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ITC Ltd.

BSE: 500875 Sector: Consumer
NSE: ITC ISIN Code: INE154A01025
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OPEN 300.95
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VOLUME 1190424
52-Week high 322.70
52-Week low 250.35
P/E 33.16
Mkt Cap.(Rs cr) 371,656
Buy Price 0.00
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Sell Price 0.00
Sell Qty 0.00
OPEN 300.95
CLOSE 299.65
VOLUME 1190424
52-Week high 322.70
52-Week low 250.35
P/E 33.16
Mkt Cap.(Rs cr) 371,656
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

ITC Ltd. (ITC) - Director Report

Company director report

Management Discussion and Analysis

For the Financial Year Ended 31st March 2018

SOCIO-ECONOMIC ENVIRONMENT

The global cyclical upswing that began midway through 2016 gatheredstrength during 2017. As per latest IMF estimates World GDP grew by 3.8% in 2017representing a marked improvement over 2016 which at 3.2% was the weakest year of growthsince the global financial crisis of 2009. The pick-up in growth was supported bysynchronous growth in the Advanced Economies which grew by 2.3% in 2017 against 1.7% in2016 and Emerging Markets & Developing Economies which recorded a growth of 4.8% in2017 against 4.4% in 2016.

Within the Advanced Economies the US posted a strong growth of 2.3% in2017 against 1.5% in 2016 led by robust recovery in Private Investment and expansion inconsumer spending. The Euro Area also expanded by 2.3% during the year compared to 1.8% in2016. In the Emerging Markets & Developing Economies acceleration in growth wasmainly attributable to Brazil and Russia achieving positive growth after two successiveyears of decline.

The Chinese economy also grew faster at 6.9% in 2017 compared to 6.7%in 2016.

The synchronised growth momentum in Advanced and Emerging Economies islikely to sustain going forward resulting in a further pick-up in global economic growthto 3.9% in 2018 and 2019. The US economy is projected to grow at 2.9% in 2018 aided by anexpansionary fiscal policy positive investment and private consumption outlook and‘full employment' of its workforce. At 4.9% growth in 2018 the strong growthmomentum in the Emerging Markets & Developing Economies is likely to sustain andimprove marginally mainly due to robust performance of commodity exporting countries suchas Brazil South Africa Saudi Arabia and an anticipated pick-up in growth in India.Growth in China however is projected to slow down to 6.6% in 2018 reflecting theongoing rebalancing of the economy towards a more sustainable and broad-based consumptionand services led growth.

However the increasing trend of protectionist policies in thedeveloped world faster pace of increase in US interest rates and progressive tapering ofquantitative easing in the EU could impact capital flows and weigh on the nascent recoveryin commodity-exporting emerging economies.

The Indian economy witnessed another challenging year with Real GDPgrowth slowing down sharply to 6.6% compared to 7.1% in 2016-17 reflecting the short-termdisruptions caused by GST implementation residual impact of cash crunch and decelerationin Net Exports. It is pertinent to note that Nominal GDP growth in 2017-18 stood at 9.8% -the lowest in six years. The Industry sector decelerated further during the yearrecording the slowest growth in four years.

The anticipated pick-up in Consumption remained elusive with PrivateFinal Consumption Expenditure (PFCE) growing by only 6.1% during the year against 7.3% in2016-17. Likewise recovery of the capex cycle did not fructify with deceleration in FixedCapital Formation growth to 7.6%. Data on new project announcements new capacitycommissioned and stalled/abandoned projects during the year point to the subduedinvestment climate in the country. The ‘twin deficits' came under pressure aswell - higher expenditure and lower net tax collections resulted in Fiscal Deficittouching 3.5% of GDP against a target of 3.2% while the Current Account Deficit expandedto about 1.9% of GDP (Vs. 0.7% in 2016-17) due to pick-up in imports even as growth inexports remained subdued.

On the positive side India remains the fastest growing major economyin the world. Inflation remained largely within the comfort zone of the RBI during theyear with the Consumer Price Index (CPI) declining to 3.6% in 2017-18 against 4.5% in2016-17 prompting the RBI to reduce policy interest rates by 25 bps during the year.However with rising crude oil prices anticipation of commodity prices firming up in theensuing year and Core CPI steadily rising for the past several months the scope forfurther reduction in interest rates seems limited. Foreign capital flows into the countryremained robust leading to stability in the Indian Rupee and sustained buoyancy in thecapital markets with the Sensex advancing by 11% in 2017-18 after a 17% rise in 2016-17.

As per median estimates based on the Survey of ProfessionalForecasters conducted by RBI GDP is likely to grow by 7.3% in 2018-19 on the back ofimprovement in the Net Exports position and normalisation of private consumption growthlevels partly aided by a favourable base effect. The green shoots of recovery ininvestments witnessed towards the end of the year especially in the infrastructure sectoralong with expectations of a normal monsoon augur well for the economy in the near term.Rising crude oil prices revenue collections external capital flows and rural demandrecovery are the key monitorables in 2018-19. The pace of GDP growth is expected to gathermomentum in the medium term on the back of favourable global economic tailwinds pick-upin Private Investment and implementation of key policy reforms.

While India remains one of the fastest growing major economies in theworld the pace of economic growth in recent years has remained below the desired levelsand the country's potential. Stagnation in the manufacturing sector needs to bereversed at the earliest towards the creation of sustainable livelihoods and absorption ofmillions of Indians entering the job market every year.

The successful implementation of structural initiatives identified bythe Government towards improving the ease of doing business in the country by enhancingtransparency speeding up the approvals process resolving policy issues and fosteringgreater levels of value addition within the country would be crucial to boost theperformance of the Indian economy and realise its true potential. Enhancing agriculturalproductivity and value addition to international standards while simultaneously improvingmarket linkages remain critical for the growth of the agricultural sector. In thiscontext it is pertinent to note that anywhere between 5% and 40% of food is wasted alongthe chain in India depending on the inherent perishability of the crop and the season.India processes only 8% of its total food production as compared to 23% in China 65% inUSA and 78% in Philippines. A big thrust on India's Food Processing sector can leadto significant job creation enhance rural incomes and help manage food inflation.Similarly supportive policies in the area of agro-forestry would go a long way increating sustainable livelihoods while simultaneously augmenting the nation'senvironmental capital.

Over the last four years your Company has implemented an integratedpilot programme towards doubling farmer incomes in four districts of Allahabad Chandauli

Ghazipur and Varanasi reaching out to nearly 200000 farmers. Theprogramme seeks to enhance productivity crop quality and price realisation throughspecific interventions such as adoption of new high yielding varieties of wheatintroduction of short duration paddy to enable timely sowing of wheat in rabi seasonpromotion of value-added crops as well as educating farmers on best practices knowledgeand know-how transfer through the Choupal Pradarshan Khet initiative and in particularthrough practices like zero till sowing. Over 28000 farmers who have adopted all theinitiatives under the integrated programme have already reported doubling of incomes.Your Company is also engaged in enriching the potato value chain through its subsidiaryTechnico Agri Sciences Ltd which is a leading player in the production of earlygeneration seed potato. The interventions in this area include introduction of betterquality and improved variety of seed potato and supporting potato farmers in upgradingtheir produce to chip grade potato for enhanced value realisation.

With a view to scaling up your Company's contribution to thenational goal of improving farmer incomes your Company has recently entered into apartnership with the NITI Aayog to boost agricultural and allied activities in 25districts under the Aspirational Districts programme launched to further the HonourablePrime Minister's vision to transform such areas. Under this initiative your Companywill collaborate with NITI Aayog and the district administration to train 200000 leadfarmers to enable them to reduce costs / enhance farm productivity across major crops inthe identified districts.

The forward linkages to domestic agricultural value chains providedthrough your Company's Branded Packaged Foods Businesses stood further strengthenedduring the year with the recent foray into branded packaged potatoes & apples for theretail segment under the ‘Farmland' brand and ‘Super Safe' spicesfrozen prawns and dehydrated onions under the ‘ITC Master Chef' brand.

Given India's disproportionately low share of global naturalresources relative to its large population and where millions continue to live in abjectpoverty the focus both at the national and corporate level should be on fashioningstrategies that foster sustainable equitable and inclusive growth. Differentiated andpreferential incentives in the form of fiscal or financial benefits to companies thatadopt sustainable business practices would act as a force multiplier in achieving thiscritical national goal. It is your Company's belief that businesses can bring abouttransformational change by pursuing innovative business models that synergise the creationof sustainable livelihoods and the preservation of natural capital with enhancingshareholder 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'ssustainability 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 haveachieved and sustained the three key global indices of environmental sustainability ofbeing ‘water positive' (for 16 years) ‘carbon positive' (for 13years) and ‘solid waste recycling positive' (for 11 years). The focus oncreating unique business models that generate substantial livelihoods across the valuechains has led to your Company's Businesses supporting six million sustainablelivelihoods many of whom belong to the weakest in society. The following sections outlineyour Company's progress in pursuit of the ‘Triple Bottom Line'.

FINANCIAL PERFOMANCE

Your Company delivered a resilient performance during the year whichwas a particularly challenging one due to a sharp slowdown in the economy steepescalation in tax incidence on cigarettes under the GST regime subdued demand conditionsin the FMCG industry and supply chain disruptions caused during the transition to GST. Thenon-cigarette FMCG segment also had to contend with gestation costs relating to newproducts/categories and the ongoing restructuring of the retail footprint/trade terms inthe Lifestyle Retailing Business. Shortage of leaf tobacco in Andhra Pradesh due to lowercrop output on account of drought in 2016 and adverse crop quality relative strength ofthe Indian Rupee vis--vis currencies of competing origins and limited tradingopportunities in other agri-commodities weighed on the performance of the Agri Business.While there was an improvement in room rates performance of the Hotels Business remainedsubdued during the year due to the overhang of excess room inventory in key cities and theimpact of ban on sale of liquor at outlets in close proximity to highways in the firsthalf of the year. The Paperboards Paper and Packaging Business was also impacted byunabsorbed capacity in the value-added paperboards segment cheap imports and slowdown inend user industries such as FMCG liquor and pharmaceuticals.

