capable of building an organisation
anchored in a culture of learning, innovation and world-class
execution. Your Companys performance management system has been
instrumental in creating a strong performance culture.
Your Company firmly believes that alignment of all employees to a
shared vision and purpose is vital to win in the market. Your Company
also recognizes the mutuality of interests of key stakeholders and is
committed to building harmonious employee relations. During the year
under review, your Company successfully concluded long-term agreements
at several of its manufacturing units and hotel properties and also
ensured smooth commencement of operations at greenfield locations. The
collaborative spirit across all sections of employees has resulted in
significant enhancement in quality and productivity, further bolstered
by continuous investment in contemporary management practices and
manufacturing systems.
Your Companys human resource believes that the drive for progress is
in being never satisfied with the status quo. Your Company is confident
that every one of its over 25,900 employees will relentlessly strive to
deliver world-class performance, innovate newer and better ways of
doing things, uphold human dignity and foster team spirit and discharge
their role as trustees of all stakeholders with true faith and
allegiance. Your Company is committed to perpetuate this vitality of
ITC - its growth in physical terms and also its growth as a great
institution - so that your Company will continue to grow and succeed in
its never-ending pursuit of value creation.
SUSTAINABILITY - CONTRIBUTION TO THE TRIPLE BOTTOM LINE
Your Companys Vision to subserve larger national priorities and
create enduring societal value is the inspiration for its
multi-dimensional sustainability initiatives that are today
acknowledged as global exemplars. Your Companys sustainability
strategy aims to significantly enhance national wealth through superior
Triple Bottom Line performance that builds and enriches the
countrys economic, environmental and societal capital. It 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 Companys
Triple Bottom Line contribution is manifest in the creation of
innovative business models that not only generate new sources of
competitive advantage for its businesses, but also in the process
enables the replenishment of natural capital and augmentation of
sustainable livelihoods.
It is a matter of humble pride that your Companys sustainable
business models and value chains have supported the creation of 5
million sustainable livelihoods, a majority of them for the weakest in
society. It has sustained its position as the only company in the world
to have achieved the global environmental distinctions of being carbon
positive (for 8 consecutive years), water positive (for 11 years in a
row) and solid waste recycling positive (for 6 years successively).
Your Companys renewable energy portfolio enables over 41% of its
power requirements to be met from such clean sources - a significant
achievement given the large manufacturing base of your Company.
Further, all the premium luxury hotels and several factories of your
Company are LEED (Leadership in Energy & Environmental Design)
certified at the highest Platinum level by the US Green Building
Council / Indian Green Building Council.
Your Company published its 9th consecutive Sustainability Report during
the year that detailed the progress made across all dimensions of the
Triple Bottom Line for the year 2011-12. The report which is
independently assured by Ernst & Young, is in accordance with the G3
Guidelines of the Global Reporting Initiative (GRI) and is validated by
GRI at the highest A+ level. The 10th Sustainability Report
covering the sustainability performance of your Company for the year
2012-13 is in an advanced stage of finalisation and will be available
to you shortly. This report also supports your Companys first
Securities Exchange Board of India (SEBI) mandated Business
Responsibility Report, which forms part of this Report and Accounts.
Social Investments/Corporate Social Responsibility (CSR)
Your Company believes that Corporate Social Responsibility delivered in
the context of its businesses makes it more effective, impactful,
scalable and sustainable. Your Companys overarching aspiration to
create meaningful societal value is manifest in your Companys
strategy to enhance the competitiveness of value chains of which it is
a part. It is therefore a conscious strategy to design and implement
Social Investments / CSR programmes in the context of your Companys
businesses, by enriching value chains that encompass the most
disadvantaged sections of society, especially those residing in rural
India, through economic empowerment based on grass-roots capacity
building.
It is your Companys policy:
- To pursue a corporate strategy that enables realisation of the twin
goals of shareholder value enhancement and societal value creation in a
mutually reinforcing and synergistic manner.
- To align and integrate Social Investments / CSR programmes with the
business value chains of your Company and make them outcome oriented.
To support creation of on and off-farm sustainable livelihood sources
thereby empowering stakeholder communities to conserve and manage their
resources.
- To implement Social Investments / CSR programmes primarily in the
economic vicinity of your Companys operations with a view to
ensuring the long-term sustainability of such interventions.
- To contribute to sustainable development in areas of strategic
interest through initiatives designed in a manner that addresses the
challenges faced by the Indian society especially in rural India.
- To collaborate with communities and institutions to contribute to the
national mission of eradicating poverty and hunger, especially in rural
areas, through agricultural research and knowledge sharing, superior
farm and agri-extension practices, soil and moisture conservation and
watershed management, conservation and development of forest resources,
empowering women economically, supplementing primary education and
participating in rural capacity building programmes and such other
initiatives.
- To align your Companys operations with the national objective of
inclusive growth and employment generation by leveraging your
Companys diversified portfolio, manufacturing bases, supply chains
and distribution channels, to infuse an appropriate mix of capital and
technology to further social business initiatives such as e-Choupal,
animal husbandry, agarbatti rolling etc. and support organisations /
institutions engaged in building linkages with local, regional and
urban communities and markets.
- To sustain and continuously improve standards of Environment, Health
and Safety through the collective endeavour of your Company and its
employees at all levels towards attaining world-class standards and
support other programmes and initiatives, internal or external, for the
prevention of illness and combating of diseases as may be considered
appropriate from time to time.
- To encourage the development of human capital of the Nation by
expanding human capabilities through skills development, vocational
training etc. and by promoting excellence in identified cultural
fields.
In the social sector, the two most important stakeholders for your
Company are: (a) the rural communities with whom your Companys
agri-businesses have forged a long and enduring partnership through
their crop development and procurement activities. These households
operate in rain-fed conditions in some of the most moisture-stressed
regions of the country; and
(b) the communities residing in close proximity of your Companys
production units, who are unable to realise their full potential due to
poor social infrastructure in the areas of education and health.
In line with the stakeholder needs, the thrust of your Companys social
sector investment is on the following:
(a) Diversification of farming systems of the rural communities by
broad-basing the farm and off-farm based livelihoods portfolio of the
poor through an integrated approach that includes the development of
wastelands, watersheds, agriculture and animal husbandry, and
(b) In the catchment habitations of manufacturing units, the focus is
on the economic empowerment of women and developing social capital to
prepare the beneficiaries for relevant and contemporary skills.
The footprints of your Companys Social Investments Programme now
extends to 60 districts in the States of Andhra Pradesh, Bihar,
Karnataka, Kerala, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu,
Uttar Pradesh and West Bengal.
Your Companys pioneering initiative of wasteland development through
the Social Forestry Programme currently covers 33,448 hectares in 1,717
villages, impacting nearly 40,000 poor households. This is an integral
part of your Companys overall Social & Farm Forestry initiative that
covers a total of over 142,000 hectares today. This initiative is
aligned to the pulpwood supply chain to create a sustainable source of
raw material for your Company and also to meet the energy requirements
of rural households. The highlight of this year was the incorporation
of bio-diversity conservation as an integral part of the Social
Forestry programme, which aims for in situ conservation of the local
flora and fauna by protecting and improving production conditions in
the selected plots.
The coverage of your Companys Soil and Moisture Conservation
programme, designed to assist farmers in identified moisture-stressed
districts, increased by an additional 26,637 hectares. 470 water-bodies
were created during the year. The total area covered under the
watershed programme cumulatively stands at 116,127 hectares. Your
Company signed three new MOUs with the Government of Rajasthan for
promoting sustainable livelihoods through watershed development in the
districts of Bundi, Jhalawar and Pratapgarh under the governments
Integrated Watershed Management Programme. With this, the total area to
be brought under soil and moisture conservation through
public-private-partnership projects has increased to over 144,000
hectares.
With the objective of providing a major thrust to creating a
sustainable agricultural base, the year saw significant increases in
all major interventions in this area. The number of Farmer Field
Schools increased from 37 to 162. There was an almost three-fold
increase in the number of farmers (5,129) and the demonstration plots
(4,733) covered. The number of compost units increased nearly four-fold
(503 in 2012-13) during the year.
18 new Agri Business Centres were formed during the year, taking the
total to 51, to provide extension services to farmers. These centres
provided agri-inputs worth Rs. 85.61 lakhs to nearly 3,211 farmers
during the year.
Your Company gave equal emphasis to milch animals, the other important
asset of rural households. The programme for genetic improvements of
cattle through artificial insemination to produce high-yielding
crossbred progenies is implemented through 303 Cattle Development
Centres (CDCs) covering nearly 5,000 villages. These CDCs provided 2.75
lakh artificial inseminations during the year, thus taking the total to
10.82 lakh artificial inseminations performed till date.
Taking the next step in the development of a viable livestock economy,
Dairy Development in Munger was a major focus area this year. Project
Gomukh was launched in Munger to cater to the needs of veterinary
services and to provide comprehensive techno- management support to
dairy farmers. The overarching objectives of the Project are to achieve
significant improvement in milk productivity and quality, thereby
raising farm incomes. The milk procurement network was increased to 87
Milk Producer Groups (MPGs) with over 2,800 members. The average
procurement in Munger was nearly 10,000 litres per day (lpd) with a
peak of over 17,000 lpd. Dairy development in Saharanpur was initiated
in two hubs. Comprehensive milk mapping studies have been completed at
two other locations to enable planning for expansion of the dairy-led
CSR in other locations.
The Womens Empowerment Programme covered over 18,791 women through
1,557 self-help groups (SHG) with total savings of Rs. 340 lakhs.
Cumulatively, over 40,000 women were gainfully employed either through
micro-enterprises or assisted with loans to pursue income generating
activities. Agarbatti production received further impetus during the
year with the introduction of 1,326 pedal machines in the states of
Bihar, Uttar Pradesh, Tamil Nadu, Rajasthan, Andhra Pradesh, Madhya
Pradesh and Maharashtra. This has led to high productivity gains,
translating into significant increase in incomes for poor rural women.
As a result, raw agarbatti production more than doubled from the
previous year to 834 tonnes during 2012-13, and helped create
livelihoods for more than 3,300 women. The agarbatti scenting unit
located at Munger, owned and managed by women, also saw a significant
increase in dispatches - up from 235 million sticks in 2011-12 to 367
million sticks in 2012-13 - thus enabling women to capture even greater
value from this micro-enterprise.
Over 40,000 new students were covered through Supplementary Learning
Centres and Anganwadis. Of these, 264 first generation learners were
enrolled into formal schools for the first time in their lives. 964
government primary schools have so far been provided infrastructure
support, which includes benches, classrooms, toilets, electrical
fixtures, compound walls and gates. 627 youths were covered this year
by the skills development initiative. In the area of sanitation, a
total of 3,847 low cost sanitary units have been constructed
cumulatively by the end of 2012-13.
The advances made towards contributing to Indias sustainable
development goals have been possible, in large measure, due to your
Companys partnerships with some globally renowned NGOs like BAIF,
Dhan, FES, MYRADA, Pratham, SEWA, SRIJAN, DSC and WOTR 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 Indias most challenging problems of
development in the years to come.
Environment, Health & Safety
The strategic objective of your Companys Environment, Health &
Safety programmes is to move towards greenest and safest operations
across all ITC Units, optimisation of natural resource usage,
sustainability measurement and monitoring as well as safety of all its
people and assets. Towards this, significant efforts are targeted
towards ensuring resource security through optimisation of resource-use
and replenishment of natural resources, aligning strategy with the
National Action Plan on Climate Change to help create sustainable
livelihoods, enable adaptation and mitigation in agriculture whilst
safeguarding operations and assets. Your Companys proactive
processes for inculcating a safe and green culture are supported by
regular audits based on EHS Audit guidelines that incorporate the
latest standards and regulatory requirements.
Your Company is committed to ensuring a safe and healthy workplace for
all employees, guests and visitors, by maintaining the highest levels
of safety and occupational health standards. All units of your Company
have best-in-class infrastructure, competent resources,
management systems based on international standards as well as
state-of-the-art fire and life safety measures, which are regularly
monitored through rigorous audits. Your Companys approach entails
consideration of safety as a value-led concept which drives behaviour
change and supports the creation of a safety culture fully integrated
with business improvement processes. In line with this philosophy,
Behavioural Safety Culture Programs have been initiated in several of
your Companys units which have already brought about tangible change
in behaviour and perceptions on safety. Accordingly, this initiative
will be rolled out across other business units in a progressive manner.
The progress and commitment made by your Company in this vital area to
protect its valued human resources have been reaffirmed by numerous
national and international safety awards and certifications.
Your Company has addressed the critical area of climate change
mitigation and adaptation through several innovative and pioneering
initiatives. These include continuous improvement in energy
conservation and efficiency, enhanced usage of renewable energy,
creating a green built environment, waste reduction, maximising its
reuse and recycling and increasing use of post consumer waste as raw
material. Extensive integrated watershed development programmes,
promotion of sustainable agricultural practices, and carbon
sequestration through large-scale forestry initiatives extend these
efforts down the value chain.
Several projects of your Company earn carbon credits leveraging the
market-based mechanism for mitigating climate change, namely, the Clean
Development Mechanism developed by United Nations Framework Convention
on Climate Change (UNFCCC). Your Company is also well positioned to
benefit from India specific schemes such as Perform, Achieve and Trade
(PAT) and Renewable Energy Certificates (RECs) promoted by the
Government of India.
In line with your Companys commitment to reduce dependence on fossil
fuel based energy, significant progress has been made in enhancing the
renewable energy portfolio. Improved utilisation of biomass and
additional wind mills have led to over 41% of your Companys total
energy requirements being met from renewable sources, compared to 38.5%
during the year 2011-12. A systemic approach is being developed to
ensure that your Company progressively moves towards a benchmark of
utilising at least 50% of its total energy requirements from renewable
sources in the near future.
Recognising that water resources will increasingly become an area of
serious concern, your Company has made significant investments in water
conservation and harvesting initiatives to enhance its positive water
footprint. These include adopting best available technologies and
benchmarked practices to achieve zero effluent discharges, providing
treated wastewater for irrigation as an alternative for farmers in
water stressed areas and enhancing rainwater harvesting both within
units and across watershed catchment areas. All these initiatives have
resulted in the creation of rainwater harvesting potential that is over
two times the net water consumption of your Companys operations.
Sustained efforts are made to ensure that your Company achieves the
best international practices in this critical area as well as aligns
itself with the National Water Policy that is presently under
finalization.
Reaffirming your Companys 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.
ITC Grand Chola, the newly launched premium luxury hotel in Chennai,
has secured a 5 Star Green Rating for Integrated Habitat Assessment
(GRIHA) - the highest national rating for Green Buildings in India. The
ITC Grand Chola is also the worlds largest LEED Platinum certified
(Indian Green Building Council) green Hotel. All new constructions by
your Company incorporate green / sustainability standards and existing
buildings are also progressively implementing validated green
attributes.
The Bombay Stock Exchange recently instituted 2 indices titled
GREENEX & CARBONEX evaluating several green operational
parameters as well as carbon performance. It is a matter of immense
pride that your Company has been assigned the highest weightage in both
the indices. Further, during the year, a detailed computation of
greenhouse gas (GHG) inventory was carried out as per ISO 14064
standards, which was then assured at the highest Reasonable Level
by Lloyds Register Quality Assurance Ltd. - a unique achievement
considering the scale and spread of your Companys operations.
All units of your Company have made significant progress in achieving
total recycling of waste generated by their operations, making your
Company attain over 99.8% of waste recycling in 2012-13. The
Paperboards and Specialty Papers business, which accounts for nearly
91% of the total waste generated in your Company, recycled 99.9% of the
total waste generated by its operations. This business also recycled an
additional 118,462 tonnes of externally sourced post-consumer waste
paper, thereby creating yet another positive environmental footprint.
Your Companys Wealth Out of Waste (WOW) programme continues to
create significant awareness amongst the public on the benefits of the
Reduce- Reuse-Recycle paradigm. This initiative, which also
contributes to the protection of environment, improvement in civic
amenities, public health and hygiene, has received rich accolades from
the Government, NGOs, commercial institutions and the public at large.
Your Company thereby supports the generation of sustainable raw
material inputs for its processes, whilst generating considerable
livelihood opportunities for the underprivileged.
During the year, an Integrated Sustainability Data Management System
was implemented for effective monitoring & review of business specific
Key Performance Indicators whilst providing a single platform
across your Company for all reporting requirements such as Global
Reporting Initiative, SEBI Business Responsibility Report and Carbon
Disclosure Project. This System will improve management of
sustainability issues and drive increasing efficiencies across your
Companys business units.
Creating Thought Leadership in Sustainability
The CII - ITC Centre of Excellence for Sustainable Development,
set up by your Company jointly with the apex national chamber
Confederation of Indian Industry (CII) in 2006, continues its
endeavours to promote sustainable business practices amongst corporates
across the country. During the year, the Centre trained and raised
awareness of over 2,000 business managers on various sustainability
issues. It has expanded its gamut of activities to meet the core
objectives of creating awareness, promoting thought leadership and
building capacity amongst Indian enterprises in their quest for
sustainable growth and business solutions. The 7th Sustainability
Summit, held in October 2012, continued its legacy of bringing together
thought provoking leaders to share the challenges, long-term strategies
and best practices for sustainable and inclusive development.
It featured senior politicians, bureaucrats, best brains of Indian
industry and MNCs around the globe. The Summit and Exhibition were
attended by over 300 participants. The CII - ITC Sustainability
Awards, instituted to recognise excellence in sustainability
performance, have honoured a large number of leading Indian companies
and provided encouragement to many others. The winners of the
Sustainability Awards 2012 were announced at an imposing function in
Vigyan Bhawan, New Delhi on January 14, 2013 amongst an audience of
1,500 people. The occasion was graced by the Honble President of
India Shri Pranab Mukherjee as the Chief Guest.
The Centre is today playing a major role in engaging with policy makers
to create an environment that encourages the adoption of sustainable
business practices. The Centre has been engaged with various
stakeholders for advocacy on Clause 135 of the new Companies Bill 2012,
which refers to the CSR activities of a company. The Centre is a
consulting partner in several policy interventions such as Green
Guidelines for Public Procurement, Low Carbon Expert Group of the
Planning Commission, National Innovation Council, Ministry of Corporate
Affairs on CSR Policy, National Awards for Prevention of Pollution,
Rajiv Gandhi Environment Awards for Clean Technology and Technology and
Finance Committee under the Montreal Protocol. It is also represented
on the Board of the Central Pollution Control Board and other bodies.
Societal Capacity Enhancement
In line with its core value of trusteeship, your Company supports
various initiatives that build the capability of Indias rich human
resource pool thereby empowering the nations fast growing working-age
population. It also helps preserve Indias rich cultural heritage,
enhancing the spirit embodied in its credo of Lets Put India
First.
To cater to the need for professionally trained human resources in the
fast growing hospitality industry, your Company contributed to setting
up the Welcomgroup Graduate School of Hotel Administration (WGSHA)
together with the Dr. TMA Pai Foundation in 1987. WGSHAs training and
development activities are recognised by the International Hotel
Association, Paris. The college has been ranked amongst the top
educational institutions in the sector over the years. Graduates of the
college are today part of several leading hotel chains of the world.
WGSHAs mission is to mould young men and women into competent and
responsible professionals with the potential to emerge as future
leaders in the hospitality industry. As part of its efforts to remain
contemporary, WGSHA faculty members are positioned in ITC Hotels to
understand Best Practices employed at the hotels. A significant
number of WGSHA students are sent for 6-month internships to various
ITC Hotels. The college started with an annual intake of 30 students
which has increased to 100 students over the years.
The ITC Sangeet Research Academy (ITC SRA) is a true embodiment of
sustained corporate commitment to a priceless national heritage. It is
a unique institution recognised for being the finest repository of
Hindustani classical music. With a commitment that has remained
consistent for over 35 years, ITC SRA is the worlds first and only
professionally managed modern Gurukul, blending modern day research
methods with the purity of the age old "Guru-Shishya" tradition.
ITC SRA has as its mission the preservation and propagation of
Hindustani Classical Music. With a galaxy of 9 pre- eminent Gurus and
50 scholars, the Academy is presently engaged in carrying the message
of Hindustani Classical Music across our country from the metros to
rural India. Recent forays into neighbouring Bangladesh have brought
home another dimension of the shared sub- continental heritage.
Your Company also supports a number of initiatives for vocational
training within the catchment areas of its operations that have proven
to be effective in empowering youth with requisite skills to increase
their employability in the market. Employment opportunities have also
been created for differently-abled people suited to their capabilities.
R&D, QUALITY AND PRODUCT DEVELOPMENT
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.
As your Company moves into its second century, your Company seeks not
only to create world-class products but also improve the quality of
life and deliver care and wellness to consumers. In order to reflect
this change your Companys erstwhile ITC R&D Centre has been
transformed into ITC Life Sciences & Technology Centre.
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 such as Plant Breeding and Genetics,
Agronomy, Microbiology, Cell Biology, Genomics, Proteomics,
Silviculture and several disciplines of Chemistry. Presently, the LSTC
team has evolved with over 250 world-class scientists and is creating
Centres of Excellence in these areas. LSTC is carrying out research and
securing proprietary technologies for your Companys businesses.
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 Companys
businesses. LSTC has initiated several research collaborations with
globally recognized 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 LSTCs efforts in
creating future generations of these crops with greater genetic and
trait diversities and leading to significant benefits for your
Companys businesses. Further, these outcomes have a strong potential
to contribute towards augmenting the nations ecological capital as
well.
Recognising the unique construct of your Company in terms of its strong
presence in agriculture, food and personal care 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 convergence. 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 Foods and Personal Care businesses. 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). The initial
activities related to VAA have already commenced with a focus on Soya.
LSTC has a clear vision and a road map for long-term R&D, to ensure an
outstanding journey in to the next century 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.
Pursuing your Companys relentless commitment to quality, each
business is mandated to continuously innovate on processes and systems
to deliver superior competitive capabilities. During the year, your
Companys 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 business 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 have stringent food
safety and quality systems. All Company owned units / hotels and almost
all 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)
methodology. Additionally, the quality of all FMCG products of your
Company is regularly monitored through Product Quality Ratings
Systems (PQRS).
EXCISE
As mentioned in the previous years Report of the Directors, a demand
for Rs. 27.58 crores made by Central Excise Department, Bengaluru, in
respect of a period prior to March 1983, was set aside by the
Commissioner (Appeals), Bengaluru, by his Order dated 22nd November,
1999, which order was confirmed by the CEGAT, Chennai vide its order
dated 18th December, 2003. The Department has filed an appeal before
Supreme Court, which is pending.
With respect to the Munger factory, proceedings for finalisation of
assessments for the period prior to March 1983 resulted in the Deputy
Commissioners Orders dated 29th August, 2002 and 8th October, 2002
demanding Rs. 13.09 crores and Rs. 1.73 crores for clearances of
cigarettes and smoking mixtures respectively. These were confirmed by
the Commissioner (Appeals), Patna vide his orders dated 22nd December,
2004, against which your Company has preferred appeals before CESTAT,
Kolkata, which are pending. Your Company had made pre-deposits of Rs. 2
crores and Rs. 0.55 crores against the aforesaid demands at the stage
when its appeals were pending before Commissioner (Appeals), Patna.
Although your Company, in a spirit of settlement, paid the differential
Excise Duty that arose out of an Order of the Director General dated
10th April, 1986, as early as in March, 1987, and although the Excise
Departments aforesaid Demands had either been quashed or stayed, the
Collectorates in Meerut, Patna and Bengaluru, during the year 1995,
filed criminal complaints in the Special Court for Economic Offences at
Kanpur, Patna and Bengaluru, charging your Company and some of its
Directors and employees who were employed with your Company during the
period 1975 to 1983 with offences under the Central Excises & Salt Act,
1944, purportedly on the basis of the Order of the Director General
dated 10th April, 1986. Your Directors are advised that no prosecution
would lie on the basis of the aforesaid Order of the Director General
dated 10th April, 1986. As earlier reported, the criminal case in
respect of the Bengaluru factory was quashed by the Court. In the
proceedings relating to Saharanpur and Munger factories, the
individuals concerned have been discharged.
In all the above instances, your Directors are of the view that your
Company has a strong case and the Demands and the Complaints are not
sustainable.
Since your Company is contesting the above cases and contending that
the Show Cause, the Demand Notices and the Complaints are not
sustainable, it does not accept any liability in this behalf. Your
attention is drawn to the Note 31(iv) in the Notes to the Financial
Statements and Note 28(iv) in the Notes to the Consolidated Financial
Statements.
LUXURY TAX
As mentioned in earlier years, the Honble Supreme Court declared the
various State luxury tax levies on cigarettes and other goods as
unconstitutional. The Court further directed that if any party, after
obtaining a stay order from the Court, had collected any amount towards
luxury tax from its customers / consumers, such amounts should be paid
to the respective State governments. Since your Company had not charged
or collected any amounts towards luxury tax during the relevant period,
there is no liability on your Company in this regard. However, the
State of Andhra Pradesh has filed a contempt petition in the Supreme
Court claiming a sum of about Rs. 323.25 crores towards luxury tax, and
a further sum of about Rs. 261.97 crores towards interest, on the
allegation that your Company had charged and collected luxury tax from
its customers, but in view of a stay order passed by the Court on 1st
April, 1999, did not pay the tax to the government. The States
contention is baseless, contrary to facts and is also contrary to the
assessment orders passed by the State luxury tax authorities
consistently holding that your Company, right from 1st March, 1997, did
not charge or collect any amount towards luxury tax from its customers.
Accordingly, the States petition is being contested.
RECOVERY OF DUES FROM THE CHITALIAS AND PROCEEDINGS INITIATED BY THE
ENFORCEMENT DIRECTORATE
You are aware that your Company had secured from the District Court of
New Jersey, U.S.A, a decree for US$ 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 your
Company has written off the export dues in foreign exchange from the
Chitalias with the approval of the Reserve Bank of India, your Company
continues with its recovery efforts in the Indian suit against the
Chitalia associates. The suit is in progress.
In the proceedings initiated by the Enforcement Directorate, in respect
of some of the show cause memoranda issued by the Directorate, after
hearing arguments on behalf of your Company, the appropriate authority
has passed orders in favour of your Company, and dropped those
memoranda.
Meanwhile, some of the prosecutions launched by the Enforcement
Directorate have been quashed by the Calcutta High Court while others
are pending.
TREASURY OPERATIONS
During the year, your Companys treasury operations continued to
focus on deployment of temporary surplus liquidity and manage the
foreign exchange exposures within a well-defined risk management
framework.
The year under review was characterized by falling interest rates with
the Reserve Bank of India reducing Policy rates by a cumulative 100
basis points. However, tight liquidity conditions in the Banking system
brought about intermittent spikes in money market interest rates. In
this environment your Company, by appropriately managing portfolio
duration continued to improve its treasury performance.
All investment decisions in deployment of temporary surplus liquidity
continued to be guided by the tenets of Safety, Liquidity and Return.
The portfolio mix during the year was constantly rebalanced in line
with changing interest rate scenario which helped enhance yields.
Further, by the year end, in line with expectations of lower interest
rates, the portfolio was rebalanced with exposures in long-dated Fixed
Maturity Plans and Bank Fixed Deposits. Your Companys 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 depreciated during the
year and was witness to bouts of high volatility. In a scenario where
Rupee was under continuous pressure, your Company adopted an
appropriate forex management strategy, which included use of foreign
exchange forward contracts and plain vanilla options, to protect
business margins and reduce risks / costs.
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 Companys Internal Audit
department.
TAXATION
As mentioned in the Report of the Directors of earlier years, your
Company had obtained Stay Orders from the Honble Calcutta High Court
in respect of the Income Tax notices for re-opening the past
assessments for the period 1st July, 1983 to 30th June, 1986. This
status remains unchanged.
As stated in the Report of the Directors of earlier years, in respect
of similar Income Tax notices for re-opening the past assessments for
the period 1st April, 1990 to 31st March, 1993, the Honble Calcutta
High Court had admitted the Writ Petitions and ordered that no final
assessment orders be passed without the leave of the Court. This status
also remains unchanged.
PUBLIC DEPOSITS
Your Companys Public Deposit Scheme closed in the year 2000. As at
31st March, 2013, there were no deposits due for repayment except in
respect of 2 deposit holders totalling Rs. 20,000 which have been
withheld on the directives received from government agencies.
There was no failure to make repayments of Fixed Deposits on maturity
and the interest due thereon in terms of the conditions of your
Companys erstwhile Schemes.
INVESTOR SERVICE CENTRE
The Investor Service Centre (ISC) of your Company, accredited with ISO
9001:2008 certification, provides best-in-class investor services
through an experienced team of professionals. ISC continues to upgrade
its infrastructure, systems and processes to provide exemplary services
to the shareholders and investors of the Company. The level 5 rating,
the highest possible rating, accorded by Messrs. Det Norske Veritas for
the fourth consecutive year, stands testimony to the excellence
achieved by ISC in providing quality investor services.
ISC, in its constant endeavour to further improve its services,
requests feedback on your experience as a shareholder or investor. The
Shareholder Satisfaction Survey questionnaire for this purpose is being
sent to the Members. This questionnaire can also be accessed from the
Companys corporate website www.itcportal.com under the section
Investor Relations and can be submitted online.
DIRECTORS
Mr. Kurush Noshir Grant, a Wholetime Director of your Company since
20th March, 2010, completed his term on 19th March, 2013. The Board of
Directors of your Company (the Board) at its meeting held on 18th
January, 2013, appointed Mr. Grant as Additional Director with effect
from 20th March, 2013, and subject to the approval of the Members, also
as Wholetime Director for a period of five years from 20th March, 2013.
Ms. Meera Shankar and Mr. Sahibzada Syed Habib-ur- Rehman were
appointed by the Board at its meeting held on 27th July, 2012 as
Additional Non-Executive Directors of your Company with effect from 6th
September, 2012 and 27th July, 2012, respectively.
By virtue of the provisions of Article 96 of the Articles of
Association of your Company and Section 260 of the Companies Act, 1956,
Ms. Shankar and Mr. Rehman will vacate office at the ensuing Annual
General Meeting (AGM) of your Company.
Your Board at its meeting held on 17th May, 2013, recommended for the
approval of the Members the appointment of Ms. Shankar and Mr. Rehman
as Non- Executive Directors of the Company, liable to retire by
rotation, with effect from the date of the ensuing AGM of your Company.
Mr. Dinesh Kumar Mehrotra, Mr. Sunil Behari Mathur and Mr. Pillappakkam
Bahukutumbi Ramanujam were appointed as Non-Executive Directors of your
Company with effect from 30th July, 2008 and their present term will
expire on 29th July, 2013. Your Board at its meeting held on 17th May,
2013 recommended for the approval of the Members the re-appointment of
Messrs. Mehrotra, Mathur and Ramanujam as Non-Executive Directors of
the Company, liable to retire by rotation, with effect from 30th July,
2013.
Notices, under Section 257 of the Companies Act, 1956, have been
received from Members of the Company for the appointment /
re-appointment of Ms. Shankar, Messrs. Grant, Rehman, Mehrotra, Mathur
and Ramanujam, who have filed their consents to act as Directors of the
Company, if appointed.
Appropriate resolutions seeking your approval to the aforesaid
appointments / re-appointments are appearing in the Notice convening
the 102nd AGM of your Company.
In accordance with the provisions of Article 91 of the Articles of
Association of the Company, Mr. Shilabhadra Banerjee, Mr. Angara
Venkata Girija Kumar, Mr. Hugo Geoffrey Powell, Dr. Basudeb Sen and Mr.