Consequent to the introduction of Goods and Services Tax (GST) witheffect from 1st July 2017 Central Excise [other than National Calamity Contingent Duty(NCCD) on cigarettes] Value Added Tax (VAT) etc. have been replaced by GST. In accordancewith Indian Accounting Standard - 18 on Revenue and Schedule III of the Companies Act2013 GST GST Compensation Cess VAT etc. are excluded and NCCD is not excluded fromGross Revenue from sale of products and services for applicable periods. In view of theaforesaid restructuring of indirect taxes Gross Revenue from sale of products andservices and Excise Duty for the year ended 31st March 2018 are not comparable with theprevious periods.

On a comparable basis Gross Sales Value (net of rebates/discounts)1for the year stood at Rs 67081.92 crores representing a growth of 4.5% over 2016-17driven mainly by the Branded Packaged Foods Personal Care Products and the Education andStationery Products Businesses offset by decline in Agri Business revenue due to thereasons as aforestated. Profit Before Depreciation Interest and Tax (excl. Exceptionalitems) at Rs 15540.98 crores and Profit Before Tax (excl. Exceptional items) grew by 6.6%and 6.0% respectively.

Exceptional items during the year represent provisions for earlieryears of Rs 412.90 crores ( Rs 270.00 crores post tax) in respect of Tamil Nadu entry taxthat have been written back based on a favourable order of the Honourable Supreme Court.

Including Exceptional items Profit Before Tax at Rs 16851.70 croresand Profit After Tax at Rs 11223.25 crores registered growth of 8.7% and 10.0%respectively during the year. Total Comprehensive Income for the year stood at Rs 11605.59crores (previous year Rs 10277.90 crores). Earnings Per Share for the year stood at Rs9.22 (previous year Rs 8.43). Cash generated from operations aggregated Rs 18370.42crores compared to Rs 15214.98 crores in the previous year.

The Directors are pleased to recommend an Ordinary Dividend of Rs 5.15per share (previous year Ordinary Dividend of Rs 4.75 per share) for the year ended 31stMarch 2018. Total cash outflow in this regard will be Rs 7577.15 crores includingDividend Distribution Tax of Rs 1291.94 crores.

Over the last five years the Value-Added by your Company i.e. thevalue created by the economic activities of your Company and its employees aggregatedover Rs 200000 crores of which nearly Rs 150000 crores accrued to the Exchequer.

Including the share of dividends paid and retained earningsattributable to government owned institutions your Company's contribution to theCentral and State Governments represents about 80% of its Value-Added during the year.

Your Company remains amongst the Top 3 Indian corporates in the privatesector 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 aview to testing and demonstrating international competitiveness and seeking profitableopportunities for growth. Foreign exchange earnings of the ITC Group over the last tenyears aggregated nearly US$ 7.1 billion of which agri exports constituted 56%. Earningsfrom agri exports which effectively link small farmers with international markets are anindicator of your Company's contribution to the rural economy.

During the financial year 2017-18 your Company and its subsidiariesearned Rs 4189 crores in foreign exchange. The direct foreign exchange earned by yourCompany amounted to Rs 3480 crores mainly on account of exports of agri-commodities. YourCompany's expenditure in foreign currency amounted to Rs 2038 crores comprisingpurchase of raw materials spares and other expenses of Rs 1506 crores and import ofcapital goods at Rs 532 crores.

PROFITS DIVIDENDS AND RETAINED EARNINGS

( Rs 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 (net of tax) 52.78 (24.92)
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 continuesto exert severe pressure on the domestic legal cigarette industry even as illegalcigarette trade grows unabated.

The legal cigarette industry already reeling under the cumulativeimpact of steep increase in taxation over the last five years and intense regulatorypressures was further impacted by the sharp upward revision in GST Compensation Cessannounced in July 2017. Contrary to indications from the Government that the transition toGST would be based on the principle of maintaining revenue neutrality tax incidence oncigarettes rose sharply by 13% with an even steeper increase of 19% for the king-sizefilter segment under the GST regime. Coupled with the increase in Excise Duty ratesannounced in the Union Budget 2017 this resulted in an incremental tax burden of over 20%on your Company's Cigarette Business post implementation of GST.

It is pertinent to note that the tax incidence on cigarettes aftercognising for the latest increase in Cess rates has nearly trebled over the last sixyears on a comparable basis.

The Cigarette Business also had to contend with additional costsassociated with the transition to GST due to non-availability of Additional Duty Surchargecredit 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 cigarettescontinue 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 incidencecontinues on account of differential rates of GST Compensation Cess. For example aSpecific GST Compensation Cess at rates higher than the Central Excise Duty levied oncigarettes in the erstwhile regime is levied on cigarettes in addition to an Ad-valoremGST Compensation Cess of 36% for king-size cigarettes and 5% for the other lengthsegments. In comparison no GST Compensation Cess is levied on bidis. Consequentlycigarette taxes remain effectively about 50 times higher than on other tobacco products.

The high rates of tax on cigarettes also provide attractive taxarbitrage opportunities to unscrupulous players fanning the growth of illegal cigarettetrade in the country. While the legitimate cigarette industry has declined steadily since2010-11 at a compound annual rate of 4.8% p.a. illegal cigarette volumes in contrast havegrown at about 5% p.a. during the same period making India one of the fastest growingillegal cigarette markets in the world. It is pertinent to note that according toEuromonitor International India is now the 4th largest illegal cigarette market in theworld.

Another factor that fuels the growth of smuggled international brandsis that such cigarette packs do not carry the excessively large (85% of the surface areaof both sides of the cigarette package) pictorial warnings with extremely gruesome andunreasonable images that are prescribed under Indian laws. While the legal cigaretteindustry scrupulously complies with the statutory provisions smuggled internationalbrands of cigarettes either do not bear any pictorial or other health warnings or bearwarnings of much smaller dimensions that too different from what is mandated under Indianlaw. Findings from research conducted by IMRB International an independent organisationindicate that the lack of warnings or their diminutive size creates a perception in theconsumer's mind that the smuggled cigarettes are ‘safer' than domesticduty-paid cigarettes that carry the statutory warnings.

The attractive tax arbitrage opportunity for smuggled cigarettes allowsunscrupulous players to make the products available to consumers at a fraction of theprice of duty-paid domestic cigarettes. In fact the affordability of illegal cigarettesand the other cheaper tobacco products (by reason of lower tax incidence as well asevasion of taxes) has been driving the consumption of tobacco from duty-paid cigarettes tothe other forms. Consequently India's per capita cigarette consumption is amongstthe lowest in the world and is significantly lower in comparison to Russia Japan ChinaUnited States and even neighbouring countries such as Pakistan and Bangladesh.

While overall tobacco consumption in the country continues to grow theshare of duty-paid cigarettes has come down substantially over the years and is estimatedto account for around 11% of current tobacco consumption in the country. Despiteaccounting for such a low share of overall tobacco consumption in the country the legalcigarette industry contributes more than 87% of tax revenue from the tobacco sector. Theother types of tobacco products contribute barely 13% of tax revenue from the tobaccosector despite accounting for 89% of total tobacco consumption. It is estimated that theexchequer is losing more than Rs 13000 crores revenue annually on account of tax evasionon cigarettes alone. The loss to the exchequer is even higher when the evaded taxes onother tobacco products are also considered.

The growth of smuggled international brands has also adversely impactedthe demand for domestic Flue Cured Virginia (FCV) tobacco that is used in cigarettemanufacture. The absence of a strong domestic demand base has not only resulted in loss ofincome but has also exposed the Indian tobacco farmer to the volatilities of theinternational 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 46million livelihoods dependent on the tobacco value chain. Soft demand for Indian FCVtobacco has prompted the Tobacco Board of India to reduce the authorised crop size forthree successive years i.e. 2015-16 2016-17 2017-18. Further the unprecedented droughtin Andhra Pradesh in late 2016 played havoc on the actual crop output in 2017 besidesadversely 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 croresover the last three years i.e. an average loss in earnings of over Rs 1150 crores peryear.

As reported last year your Company and several other stakeholders hadchallenged the validity of the pictorial warnings. Based on a direction of the HonourableSupreme Court all litigation on pictorial warnings were tagged together and heard by theHonourable High Court of Karnataka. The High Court by its judgement in December 2017 heldthe 85% pictorial warnings with extremely gruesome imagery to be factually incorrect andunconstitutional. Upon a Special Leave Petition filed by the Government the HonourableSupreme Court stayed the Order of the High Court. Pending the final hearing of thismatter the regime of the extremely repugnant 85% pictorial warnings continues.

It is pertinent to note that the global average size of pictorialwarnings is only about 30% coverage of the principal display area. In fact the threecountries that account for about 51% of the world's cigarette consumption viz. USAJapan and China have not adopted pictorial / graphical warnings and have prescribed onlytext-based warnings on cigarette packages.

Although India is the 3rd largest FCV tobacco grower in the world ithas put in place extremely stringent tobacco control laws. For instance the statutorilyprescribed pictorial warning occupying 85% of both sides of a cigarette pack ranks Indiain the 2nd position globally in terms of their stringency1. Unfortunatelythese laws have fuelled albeit unintentionally the growth of illegal cigarettes in thecountry and consequently impacted adversely on farmer incomes. In contrast several majortobacco producing countries including the USA have taken into consideration theinterests of their tobacco farmers in deciding whether or not to adopt large or excessivepictorial warnings. The Indian tobacco control laws have thus had the inadvertent andunforeseen effect of causing losses to the Indian farmer with corresponding gains totobacco farmers in the countries that have opted for moderate and equitable tobaccocontrol laws.