Balakrishnan Vijayaraghavan will retire by rotation at the ensuing AGM
of your Company and being eligible, offer themselves for re-election.
The Board has recommended their re-election.
AUDITORS
Statutory Auditors
Your Companys Auditors, Messrs. Deloitte Haskins & Sells, retire at
the ensuing AGM and, being eligible, offer themselves for
re-appointment. Since not less than 25% of the Subscribed Share Capital
of your Company is held collectively by Public Financial Institutions,
the re-appointment of Auditors is being proposed as a Special
Resolution in accordance with Section 224A of the Companies Act, 1956.
Cost Auditors
Your Company had appointed (i) Mr. P. Raju Iyer, Cost Accountant,
Chennai, as Cost Auditor for audit of cost records maintained by the
Paperboards and Specialty Papers business and (ii) Messrs. Shome &
Banerjee, Cost Accountants, Kolkata, for cost records in respect of
Paper products other than the cost records maintained by the
Paperboards and Specialty Papers business for the financial year ended
31st March, 2012. The Cost Audit Report was filed by the Cost Auditor
on 23rd January 2013 within the due date of 28th February 2013.
In respect of the financial year ended 31st March, 2013, your Company,
has appointed (i) Mr. P. Raju Iyer, Cost Accountant, Chennai, as Cost
Auditor for audit of cost records maintained by the Paperboards and
Specialty Papers business (ii) Messrs. Shome & Banerjee, Cost
Accountants, Kolkata, for cost records in respect of Paper
products other than the cost records maintained by the Paperboards and
Specialty Papers business. They were also appointed as the Cost
Auditors in respect of Plastics & Polymers, Apparel, Edible Oil Seeds &
Oil, and Plantation products. (iii) Messrs.
S.Mahadevan & Co., Cost Accountants, Chennai, were appointed as the
Cost Auditors for Packaged Food products. The due date for filing the
Cost Audit Reports is 27th September, 2013.
EMPLOYEE STOCK OPTION SCHEME
Under your Companys Employee Stock Option Schemes, 8,34,08,810
Ordinary Shares of Rs. 1/- each, were issued and allotted during the
year upon exercise of 83,40,881 Options; such shares rank pari passu
with the existing Ordinary Shares of your Company. Consequently, the
Issued and Subscribed Share Capital of your Company as at 31st March,
2013 stands increased to Rs. 790,18,33,110/- divided into 790,18,33,110
Ordinary Shares of Rs. 1/- each.
Details of the Options granted up to 31st March, 2013 and other
disclosures as required under Clause 12 of the Securities and Exchange
Board of India (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999 (the SEBI Guidelines) are set
out in the Annexure to this Report.
Your Companys Auditors, Messrs. Deloitte Haskins & Sells, have
certified that your Companys Employee Stock Option Schemes have been
implemented in accordance with the SEBI Guidelines and the resolutions
passed by the Members in this regard.
DIRECTORS RESPONSIBILITY STATEMENT
As required under Section 217 (2AA) of the Companies Act, 1956, your
Directors confirm having:
a) followed in the preparation of the Annual Accounts, the applicable
accounting standards with proper explanation relating to material
departures if any;
b) selected such accounting policies and applied them consistently and
made judgements and estimates that are reasonable and prudent so as to
give a true and fair view of the state of affairs of your Company at
the end of the financial year and of the profit of your Company for
that period;
c) taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies
Act, 1956 for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities; and
d) prepared the Annual Accounts on a going concern basis.
CONSOLIDATED FINANCIAL STATEMENTS
In accordance with Accounting Standard 21 - Consolidated Financial
Statements, ITC Group Accounts form part of this Report & Accounts.
These Group Accounts also incorporate the Accounting Standard 23 -
Accounting for Investments in Associates in Consolidated Financial
Statements and Accounting Standard 27 - Financial Reporting of
Interests in Joint Ventures as notified under the Companies (Accounting
Standards) Rules, 2006. These Group accounts have been prepared on the
basis of audited financial statements received from Subsidiary,
Associate and Joint Venture Companies, as approved by their respective
Boards.
OTHER INFORMATION
The total number of employees as on 31st March, 2013 stood at 25,959.
The certificate of the Auditors, Messrs. Deloitte Haskins & Sells
confirming compliance of conditions of Corporate Governance as
stipulated under Clause 49 of the Listing Agreement with the Stock
Exchanges in India, is annexed.
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 83 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, 2013. 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.
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 Companys Board and employees are inspired by the Vision of
sustaining ITCs position as one of Indias most admired and
valuable companies, creating enduring value for all stakeholders,
including the shareholders and the Indian society. Your Company has
created multiple drivers of growth by developing a portfolio of
world-class businesses which have synergised to deliver Total
Shareholder Returns at a compound annual growth rate of over 26%
during the 17 year period from 1996 to 2013. 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 Companys adaptive capability and provides the intrinsic ability
to effectively manage business risk. The vision of enlarging your
Companys 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 they are a part.
Inspired by this Vision, driven by Values and powered by internal
Vitality, your Directors and employees look forward to the future with
confidence and stand committed to creating an even brighter future for
all stakeholders.
17th May, 2013 On behalf of the Board
Virginia House
37 J L Nehru Road
Kolkata 700071 Y. C. DEVESHWAR Chairman
India P. V. DHOBALE Director
Mar 31, 2012
The Directors submit their Report for the financial year ended 31st
March, 2012.
The following sections outline your Company's progress in pursuit of
the 'Triple Bottom Line' objectives.
FINANCIAL PERFORMANCE
Your Company posted yet another year of impressive results with strong
topline growth and high quality earnings, reflecting the robustness of
its corporate strategy of creating multiple drivers of growth. This
performance is particularly remarkable when viewed against the backdrop
of the extremely challenging business context in which it was achieved,
namely, a slowdown in the economy, high levels of inflation and the
continuing cascading impact of arbitrary increases in VAT on
cigarettes.
Gross Revenue for the year grew by 14.2% to Rs 34871.86 crores. Net
Revenue at Rs 24798.43 crores grew by 17.2% primarily driven by a 23.6%
growth in the non-cigarette FMCG businesses, 20.0% growth in Agri
business and 16.6% growth in the Cigarettes segment. Profit before tax
increased by 22.4% to Rs 8897.53 crores while Net Profits at Rs 6162.37
crores registered a growth of 23.6%. Earnings Per Share for the year
stands at Rs 7.93 (previous year Rs 6.49). Cash flows from Operations
aggregated Rs 8334 crores compared to Rs 7528 crores in the previous
year.
Continuing with your Company's chosen strategy of creating multiple
drivers of growth, your Company is today, the leading FMCG marketer in
India, the second largest Hotel chain, the clear market leader in the
Indian Paperboard and Packaging industry and the country's foremost
Agri business player. Your Company's wholly owned subsidiary, ITC
Infotech India Limited, is one of India's fast growing Information
Technology companies in the mid-tier segment. Additionally, over the
last sixteen years, your Company's Gross Revenues and Net Profits
recorded an impressive compounded growth of 12.7% and 21.8% per annum
respectively. During this period, Return on Capital Employed improved
substantially from 28.4% to 45.4% while Total Shareholder Returns,
measured in terms of increase in market capitalisation and dividends,
grew at a compounded annual growth rate of 25.7% during this period,
placing your Company amongst the foremost in the country in terms of
efficiency of servicing financial capital. Your Company today is one of
India's most admired and valuable corporations with a market
capitalisation of nearly Rs 180000 crores and has consistently featured,
over the last sixteen years, amongst the top 10 private sector
companies in terms of market capitalisation and profits.
Your Directors are pleased to recommend a Dividend of Rs 4.50 per share
(previous year - Rs 4.45 per share including a Special Dividend Rs 1.65
per share) for the year ended 31st March, 2012. Total cash outflow in
this regard will be Rs 4089.04 crores (previous year Rs 4002.09 crores)
including Dividend Distribution Tax of Rs 570.75 crores (previous year Rs
558.62 crores) representing an increase in the payout over last year
that included Rs 1484 crores as Special Dividend, including Dividend
Distribution Tax, declared to commemorate your Company's 100th AGM.
Your Board further recommends a transfer to General Reserve of Rs 650.00
crores (previous year Rs 498.76 crores). Consequently, your Board
recommends leaving a surplus in Statement of Profit and Loss of Rs
1972.59 crores (previous year Rs 548.67 crores).
FOREIGN EXCHANGE EARNINGS
Your Company continues to view foreign exchange earnings as a priority.
All businesses in the ITC portfolio are mandated to engage with
overseas markets with a view to testing and demonstrating international
competitiveness and seeking profitable opportunities for growth. The
ITC group's contribution to foreign exchange earnings over the last
ten years amounted to nearly US$ 4.9 billion, of which agri exports
constituted 56%. 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 2011/12, your Company and its subsidiaries
earned Rs 3072 crores in foreign exchange. The direct foreign exchange
earned by your Company amounted to Rs 2621 crores, mainly on account of
exports of agri-commodities. Your Company's expenditure in foreign
currency amounted to Rs 1859 crores, comprising purchase of raw
materials, spares and other expenses of Rs 1153 crores and import of
capital goods at Rs 706 crores. Details of foreign exchange earnings and
outgo are provided in Note 28 to the Financial Statements.
PROFITS, DIVIDENDS AND SURPLUS
(Rs in Crores)
PROFITS 2012 2011
a) Profit Before Tax 8897.53 7268.16
b) Tax Expense
- Current Tax 2664.29 2263.71
- Deferred Tax 70.87 16.84
c) Profit for the year 6162.37 4987.61
SURPLUS IN STATEMENT OF PROFIT AND LOSS
a) At the beginning of the year 548.67 61.31
b) Add : Profit for the year 6162.37 4987.61
c) Less:
-Transfer to General Reserve 650.00 498.76
- Proposed Dividend for the financial year
- Ordinary Dividend of Rs 4.50 per
ordinary share of Rs 1/- each
(previous year - Rs 2.80 per share) 3518.29 2166.68
- Special Dividend of Nil per ordinary
share of Rs 1/- each
(previous year - Rs 1.65 per share) - 1276.79
- Income Tax on Proposed Dividends
- Current Year 570.75 558.62
- Earlier year's provision no (0.59) (0.60)
longer required
d) At the end of the year 1972.59 548.67
BUSINESS SEGMENTS
A. FAST MOVING CONSUMER GOODS FMCG
- Cigarettes
The cigarette industry in India continues to be impacted by a
discriminatory taxation and regulatory policy framework. The steep
increase in the tax rates on cigarettes, both at the Central and at the
State level, has led to the undesirable consequence of shifting
consumption to lightly taxed or tax evaded tobacco products like Bidi,
Khaini, Chewing Tobacco and Gutkha which are the most dominant forms of
tobacco consumption in India and constitute as much as 85% of total
usage. The twin objectives of revenue maximisation and tobacco control
have been severely compromised by this lopsided tax policy on
cigarettes which now contributes over 74% of tax revenue, whilst
accounting for less than 15% of tobacco consumption. Further, the tax
arbitrage opportunities have fuelled the rampant growth of illegal
cigarettes.
The steep hike in Excise Duty rates announced in the Union Budget 2012
will further exacerbate the problem of discriminatory and high taxation
on cigarettes within the tobacco industry.
The year under review also witnessed arbitrary and steep hikes in VAT
rates on cigarettes by many States. This is a complete departure from
the principles of uniform VAT rates enunciated by the Empowered
Committee in its White Paper on State level Value Added Tax. Further,
several States continued to levy discriminatory and higher rates of VAT
on cigarettes compared to other tobacco products, thereby widening the
tax gap amongst tobacco products. A plethora of 29 different tax rates
are currently applicable on cigarettes across States in India which has
forced manufacturers to adopt State specific pricing. Not only will
this result in unproductive costs in managing supply chain complexities
but also lead to potential disputes in the assessment of ad-valorem
taxes. The imposition of non-uniform VAT rates by States also goes
against the tenets of the draft National Competition Policy, which
recommends a 'single national market' in line with the principle
that fragmented markets impede competition. In addition, the resultant
attractive tax arbitrage opportunity promotes illegal inter-State
diversion of stocks by unscrupulous elements thus depriving the
Government of revenue and diverting trade away from legitimate
distribution channels.
The findings reported in the Global Adult Tobacco Survey (GATS) India,
2009-10 study, conducted under the aegis of the Ministry of Health &
Family Welfare, shows that whilst the consumer base of tobacco in India
stands at 34.6% of all adults, the cigarette share is only 5.7%. About
75% of Indian tobacco consumers consume non- smoking tobacco products
mainly in the form of oral chewing products which constitutes the
single largest consumer base for tobacco products in India. It may be
noted that India, with 17% of the world population, accounts for 89% of
global tobacco consumption in smokeless form. Cigarette consumption in
India, on the other hand, constitutes only 1.9% of global consumption.
This pattern of tobacco consumption is contrary to global trends,
including that of our neighbouring countries, where cigarettes are the
dominant form of tobacco consumption.
The domestic legal cigarette industry is faced with the growing menace
of illegal cigarettes. Independent research indicates that, in India,
whilst there is a fall in volumes of 'duty paid' cigarettes by 4.4%
during the period 2005 to 2010, the 'duty-not-paid' volumes grew by
49.3% during the same period. India has now been recognised as one of
the leading destinations for illegal cigarettes.
Attractive tax arbitrage opportunities, as a result of high level of
taxes on the legal domestic cigarette industry in India, incentivises
illegal flow of cigarettes into the country, especially of
internationally advertised and known brands.
Another dangerous outcome of the increasing volume of illicit trade is
that it encourages the entry of organised criminal syndicates, which
can have serious law and order consequences for the country.
Internationally, it has been reported that illegal profits from
cigarette smuggling have been used to fund terrorist activities.
Coupled with our porous borders, cigarette imports under Open General
License (OGL) make it extremely difficult to monitor and regulate the
inflow of illegal stocks. Further, with the domestic cigarette
industry being strictly regulated, including compulsory licensing under
the Industrial (Development & Regulation) Act, 1951, a liberal import
policy is contrary to the Government's tobacco control policies. This
is also detrimental to the interests of Indian tobacco farmers, as it
directly impacts the demand for indigenous tobacco by the domestic
industry.
The demographic construct of India's population calls for multiple
price points to meet the needs of the country's diverse consumer
segments. The growth of illegal cigarettes is also aided by the vacuum
created at lower price points, where legal industry has been unable to
operate, due to a disproportionately high tax burden. Further, the
lacunae in the provisions of the Industrial (Development & Regulation)
Act, 1951 encourages 'fly by night' operators to manufacture
illegal cigarettes without obtaining requisite licenses and
clandestinely clear them without payment of taxes.
The industry had recommended that the Excise Duty rate at the entry
level segment be reduced to Rs 200 per thousand cigarettes to enable the
domestic legal industry to effectively counter illegal cigarettes with
competitively priced products. Whilst, the length prescribed for the
filter cigarette segment at the lowest end has been revised from
'length < 60mm' to 'length < 65mm', the Excise Duty on the
segment has been retained at Rs 689 per thousand cigarettes. Coupled
with alarmingly high State VAT and local taxes, the legitimate, duty
paid, industry will still be unable to match the prices of product
offers of the illegal industry, at the current Excise Duty level.
The implementation of Goods and Services Tax (GST) with a unitary
standard rate of tax across the Indian common market will be an
important milestone in the near future. As stated earlier, cigarettes,
by virtue of being very highly taxed, offers a lucrative tax arbitrage
opportunity and is vulnerable to large scale smuggling. Consequently,
it is imperative that GST on cigarettes is levied in an appropriate
manner i.e. at the uniform standard rate applicable to the general
category of goods across the country, with availability of input tax
credit. Central Excise Duty should continue to be levied only at
specific rates. It is critical to note that any increase in the overall
tax rate on cigarettes, will widen the arbitrage opportunity between
legitimate cigarettes and illegal, tax evaded cigarettes. It is,
therefore, critical that the combined incidence of Excise Duty and GST
on cigarettes remains revenue neutral (i.e., kept at current levels).
Your Company, along with other stakeholders and industry bodies
continues to represent to the regulatory authorities seeking a
non-discriminatory tax and regulatory policy on tobacco products in the
interest of the Government exchequer, domestic farmer community and
industry.
Despite a difficult operating environment in the market place, it is
gratifying to report that your Company further improved its market
standing during the year. Your Company's uncompromising commitment to
continuous and consistent offerings of value-added, world class
products has been reinforced through innovations in product development
and launch of differentiated offers. The portfolio continues to be
strengthened through strategic investments in product quality and
technology.
A premium line of hand-rolled cigars launched by your Company in 2010
under the brand name 'Armenteros' has gained significant consumer
franchise, competing against world renowned Cuban and other cigar
brands. The Armenteros range of cigars is now available in premium
outlets across key cigar markets and is expected to further consolidate
and grow its franchise.
During the year, a state-of-the-art, flexible, Primary Plant designed
to cater to future product development requirements was successfully
commissioned at Ranjangaon, Pune. The uncompromising focus on quality,
investments in best-in-class technology and embedding of best practices
has ensured the continued delivery of products of international
quality. Structured problem solving methodologies like Six Sigma and
several initiatives that foster innovation have been deployed to ensure
sustained improvements in quality and productivity of all resources.
In line with your Company's commitment to building sustainable
environmental capital, the business continues to invest in renewable
sources of energy. A 6.3 megawatts (MW) wind energy facility has been
commissioned in Maharashtra during the year. Solar panels have been
installed for boiler feed water and furnace oil preheating systems at
Bengaluru and Munger factories respectively. All units also maintained
the highest standards of Environment Health and Safety (EHS) and won
recognition by way of numerous awards. Saharanpur and Bengaluru
factories were the first in India to obtain Platinum Green Factory
Building Rating from the Indian Green Building Council as part of a
holistic approach towards sustainability. Munger, Bengaluru, Saharanpur
and Kidderpore factories have won the RoSPA Gold Award for Occupational
Health and Safety. Munger factory was awarded the 'Shreshtha Suraksha
Puraskar' from National Safety Council of India under Safety Award
scheme 2010 (Manufacturing sector), and Certificate of Appreciation at
the CII Eastern Region Energy Conservation Awards. The Bengaluru
factory won the Energy Efficient Unit award under CII National Energy
Award 2011, Energy Conservation Initiative Award by Centre for
Sustainable Development, Innovative Rainwater Harvesting Project in the
National Awards for Excellence in Water Management by CII, 'Unnatha
Suraksha Puraskara' by National Safety Council- Karnataka Chapter,
Karnataka Renewable Energy Development Limited (KREDL) award for
achievements in Energy Conservation and Certificate of Appreciation
under CII Southern Region Excellence Award in Environment, Health &
Safety. The Kidderpore factory won the Water Efficient Unit Award under
CII National Award for Excellence in Water Management 2011 and
Certificate of Appreciation under CII Eastern Region Safety, Health and
Environment (SHE) Award.
Your Company's Cigarettes business faces the daunting challenges of
an unprecedented high incidence of taxation, complex tax structure,
rising illegal trade and a discriminatory regulatory climate. Despite
these challenges, the relentless pursuit of excellence in building
robust, world class brands, innovation in processes and investment in
world class technologies will enable your Company to further
consolidate its market standing. Your Company believes that both the
objectives of maximisation of the economic potential of tobacco and the
tobacco control can be achieved through rationalisation 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.
The need is for a balanced agenda on tobacco, both fiscal and
regulatory.
FMCG - Others
The Indian FMCG industry is estimated to be over Rs 160000 crores in
size and accounts for nearly 2.2% of the GDP of the country. The
industry has tripled in size over the last 10 years and has grown at
approximately 17% CAGR in the last 5 years, driven by robust economic
growth, rising income levels, increasing urbanisation and favourable
demographic trends. These growth drivers are expected to continue to
favourably impact the industry which is estimated to reach Rs 400000
crores by 2020 (Source: CII, FMCG Roadmap to 2020). According to a
recent study by the consultancy firm Boston Consultancy Group, the
Indian consumer market is poised to grow at a compounded annual growth
rate of 15% between 2010 and 2020, faster than most other emerging
markets.
Given these positive fundamentals, your Company has been rapidly
scaling up its new FMCG businesses comprising Branded Packaged Foods,
Personal Care Products, Education and Stationery Products, Lifestyle
Retailing, Incense Sticks (Agarbattis) and Safety Matches with Segment
Revenues growing at an impressive compound annual growth rate of nearly
40% since 2005-06.
Within a relatively short span of time, your Company has established
several strong consumer brands in the Indian FMCG market. Segment
Results reflect the gestation costs of these businesses largely
comprising costs associated with brand building, product development,
R&D and infrastructure creation. The year under review saw a 24% growth
in Segment Revenues and a significant improvement in Segment Results
which recorded a positive swing of Rs 102 crores at the PBIT level.
Your Company's unwavering focus on quality, innovation and
differentiation backed by deep consumer insights, world class R&D and
an efficient and responsive supply chain will further strengthen its
leadership position in the Indian FMCG industry.
Highlights of progress in each category are set out below.
Branded Packaged Foods
Your Company's Branded Packaged Foods business grew significantly
during the year, recording growth in market shares and enhanced market
standing across segments. A robust range of well-differentiated
products, supported by significant investments in product development,
innovation, manufacturing technology and unmatched distribution
infrastructure continue to enhance the market standing and consumer
franchise of your Company's brands. Continuing investments in R&D and
product development have enabled your Company launch successful and
innovative products. The quality of your Company's products continues
to be 'best-in- class' in the industry across all segments. Value
capture was improved through cost optimisation across the supply chain
and optimal capital deployment.
During the year, the business witnessed inflationary pressures on input
costs. Supply side constraints coupled with growing demand caused
prices of edible oil, packaging material and industrial fuel to remain
at inflated levels. These cost pressures were mitigated through a
combination of improvements in product and process efficiencies, smart
sourcing and supply chain initiatives.
Your Company ventured into the Instant Noodles category towards the end
of 2010. The product has been well received by consumers and is already
the second largest Instant Noodle brand in the country. Focused market
research, deep consumer insights and innovative product formats under
the 'Sunfeast Yippee!' brand is expected to further strengthen
consumer traction in a fast growing and highly competitive industry
segment.
In the Staples category, 'Aashirvaad' atta consolidated its
leadership position aided by the strong performance of Aashirvaad
'Multi-grain' atta. Premium offerings of Aashirvaad
'Multi-grain' and 'Select' brands continued to grow rapidly
aided by an increasing proportion of consumers shifting to these
value-added propositions.
The Biscuits industry witnessed impressive growth during the year and
your Company's 'Sunfeast' brand continued to do well across
product platforms. Portfolio enrichment was driven through the launch
of Sunfeast Dark Fantasy Choco Fills and Sunfeast 'Dual' Dream
Cream. These two innovative, 'first to market' flavours created
excitement amongst consumers and significantly enhanced the consumer
franchise of the 'Sunfeast' brand.
In the Confectionery category, 'Candyman' and 'mint-o'
continued to register strong growth during the year. The category
witnessed two launches with mint-o GOL Green and mint-o Strong. The
continued success of Toffichoo, Lacto and Choco-Double eclairs provided
further impetus to the overall growth of the Confectionery business.
In the Savoury Snacks segment, the market standing of your Company's
'Bingo!' brand has significantly improved through enhanced brand
building efforts. Use of digital media, word of mouth and clutter
breaking advertisements improved brand salience. The product portfolio
was further strengthened during the year with the launch of a new
product format - 'Tangles' and a new innovative variant - 'Mad
Angles Masti Chaat'.
The business continues to invest in manufacturing and distribution
infrastructure to support larger scale and improve reach and
availability. Supply Chain improvements to enhance product freshness,
optimal servicing of proximal markets and margin expansion continue to
receive significant attention.
Buoyed by increasing consumer franchise for your Company's brands, it
is expected that the accelerated growth of the Branded Packaged Foods
business will be sustained in the years ahead. The growth momentum of
the Foods business will continue to be driven by focus on product
quality, innovative product development, multi-point contact with
consumers and high quality of service to all segments of trade.
Personal Care Products
Your Company's Personal Care Products business continued to make
significant strides in strengthening its portfolio through a slew of
new launches and extensions in the Soaps, Shampoos and Skin Care
categories. The business continues to roll out its product offerings
under the 'Essenza Di Wills', 'Fiama Di Wills', 'Vivel' and
'Superia' brands across new geographies and is focused on
addressing various consumer benefits with the introduction of new
variants.
The year saw the successful introduction of a new range of soaps under
the 'Vivel' franchise with the launch of 'Vivel Luxury Creme'
variant and a new offering 'Vivel Clear 3-in-1' in the transparent
soap segment. Your Company continues to receive accolades for its
product innovation initiatives. In continuation of previous years'
trends, this year, the 'Vivel Clear 3-in-1' transparent soap was
voted 'Product of the Year' in the soaps category.
The business entered the Talcum Powder category during the year with
the launch of 3 variants under the Fiama Di Wills brand. During the
year, the business also made a foray into the fast growing Face Wash
category with offerings under the Fiama Di Wills and Vivel brands. The
fairness cream portfolio was augmented with the introduction of a new
variant under the Superia brand. The new product launches as
aforementioned have received encouraging consumer response and are
being rolled out across target markets.
The business continued to grow at a healthy rate despite the high
degree of competitive intensity especially from entrenched players. The
strategy of developing products on the basis of deep consumer insights
and superior quality has helped your Company gain market standing in a
short span of time.
The year under review witnessed sharp escalation and volatility in the
prices of key inputs. Your Company used a mix of smart sourcing
strategies, value engineering and cost control measures to mitigate the
impact thereof and enhance margins.
During the year, the factory at Manpura received certifications for ISO
9001 (Quality Management System), ISO 14001 (Environment Management
System) and OHSAS 18001 (Occupational Health & Safety Assessment
System) from Messrs. Det Norske Veritas (DNV). With this, the main
production units of the business are certified for their quality
management systems. A business-wide programme using 'Lean' and
'Six Sigma' methodologies, which was launched last year, was
further broad-based during the current year in pursuit of process
excellence.
Sustained investment in R&D over the years has resulted in a healthy
pipeline of new and innovative products. Product innovation and
quality continue to be focus areas that are expected to provide the
requisite competitive advantage and impetus for growth in the near
future. These interventions, together with investments in world class
manufacturing processes and technology will enable the business to
further strengthen its portfolio of value-added products.
The Personal Care industry in India continues to be on a long term
growth path, with rising disposable incomes and changing consumer
preference for enhanced personal grooming. The business is well poised
to actively participate in the emerging growth opportunities in this
sector and continues to leverage its strengths in the rapidly
transforming landscape of beauty and personal care products in India.
Education & Stationery Products
Your Company is the leading and fastest growing player in the Indian
stationery market. The flagship brand 'Classmate' is India's
leading student notebook brand with a distribution footprint of over
75,000 stationery retail outlets across the country. Besides notebooks,
the 'Classmate' brand offers a wide range of products that includes
ball and gel pens, wood cased and mechanical pencils, mathematical
instruments, erasers, sharpeners and scales. 'Classmate' also
endorses 'Colour Crew', an art stationery brand, with a range of
wax crayons, colour pencils and sketch pens for children.
The Classmate range of products is sourced from small scale
manufacturers, who have over the years continuously improved their
delivery and quality capabilities. A majority of them, with your
Company's assistance, are ISO 9001:2008 certified. Paper and recycled
board are sourced from your Company's mills at Bhadrachalam and Kovai
respectively. The paper used in Classmate notebooks leverages your
Company's world class fibre line at Bhadrachalam which is India's
first ozone treated elemental chlorine free facility. Every Classmate
notebook also carries a powerful social message that reflects your
Company's commitment to improving the quality of primary education in
rural India.
During the year, the business took significant steps to strengthen
'Paperkraft', its executive and office supplies stationery brand.
Working in tandem with the Paperboards & Specialty Paper business, your
Company has positioned 'Paperkraft' as the finest green paper for
business applications viz. copy-scan-print-fax. Paperkraft's green
credentials are supported, among other factors, by your Company's
membership of the prestigious Global Forest & Trade Network.
The education and stationery products industry continues to grow on the
back of massive government and private investments in the education
sector. The government's flagship Sarva Shiksha Abhiyan programme
coupled with the mid-day meals initiative is successfully enhancing
enrolment and reducing dropouts at the primary school level. Likewise,
it is expected that enrolment ratios at the secondary and tertiary
levels will also improve. Progressive reforms will enable flow of
private sector investments into capacity building and quality
enhancement in education delivery. Further, the Right of Children to
Free and Compulsory Education Act, 2009, will further accelerate growth
in the education and stationery supplies sectors. Your Company's
strong brands - 'Classmate' and 'Paperkraft' - with increasing
consumer franchise, widening high quality product range and excellent
distribution infrastructure is advantageously positioned to respond to
this opportunity.
Lifestyle Retailing
During the year, your Company's Lifestyle Retailing business posted
strong growth in revenues and continued to strengthen its position in
the branded apparel market. After a buoyant first half, industry
growth moderated in the second half due to the slowing down of the
domestic economy and price increases effected by most industry players
consequent to the introduction of Excise Duty on branded apparel in the
Union Budget 2011 and rising input costs. The business's focus on
strategic cost management actions and improvements in operational
efficiencies helped to partly offset the adverse impact of tax and cost
increases.
In the Premium segment, Wills Lifestyle with its superior product
variety and richer product mix continued to enjoy strong consumer
franchise. The retail footprint of the brand was expanded to 86
exclusive stores across 40 cities and more than 300 'shop-in-shops'
in leading departmental stores and multi-brand outlets. Significant
improvements were achieved during the year in terms of product range,
enhanced availability and impactful visibility resulting in volume
growth across channels.
Product appeal was enhanced through the introduction of differentiated
offerings across several premium product platforms - 'Wonderpress'
wrinkle free fabrics, 'Ecostyle' organic collection and 'Creme de
Cotton' supersoft cottons. The 'Luxuria' range of Men's
super-premium formals, finely crafted from luxurious Egyptian cotton
with high-end trims and superior garmenting continued to receive
positive consumer response. The Women's range was energised by
offering an extensive, high-end designer wear range, stylised formals,
a variety of trendy silhouettes and a premium range of accessories.
In the Popular segment, 'John Players' has established a strong
pan-India presence with over 340 flagship stores and 1,100 multi brand
outlets and departmental stores. During the year, the retail footprint
was expanded significantly, with nearly 100 new stores being launched,
increasing brand reach, penetrating more markets and acquiring new
franchise. The denims category registered strong growth as a result of
an enhanced range, premium differentiated washes and contemporary fits
while continuing to receive positive consumer and trade response.
Wills Lifestyle continued to receive recognition from the industry,
including the 'Superbrand' certification, and is the first Indian
brand to receive the prestigious 'Oeko-Tex Standard 100
Certification'.
Business processes for creation of winning designs and efficient supply
chain were strengthened during the year.
Improving retail and manufacturing productivity were pursued vigorously
with continued focus on strengthening capability through training,
knowledge and skill inputs.
The business will continue to increase the premium quotient of its
offerings on the basis of deeper understanding of consumer preferences,
and delivering products benchmarked to world class quality standards.
Further investments are planned to enhance range vitality, supply chain
responsiveness and superior customer service to delight the customer
with an international shopping experience.
Incense sticks (Agarbattis)
Your Company's Agarbatti business recorded an impressive growth in
revenues and enhanced market standing during the year, driven by
increasing consumer franchise for the 'Mangaldeep' brand combined
with deeper distribution reach and innovative consumer offerings.
Mangaldeep is the second largest national brand in the industry.