Regardless of the steps taken by the Government towards tobacco controlin the country taking advantage of the country's large porous international bordersas well as by exploiting loopholes in the policies that are in place the smuggling ofinternational 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 theenforcement agencies2 has gone up from 1312 cases in 2014-15 to 3108 cases in2016-17 - an increase of more than 136%.

Unfortunately the taxation and regulatory policies of the country arelargely cigarette-centric and based on tobacco consumption patterns prevalent in developedcountries. Such policies are not suitable for India since duty-paid cigarettes account foronly about 11% of tobacco consumption in the country as compared to the global average ofmore than 90%. The unintended consequences of the extant tobacco taxation and regulatoryframework may be summarised as follows:

- Continuing decline in legal cigarette volumes in favour of lightly taxed andtax-evaded tobacco products due to extremely attractive tax arbitrage resulting insub-optimisation of the revenue potential of the tobacco sector and significant loss tothe Exchequer.

- Further fillip to the growth of illegal cigarettes in the absence of statutorypictorial 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 dubiousquality and hygiene to consumers at extremely affordable prices.

- Persistent negative impact on the livelihood of tobacco farmers and others dependenton tobacco for their livelihood.

As always your Company complies with all regulations and laws inletter and spirit whilst remaining engaged with policy makers for reasonable pragmaticand evidence based regulation and taxation policies that balance the health employmentand economic imperatives of the country.

Your Company's strong product portfolio along with superiorconsumer insights and a strategy of continuous innovation and value creation has onceagain helped deliver superior competitive performance during the year notwithstandingthe extremely challenging operating environment. It is a matter of deep satisfaction thatyour Company consolidated its leadership position in the industry during the year andcontinues to improve its standing in key competitive markets across the country. Some ofthe 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 CutCentury and a new brand Wave. Additionally two brands American Club and Players whichwere launched towards the end of 2016-17 were strengthened significantly during the year.

During the year the Electronic Vaping Devices portfolio was augmentedwith the launch of EON Myx a disposable variant which is offered in adult flavours likecoffee in addition to menthol and full flavour. The consumer response to this offering hasbeen encouraging. The rechargeable variant EON Charge further strengthened itsperformance during the year. Given the nascent state of the market and the evolvingregulatory oversight globally your Company remains engaged with the policy makers foradoption of an appropriate and equitable regulatory framework in India for this category.The research and development initiatives of your Company continue to add to thecountry's bank of Intellectual Property Rights (IPR).

In addition to grant of several patents in previous years your Companywas granted three more patents during the year - two international and one national - inrespect of cigarettes.

To secure increasingly higher levels of productivity and productexcellence going forward the Business continues to modernise its manufacturing facilitiesby inducting contemporary technologies. The Business leveraged its in-house design anddevelopment expertise and innovation capabilities to step up flexibility in manufacturingtechnologies and to further improve speed to market for differentiated products and packformats. In line with its philosophy of manufacturing excellence the Business hascommenced several initiatives towards capability enhancement in the arena of Industry 4.0including Advanced Analytics Artificial Intelligence Virtual Assist and AugmentedReality. These interventions are expected to bring about a digital transformation in themanufacturing process. Upgradation of on-line real time quality assurance systems andinduction of state-of-the-art technology for several product and packaging types werecarried out during the year. These initiatives have further improved the speed to marketfor successful launches and augmented the innovation pipeline of the Business. FurtherLong Term Agreements were concluded successfully with the unionised workforce at theBengaluru and Ranjangaon cigarette factories.

It is extremely satisfying to report that the Business continues to berecognised for its leadership role and commitment towards excellence sustainability andHR practices. The Bengaluru factory was conferred the ‘Sustainable Factory of theYear' award by Frost & Sullivan and The Energy & Resource Institute (TERI).

The factory has also been recertified as an IGBC Platinum Rated GreenFactory Building with the highest score in India. The Saharanpur factory was awarded theFirst Prize under the ‘FICCI Safety Systems Excellence Awards for Industry2017'. The Munger factory was honoured with the ‘Excellent Energy EfficientUnit' award at the 18th National Award for Excellence in Energy Management 2017. TheKidderpore cigarette factory was the recipient of the ‘Safety Innovation Award'by The Institution of Engineers (India). Your Company was also conferred two awards by theAssociation 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 everincreasing regulatory pressures and the unabated growth in illegal trade will continue topose several challenges in the year ahead. Your Company will continue to engage withpolicy makers for a tobacco taxation and regulatory policy that is non-discriminatoryhelps combat the menace of illegal cigarettes and addresses the issues of allstakeholders particularly tobacco farmers Exchequer and consumers. Such a policy willnot only help maximisation of the revenue potential of tobacco even in a shrinking basketof tobacco consumption but also address the tobacco control and health objectives of theGovernment. Your Company remains confident that despite the severe pressures the trustand faith reposed by the consumers coupled with the Company's robust productportfolio world-class quality innovation in processes investments in cutting-edgetechnology and superior execution of competitive strategies will enable it to retain itspole position and reinforce its market standing in the years to come.

FMCG - Others

The FMCG industry faced another challenging year with demand conditionsremaining sluggish for the fifth year in a row. The slowdown in the broader economy asreflected by the marked deceleration in Nominal GDP and private consumption expendituregrowth headwinds in rural demand and supply chain disruptions during the transition tothe GST regime was manifest in your Company's operating segments in the FMCG space.The year also witnessed commodity prices settling at an elevated level exerting pressureon margins. While it is anticipated that the FMCG industry will take a few more quartersfor demand revival to play out fully the green shoots of economic recovery andexpectations of normal monsoons augur well for the industry. The structural drivers oflong-term growth such as increasing affluence and consumer awareness a young andexpanding workforce increasing urbanisation Government's thrust on infrastructuredevelopment and the rural sector implementation of GST amongst others remain firmly inplace and the FMCG industry is poised for rapid growth in the ensuing years.

Despite the challenging conditions prevailing during the year yourCompany's FMCG-Others Businesses' Segment Revenue at Rs 11329 crores grew aheadof industry and recorded an increase of 11.3% (on a comparable basis) on a relatively firmbase. It is pertinent to note that while the second half of 2016-17 witnessed reducedconsumer offtake and trade pipelines in the wake of adverse liquidity conditions yourCompany's FMCG-Others Businesses were relatively less impacted. Most major categoriesenhanced their market standing during the year. While ‘Bingo!' snacks‘Aashirvaad' atta and ‘Dark Fantasy Choco Fills' premium creambiscuits were the key drivers of growth in the Branded Packaged

Foods Businesses ‘Engage' deodorants‘Vivel'/‘Fiama' soaps & shower gels and ‘Savlon'handwash fuelled strong growth in the Personal Care Products Business. The Education andStationery Products Business posted a robust performance during the year led by‘Classmate' notebooks which consolidated its leadership position in theindustry. However the performance of the Lifestyle Retailing Business remained sluggishmainly on account of an early and prolonged ‘end-of-season' sale in the wake ofdisruption to the trade during transition to GST and ongoing structural interventions toenhance operating efficiencies. Segment Results for the year improved to

Rs 164 crores from Rs 28 crores in 2016-17 driven by enhanced scaleproduct mix enrichment and strategic cost management initiatives after absorbing theimpact of sustained investment in brand building gestation costs of new categories viz.Juices Dairy Chocolates and Coffee and costs associated with the ongoing structuralinterventions in the Lifestyle Retailing Business.

Your Company continued to make investments during the year towardsenhancing brand salience and consumer connect while simultaneously implementing strategiccost management measures across the value chain. Several initiatives were also implementedduring the year towards leveraging the rapidly growing e-commerce channel with a view toenhancing the reach of your Company's products and harnessing digital and socialmedia platforms for deeper consumer engagement.

During the year your Company commissioned two world-class IntegratedConsumer Goods Manufacturing and Logistics Units (ICMLs) at Panchla West Bengal andKapurthala Punjab. Significant progress was also made in constructing several otherstate-of-the-art owned ICMLs across regions to secure capacity and enable the FMCGBusinesses to rapidly scale up in line with long-term demand forecast. Currently over 15projects are underway and in various stages of development - from land acquisition/sitedevelopment to construction of buildings and other infrastructure. The Businesses arefocussing on deploying ‘Industry 4.0' technologies including advanced analyticsbig data and industrial Internet of Things (IoT) in areas such as overall equipmentefficiency energy management maintenance downtime analysis quality and traceability.

The FMCG Businesses comprising Branded Packaged Foods Personal CareProducts Education and Stationery Products Lifestyle Retailing Incense Sticks(Agarbattis) and Safety Matches have grown at an impressive pace over the past severalyears.

Today your Company's vibrant portfolio of brands represents anannual consumer spend of nearly Rs 16000 crores in aggregate. These brands have been builtorganically by your Company over a relatively short period of time - a feat unparalleledin the Indian FMCG industry. In terms of annual consumer spend ‘Aashirvaad' istoday over Rs 4000 crores; ‘Sunfeast' over Rs 3500 crores; ‘Bingo!'over Rs 2000 crores; ‘Classmate' and ‘YiPPee!' over Rs 1000 croreseach and ‘Vivel' ‘Mangaldeep' and ‘Candyman' over Rs 500crores each. These world-class Indian brands support the competitiveness of domestic valuechains of which they are a part ensuring creation and retention of value within thecountry.