During the year, the business launched several new variants under the
umbrella brand 'Mangaldeep'. These variants have received wide
consumer acceptance and are being rolled out across India.
The business continues to contribute to your Company's commitment to
the 'Triple Bottom Line' by providing livelihood opportunities to
more than 12,000 people through small and medium scale entrepreneurs
and NGOs / Self Help Groups across India. Business initiatives of
introducing enabling tools and technology in the rural communities
continue to enhance product quality and increase the earning potential
of agarbatti rollers. These initiatives, along with the continuing
association with various State Governments for setting up sourcing
centres, are creating sustainable livelihood opportunities for rural
women through agarbatti rolling.
Safety Matches
Your Company's Safety Matches business maintained its market
leadership aided by continued consumer preference for its strong brand
portfolio across all market segments.
With sustained escalation in the prices of raw materials like wood,
paperboard and key chemicals, industry margins remained under severe
pressure during the year. Your Company mitigated the adverse impact of
these input costs through a series of strategic cost management
actions. Your Company continues to focus on enhancing market standing
through the launch of high quality and value-added products.
Your Company continues to partner the small scale sector by sourcing a
significant portion of its requirement from multiple units in this
sector. Your Company is helping to improve the competitive ability of
these units by providing technical inputs to strengthen their systems
and processes.
Technology induction in manufacturing is crucial for the long term
sustainability of this industry. A uniform taxation framework which
provides a level playing field to all manufacturers is necessary to
enable the required investments for modernising this industry. This
would not only help the industry in improving its competitiveness but
also provide a safer working environment for the large number of people
employed in this industry.
B. HOTELS
The hospitality industry in India continued to be impacted by the
slowdown in the domestic economy and adverse economic environment in
the international feeder markets of the US and Europe. While the US
market appears to be on the path of slow recovery, the European market
is yet to come out of its debt problems and recession. As a result,
both international and domestic business segments for the luxury hotels
remained muted.
In the backdrop of these challenging circumstances, your Company's
Hotels business registered a marginal growth in revenues and profits,
while maintaining its leadership position in terms of operating
margins.
Your Company's Hotels business continues to be rated amongst the
fastest growing hospitality chains with 94 properties at 67 locations
in India operating under 4 brands - 'ITC Hotel' at the luxury end,
'WelcomHotel' in the 5 star segment, 'Fortune' in the mid
market to upscale segment and 'WelcomHeritage' in the heritage
leisure segment. In addition, the business has licensing and
franchising agreements for two brands - 'The Luxury Collection' and
'Sheraton' with the Starwood Hotels & Resorts.
Recognising the changing preferences of the business traveller, your
Company launched a new brand under the 'Fortune' brand this year
viz. 'My Fortune' which is designed to cater to the upscale
business traveller. The first 'My Fortune' hotel was launched in
Chennai during the year and further expansion is on the anvil.
During the year, your Company's premier hotel at Jaipur has been
upgraded to an 'ITC Hotel' with 'The Luxury Collection'
co-branding. The hotel is now known as 'ITC Rajputana' in line with
other luxury properties of the chain.
Food and Beverage (F&B) remains a major strength of your Company and
its iconic brands 'Bukhara', 'Dum Pukht' and 'Dakshin'
continue to garner coveted international awards and accolades. The
renovated Dum Pukht Restaurants at ITC Maurya and ITC Maratha have been
highly appreciated by its patrons and generated healthy business during
the year. Other signature F&B brands viz. 'West View', 'Kebabs &
Kurries' and 'Pan Asian' have firmly established themselves and
continue to sustain leadership position in their respective cities. The
business's first Japanese cuisine brand 'Edo' has established
itself as the benchmark for traditional Japanese cuisine in Bengaluru
and is fast gaining recognition.
In pursuit of your Company's 'Triple Bottom Line' commitment,
investments have been made in renewable energy to provide clean power
to your Company's hotels in Bengaluru (ITC Windsor and ITC Gardenia),
Mumbai (ITC Maratha) and Jaipur (ITC Rajputana). During the year,
further investments in wind energy were made in Tamil Nadu to cater to
the needs of the newly built ITC Grand Chola at Chennai. With these
investments, your Company's Hotels business will meet nearly
two-thirds of its energy requirements from clean and renewable sources.
Your Company remains committed to its 'Responsible Luxury' ethos
and is the greenest luxury hotel chain in the world. With ITC Rajputana
having obtained the 'Leadership in Energy and Environment Design'
(LEED) Platinum rating during the year, all premium ITC Hotels now have
this coveted rating.
During the year, your Company launched a unique pan-ITC consumer
loyalty programme - 'Club ITC' - targeted at the premium clientele
of 'Wills Lifestyle' and 'ITC Hotels'.
In view of the positive long term outlook for the Indian Hotel
industry, your Company continues to sustain its investment-led growth
strategy. Construction of the new super luxury property, ITC Grand
Chola, at Chennai is now complete and slated to open in early 2012-13.
The hotel is part of the 'ITC Hotel' brand and has 522 plush hotel
rooms and suites, 78 service apartments, 60,000 sq. ft. of conference
and banqueting facilities, 10 Food and Beverage outlets and the
award-winning spa brand 'Kaya Kalp'. Construction activity of two
new luxury properties at Kolkata and at Classic Golf Resort near
Gurgaon is progressing satisfactorily. In addition, several new
projects, including joint ventures and management contracts, are on the
anvil to rapidly scale up the business across all brands.
The 'Fortune' brand which caters to the mid market to upscale
segment continued its expansion by forging new alliances, taking the
total number of hotels in its fold to 67 with an aggregate room
inventory of over 5,000. Of these, 27 properties are under various
stages of development. The 'WelcomHeritage' brand continues to be
the country's most successful and largest chain of heritage hotels
with 40 operating properties, spread across 13 States in India.
Your Company's Hotels business, with its globally benchmarked levels
of product and service excellence and customer centricity, represented
by its four brands is well positioned to sustain its leadership status
in the industry and poised to emerge as the largest hotel chain in the
country over the next few years.
C. PAPERBOARDS, PAPER AND PACKAGING
The Paperboards, Paper and Packaging segment recorded yet another year
of steady growth in revenues and profits. Segment Revenues grew by 13%
over the previous year to touch Rs 4130 crores. Segment Results at Rs 937
crores reflect a growth of 14%.
Paperboards & Specialty Papers
The global demand for paper & paperboard slowed down to 1% in 2011 as
against a 6% growth in 2010. Even in India, demand decelerated to
around 6.5% during 2011-12 against 7.1% in the previous year.
The global paper market continued to witness a structural shift with
emerging economies, particularly in Asia such as China and India,
driving the demand growth.
Though India has 17% of the world's population, it consumes only
about 2% of global paper production. Per capita consumption in India
is very low at only 9 kgs compared to a global average of 55 kgs, 65
kgs in China and 215 kgs in Japan.
Shift in demand to Asia and the low levels of per capita consumption in
India offers Indian paper manufacturers exciting opportunities in the
years to come. Though there is considerable scope for growth in the
Indian paper market, competition, including from key global players,
has also increased and the industry is witnessing large capital
investments. Though growth in demand is expected to absorb the
increased capacity, increasing and maintaining market share as well as
protecting margins will be challenging.
Further, reduction of import duties under various Regional Free Trade
Agreements especially with ASEAN has started impacting the
profitability of the domestic paper industry. In line with the
representations made by the Indian Paper Manufacturers Association, it
is imperative that the current duty structures are kept unchanged.
The domestic paper and paperboard industry is currently estimated at
11.6 million tonnes per annum, out of which paperboards is 2.2 million
tonnes per annum which is expected to grow at around 8% per annum aided
by value-added paperboard at 12% per annum. The growth potential of the
paperboard industry is anchored on expectations of higher GDP growth,
increase in demand from rural markets, branded packaged products and
organised retail. Further, the need for differentiated packaging
coupled with change in lifestyles will continue to drive demand for
paperboard. Your Company is the market leader in the paperboard segment
with focus on the value-added products. To further consolidate its
pre-eminent position in the industry, the business has invested in a
state-of-the-art machine which is expected to be operational by early
2013.
The 'Writing and Printing' paper segment, estimated at 3.1 million
tonnes, grew by 6.2% in the year under review. This segment produces
papers for use in copiers, desktop printers, advertising and
promotional materials, notebooks, books and annual reports. The growth
in the value-added writing and printing paper segment will continue to
be fuelled by initiatives like Sarva Shiksha Abhiyan and Right of
Children to Free and Compulsory Education Act, 2009 as well as by
increasing literacy levels, changing demographic profiles and GDP
growth. This segment is expected to grow at around 8% per annum during
the next 5 years, with higher growth expected in the Copier and Fine
Paper categories at 16% per annum. The business with its strong forward
linkages with your Company's Education and Stationery Products
business has emerged as a leading player in the segment.
Specialty papers, with an estimated market size of 4.7 lakh tonnes, is
expected to grow at 9.4% per annum over the next 5 years, with
increased spends on infrastructure and construction driving demand for
quality decor and insulating grades. Your Company is a market leader in
decor grades and is the largest manufacturer of cigarette tissue in
India.
Given that pulpwood availability is a major challenge for the paper
industry, your Company continues with its policy of promoting social
forestry plantations for pulpwood. During the year, over 57 million
high quality saplings were sold/distributed to farmers. Research on
clonal development has resulted in the introduction of high yielding
and disease resistant clones which are adaptable to a wide variety of
agro-climatic conditions.
This initiative, besides securing the long term supply of fibre at
competitive costs, also assists in generating farm incomes through
utilisation of marginal wastelands. Enhanced R&D activity has resulted
in the development of high yielding eucalyptus and subabul clones and
your Company's continued focus on clonal plantations in core areas is
expected to yield significant competitive advantage in the years to
come. Your Company's R&D team is actively collaborating with several
expert agencies to further leverage bio-technology for enhancing farm
productivity and wood yields.
In the last 15 years, your Company's bio-technology based research
initiatives have resulted in the planting of about 545 million saplings
covering nearly 1,25,000 hectares of plantations, including around
11,000 hectares planted during the year. These pioneering initiatives
have generated over 56 million person days of employment opportunities
over this period for small farmers and poor tribals. Your Company plans
to accelerate the plantation activity and is in the process of setting
up a new state-of-the-art clonal saplings production capacity in
Bhadrachalam to facilitate the same.
Your Company continues to promote agro-forestry in pulpwood plantations
on waste land as well as on land where mono-cropping is practised. This
will generate additional income to farmers, provide wood security for
the industry and also help in conservation of the environment. In
Andhra Pradesh, mono-cropping is currently practised in cultivation of
cotton, tobacco, maize and pulses in more than 30 lakh hectares. During
the year under review, your Company facilitated the introduction of
agro-forestry models which incorporate inter-cropping practices where
eucalyptus trees are grown adjacent to agricultural crops. By
integrating tree growing with crop production, the problems of poor
agricultural production, worsening wood shortages and environmental
degradation can be simultaneously addressed. Furthermore,
inter-cropping technologies/practices also help to take pressure off
the remaining natural forests and increases the diversity of vegetation
on existing farms. During the year under review, a small beginning was
made by your Company by promoting agro-forestry plantations in 600
hectares and this is proposed to be substantially increased in the
years to come.
Your Company continues to represent to policy makers on the need to
introduce appropriate amendments to the Forest (Conservation) Act, 1980
and related Rules, to permit industry to use degraded forest land for
afforestation linked to the end-use of such wood.
An enabling policy framework that encourages public- private
partnerships for the development of degraded forestlands would serve
the multiple objectives of enhancing the competitiveness of the Indian
paper and paperboard industry, reducing import dependence, creating
sustainable livelihoods in rural India and contributing to the national
objective of enhancing the country's green cover.
In India only 15% of the paper consumed is recovered for recycling as
against about 70% in the western countries. Your Company's
collaborative initiative called 'Wealth out of Waste' (WOW)
continues to promote and facilitate waste paper recycling, with a view
to conserving scarce natural resources. The waste paper industry is
largely unorganised and a lot of effort has gone into establishing
processes and systems in the operational areas of collection, sorting
and grading of waste paper as well as on accounting, compliances and
controls. It is expected that this effort would assist in the
availability of quality fibre on a sustained and long term basis at
competitive prices.
During the year about 26,000 tonnes of waste paper was collected and
with continued focus on building capability it is expected that the
entire waste paper requirements of the business would be sourced
through this initiative over time. The first anniversary of National
Recycling Day was celebrated in Hyderabad on 1st July 2011 with large
participation from school children and general public. Your Company
also launched the 'Save 100000 Trees' initiative during the year.
During the year, your Company achieved the distinction of being the
first paper company in India to obtain the Forest Stewardship Council -
Forest Management (FSC-FM) certification covering 8,000 hectares of
social forestry plantations involving about 9,000 farmers.
FSC-FM certifies that the plantation activities of an organisation are
economically, socially and environmentally viable. To the extent of
pulp produced from such certified plantations, your Company will be
able to commit to its customers, FSC certified papers & paperboards.
Environmentally conscious customers are already beginning to show
keenness to source such 'green' products which in turn will further
increase the competitiveness of the business.
During the year, the Tribeni and Bollaram units also obtained the FSC
Chain of Custody Certification ensuring that all four paper
manufacturing units of your Company now have this certification.
Your Company has made significant investments in contemporary
technologies including environment-friendly Elemental Chlorine-Free
(ECF) and Ozone bleaching for pulp thereby improving the environmental
standards of its manufacturing operations. Such investments are
expected to provide customers with sophisticated products, way ahead of
legislation, thereby creating new benchmarks in environmental
stewardship. The Industry would welcome policies that lay down
environmental benchmarks in tune with other industries such as
automotives etc. and suitably reward those who achieve or exceed such
parameters.
Your Company continues to focus on recycling initiatives including
solid waste recycling. While all manufacturing units have already
achieved near 100% solid waste recycling by its usage for making
products like lime, fly ash bricks, grey boards, egg trays etc., the
procurement and recycling of about 1,10,000 tonnes of waste paper
during the year has further consolidated the business's overall
positive solid waste recycling footprint.
Your Company continues to work on various Clean Development Mechanism
(CDM) projects. Your Company's unique social forestry project is the
first of its kind in India to be registered with the United Nations
Framework Convention on Climate Change (UNFCCC) as a CDM project. About
3,100 hectares of social forestry plantations involving around 3,400
farmers have already been covered and the net benefits from this
project will be passed on to the partnering farming communities.
During the year, the following awards of the British Safety Council
were received by respective units - The 'Sword of Honour' by
Tribeni and Bollaram units, the 'Globe of Honour for Environment'
by Bhadrachalam and Kovai units, 5 Star rating for Safety & Health by
Kovai, Tribeni and Bollaram units and 5 Star rating for Environment by
Bhadrachalam and Kovai units. In addition, Bhadrachalam unit won the
CII - National Award for Excellence in Energy Management and Kovai unit
won the CII - National award for Excellence in Water Management. The
business also won the CII - Environmental Best Practices Award 2012 for
its 'WOW' initiatives.
The above have been made possible as a result of continuous focus on
various safety initiatives including induction of safety stewards,
strengthening systems, spreading awareness and integrating environment,
health and safety (EHS) as part of the overall Total Productive
Maintenance (TPM) initiative. In addition, all units have taken
proactive steps to comply with the revised norms expected to be
announced by the Central Pollution Control Board for water consumption
and effluent discharge. With regard to energy consumption, strategies
to contain usage across units continue to be pursued. Further, the
business is also investing in a new high pressure fuel efficient boiler
in its Tribeni unit, which will enable use of inferior grades of coal
and also significantly reduce coal consumption. Your Company is also
committed to increasing the share of energy consumed from
non-conventional and renewable sources and towards this has
commissioned 5 windmills close to Coimbatore to generate 7.5 MW of
electricity for use at the Kovai unit. It is expected that energy
efficiency coupled with greater use of renewable sources of energy will
enable your Company to derive benefits from sale of Renewable Energy
Certificates (RECs) under the Electricity Act 2003 as well as obtain
benefits from newer initiatives like Perform, Achieve and Trade (PAT)
under the Energy Conservation Act 2001.
The TPM initiative has now been extended to all units and apart from
yielding significant financial benefits will also help institutionalise
best-in-class systems, processes and work methods. The success of this
initiative is attributable to the whole hearted support and
participation of all employees across the business.
The year under review witnessed steep hikes in the cost of chemicals
and coal as well as curtailment in supplies of coal by the government
through the reduction of allocations, forcing the industry to buy high
cost coal in the open market. These factors, together with the sharp
depreciation of the Indian Rupee, adversely impacted the industry.
However, your Company with its integrated operations and strategic cost
management actions was able to minimise the adverse impact of these
cost escalations.
The integrated nature of the business model - access to high-quality
fibre from the economic vicinity of the Bhadrachalam mill, in-house
pulp mill and state-of-the- art manufacturing facilities, focus on
value-added paperboards and a robust forward linkage with the Education
and Stationery Products business strategically positions your Company
to further consolidate and enhance its leadership status in the Indian
paperboard and paper industry.
Packaging and Printing
Your Company's Packaging and Printing business continues to provide
contemporary and superior packaging solutions facilitated by its
state-of-the-art technology and processes. The business continues to
provide strategic support to your Company's FMCG businesses by
providing innovative packaging solutions and security of supplies in
addition to delivering benchmarked international quality at competitive
costs.
The business continued to leverage its multiple packaging platforms to
expand business in the domestic and export markets, and grew volumes
both from existing customers as well as from enlargement of its
customer base. Your Company continues to be a leading supplier of
value- added packaging to the Consumer Electronics and FMCG sectors.
During the year, the business continued to invest in contemporary
technologies in flexibles and paperboard packaging at the Haridwar and
Chennai facilities. These in-house capabilities have enabled quicker
turnaround of designs, pack changes and reduced product launch
timelines for your Company's FMCG businesses, thereby providing a
source of competitive advantage in the market place.
Your Company undertook expansion projects at Haridwar and Chennai,
during the year, to address growing opportunities in external trade and
to enable manufacture of a full range of packaging solutions from both
locations. The expansion programme includes the addition of a carton
line for meeting the growing needs of customers based in the northern
region and balancing investment in flexibles packaging for enhancing
competitiveness.
The business won several awards during the year for operational
excellence, innovation and creativity. These include two 'World Star
Awards' from the World Packaging Organisation, three 'Asia Star
Awards' from the Asian Packaging Federation and thirteen awards
instituted by Indian Flexible Packaging and Carton Manufacturers
Association (IFCA) for excellence in packaging solutions.
The 14.1 MW wind energy farm in Tamil Nadu, set up in 2008, continues
to operate at optimum levels providing clean energy to the Chennai
unit. This initiative, flowing from your Company's commitment to the
'Triple Bottom Line', is a certified project under the Clean
Development Mechanism of the Kyoto Protocol. Further, this initiative
is generating carbon credits and contributing to a reduction in your
Company's carbon footprint.
The factories at Chennai, Haridwar and Munger continued to maintain the
highest standards in Environment, Health and Safety (EHS). Also, the
Munger unit won the British Safety Council's International Safety
Award during the year.
Continuing investments in world class technology, best- in-class
quality management systems and processes, dispersed manufacturing
footprint and a diversified packaging solutions portfolio, the business
is well poised to service all the requirements of your Company's FMCG
businesses and to rapidly grow its external trade.
D. AGRI BUSINESS
Cigarette Leaf Tobacco
While the end of 2010 marked a significant shift in the global
supply-demand scenario triggered by declining sales of major global
cigarette manufacturers and excess leaf production in major origins,
2011 witnessed a further continuation of this declining trend of global
cigarette production, impacted by the downturn in the global economy.
The downward correction in leaf tobacco demand led to world supplies
moving to a surplus situation and a rapid build up of uncommitted
stocks. Consequently, farm and export prices of Indian flue- cured
crop witnessed significant declines. In line with subdued trends across
the globe, Indian unmanufactured leaf exports degrew by about 20% in
volume terms since 2009.
The position for Indian flue-cured virginia tobaccos gets further
vitiated by the decrease in domestic demand due to high differential
taxes on the end use products, namely, cigarettes vis-a-vis other types
of tobacco. This gets further aggravated by the large scale import of
cigarettes, both legal and contraband, into India which do not use
domestic flue-cured virginia tobaccos.
In the short term, supply side corrections are anticipated in key
origins after a period of consecutive increases in global flue-cured
leaf production driven by muted demand and manufacturers seeking to
lower their inventory durations. In the medium term, demand is expected
to pick up gradually with the anticipated revival of the global economy
coupled with growing consumption in Asia, Middle East, parts of Europe
and Africa. It is also estimated that the consumption of other forms of
tobacco like Roll-Your-Own (RYO), Snus and Hubble Bubble will grow at a
faster rate, albeit on a smaller base.
Despite these adverse conditions, your Company was able to sustain the
demand for Indian tobaccos through focused strategies leveraging its
sources of competitive advantage in crop development, product
integrity, strategic sourcing and superior processing capability.
Significant volumes of flue-cured tobaccos were garnered through
superior understanding of customer requirements and delivering
committed quality and value to the customer. Your Company continues to
focus on superior quality and varietal offerings to customers in the
burley segment through collaborative and customised programmes. The
business also engaged with potential customers across the globe and
actively explored market opportunities in the growing smokeless tobacco
segment through customised offerings.
The business continued to provide strategic sourcing support to your
Company's Cigarettes business.
Achieving enhanced productivity continues to be a focus area of
research and crop development initiatives of the business. Substantial
progress has been made in strengthening the pipeline of new hybrid
combinations for deployment in growth zones. Significant milestones
were achieved in the development of a new curing regime for tobacco and
further experimental trials are underway to create a unique product
portfolio.
Your Company's pioneering R&D efforts on varietal improvements in
leaf tobacco were further fortified with the development of various
burley and oriental type tobaccos. These initiatives such as improved
nursery management designed for higher efficiencies in seed use,
optimised usage of crop production chemicals and other agronomic
practices are helping improve the potential of newly developed
varieties. These efforts are not only helping secure global demand for
Indian leaf tobacco by providing enhanced value to global customers but
also in improving the socio-economic status of the small/tribal farmer.
Capitalising on your Company's R&D efforts on varietal improvement,
the area under coverage of flue-cured virginia hybrids was
substantially increased in collaboration with the Central Tobacco
Research Institute and the Tobacco Board of India.
Your Company continues to focus on maintaining the highest quality and
safety standards at all its units. During the year, the Chirala and
Anaparti factories received the International Safety Award from the
British Safety Council for ensuring 'Best Safety Management'
systems and the Anaparti unit was awarded the 'National Level
Excellence in Water Management Award', as 'Excellent Water
Efficient Unit' by CII.
To further enhance quality and improve supply chain efficiencies, your
Company commissioned a new facility in Karnataka with a capacity of 35
million kgs per annum. This investment will not only enhance in-house
processing capacity but is also expected to reduce supply chain costs
given the factory's proximity to the tobacco growing regions in
Karnataka. The business is also actively engaged in augmenting its
warehousing capacities and reengineering its supply chain from a
strategic cost management perspective.
Your Company with its unmatched R&D capability, state- of-the-art
facilities, unique crop development and extension expertise, deep
understanding of customer and farmer needs, is well poised to leverage
emerging opportunities for Indian leaf tobacco and sustain its position
as a world class leaf tobacco organisation.
Other Agri Commodities
The Indian food grain production for the year is estimated at a record
high of over 250 million tonnes mainly on account of increase in
production of rice and wheat. Wheat output estimates are at an
all-time high of about 90 million tonnes. Rice production, at around
103 million tonnes, was higher than 96 million tonnes in the previous
year. Overall oil seed production was also on the higher side at about
30 million tonnes. However, India still continues to import nearly 50%
of its requirement of edible oil.
The international soya bean market reflected a slowdown in arrival of
quantities with all major producers showing a dip in production.
Overall global production was about 8% lower than the previous year.
While Brazil, Argentina and the US all reported lower crop outputs,
demand from China was on the upswing. Although the Indian crop grew in
terms of volume, it suffered in terms of quality due to pre-monsoon
showers in the growing areas and as such was not able to leverage the
uptrend in global prices. Your Company's uniquely structured
commodity sourcing business model with strong competencies in
multi-location sourcing, logistics and supply chain management was able
to leverage its strengths to improve value capture in the soya market
and significantly expand business scale.
Your Company continued to source identity preserved, special varieties
of wheat through its e-Choupal network channel for its Branded Packaged
Foods business. The continuous focus on minimising bridging costs of
wheat for Aashirvaad atta, while seeking to capitalise on geographical
and varietal arbitrage opportunities, provided a competitive advantage
to your Company's Foods business. The external wheat business
successfully catered to a wider range of customers, such as brand
owners, private labels, food processors and millers.
In the area of potato sourcing, the business continued to support the
Foods business by procuring the highest quality chip stock potatoes for
your Company's Bingo! brand of potato chips. The endeavour of
partnering with farmers to source locally grown potatoes (closer to
manufacturing units) helped minimise logistics costs. Trials for the
development of new varieties and new areas continued during the year
and such extension efforts helped significantly increase potato crop
this year in Gujarat.
India is the world's largest producer, consumer and exporter of
spices. Export of spices from India has been growing at 23% per annum
over the last 5 years. The growing concerns of food safety and product
integrity have increased demand for suppliers with 'end-to-end'
capabilities having complete custody of the supply chain, supported by
appropriate technology, quality practices and augmented with
traceability management systems to provide the required product
assurance. Your Company seeks to harness this opportunity by building a
business model based on customised products and services with requisite
crop development, state-of-the-art infrastructure and tailor-made
products and processes to garner an increasing share of the fast
growing domestic and export spices marke
Mar 31, 2011
For the Financial Year Ended 31st March, 2011
The Directors submit their Report for the financial year ended 31st
March, 2011.
SOCIO-ECONOMIC ENVIRONMENT
World output staged a smart recovery in 2010 growing by 5% during the
year after a decline of 0.6% in 2009. While growth in the first half
of the year stood at 5.25%, there was a marked deceleration in the
second half which recorded a growth of 3.75%. Receding fears of a
global depression in 2009 initially led to a lower rate of destocking
by business and subsequently to a phase of rebuilding depleted
inventories. This fostered a sharp rebound in industrial production and
trade which lasted through the first half of 2010. Simultaneously,
accommodative policies adopted by most governments, improvement in
business confidence and financial conditions encouraged investments and
helped arrest rising unemployment levels and boost consumption.
Consequently, recovery has become more self-sustaining and the risk of
a double-dip recession in advanced economies has abated. The recovery,
however, is broadly moving at two speeds. While economic growth in the
advanced economies remained modest at around 3% in 2010 after a decline
of 3.4% in 2009, emerging and developing economies recorded robust
growth in excess of 7% during the year à led primarily by China and
India. According to the International Monetary Fund (IMF), world real
GDP growth for 2011 is forecast at 4.4%, representing a modest slowdown
from 2010 levels. Real GDP in the advanced economies is expected to
grow by 2.5% while that in the emerging and developing economies is
forecast to grow by 6.5%. However, downside risks to these estimates
continue to outweigh the upsides. In the case of advanced economies,
the key concerns revolve around weak sovereign balance sheets, the
possibility of financial troubles in peripheral Euro area spreading to
core Europe, high levels of unemployment, the continued weakness of the
US real estate market and the lack of progress in formulating
medium-term fiscal consolidation plans. In the emerging economies, key
risks relate to overheating, asset price bubbles, rapid rise in
inflationary pressures, spurt in commodity prices and the potential for
boom-bust cycles could eventually result in a hard landing in these
economies. With emerging markets accounting for 40% of global
consumption and two-thirds of global growth, a slowdown in these
economies could dent global recovery significantly.
Closer home, after growing at 8.0% in 2009/10, the Indian economy
picked up further steam in 2010/11 recording a real GDP growth of 8.6%
during the year. While the Agricultural sector posted an above-trend
growth of 5.4% aided in part by a low base effect, Industry and
Services grew by 8.1% and 9.6% respectively. After clocking an
impressive growth of 8.9% in the first half of the year, the economy
showed signs of moderation in the second half especially in capital
goods production and investment spending. A good performance on the
external front with exports growing by 37.5% even as imports grew by
21.6% during the year helped reduce the Current Account Deficit to
approximately 2.5% of GDP from 2.8% in the previous year. The Centres
Fiscal Deficit for the year stood at 5.1% of GDP Ã a significant
improvement from 6.4% recorded in 2009/10 Ã driven by buoyant tax
collections and proceeds of the 3G spectrum auction. However, amongst
these positives, the persistently high level of inflation in the
economy despite good monsoons was a key cause for concern. The
year-on-year headline WPI inflation started trending up from December
2009 through to April 2010 when it touched 11%. After remaining in
double digits from April 2010 to July 2010, headline inflation
moderated progressively to 7.5% in November 2010 before reversing the
trend from December 2010 mainly due to supply bottlenecks in food
items. Inflation levels remained elevated in the December 2010 to March
2011 period mainly on account of fuel, power and non-food manufacturing
products. Thus, the inflationary pressures,which emanated from food items
clearly spilled over and became generalised, as the year progressed. The
recent slowdown in Industrial growth, as reflected by the Index of
Industrial Production (IIP) and data pertaining to the six core
industries, is also a cause for concern.
According to the monetary policy statement released on May 3, 2011,
RBIs baseline growth projection for the Indian economy is expected to
slow down to 8% with year-end WPI inflation estimated at 6% with an
upward bias. As the policy challenge shifts to taming inflation, the
economy will have to contend with high interest rates which in turn
could impact growth. Risks to global recovery as stated earlier, high
commodity prices especially of oil - with Brent crude crossing USD 120
per barrel in April 2011 triggered by events in the MENA (Middle East
and North Africa) region, elevated levels of inflation including in
food prices, high subsidy burden arising out of high oil prices and
commitments arising out of the proposed implementation of the National
Food Security Bill pose the key downside risks to economic growth in
the near term. In the medium to long term, Indias economic growth
engine is expected to be powered by multiple drivers such as the
increasing momentum in the savings and investment rates (which should
further improve with Indias demographic dividend playing out in the
ensuing years), a vibrant services sector, a large domestic demand base
and the emergence of internationally competitive firms. The challenge
of raising the growth bar to the desired double-digit levels, however,
remains daunting and would require, inter-alia, significant improvement
in agricultural productivity, step up in investments especially in
physical and social infrastructure, skill development, achieving energy
security, job creation and addressing the governance deficit. As
captured in the Union Finance Ministers 2011 Budget speech, "...in the
medium term perspective, our three priorities of sustaining a high
growth trajectory; making development more inclusive; and improving our
institutions, public delivery and governance practices, remain
relevant."
Indias rapid economic growth in recent years and the prospects of
building further on this momentum in the medium to long-term has led it
to command a new respect in the world order. According to recent
studies
India is expected to be the third largest economy by 2050. Indias
demographic trends indicate that the nation will add over 200 million
people to the working age population over the next 20 years, more than
any other country in the world. Several studies indicate a near
tripling of household disposable incomes and a burgeoning middle-class
which will comprise over 40% of Indias population and grow ten-fold to
touch 583 million people by 2025. These trends augur well for the
nation and could provide enormous opportunities for private enterprise
and sustaining the growth trajectory. Yet, with 17% of the worlds
population, 2.4% of global land mass, 4% of the worlds freshwater
resources and 1% of the worlds forest resources, the pressure of
economic growth on the countrys natural capital will be enormous.
Equally, the need to make economic growth more equitable and inclusive
is compelling.