Your Company's FMCG brands have achieved impressive marketstanding in a relatively short span of time. Today Aashirvaad is No. 1 in Branded AttaBingo! is No. 1 in Bridges segment of Snack Foods (No.2 overall) Sunfeast is No. 1 in thePremium Cream Biscuits segment Classmate is No. 1 in Notebooks YiPPee! is No. 2 inNoodles Engage is No. 2 in Deodorants (No. 1 in women's segment) and Mangaldeep isNo. 2 in Agarbattis (No. 1 in Dhoop segment).

Your Company remains extremely agile and responsive to the emergingtrends shaping the future of the industry. Some of the noteworthy consumer trends includethe emergence of health and wellness products as a key consumer need; increasingpreference for products rooted to ‘Indianness' and with regional/culturalconnects; increasing need for customised products and bespoke experiences; growth indemand for ‘on-the-go' consumption formats and rising influence of social mediaand digitalisation on consumer preferences and shopping behaviour. Similarly the FMCGmarket 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 ModernTrade and e-commerce.

The Indian FMCG market is at an inflection point and your Company seeksto rapidly scale up the FMCG Businesses leveraging its institutional strengths viz. deepconsumer insight proven brand building capability agri-commodity sourcing expertisecuisine knowledge strong rural linkages a deep and wide distribution network andpackaging know-how. In addition your Company continues to make significant investments inResearch & Development focus on consumer insight discovery and harness digitaltechnology 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 remainedsluggish during the year due to slowdown in private consumption expenditure growth andsupply chain disruptions during the transition to GST. The year was marked by heightenedcompetitive intensity with industry players resorting to aggressive consumer promotionsand trade schemes in a bid to garner volumes.

Against the backdrop of a challenging operating environment asaforestated your Company sustained its position as one of the fastest growing brandedpackaged foods businesses in the country leveraging a robust portfolio of brands a rangeof distinctive products customised to address regional tastes and preferences along withan efficient supply chain and distribution network that ensures benchmark levels ofvisibility availability and freshness of products in the market. The Business implementedseveral initiatives encompassing cost management supply chain optimisation smartprocurement and recipe optimisation which helped in mitigating the escalation in inputcosts and enhancing profitability.

Your Company's Branded Packaged Foods Businesses continued to makesignificant investments towards brand building and supporting the launch of new variantsapart from absorbing the gestation costs of new categories viz. Dairy Juices Chocolatesand Coffee.

Your Company's vibrant and successful food brands such as‘Aashirvaad' ‘Sunfeast' ‘Bingo!' ‘YiPPee!' and‘B Natural' amongst others enable strong forward linkages for domesticagri-value chains thereby enhancing their competitiveness and making a meaningfulcontribution to boost farmer earnings.

Relentless focus on delivering superior quality products to consumersremains a key source of competitive advantage for the Branded Packaged Foods Businesses.In this context the Businesses continue to leverage your Company's agri-commoditysourcing expertise to procure high quality raw materials thereby ensuring the highestlevel of quality and safety of its products. In addition each of your Company'sbranded packaged food products is manufactured in HACCP/ISO-certified manufacturinglocations ensuring compliance with all applicable laws and adherence to the highestquality norms.

The Business launched several innovative distinctive andfirst-to-market products during the year leveraging robust product development processesthe capabilities of your Company's Life Sciences and Technology Centre and thecuisine expertise resident in your Company's Hotels Business.

Several manufacturing units of your Company's Branded PackagedFoods Businesses competing with both the best within and outside the industry receivedseveral awards and accolades during the year bearing testimony to your Company'sfocus on manufacturing excellence safety and quality.

Your Company continues to make investments towards augmenting themanufacturing and sourcing footprint across categories with a view to improving marketresponsiveness and reducing the cost of servicing proximal markets. During the year twonew owned manufacturing facilities - Kapurthala in Punjab and Panchla in West Bengal -were commissioned while capacity utilisation was progressively scaled up at the UluberiaMysuru and Guwahati units that commenced operations in the second half of FY17. Plans areon the anvil to commission new lines at the Kapurthala Panchla and Guwahati facilities inthe ensuing year. The manufacturing unit at Pudukkottai Tamil Nadu is at an advancedstage of completion and is expected to be commissioned shortly.

- The Staples Business posted robust performance during the yeargrowing well ahead of the industry. In the Staples category Aashirvaad atta postedhealthy growth and fortified its leadership position while maintaining its pricing premiumin the market. The value-added product portfolio comprising Multigrains Select and SugarRelease Control atta continued to record robust growth.

This was achieved despite increasing competitive pressures triggered bythe imposition of 5% GST on branded atta (compared to nil VAT in most States under theerstwhile tax regime) while non-branded atta (incl. branded atta on which actionable claimor enforceable right has been foregone voluntarily) remained at nil duty. During the yearthe Business also had to contend with a concerted attack on Aashirvaad atta on socialmedia with rumour mongers circulating malicious videos and falsely alleging thatAashirvaad atta contains plastic. The Business launched a 360 degree campaign to reassureconsumers and dispel the baseless rumours surrounding Aashirvaad atta.

The communication clearly highlighted that as per FSSAI standards attamust contain not less than 6% of wheat protein on a dry weight basis and that elasticityis 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 ordersrestraining circulation of such videos on social media were also obtained from the civilcourt. These interventions helped in effectively mitigating the short-term impact of themalicious videos on sales momentum with the brand staging progressive recoverysubsequently.

Your Company takes utmost care in manufacturing of its products atHACCP/ISO-certified manufacturing locations ensuring compliance with all applicable lawsand adherence to the highest quality norms. Powered by the trust reposed by over 2.5 crorehouseholds your Company is confident of sustaining Aashirvaad's position asIndia's No. 1 atta brand going forward.

Supported by its new positioning ‘Created by Sun and Sea - purejust like nature intended it to be' and new pack design Aashirvaad Salt postedrobust performance during the year. In the branded Spices category the Aashirvaad rangeof spices registered steady volume growth. In line with its commitment to deliver productswith the highest quality and safety standards to Indian consumers the Business continuedto reinforce the value proposition of the recently launched ITC Master Chef ‘SuperSafe Spices' which are tested for over 470 pesticide residues in accordance withEuropean standards as compared to only nine required under Indian regulations.

- In the Snacks and Meals Business the Bingo! range of snacks recordedrobust growth during the year driven by Tedhe Medhe and potato chips. The Businessachieved market leadership on an All-India basis in the Bridges segment driven by a robustportfolio of products under the Tedhe Medhe Mad Angles and Tangles sub-brands. The potatochips portfolio recorded impressive market share gains and emerged as the leader in theSouth markets leveraging an optimised portfolio revamped pack and fresh communication.During the year the Business forayed into the extruded snacks segment with the launch of‘No Rulz' - a-first-of-its-kind offer comprising four different shapes of theproduct in a single pack. The product has received excellent response and continues togain traction with consumers. The Bingo! range was augmented during the year with thelaunch of several variants customised for regional taste palates viz. Mad Angles KolkataKasundi Tedhe Medhe Lime Chatpata Tomato Masti and Pudina Twist.

In the Instant Noodles category YiPPee! noodles sustained its robustgrowth momentum during the year despite increasing competitive intensity including fromseveral regional discount players. The year also saw the launch of ‘Mood Masala'- an innovative variant comprising two masala mix sachets in a pack providing the consumerthe option to add masala to ‘match his mood'. Mood Masala received encouragingconsumer response further strengthening the brand imagery of YiPPee! amongst tweens andyoung adults.

- The Confections Business scaled up operations and improved its marketstanding during the year. In the Biscuits category the Business continued to focus onpremiumising its product portfolio enhancing brand affinity strengthening the supplychain and expanding distribution reach. Consistent and impactful communication coupledwith focused marketing inputs helped improve penetration and brand health metrics. DarkFantasy Choco Fills sustained its clear market leadership position in the Super-PremiumCreams segment across the country. Brand architecture in the biscuits category wasoptimised with the migration of Delishus & Yumfills under the Mom's Magic andDark Fantasy brands respectively. The Business augmented its product portfolio in thehealth segment with the launch of Protein Power a unique variant based on roasted Bengalgram flour and Digestive five grains biscuits under the Farmlite brand. The Mom'sMagic range was expanded with the addition of ‘Fruit & Milk' variant. YourCompany continues to leverage the biscuits manufacturing unit owned by North EastNutrients Private Limited a joint venture company to record impressive gains in marketstanding in the North East markets.

In the Confectionery category in line with its strategy ofpremiumising the portfolio the Business launched several unique offers in the ‘Re. 1& above' price points including Cola Josh Crunchy and Clear Candy under theCandyman brand Jelimals Sour Slides and two exciting variants under the‘mint-o' brand. These products have received encouraging consumer response.

- In the Dairy & Beverages Business the ‘B Natural'range of juices continues to gain traction amongst its target consumers aided by aclutter-breaking media campaign on-ground trial generation initiatives and visibility& availability enhancement drives.

The journey towards making juices concentrate-free which commencedlast year with the launch of ‘B Natural 100% Pomegranate Juice' continuedduring the year with the entire range of B Natural juices being migrated to the ‘notfrom concentrate' platform. This first-of-its-kind initiative in India was anchoredon the twin resolve to provide consumers a more nutritive and natural tasting experienceand promote the use of fruit pulp procured from Indian farmers thereby supporting theIndian farm and food processing sector. The Business also introduced ‘Bael' and‘Phalsa' variants during the year catering to regional tastes and preferenceswhich were well received by consumers. In the Dairy segment ‘Aashirvaad Svasti'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‘Aashirvaad Svasti' milk in select markets in Bihar in the vicinity of yourCompany's Munger dairy plant.

- In the Chocolates category the ‘Fabelle' range of luxurychocolates was scaled up during the year with a view to redefining the luxury chocolatesegment in India. The range is available in eight Fabelle Chocolate Boutiques locatedwithin ITC hotels and several outlets in premium malls and food stores. Product portfoliowas augmented with the launch of two delectable variants of centre-filled chocolate bars -‘Hazelnut Mousse' & ‘Dark Choco Mousse' which have receivedexcellent response from discerning consumers. Towards deepening engagement with consumersthe Business launched a unique experience platform during the year christened -‘Fabelle Socit de Chocolat' - across Fabelle boutiques with Ms. BillieMcKay winner of MasterChef Australia 2015 as the mentor. ‘Sunbean' gourmetcoffee launched across all ITC Hotels last year continues to receive excellent responsefrom discerning consumers and plans are on the anvil to scale up presence in the ensuingyears.

Your Company remains focused on establishing itself as the ‘mosttrusted provider of food products in the Indian market' driven by superior productquality a differentiated product portfolio deep understanding of consumer needs andpreferences R&D innovation and operational excellence across the value chain. YourCompany will continue to make investments towards establishing a distributed manufacturingfootprint driving cost efficiencies in a structural manner and focus on supply chainoptimisation to support the rapid and profitable growth of the Branded Packaged FoodsBusinesses in the years ahead.

Personal Care Products

Your Company's Personal Care Products Business delivered a robustperformance and enhanced its market standing during the year against a backdrop ofsignificant disruption to trade and supply chain following the roll out of GST. This wasdriven largely by sustained focus on innovation product mix enrichment expansion ofdistribution reach proactive cost management and enhancing supply chain responsiveness.

The Business continued to focus on innovation and to delight consumersby launching a range of exciting offerings during the year. In the Fragrance category therecently launched innovative perfume variants under the brand ‘Engage ON' and‘Engage ON+' designed to drive on-the-go consumption garnered robust consumertraction. The Business also launched a Sport range of deodorants with long lastingfragrance and a selection of premium Eau de Parfums for both men and women. In thePersonal Wash category the Business introduced a unique Gel Crme range under the‘Fiama' brand combining the best of gel and cream for both soap and liquidbathing products and Vivel Lotus Oil - a unique offering enriched with Lotus Oil andVitamin E for soft glowing skin. ‘Savlon' handwash continued to gain groundwith the launch of a new small pack at an attractive price point. These new innovationsreceived excellent response from consumers during the year and were supported withrefreshing communication and engaging consumer activations.

Your Company's key brands namely Vivel Engage and Savloncontinue to gain salience with target consumers and win industry recognition.

The Business continued to leverage innovative brand campaigns andsocial media platforms towards deepening consumer engagement. The recent interventions ofrestaging key brands anchored on Women Empowerment in the case of Vivel and HealthierKids Stronger India in the case of Savlon have received positive response from consumersresulting in a pick-up in sales momentum. Savlon won seven Cannes Lions Awards at thecoveted Cannes Lions 2017. Considered to be the highest global accolade that recognisescreative excellence in advertising and communications Savlon won the prestigious awardsfor its unique and innovative ‘Healthy Hands Chalk Sticks' initiative.

The ‘Healthy Hands' initiative also received the Global PRSABRE as one of the Top 10 Best PR campaigns in the world. Vivel's proposition ofempowerment of women through its ‘Ab Samjhauta Nahin' message won certificatesof excellence at the South Asia PR SABRE awards for its integrated campaign thought andinitiatives. ‘Engage' won a Gold at Abby (India's biggest advertising andcreative award) for its social and digital campaign christened ‘Pocketful O'Stories'. The ‘Engage' campaign designed to introduce the Engage ON pocketperfume on social media also won two Golds at the Content Marketing Awards South Asia forBest Use of contextual content and Best Use of Digital (Content).

‘Engage' recorded impressive gains in the Fragrance categoryconsolidating its leadership position in the women's segment and No. 2 positionoverall. The roll out of innovative pocket perfumes Sport range of deodorants and the Eaude Parfums range have helped the brand grow its consumer equity significantly among bothmen and women besides premiumising the portfolio. ‘Savlon' handwash recordedsignificant gains during the year across brand health metrics and emerged as the fastestgrowing brand in the market. In the bodywash segment the ‘Fiama' range ofshower gels continued to garner increasing consumer franchise and is the fastest growingand the second largest brand nationally. The Business also launched moisturising skincreams under the recently acquired ‘Charmis' brand and plans are afoot tostrengthen your Company's skincare portfolio in the near to medium term.

During the year your Company's manufacturing facility in theNorth East which was commissioned in March last year achieved 90% capacity utilisationwithin a short period of time. This has led to strengthening the supply chain and hasenabled efficient servicing of proximal markets in the North East.

Input prices remained stable in the first half of the year with anuptick in the latter half. The Business continued to pursue strategic cost managementinitiatives including product cost optimisation through innovation proactive sourcingalternative vendor development and value capture through supply chain efficiencies whichresulted not only in containing inflation but also in enhancing profitability.

Your Company continues to strengthen its presence in the Personal Carespace in view of the robust long-term prospects of the industry given the low levels ofper capita consumption currently rising disposable incomes increasing urbanisation andgrowing consumer preference for enhanced personal grooming. Your Company is wellpositioned to seize the emerging opportunities and continues to invest in creation ofvibrant brands innovative consumer-centric products and a robust supply chain to emergeas a significant player in this space.

Education and Stationery Products

The Stationery industry was impacted during the year with the roll outof GST coinciding with the school opening season and trade operating with lower inventorylevels due to uncertainties around the new tax regime. Despite these challengingconditions the Business sustained its leadership position in the Indian Education andStationery Products industry anchored on a portfolio of world-class products and brands.

The Business continued to leverage its dedicated product developmentcell and your Company's Life Sciences & Technology Centre to develop & launchinnovative and superior products in the market. During the year the product portfolio wasaugmented with the launch of several new products including a spiral range of notebooksunder Classmate Classmate All Purpose Paper ‘Archimedes' premium geometryboxes with ‘spur gear' divider and compass for higher precision and severalofferings in the pens mechanical pencils and scholastics categories. The Business alsoscaled up presence in the value segment of the notebook industry through its brand‘Saathi' with a view to consolidating its leadership position.

During the year the Business launched

‘Classmateshop.com' - a first-to-market initiative thatoffers consumers the option to personalise the images to be printed on notebook covers.The Business continued to focus on enhancing brand affinity by leveraging the‘Classmate Spellbee' and ‘Classmate Handwriting Competition'platforms. These competitions collectively reach out to nearly a million children across1000 schools in 30 cities.

The ‘Be Better Than Yourself' campaign launched during theyear under the Classmate brand across television out-of-home digital and social mediaplatforms hit the right note with consumers receiving positive reviews. The campaignseeks to drive tangible changes in society by encouraging children to realise their fullpotential by pursuing their personal goals and ambitions rather than comparing them withpeers in terms of their marks and other achievements. The campaign has helped generateconversations amongst parents on this critical topic and garnered over seven million viewsacross social media platforms.

In the area of supply chain initiatives on quality and cost managementthrough network optimisation yielded superior product quality and enhanced operationalefficiency. The thrust on expanding distribution continued with specific focus oninstitutional channel and enhancing market penetration and outlet coverage. Sales anddistribution systems were strengthened further through technology interventions such assales force automation and Customer Relationship Management system for the institutionalchannel.

Classmate and Paperkraft notebooks leverage your Company'sworld-class fibre line at Bhadrachalam - India's first ozone treated elementalchlorine free facility - and embody the environmental capital built by your Company in itspaper business. During the year the Business scaled up the Paperkraft range of notebooksusing Forest Stewardship Council (FSC) certified paper made at your Company's papermill matching the best quality paper in the world.

The Indian Education and Stationery Products industry is poised forexponential growth driven by growing literacy increasing enrolment ratiosgovernment's thrust on the education sector through various policy initiatives likeSarva Shiksha Abhiyan Right to Education etc. and a favourable demographic profile of thecountry's population. Your Company with its strong brands and robust productportfolio and collaborative linkages with small & medium enterprises is well poisedto 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 withmost players announcing an early ‘end-of-season' sale period which was extendedin a bid to liquidate pre-GST merchandise. On the other hand e-commerce players continuedwith their aggressive push to capture market share amongst value seeking consumers byoffering heavy discounts and launching exclusive labels and brands. The performance ofyour Company's Lifestyle Retailing Business was adversely impacted against thebackdrop of the challenging environment as aforestated.

The Business continued to execute the structural interventionsinitiated in the previous year across channels and processes including restructuring theretail foot print rationalisation of stores modifying the design language of itsofferings restructuring of terms of trade with business partners and sharpening workingcapital management. The Business refreshed the offers under Wills Lifestyle and JohnPlayers adopting a unique ‘Story-based Looks creation' approach. This initiativeentailed re-crafting the merchandise range architecture channel specific offerings andspecial focus on enhancing the portfolio of core merchandise. Distinct and time boundcolour stories were introduced aimed at providing freshness to consumers in the retailstores on a continual basis.

The ‘Wills Lifestyle' range was augmented during the yearwith the launch of pure superfine linens and flat knits. The brand is available in 350outlets across multiple channels including national and regional large format storesexclusive and multi-brand outlets including six exclusive boutique stores across ITCHotels.

The John Players brand is available at around 750 points-of-sale acrossleading 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 outdoorsmart casual products made of innovative fabrics. The John Players Jeans range wasstrengthened by using unique knitted structure fabrics in denims with differentiatedwashes laser printing travel jeans with mobile charger pockets trendy joggers incamouflage prints Indigo shirts in checks prints & dobbies and youthful trendy polorange in indigo engineered designs & stretch fabrics.