A comprehensive growth strategy for rural India, including the
agricultural sector which continues to underperform, is necessary to
address the serious issues relating to sustainability and inclusive
growth. The governments focus on social sector programmes such as
Bharat Nirman, National Rural Employment Guarantee Scheme (NREGS),
Sarva Shiksha Abhiyan, food security legislation and strategies to
improve benefit delivery mechanisms have the potential to transform the
Indian rural landscape. It is here that unique business models like the
ones forged by your Company can supplement the efforts of the
government in creating societal value and enhancing societal capital.
It is an essential pre-requisite of rural development that markets are
co-created with local communities and in a constructive
public-private-people partnership.
Your Companys e-Choupal network is a close replica of this model. It
provides the farming community with value-added services such as crop
advisories, advance weather forecasts, output price discovery, direct
communication tools and distribution of unadulterated agri inputs. The
footprint of this network is well established to source most
requirements of your Companys Branded Packaged Foods business and is
poised to grow in line with entry into newer categories. Similarly,
your Companys unique and path-breaking ÃChoupal Pradarshan Khet (CPK)
initiative, a collaborative and paid extension service aimed towards
enhancing farm productivity with emphasis
on adoption of sustainable agricultural best practices, continues to
attract the interest of both farmers and partnering companies. The
demonstration plots under CPK have recorded significant productivity
gains as compared to control plots. An estimated 40,000 farmers
participated in this programme during the year.
In line with the national agenda of pursuing sustainable and inclusive
growth, your Company is proactively engaged in enlarging its
contribution across the three dimensions of the ÃTriple Bottom Line -
economic, environmental and social - through investments and operations
that foster the competitiveness of entire value chain that it is
engaged in. In line with this philosophy, it is your Companys
endeavour to embed larger societal goals in its various business
models. Major initiatives in this direction include the e-Choupal
network which is contributing to increasing rural incomes by providing
a wide range of support services to the farming community, the Social
and Farm Forestry programmes which create sustainable livelihoods among
marginal farmers and poor tribals, adoption of environment friendly
technologies including the increasing use of renewable sources of
energy, recycling processes and creation of rainwater harvesting
structures. Such initiatives have combined to make ITC the only Company
in the world, of comparable size, to be Ãcarbon positive, Ãwater
positive and Ãwaste recycling positive.
The following sections outline your Companys progress in pursuit of
the ÃTriple Bottom Line objectives.
FINANCIAL PERFORMANCE
Your Company, in its Centenary Year, posted yet another year of stellar
performance with an impressive topline growth and high quality earnings
reflecting the robustness of its corporate strategy of creating
multiple drivers of growth. This performance is particularly noteworthy
when viewed against the backdrop of the extremely challenging business
context in which this was achieved, namely, the steep increase in
excise duties in the Union Budget 2010 coupled with the amplified
impact of arbitrary increases in VAT on cigarettes, brand building and
incubation costs of the new FMCG businesses, the impact of the
significant investments made in augmenting distribution infrastructure
and the gestation costs of the large investments in the Hotels
business.
Gross Turnover for the year grew by 16.5% to Rs. 30604.39 crores. Net
Turnover at Rs. 21167.58 crores grew by 16.6% primarily driven by a
23.1% growth in the non-cigarette FMCG businesses, 22.9% growth in Agri
business and 17.6% growth in the Hotels segment. Pre-tax profits
increased by 20.8% to Rs. 7268.16 crores while Post-tax profits at Rs.
4987.61 crores registered a growth of 22.8%. Earnings Per Share for
the year stands at Rs. 6.49 (previous year - adjusted for Bonus Issue -
Rs. 5.34). Cash flows from Operations stood at Rs. 7460 crores compared
to Rs. 6632 crores in the previous year.
Your Company completed 100 years in August 2010. It is a matter of
great pride to reflect on the enormous progress made by your Company
over the years. Your Company today is the leading FMCG marketer in
India, the second largest Hotel chain, the clear market leader in the
Indian Paperboard and Packaging industry and the countrys foremost
Agri business player. Additionally, your Companys wholly owned
subsidiary, ITC Infotech India Limited, is one of Indias fast growing
Information Technology companies in the mid-tier segment.
Over the last fifteen years, your Company has created multiple drivers
of growth by developing a portfolio of world class businesses. During
this period, your Companys Gross Turnover and Post-tax profits
recorded an impressive compounded growth of 12.7% and 21.7% per annum
respectively. Profitability, as measured by Return on Capital Employed
improved substantially from 28.4% to 43.4% during this period. Total
Shareholder Returns, measured in terms of increase in market
capitalisation and dividends, grew at a compounded rate of 25.6% during
this period, placing your Company amongst the foremost in the country
in terms of efficiency of servicing financial capital. It is indeed a
matter of pride that your Company was ranked, by The Boston Consulting
Group, an international management consultancy firm, amongst the top 10
global consumer goods companies in terms of sustained shareholder value
creation for the period 2005 - 2009. Your Company today is one of
Indias most admired and valuable corporations with a market
capitalisation in excess of Rs. 140000 crores and has consistently
been, over the last fifteen years, amongst the top 10 private sector
companies in terms of market capitalisation.
Last year, in celebration of your Company completing a 100 years, your
Directors had recommended and you had approved a Special Centenary
Dividend of Rs. 5.50 per share (adjusted for bonus issue - Rs. 2.75 per
share) in addition to a Dividend of Rs. 4.50 per share (adjusted for
bonus issue - Rs. 2.25 per share). Your Directors had also recommended
and you had approved a 1:1 Bonus issue in the Centenary year. This
year, on the occasion of your Company convening its milestone Hundredth
Annual General Meeting, your Directors are pleased to recommend a
Special Dividend of Rs. 1.65 per share (previous year à Nil) in
addition to a Dividend of Rs. 2.80 per share (previous year - adjusted
for bonus issue - Rs. 2.25) for the year ended 31st March, 2011.
Total cash outflow in this regard will be Rs. 4002.09 crores (previous
year Rs. 4452.33 crores) including Dividend Distribution Tax of Rs.
558.62 crores (previous year Rs. 634.15 crores). Your Board further
recommends a transfer to General Reserve of Rs. 498.76 crores (previous
year Rs. 406.10 crores). Consequently, your Board recommends leaving an
unappropriated balance in the Profit and Loss Account of Rs. 548.67
crores (previous year Rs. 61.31 crores).
FOREIGN EXCHANGE EARNINGS
Your Company continues to view foreign exchange earnings as a priority.
All businesses in the ITC portfolio are mandated to engage with
overseas markets with a view to testing and demonstrating international
competitiveness and seeking profitable opportunities for growth. The
ITC groups contribution to foreign exchange earnings over the last ten
years amounted to nearly USD 4.5 billion, of which agri exports
constituted 57%. Earnings from agri exports are an indicator of your
Companys contribution to the rural economy through effectively linking
small farmers with international markets.
During the financial year 2010/11, your Company and its subsidiaries
earned Rs. 3123 crores in foreign exchange. The direct foreign
exchange earned by your Company amounted to Rs. 2814 crores (Rs. 2354
crores in 2009-10), powered by exports of major agri-commodities. Your
Companys expenditure in foreign currency amounted to Rs. 1254 crores,
comprising purchase of raw materials, spares and other expenses of Rs.
1028 crores and import of capital goods at Rs. 226 crores. Details of
foreign exchange earnings and outgo are provided in Schedule 19 to the
Accounts.
PROFITS, DIVIDENDS AND RETENTION
(Rs. in Crores)
2011 2010
a) Profit before Tax 7268.16 6015.31
b) Income Tax 2280.55 1954.31
c) Profit after Tax 4987.61 4061.00
d) Add: Profit brought forward
from previous year 61.31 858.14
e) Surplus available for
Appropriation 5048.92 4919.14
f) Transfer to General Reserve 498.76 406.10
g) Proposed Dividend for the financial year
- Ordinary Dividend of Rs. 2.80 per
ordinary share of Rs. 1/- each (previous
year - adjusted for Bonus Issue -
Rs. 2.25 per share) 2166.68 1718.18
- Special Centenary Dividend of Nil per
ordinary share of Rs. 1/- each
(previous year - adjusted for Bonus
Issue - Rs. 2.75 per share) - 2100.00
- Special Dividend of Rs. 1.65 per ordinary
share of Rs. 1/- each
(previous year - adjusted for Bonus
Issue - Nil) 1276.79 -
h) Income Tax on proposed dividends 558.62 634.15
i) Earlier years provision no longer
required (0.60) (0.60)
j) Retained Profit carried forward to
the following year 548.67 61.31
5048.92 4919.14
TAXATION
As mentioned in the Report of the Directors of earlier years, your
Company had obtained Stay Orders from the Honble Calcutta High Court
in respect of the Income Tax notices for re-opening the past
assessments for the period 1st July, 1983 to 30th June, 1986. This
status remains unchanged.
As stated in the Report of the Directors of earlier years, in respect
of similar Income Tax notices for re-opening the past assessments for
the period 1st April, 1990 to 31st March, 1993, the Honble Calcutta
High Court had admitted the Writ Petitions and ordered that no final
assessment orders be passed without the leave of the Court. This status
also remains unchanged.
PUBLIC DEPOSITS
Your Companys Public Deposit Scheme closed in the year 2000. As at
31st March, 2011, there were no deposits due for repayment except in
respect of 2 deposit holders for Rs. 0.20 lakhs which have been
withheld on the directives received from government agencies.
There was no failure to make repayments of Fixed Deposits on maturity
and the interest due thereon in terms of the conditions of your
Companys erstwhile Schemes.
INVESTOR SERVICE CENTRE
During the year, the ISO 9001:2008 Quality Management System
Certification for investor servicing by Investor Service Centre (ISC)
was renewed by Messrs. Det Norske Veritas (DNV) for a further period of
three years. DNV also accorded Level 5 rating to ISC, the highest
possible rating level, for the second consecutive year, for its systems
and processes, which stands testimony to the exemplary standards of
investor servicing practices by the ISC.
ISC continues to operate with an experienced team of professionals
backed by state-of-the-art infrastructure and systems focused towards
meeting the increasing expectations of investors and regulatory
authorities.
DIRECTORS
Mr. Krishnamoorthy Vaidyanath, Wholetime Director, retired from your
Company after 35 years of service, with effect from close of business
on 2nd January, 2011 on completion of his term. Your Directors would
like to record their appreciation of the services rendered by Mr.
Vaidyanath. The Board of Directors (the ÃBoard) at its meeting held on
22nd December, 2010, appointed Mr. Vaidyanath as Non-Executive Director
of your Company with effect from 3rd January, 2011 to draw upon his
knowledge and vast experience.
Mr. Anup Singh ceased to be Additional Wholetime Director on 23rd July,
2010, the date of the last Annual General Meeting (AGM) of your
Company.
Mr. Nakul Anand and Mr. Pradeep Vasant Dhobale were appointed by the
Board at its meeting held on 22nd December, 2010, as Additional
Wholetime Directors of your Company with effect from 3rd January, 2011.
By virtue of the provisions of Article 96 of the Articles of
Association of your Company and Section 260 of the Companies Act, 1956,
Messrs. Vaidyanath, Anand and Dhobale will vacate office at the ensuing
AGM of your Company.
Your Board at its meeting held on 20th May, 2011, recommended for the
approval of the Members the appointment of Messrs. Anand and Dhobale as
Directors, liable to retire by rotation, and also as Wholetime
Directors of your Company for a period of three years from 3rd January,
2011. Your Board at the said meeting also recommended for the approval
of the Members the appointment of Mr. Vaidyanath as Non-Executive
Director of your Company, liable to retire by rotation, with effect
from the date of the ensuing AGM of your Company.
Your Board at its meeting held on 20th May, 2011 recommended for the
approval of the Members the re-appointment of Mr. Yogesh Chander
Deveshwar as a Director, not liable to retire by rotation, and also as
Wholetime Director and Chairman of your Company, for a period of five
years from 5th February, 2012.
Notices have been received from Members of your Company under Section
257 of the Companies Act, 1956 for the appointments / re-appointment of
Messrs. Anand, Dhobale, Vaidyanath and Deveshwar, who have filed their
consents to act as Directors of your Company, if appointed.
Appropriate resolutions seeking your approval to their appointments /
re-appointment are appearing in the Notice convening the 100th AGM of
your Company.
In accordance with the provisions of Article 91 of the Articles of
Association of your Company, Mr. Hugo Geoffrey Powell, Dr. Basudeb Sen,
Mr. Balakrishnan Vijayaraghavan and Mr. Serajul Haq Khan will retire by
rotation at the ensuing AGM of your Company and, being eligible, offer
themselves for re-election. The Board has recommended their
re-election.
CHANGES IN SHARE CAPITAL
During the year, the following changes were effected in the Share
Capital of your Company:-
(i) Increase in Authorised Share Capital
The Authorised Share Capital of your Company was increased from Rs. 500
crores to Rs. 1000 crores divided into 1000,00,00,000 Ordinary Shares
of Rs. 1/- each, with effect from 23rd July, 2010.
(ii) Issue of Bonus Shares 382,67,01,530 Ordinary Shares of Rs. 1/-
each, fully paid-up, were issued as Bonus Shares, in the ratio of 1
(One) Bonus Share for every existing 1 (One) Ordinary Share of Rs. 1/-
each held on 4th August, 2010, being the Record Date fixed for the
purpose. The Bonus Shares were allotted on 6th August, 2010.
(iii) Issue of Shares under the ITC Employee Stock Option Schemes
9,32,65,960 Ordinary Shares of Rs. 1/- each, fully paid-up, were issued
and allotted during the year upon exercise of 93,26,596 Options under
your Companys Employee Stock Option Schemes.
Consequently, the Issued and Subscribed Share Capital of your Company,
as on 31st March, 2011, stands increased to Rs. 773,81,44,280/- divided
into 773,81,44,280 Ordinary Shares of Rs. 1/- each.
The new Ordinary Shares issued during the year rank pari passu with the
existing Ordinary Shares of your Company.
AUDITORS
Your Companys Auditors, Messrs. Deloitte Haskins & Sells, retire at
the ensuing AGM and, being eligible, offer themselves for
re-appointment. Since not less than 25% of the Subscribed Share Capital
of your Company is held collectively by Public Financial Institutions,
the re-appointment of Auditors is being proposed as a Special
Resolution in accordance with Section 224A of the Companies Act, 1956.
EMPLOYEE STOCK OPTION SCHEME
Details of the Options granted up to 31st March, 2011, and other
disclosures as required under Clause 12 of the Securities and Exchange
Board of India (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999 (the ÃSEBI Guidelines) are set out
in the Annexure to this Report.
Your Companys Auditors, Messrs. Deloitte Haskins & Sells, have
certified that your Companys Employee Stock Option Schemes have been
implemented in accordance with the SEBI Guidelines and the resolutions
passed by the Members in this regard.
DIRECTORS RESPONSIBILITY STATEMENT
As required under Section 217 (2AA) of the Companies Act, 1956, your
Directors confirm having:
a) followed in the preparation of the Annual Accounts, the applicable
accounting standards with proper explanation relating to material
departures if any;
b) selected such accounting policies and applied them consistently and
made judgments and estimates that are reasonable and prudent so as to
give a true and fair view of the state of affairs of your Company at
the end of the financial year and of the profit of your Company for
that period;
c) taken proper and sufficient care for the maintenance of adequate
accounting records in
accordance with the provisions of the Companies Act, 1956 for
safeguarding the assets of your Company and for preventing and
detecting fraud and other irregularities; and
(d) prepared the Annual Accounts on a going concern basis.
CONSOLIDATED FINANCIAL STATEMENTS
In accordance with Accounting Standard 21 - Consolidated Financial
Statements, ITC Group Accounts form part of this Report & Accounts.
These Group Accounts also incorporate the Accounting Standard 23 -
Accounting for Investments in Associates in Consolidated Financial
Statements and Accounting Standard 27 - Financial Reporting of
Interests in Joint Ventures as notified under the Companies (Accounting
Standards) Rules, 2006. These Group Accounts have been prepared on the
basis of audited financial statements received from Subsidiary,
Associate and Joint Venture Companies, as approved by their respective
Boards.