During the year the Business enhanced its core portfolio augmentedmarketing activities including windows and visual merchandising improved manufacturingproductivity and efficacy of replenishment mechanisms. Analytics based on ERP andpoint-of-sale systems enabled enhancing consumer experience besides further strengtheninginventory and receivables management.

The Business will continue to sharpen its design focus marketrepresentation and supply chain responsiveness with a view to improving operatingefficiency going forward.

Incense Sticks (Agarbattis) and Safety Matches

The Agarbatti category witnessed increase in competitive intensityduring the year with industry players resorting to aggressive media and promotion spendsin a bid to garner market share. The continued presence of counterfeit products and supplychain disruptions due to transition to GST also weighed on industry performance. Againstthe backdrop of these challenging conditions Mangaldeep sustained its position as theleader in the Dhoop segment and the second largest brand in the Agarbatti segment. Duringthe year the Business augmented its product portfolio with the launch of new variants andenhanced its distribution reach. Investments in media coupled with on-ground activationactivities were made during the year towards enhancing Mangaldeep's salience as themost preferred brand in the devotional space. Product mix enrichment and cost optimisationinitiatives continued to be the other key focus areas for the Business.

During the year the Business upgraded its unique and highly innovativeMangaldeep App in partnership with several subject matter experts with the introduction ofnew features which were carefully curated to cater to regional nuances. Currentlyavailable in nine languages on both the Android & iOS platforms the App'scontent caters to the everyday devotional needs of consumers by providing detailedinformation and steps to perform various pujas and has innovative features such as acollection of popular devotional songs a panchang (Hindu calendar and almanac) aninnovative chant counter and temple locator amongst others. The App has received excellentresponse with over 300000 downloads and an average rating of 4.6 out of 5.0.

The Agarbatti industry continues to import raw battis primarily fromVietnam and China although bamboo and charcoal - the principal raw materials - areavailable in India in plenty. This is resulting in loss of livelihood creationopportunities for women and tribals in rural areas particularly in the North East. Inthis regard the recently announced restructured National Bamboo Mission which seeks tobring more than 100000 hectares under plantation and amendment in the Indian Forests Actexcluding bamboo grown in non-forest areas from the definition of a ‘tree' willinter alia encourage manufacture of raw battis from indigenous bamboo and facilitatecreation of sustainable livelihood opportunities amongst small and marginal farmers.

In line with your Company's commitment to enhancing thecompetitiveness of Indian value chains linked to its operations the Business hasimplemented several measures including facilitating the mechanisation of agarbattimanufacturing and backward integration into raw batti manufacturing using indigenousinputs at vendor locations.

While demand conditions remained sluggish during the year in the SafetyMatches category the Business sustained its leadership position by leveraging a robustportfolio of offerings across market segments. The Business focused on enriching itsproduct mix by enhancing the share of value-added products in the portfolio.‘AIM' continues to be the largest selling brand in the industry.

Introduction of GST has led to the harmonisation of tax rates in theSafety Matches industry by eliminating the tax differential that existed under theerstwhile indirect tax regime between semi-mechanised and mechanised operations. Thiscoupled with the effective implementation of the recently introduced E-way bill isexpected to facilitate levelling the playing field and in triggering the requiredinvestments towards modernising and enhancing the long-term sustainability andcompetitiveness of the industry.

Trade Marketing & Distribution

Your Company's Trade Marketing & Distribution (TM&D)vertical has over the years developed critical insights into customer behaviour andchannel-specific trends in the FMCG industry. Given the diverse needs of yourCompany's FMCG businesses the TM&D vertical has crafted a differentiated andcomprehensive market/outlet specific strategy to address the opportunities in the FMCGindustry.

During the year the TM&D vertical strengthened its formidabledistribution network covering over one lakh markets and over six million retail outlets(directly and indirectly) across various trade channels. This further enhanced the reachand availability of your Company's large and diverse FMCG product portfoliocomprising several world-class brands and hundreds of SKUs. In urban markets your Companycontinued its customised servicing / engagement programmes for the top outlets throughdedicated infrastructure. This resulted in enhancing trade relationships and improving themarket standing of your Company's FMCG products. In rural markets your Companycontinued to roll out market specific interventions including augmentation of supervisionstructure and increase in direct coverage to achieve growth rates higher than industryand support enhanced scale of operations going forward.

During the year your Company sustained its leadership position in theconvenience channel while consolidating its market standing in premium grocery outlets.TM&D's trade loyalty programmes - ‘First Club' for retail outlets and‘Shubh Laabh' for the wholesale channel - continued to gain traction during theyear. Sales of your Company's FMCG products in the Modern Trade channel continued togrow on the strength of extensive deployment of in-store merchandisers consumer connectprogrammes coupled with joint business planning during large-scale customer activationdrives channel specific SKUs extensive sampling initiatives etc. Your Company continuedto make progress during the year in scaling up presence of your Company's FMCGportfolio in the chemist channel. Your Company worked closely with leading e-commercecompanies towards enhancing the availability of its products on their online platformsaiding sell-out through enhanced visibility and strengthening operational capabilities toservice customer requirements. As a result of these initiatives your Company'sbusiness in the e-commerce segment witnessed robust growth during the year.

The scale and diversity of your Company's distribution networkcontinues to be a critical lever to enhance market presence gain valuable consumer/tradeinsights and facilitate seamless execution of new product/category launches. During theyear TM&D executed more than 60 new launches across geographies apart from extendingdistribution reach of several existing products in the portfolio. Technology enablement inthe form of customised mobility solutions data analytics comprising insightfulvisualisation tools & predictive analysis are being leveraged increasingly towardsenabling quick and accurate data capture informed decision making and scientificallydesigning trade promotion schemes.

TM&D's supply chain and logistics function continues to play avital role in enabling superior market servicing while continuously reducing cost ofmarket servicing. During the year several initiatives were undertaken to enhance supplychain responsiveness and cost competitiveness. These include reducing distance to marketenhancing flexibility to cater to new launches and contingencies and reconfiguring marketservicing infrastructure. In addition innovative distribution models were implemented tooptimise inventory holding and improve distribution efficiency of trade channel partnersand reduce transit time by increasing direct market servicing. Your Company is also in theprocess of setting up several state-of-the-art warehouses co-located with the IntegratedConsumer Goods Manufacturing facilities. These modern warehouses are expected to providelong-term benefits by improving operating efficiency and enhancing product freshness inthe market.

During the year the TM&D vertical proactively engaged with itstrade partners to help them re-engineer their business processes to be compliant with GSTrequirements besides continuing to collaborate with them to improve the frequency ofservicing reduce inventory holding and the incidence of out-of-stock situations.

TM&D continues to invest in augmenting the depth and width of yourCompany's distribution network while adopting a differentiated approach to addressthe unique needs of your Company's diverse FMCG product portfolio market segmentsand trade channels. With its best-in-class systems and processes agile and responsivesupply chain and synergistic relationship with trade TM&D's distribution highwayis a source of sustainable competitive advantage for your Company's FMCG Businessesand 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 ofimprovement with foreign tourist arrivals crossing the ten million mark in 2017. Whilegrowth in Segment Revenue during the year was subdued at 5.6% reflecting inter alia theoverhang of excess room inventory and the impact of highway liquor ban performance duringthe second half was significantly better driven by increase in ARR and robust growth inFood & Beverage revenue. Improvement in room rates and operating leverage aided fastergrowth of 26% in Segment Results notwithstanding the gestation costs of ITC Grand Bharatand the recently commissioned WelcomHotel Coimbatore.

Your Company's Hotels business remains amongst the fastest growinghospitality chains in the country with over 104 properties under four distinct brands -‘ITC Hotel' in the Luxury segment ‘WelcomHotel' in the Upper-Upscalesegment ‘Fortune' in the Mid-market to Upscale segment and‘WelcomHeritage' in the Leisure & Heritage segment. The Business continuesto focus on strengthening the equity and differentiation of the ITC Hotels brand anchoredon unique and path-breaking ‘Responsible Luxury' initiatives culinaryexcellence and personalisation of guest services through hotels that are the truestrepresentation of the region's culture and ethos.

‘Club ITC' your Company's pan-ITC consumer loyaltyprogramme continues to gain franchise amongst the premium clientele of ITC hotels andWills Lifestyle. The programme continues to leverage its strategic partnership withStarwood Preferred Guest (SPG) - the global loyalty programme of Marriott International.The dining loyalty programme ‘Club ITC Culinaire' has grown rapidly inpopularity registering robust growth in membership base during the year.

During the year the Business further strengthened its digital presencethrough targeted e-commerce activations for direct conversions leading to increased reachand engagement with customers in both domestic and international markets. The Businessalso focused on social media marketing and online reputation management towards enhancingbrand salience and market standing. During the year the Business rolled out a chain-wide#soulofcity campaign amplifying its brand proposition of ‘Hotels that define thedestination' generating appx. 4.4 million impressions. The Business received globalaccolades and recognition at The Global Social Hotel Awards for ‘Best Use Of A VisualNetwork' and ‘2nd Best Online Reputation Management' for 2017.

The world-class ambience of your Company's luxury hotels continuesto be leveraged for the gourmet luxury chocolates range under the ‘Fabelle'brand with exclusive boutiques across eight ITC hotels. In addition to selling premiumpackaged chocolates from the Branded Packaged Foods Business the Fabelle chocolateboutiques offer a range of exquisitely crafted desserts and cocoa beverages created liveby Fabelle Master Chocolatiers. The initiative has received encouraging response and willgo a long way in establishing the Fabelle brand at the luxury end of the market.

The Fabelle Socit de Chocolat an exclusive chocolate-makingprogramme designed by the master chocolatiers of Fabelle chocolates at ITC luxury hotelsprovides chocolate lovers and budding chocolatiers an opportunity to foster the love forchocolate and appreciate the fine nuances of chocolate making. The initiative has receivedexcellent response from discerning chocolate consumers and is planned to be scaled up inthe ensuing year.

‘Sunbean' gourmet coffee launched last year establisheditself as the beverage of choice in your Company's luxury hotels. The bespoke brandexperience was brought alive for the guests through ‘Sunbean Ambassadors' -specially trained master baristas who demonstrated the brand story supported bydelightful creations.

Your Company's Hotels Business sustained its pre-eminent positionin the hospitality industry receiving several coveted accolades and recognitions duringthe year. ITC Hotels featured as the ‘Sectoral Leader' for the fourth time inthe Business World ‘Most Respected Companies' listing. The Travel+Leisuremagazine acknowledged the chain as the ‘Best Luxury Hotel Chain' at the‘India's Best Awards'. The U.S. Green Building Council presented ITC Hotelswith a ‘Leadership Award' for its commitment to Green Building Design. TheResponsible Luxury Fellowship enumerating ITC Hotels' guiding principles throughvideo blogs won the brand the ‘Best Digital Video' award by HOTELS magazine USA.Your Company's world-class properties continued to receive international and domesticaccolades - ITC Grand Bharat was ranked amongst the Top 10 resorts in Asia by Conde NastTraveler USA and the ‘Best Luxury Hotel' by Travel+Leisure India & SouthAsia while ITC Maurya was adjudged the ‘Most Eco Friendly Hotel' by theMinistry of Tourism at the National Tourism Awards.

The Food & Beverage segment continues to be a major strength ofyour Company's Hotels Business with some of the most iconic brands in the country.Your Company's culinary brands retained their leadership position with‘Bukhara' ‘Dum Pukht' ‘Royal Vega' ‘Dakshin'‘Avartana' ‘K&K' ‘Ottimo' ‘EDO' ‘PanAsian' and ‘West View' receiving the coveted Times Food Awards.‘Avartana' a Southern Indian mosaic brand at the ITC Grand Chola was recognisedas the ‘Best Restaurant' in Chennai at the Times Food Awards within the firstyear of its opening. ‘Fabelle' swept the Times Food Awards as the ‘BestConfectionery Destination in the Fine Dining category' in Mumbai New DelhiBengaluru and Chennai & the ‘Best Chocolatier' in Kolkata. YourCompany's internationally acclaimed spa brand ‘Kaya Kalp' was recognisedat the GEOSPA Asia Spa India Awards with the ‘Most Luxurious Spa Resort' awardfor ITC Grand Bharat and ‘Best Hotel Spa' award for ITC Grand Chola.

Your Company's Hotels Business continuously strives to reducewater and energy consumption and enhance the usage of renewable energy to meet its overallenergy requirements. Such commitment to the Triple Bottom Line is manifest in theBusiness's ‘Responsible Luxury' ethos making it a trailblazer in greenhoteliering globally. Over 60% of the total electrical energy consumption of the Businessis currently met through renewable sources.

In view of the long-term potential of the Indian hospitality sectoryour Company remains committed to enhancing the scale of the Business by adopting an‘asset-right' strategy that envisages building world-class tourism assets forthe nation and growing the footprint of managed properties by leveraging its hotelmanagement expertise. The Business made steady progress during the year in theconstruction of luxury hotels at Hyderabad Kolkata and Ahmedabad. Construction of ITCKohenur in Hyderabad is nearing completion and is expected to be commissioned in the firstquarter of 2018-19. In addition your Company's wholly-owned subsidiary in Sri Lankamade steady progress towards setting up a luxury hotel christened ‘ITC One' anda super-premium residential apartment complex ‘Sapphire Residences - Colombo1' situated at a strategic location in Colombo.

In the Upper-Upscale segment the ‘WelcomHotel' brandcontinues to build on its ‘asset-right' strategy with its distinctive‘charmingly local' positioning. During the year the Business commissioned the103-room WelcomHotel Coimbatore and expanded presence in business and leisure destinationsadding managed properties in Chennai Bengaluru Pahalgam and Mussoorie. The Businessseeks to scale up the brand going forward with the addition of new hotels underconstruction at Amritsar Guntur and Bhubaneswar along with a robust pipeline of managedproperties.

The ‘Fortune' brand sustained its pre-eminent position in theMid-market to Upscale segment with a sharpened brand positioning of ‘First classfull service hotels - an affordable alternative'. The Fortune brand presentlycomprises 45 hotels across 37 cities. The ‘WelcomHeritage' brand remains thecountry's most successful and largest chain of heritage hotels with 34 operationalhotels.

As reported earlier your Company was declared the successful bidderfor a 250-room luxury beach resort located in South Goa operating under the name ParkHyatt Goa Resort and Spa following an auction held by IFCI Limited in February 2015 interms of the Securitisation and Reconstruction of Financial Assets and Enforcement ofSecurity Interest Act 2002. Subsequent to your Company making full payment of the bidamount IFCI issued the requisite Sale Certificates in favour of your Company on 25thFebruary 2015.

However based on an appeal by the erstwhile owners the sale had beenstruck down by the Honourable Bombay High Court. Your Company and IFCI had contested thesaid order before the Honourable Supreme Court. On 19th March 2018 the HonourableSupreme Court upheld the sale of the property by IFCI Limited to your Company and directedthat the hotel property be handed over within six months. Accordingly the property isexpected to be handed over to your Company in the coming months.

Your Company's Hotels Business with its world-class propertiesiconic cuisine brands globally benchmarked levels of service excellence and customercentricity is well positioned to sustain its leadership status in the Indian Hospitalityindustry.

PAPERBOARDS PAPER AND PACKAGING

The domestic Paperboards Paper and Packaging industry remainedimpacted by sluggish demand conditions prevailing in the FMCG liquor and legal Cigaretteindustry. The transition to GST also caused short-term disruptions especially during thefirst half of the year. This coupled with zero duty imports under ASEAN Free TradeAgreement cheap imports from China and unabsorbed capacity in the industry weighed on theperformance of the Business. On the positive side relatively benign input costs highersubstitution of imported pulp with in-house pulp and continued focus on product mixenrichment resulted in margin expansion. Consequently while Segment Revenue de-grew by2.1% 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. to410 million tonnes with the paperboard segment growing by 2%. Going forward globaldemand for Paper & Paperboard is projected to grow at 0.5% to 1.0% CAGR driven byAsia Africa and North America. The Writing & Printing and Newsprint segments on theother hand are expected to remain under pressure largely due to increasing adoption ofdigital media and proliferation of smartphone usage.

Domestic demand for Paperboard remained subdued due to sluggish offtakeby end-user industries besides being temporarily impacted in the first half of the yeardue to the transition to GST. Writing & Printing paper demand remained firm due tosteady offtake from the education segment while prices witnessed an uptrend largely onaccount of supply disruptions due to operational discontinuities at certain mills.

Over the next five years the domestic industry is projected to grow at6% 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 around7.5% CAGR and 6.0% CAGR respectively. Within Paperboards demand for Value-AddedPaperboards (VAP) in India is projected to grow at a healthy rate of around 10.5% CAGRdriven by growth in demand from the FMCG Pharma Publishing and Food & Beverageindustries. In the Writing & Printing paper segment cut-size paper is projected toregister the fastest growth at 9.5% CAGR driven by the education and office stationerysegments.

During the year import of paper and paperboard from China ASEAN andSouth Korea grew by 57% while overall paper imports increased by 38%. As highlighted inprevious years' reports imports from ASEAN countries have been growing at a rapidpace since the implementation of zero duty on such imports with effect from 1st January2014 under various trade agreements. The trade agreement with South Korea also allowsimport at zero duty from January 2017. Disruption in domestic supplies during the year dueto operational discontinuities at certain mills owned by competitors provided furtherimpetus to imports.

The current import policy and extant regulations governing commercialand social forestry in the country have put the Indian Paper and Paperboard industry at adisadvantage vis--vis imports. The economic viability of domestic manufacturers has beenseverely impacted leading to the closure of several paper mills in the recent past. Thereis clearly a need to review the current import duty structure and re-examine the existingFree Trade Agreements (FTAs) and the new ones under formulation towards providing a levelplaying field to the domestic industry and encourage commercial farming of wood in India.Legislative changes along with appropriate environmental safeguards need to be implementedto enable private sector participation in commercial forestry on drylands and wastelands.

Your Company remains the clear leader in the VAP segment and continuesto consolidate its preferred supplier status amongst leading end-use customers and brands.Further your Company's expansion project in the VAP segment at Bhadrachalam unit isnearing completion. The Specialty Papers portfolio was also expanded with the launch ofnew grades to service the needs of customers. The Business sustained its leadershipposition in the sale of eco-labelled products volumes of which grew by appx. 12% duringthe year. Your Company has been recognised for its environmental transparency andimprovement across parameters such as responsible fibre sourcing clean manufacturing etc.in the WWF Environmental Paper Company Index 2017 which is considered to be the benchmarkin 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 Company'sEducation and Stationery Products Business. In the Specialty Papers segment your Companysustained its leadership position in the pharma leaflets and thin printing segments. Inorder to meet the growing demand of quality decor papers the decor machine at the Tribeniunit has been completely refurbished incorporating latest technology features includingsuperior profile control and smoothness for high print resolution along with capacityexpansion. The Business has recently launched an exciting range of decor papers becominga one-stop solution for all decor paper needs.

Your Company continues to source its wood requirements from sustainablesources. Your Company's research on clonal development has resulted in theintroduction of high yielding and disease resistant clones that are adaptable to a widevariety of agro-climatic conditions. In this context your Company's Life Sciences& Technology Centre is engaged in developing higher yielding second generation cloneswith enhanced pest & disease resistance attributes.