OTHER INFORMATION
The total number of employees as on 31st March, 2011 stood at 24,027.
The certificate of the Auditors, Messrs. Deloitte Haskins & Sells
confirming compliance of conditions of Corporate Governance as
stipulated under Clause 49 of the Listing Agreement with the Stock
Exchanges in India, is annexed.
There were no changes to your Companys significant Accounting
Policies.
Particulars as required under Section 217(1)(e) of the Companies Act,
1956 relating to Conservation of Energy and Technology Absorption are
also provided in the Annexure to this Report.
There were 31 employees, who were employed throughout the year and were
in receipt of remuneration aggregating Rs. 60 lakhs or more or were
employed for part of the year and were in receipt of remuneration
aggregating Rs. 5 lakhs per month or more during the financial year
ended 31st March, 2011. The 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.
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 Companys Board and employees are inspired by the Vision of
sustaining your Companys position as one of Indias most admired and
valuable companies through world class performance, creating enduring
value for all stakeholders, including the shareholders and the Indian
society. Each business within the portfolio is continuously engaged in
upgrading strategic capability to effectively address the challenge of
growth in an increasingly competitive market scenario. Effective
management of diversity enhances your Companys adaptive capability and
provides the intrinsic ability to effectively manage business risk. The
vision of enlarging your Companys contribution to the Indian economy
is manifest in the creation of unique business models that foster
international competitiveness of not only its businesses but also of
the entire value chain of which it is a part.
Inspired by this Vision, driven by Values and powered by internal
Vitality, your Directors and employees look forward to the future with
confidence and stand committed to creating an even brighter future for
all stakeholders.
On behalf of the Board
Y. C. DEVESHWAR Chairman
P. V. DHOBALE Director
20th May, 2011
Virginia House
37 J L Nehru Road
Kolkata 700071
India
Mar 31, 2010
For the Financial Year Ended 31st March, 2010
The Directors submit their Report for the financial year ended 31st
March, 2010.
During the financial year 2009/10, your Company and its subsidiaries
earned Rs. 3140 crores in foreign exchange. The direct foreign exchange
earned by your Company amounted to Rs. 2355 crores (Rs. 2226 crores in
2008-09), powered by exports of major agri-commodities. Your CompanyÃs
expenditure in foreign currency amounted to Rs. 1042 crores, comprising
purchase of raw materials, spares and other expenses of Rs. 774 crores
and import of capital goods at Rs. 268 crores. Details of foreign
exchange earnings and outgo are provided in Schedule 19 to the
Accounts.
PROFITS, DIVIDENDS AND RETENTION
(Rs. in Crores)
2010 2009
a) Profit before Tax 6015.31 4825.74
b) Income Tax 1954.31 1562.15
c) Profit after Tax 4061.00 3263.59
d) Add: Profit brought forward
from previous year 858.14 724.45
e) Surplus available for
Appropriation 4919.14 3988.04
f) Transfer to General Reserve 406.10 1500.00
g) Proposed Dividend for the financial
year at the rate of Rs. 4.50 per 1718.18 1396.53
ordinary share of Re. 1/- each
(previous year Rs. 3.70 per share)
h) Proposed Special Centenary
Dividend of Rs. 5.50 per ordinary 2100.00 --
share of Re. 1/- each
i) Income Tax on proposed dividends 634.15 237.34
j) Earlier yearÃs provision no longer
required (0.60) (3.97)
k) Retained Profit carried forward to
the following year 61.31 858.14
4919.14 3988.04
BUSINESS SEGMENTS
A. FAST MOVING CONSUMER GOODS
FMCG Ã Cigarettes
India is the third largest producer of tobacco in the world. It is
estimated that more than 36 million people including farmers, farm
workers, retailers etc. in the country depend upon tobacco for their
livelihood. While the economic importance of tobacco has been
acknowledged in several Government studies and reports, the cigarette
industry in India has been contending with the twin challenges of
discriminatory and punitive taxation and increased regulation for
several years in succession.
Internationally, more than 90% of tobacco is consumed in the cigarette
form, and accordingly tobacco taxation and regulation, in effect, means
regulating and taxing cigarettes. However, in India only about 15% of
tobacco is consumed in the cigarette form, whilst the remaining
consumption is through other forms of tobacco products like bidi,
khaini, gutkha, zarda and kimam. It is therefore clear that the spate
of taxation and regulations targeted almost exclusively at the
cigarette industry in India is influenced by trends that are relevant
in the developed world, but have little connection with the realities
of the Indian market. Such a punitive and discriminatory approach has
resulted in the share of cigarettes in total tobacco consumption in
India progressively declining from 23% in 1971/72 to only about 15%
currently. In this context, a recap of developments in the past few
years would be relevant.
On the taxation front, excise duty rates went up in excess of 6% in the
Union Budget 2007 and cigarettes were brought under the ambit of Value
Added Tax (VAT) at a rate of 12.5% on invoice price with effect from
1st April 2007, resulting in a total tax equivalent of a 30% increase
in excise duties. Other tobacco products were either exempted from VAT
or taxed at lower rates. Consequently, cigarette industry volumes came
under serious pressure in FY08 as consumers migrated to alternate and
lightly taxed forms of tobacco.
The Union Budget 2008 followed through with an unprecedented increase
in excise duty of the order of 140% and 390% respectively on regular
and micro-sized non-filter cigarettes. This exceptional hike in rates
forced the organized cigarette industry to substantially vacate this
category. The resultant void created the headroom for tax-evaded
cigarettes to enter the market in a big way. These tax-evaded
cigarettes sell in the market at prices that do not even cover the cost
of taxes payable thereon. Such cigarettes, estimated to constitute more
than 8% of the Indian market, not only deprive the legitimate industry
of revenues and profits that it rightfully deserves but also deny the
Exchequer of its fair share of taxes. It is imperative that the
authorities strengthen enforcement to eliminate this fast growing
illegal industry.
The year under review saw several States departing from the consensus
VAT rate of 12.5% and increase the rates of VAT on cigarettes from time
to time. Certain States also levied entry tax on cigarettes in addition
to VAT and some others increased the entry tax rate. Most States, like
the Centre, largely targeted the cigarette sector. Consequently,
tobacco consumption in the cigarette format suffered.
Further, as a result of such unilateral and arbitrary increases, the
incidence of State and other Local taxes varied from 12.5% in some
parts of India to as much as 25% in others. Such massive tax
differentials between States led to trade diversion that not only
compromised the industryÃs ability to service the market effectively
but also resulted in sub-optimization of cigarette tax revenues to the
State Exchequers. Drawing from international experience, it is
apprehended that the illegitimate funds generated through trade
diversion by criminal syndicates is being used to finance anti-social
activities in the country.
During the year, graphic statutory warnings on retail packages of
tobacco and tobacco products were introduced and further restrictions
on sale of tobacco products were notified. Such graphic warnings, which
are more impactful on cigarettes than on other forms of tobacco by
virtue of the design specifications, have placed cigarettes in a
disadvantageous position.
Such regulations and others like the ban on smoking in public places
together with the high incidence of tax on cigarettes encourage
consumers to shift to cheaper and lightly taxed tobacco products.
Consequently, whilst consumption of tobacco in the cigarette form is on
the decline, the overall consumption of tobacco in the country
continues to rise.
Tobacco Consumption (Million kg)
Year Cigarettes Non-Cigarette Total
Forms
1981/82 86 320 406
2008/09e 74 421 495
Difference (Ã) 14% (+) 32% (+) 22%
Source : USDA; Tobacco Institute of India
Paradoxically, the social objective of control of tobacco consumption
in the country gets defeated even as the revenue potential of tobacco
sector as a whole is sub-optimised. It is relevant to note that every
percentage point increase in the cigarette share of tobacco consumption
would yield the government additional revenues of Rs. 650 crores
annually in duties alone.
Despite having only a 15% share of consumption, cigarettes contribute
more than 85% of the tax revenues from the tobacco sector. Taxes
realized from every kilogram of tobacco consumed in the cigarette
format are 35 times higher than those from other forms of tobacco
products. In contrast, a country like China, given its equitable tax
regime and a practical regulatory framework, is able to collect tax
revenues from cigarettes that are 14 times higher than that in India
despite the rate of tax being half of that of India. Clearly, there is
a need to pursue a balanced agenda, which is equitable to all
stakeholders, even as it progressively achieves the social objective of
controlling tobacco consumption.
Notwithstanding these challenges, your Company retained its leadership
position in the market and improved its standing in the consumer
mind-space, attesting the salience and resilience of its brands. The
stability in cigarette excise duties in 2009 resulted in the industry
recovering some of the consumer franchise lost earlier.
The potential of the Indian market coupled with its economic
outperformance in a year of global downturn is attracting global
cigarette majors. They are seeking a direct play in the Indian market
by incorporating majority-owned entities to carry on the business of
wholesale trading operations in India involving sourcing, selling,
distribution and marketing of cigarettes and other tobacco products.
Even so, the incidence of smuggled cigarettes continues to be high.
During the year under review, the business effectively met such
competitive challenges and improved its market standing through the
delivery of superior consumer value based on a combination of deep
consumer insights, contemporary product development and cutting-edge
technology. Market interventions during the year included the launch of
new variants of ÃGold Flakeà and
ÃNavy Cut Filter Kingsà with innovative product features, limited
edition packs of ÃClassicà and launch of new brands like ÃFlake Excel
Filterà and ÃDuke FilterÃ. The business also launched its premium line
of hand-rolled cigars in select markets under the brand name
ÃArmenterosÃ. Manufactured exclusively for ITC by expert cigar rollers
in the Dominican Republic, with the finest quality Cuban, Nicaraguan
and Brazilian seed tobacco, the ÃArmenterosà range is truly world-class
and has been well received by the most discerning cigar aficionados in
the country.
During the year, the business leveraged its existing industrial licence
in Maharashtra to set up a cigarette factory at Ranjangaon, Pune.
Production has commenced, enabling your Company to service proximal
markets. The strategic initiative of upgrading primary and secondary
technology platforms at the cigarette factories continued to be
implemented. Further improvements in quality and productivity were
achieved consequent to the induction of high speed cigarette making and
packing machines across all factories. The ÃProcess Improvement
Practicesà initiative, using structured problem-solving methodologies
such as ÃLeanà and ÃSix SigmaÃ, contributed to sustainable improvements
in key operating metrics and internal processes across all units.
In line with your CompanyÃs commitment to building sustainable
environmental capital, the business is investing in wind farms in
certain States to reduce dependence on conventional sources of energy.
The cigarette factories continued to recycle 100% of the solid waste
generated. They also maintained the highest standards of Environment
Health and Safety (EHS) and won recognition by way of numerous awards.
The Saharanpur factory won the ÃCII National Award for Excellence in
Energy Managementà and the ÃCII National Award for Excellence in Water
ManagementÃ. The Munger factory was awarded the 1st prize for
outstanding performance by CII Eastern Region for Safety, Health
Environment (SHE) for 2009-10 as well as the 1st prize for outstanding
performance by CII Eastern Region for Energy Conservation for 2009-10.
The Kidderpore factory received the CII Eastern
Region SHE Award for 2009-10. The Bengaluru factory was awarded the
Safety Award in the Large-Scale Category as well as the Safety award
for ÃBest Boilerà by the Department of Factories, Boilers, Industrial
Safety and Health, Government of Karnataka.
Pro-active interventions in employee-relations in all manufacturing
units ensured an enabling operating climate. Long term agreements with
unionised workforce continue to be leveraged to further improve shop
floor productivity, flexibility and responsiveness. During the year
under review, the long term agreement at the Saharanpur factory was
successfully concluded.
The year ahead will be challenging with continued discriminatory
taxation, restrictive regulation and hardening competitive pressures.
Cigarette excise duty rates have yet again been increased by about 17%
in Budget 2010 and several States have further increased VAT and entry
tax imposts in the recent round of budgets. While this is likely to
put industry volumes under pressure, the newly created excise duty slab
for medium-sized filter cigarettes may provide the legitimate industry
a platform to combat the menace of illegal domestic cigarettes.
Your Company will continue to engage with policy makers for a balanced
regulatory and fiscal framework for tobacco that addresses the genuine
concerns of all stakeholders. The robustness of your CompanyÃs
strategies and its execution excellence will enable it to sustain and
enhance its leadership position.
FMCG Ã Others
It is your CompanyÃs strategic intent to secure long-term growth by
synergising and blending the diverse pool of competencies residing in
its various businesses to exploit emerging opportunities in the FMCG
sector. Your CompanyÃs institutional strengths à deep understanding of
the Indian consumer, strong trademarks, deep and wide distribution
network, agri-sourcing skills, packaging know-how and cuisine expertise
à continue to be effectively leveraged to rapidly grow the new FMCG
businesses.
Your Company remains bullish on the prospects of the FMCG industry in
India. According to a recent study by the Mckinsey Global Institute, it
is estimated that India is set to climb from its position as the 12th
largest consumer market today to become the worldÃs fifth largest by
2025. Income levels are set to triple during this period with IndiaÃs
middle class (annual income ranging from Rs. 2 lakhs to Rs. 10 lakhs)
increasing by about ten times its current size to around 583 million
people. Favourable demographic trends à with nearly 15 million
additions to the working age population every year for the next 10
years and a resultant low dependency ratio à will drive industry
growth. Similarly, the trend of increasing urbanisation à with urban
population expected to constitute around 44% of the population by 2035
as per United Nations Population Division (UNPD) from less than 30%
presently à is expected to provide added fillip to the demand for
branded consumer goods. Higher levels of consumer awareness, relatively
low levels of per capita consumption and penetration and increased
government spending on education are some of the other key factors that
are expected to drive transformational change in the Indian FMCG
industry.
Over the last few years, your Company has rapidly scaled up presence in
its newer FMCG businesses comprising Branded Packaged Foods, Lifestyle
Retailing, Education and Stationery products, Personal Care products,
Safety Matches and Incense Sticks (Agarbatti) with Segment Revenues
growing at an impressive compound annual growth rate of 38% during the
last 5 years. Within a relatively short span of time, your
Company has established several strong consumer brands including
ÃSunfeastà and ÃAashirvaadà which are presently clocking annual sales
in excess of Rs. 1000 crores each in terms of consumer spend. Segment
Results reflect the gestation costs of these businesses largely
comprising costs associated with brand building, product development,
R&D and infrastructure creation. The year under review saw a 21%
growth in Segment Revenues and a significant improvement in Segment
Results which recorded a positive swing of Rs. 134 crores at the PBIT
level.
Your CompanyÃs unwavering focus on quality, innovation and
differentiation backed by deep consumer insights, world-class R&D and
an efficient and responsive supply chain will further strengthen its
leadership position in the Indian FMCG industry.
CONCLUSION
Your CompanyÃs Board and employees are inspired by their Vision of
sustaining ITCÃs position as one of IndiaÃs most admired and valuable
companies through world-class performance, creating enduring value for
all stakeholders, including the shareholders and the Indian society.
Each business within the portfolio is continuously engaged in upgrading
strategic capability to effectively address the challenge of growth in
an increasingly competitive market scenario. Effective management of
diversity enhances your CompanyÃs adaptive capability and provides the
intrinsic ability to effectively manage business risk. The vision of
enlarging your CompanyÃs contribution to the Indian economy is manifest
in the creation of unique business models that foster international
competitiveness of not only its businesses but also of the entire value
chain of which it is a part.
In the Centenary Year of your Company, your Directors and employees
continue to be inspired by this Vision. Driven by Values and powered
by internal Vitality, the entire ITC family stands committed to
creating an even brighter future for all stakeholders.
21st May, 2010 On behalf of the Board
Virginia House
37 J L Nehru Road
Kolkata 700071 Y. C. DEVESHWAR Chairman
India K. VAIDYANATH Director