The Ministry of Road Transport and Highways Government of India haspromulgated the Green Highways (Plantation Transplantation Beautification andMaintenance) Policy 2015 to develop green corridors along national highways throughplantation and allied activity on medians avenues and other available nearby landpatches. During the year your Company worked closely as the knowledge and technicalpartner of National Green Highways Mission under National Highway Authority of India(NHAI) to develop new models of plantations to expand this commendable initiative whichwould go a long way in enhancing the green cover of the nation and generate employmentopportunities for rural communities.

Your Company has the distinction of being the first in India to haveobtained the Forest Stewardship Council-Forest Management (FSC-FM) certification whichconfirms compliance with the highest international benchmarks of plantation managementacross the dimensions of environmental responsibility social benefit and economicviability. Till date your Company has received FSC-FM certification for 33500 hectaresof plantations involving over 30000 farmers. During the year nearly 60000 tonnes ofFSC-certified wood were procured from these certified plantations. All four manufacturingunits of the Business have obtained the FSC Chain of Custody certification and havecomplied with all requirements during the year thereby sustaining your Company'sposition 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 ashbricks grey boards egg trays etc. In addition the Business procured and recycled131000 tonnes of waste paper during the year thereby sustaining your Company'soverall positive solid waste recycling footprint.

The manufacturing facilities at Bhadrachalam and Kovai continue toreceive industry recognition for their green credentials and safety standards in line withyour Company's focus on sustainable business practices. The Bhadrachalam unit won theprestigious award for being the best performer in the ‘Pulp & Paper Sector'under PAT Cycle 1 of the Perform Achieve and Trade (PAT) Scheme a component of theNational Mission for Enhanced Energy Efficiency (NMEEE). Organised by the Bureau of EnergyEfficiency (BEE) the award was presented by the Director General of BEE for theoutstanding efforts made by the unit under PAT Cycle 1. The plant has been identified asthe highest achiever in energy savings above the stipulated target as set by BEE in thePulp & Paper sector. The Kovai unit received the National Award for Excellence inEnergy Management 2017 from CII GBC (Green Business Centre) and the 1st prize in Statelevel safety from Director of Industrial Safety Government of Tamil Nadu. The Bollaramunit received 4 Star rating in EHS Excellence by CII Southern region.

The Business had commissioned a 46 MW wind energy project in AndhraPradesh in July 2014 which has been generating wind power since then. As reported inprevious years permission for inter-state wheeling of power was not granted by theauthorities post bifurcation of the State of Andhra Pradesh. After several representationsand discussions with the concerned authorities on the matter your Company receivedpermission last year for wheeling of power from Andhra Pradesh to Telangana therebyenabling 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 andalso your Company's units in Karnataka. Usage of wind energy has led to a reductionof 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 processfor multiple inter-state transactions the regulatory framework for levy of charges andbanking of power is still evolving. Consequently your Company continues to bearcharges/levies at multiple points which have adversely impacted the expected returns onthis large investment. Your Company continues to engage with State and Central regulatoryauthorities towards seeking relief from such additional levies/charges and remains hopefulof a favourable resolution of the matter.

In line with the objective of enhancing the share of renewable energyin its operations the Business has implemented several initiatives including investmentsin a green boiler soda recovery boilers high pressure & efficiency circulatingfluidised bed boiler solar & wind energy and increased usage of bio-fuel. With theseinitiatives renewable sources presently account for nearly 45% of total energy consumedat the Bhadrachalam Bollaram Tribeni and Kovai units.

The Business continues to make structural interventions in the areas ofstrategic cost management and import substitution. These include augmentation of in-housepulp manufacturing capacity efficiency improvements of existing equipment and developingalternative sources of supply for key inputs on an ongoing basis. Operations of theBleached Chemical Thermo Mechanical Pulp mill (BCTMP) at the Bhadrachalam unit stabilisedduring the year with progressive improvement in capacity utilisation leading to reduceddependence on imported pulp and cost savings. During the year technology interventionsmade in the pulp mill resulted in higher pulp production improvement in pulp quality andreduction in chemical consumption.

Your Company has been practising principles of TPM Lean and Six Sigmafor almost a decade now and has reaped substantial benefits through its BusinessExcellence initiative. During the year the Business embarked on an ‘Industry4.0' journey focusing on areas such as Internet of Things (IoT) Advanced Analyticsand Artificial Intelligence. Interventions planned in this area have significant potentialto enhance product quality and deliver structural cost savings going forward.

The integrated nature of the business model comprising access tohigh-quality fibre from the economic vicinity of the Bhadrachalam mill in-house pulp milland state-of-the-art manufacturing facilities along with clear market leadership invalue-added paperboards and a robust forward linkage with the Education and StationeryProducts Business strategically positions your Company to further consolidate and enhanceits leadership status in the Indian Paperboard and Paper industry.

Packaging and Printing

Your Company's Packaging and Printing Business is a leadingprovider of superior value-added packaging for the consumer packaged goods industry. TheBusiness also provides strategic support to your Company's FMCG Businesses byfacilitating faster turnaround for new launches design changes ensuring security ofsupplies and delivering benchmarked international quality at competitive cost.

The Business caters to the packaging requirements of leading playersacross several industry segments viz. Food & Beverage Personal Care Home careFootwear Consumer Electronics Pharma Liquor and Tobacco. With its comprehensivecapability-set across multiple platforms coupled with in-house cylinder making and blownfilm manufacturing lines the Business continues to provide innovative solutions toseveral key customers in India and overseas. With recent investments in rigid boxes andflexo corrugated packaging the Business has consolidated its position as a ‘one-stopshop for packaging solutions'.

As in previous years the Business won several awards for operationalexcellence and creative packaging solutions. The Business continues to be acknowledged asa key associate by several large FMCG companies in the country for providing superiorpackaging solutions. The manufacturing facilities at Tiruvottiyur Haridwar and Mungermaintained the highest standards in Quality and Environment Health & Safety (EHS).All the three units are certified as per the Integrated Management System consisting ofISO 9001:2008 ISO 14001:2004 OHSAS 18001:2007 and have also received SocialAccountability Certification (SA 8000:2008). Both the

Tiruvottiyur and Haridwar units received the highest ‘GradeA' BRC/IOP certification (British Retail Consortium/ Institute of Packaging) forglobal standards in packaging and packaging materials - a key enabler for supplies to thepackaged foods industry. During the year Haridwar Unit was adjudged first runners up inNational Safety Competition organised by CII IQ (Institute of Quality). The RiskManagement Framework of the Business was re-certified under ISO 31000:2009 during theyear. The 14 MW wind energy farm in Tamil Nadu set up in 2008 continues to provide cleanenergy to the Tiruvottiyur facility contributing towards reducing your Company'scarbon footprint.

The Packaging and Printing Business has established itself as aone-stop shop offering a wide range of superior and innovative packaging solutions. Withworld-class technology across a diverse range of packaging platforms best-in-classquality management systems and a distributed manufacturing footprint the Business is wellpositioned to rapidly grow its external business while continuing to service therequirements of your Company's FMCG Businesses.

AGRI BUSINESS

Leaf Tobacco

Global production (excluding China) of Flue Cured Virginia (FCV)tobacco increased by 195 Million kgs. in 2017 representing an increase of 12.3% over theprevious year primarily led by recovery in Brazil crop output which was impacted byadverse weather conditions in 2016. However the Indian crop output was lower at 212million kgs. mainly on account of the Tobacco Board's decision to reduce theauthorised crop size and unprecedented drought in Andhra Pradesh in 2016. This marks thethird successive year of decline representing a cumulative drop of 19% over 2015. Cropoutput in Andhra Pradesh reduced to 106 million kgs. - the lowest level in a decade whilequality was also adversely impacted. Reduction in crop size over the years shortage &poor quality of Andhra 2017 crop lower export incentives and availability of Chineseinventory at discounted prices led to significant pressure on Indian tobacco exports.Global tobacco demand remained subdued with the global legal cigarette (excluding China)sales estimated to have de-grown by 2% during 2017 with significant declines witnessed bythe international majors. Sustained pressure on cigarette sales volumes both in India andglobally coupled with relative strength of the Indian Rupee compared to competing globalcurrencies also resulted in reduced demand for Indian tobaccos. The combination of thefactors as aforestated led to the fourth successive year of decline in Indian tobaccoexports to 178 million kgs. - a ten-year low.

Despite such challenging market conditions your Company consolidatedits leadership position as the largest Indian exporter of unmanufactured tobacco withfurther improvement in market standing. This was achieved through new business developmentand enhanced value delivery to existing customers by leveraging the Business'sexpertise in crop development superior leaf procurement processes and world-classprocessing facilities. The Business continued to provide strategic sourcing support toyour Company's Cigarette Business meeting all requirements at competitive prices.

Your Company's leadership in sustainability was reinforced withthe Business securing the status of ‘carbon positive' in the tobacco farm valuechain - as independently assured by DNV GL Business Assurance India Private Limited as perISO 14064-1. Your Company is the first in India and amongst a select few in the world tohave secured this status. The Business also inaugurated a state-of-the-art office andresidential campus designed with green features at the Agri Business headquarters inGuntur.

Cost management across the value chain continues to be a key focus areafor the Business. The Business implemented several initiatives during the year includingimprovement in processing yields and manufacturing efficiencies reduction in specificconsumption of power and logistics optimisation to drive down costs. Several Lean and SixSigma projects covering various facets of business operations - from processing wastereduction manpower rationalisation to data analytics - were successfully concludedresulting in improved process efficiencies and cost savings.

The Business continues to set benchmarks in leaf threshing operationsthrough focused initiatives and innovative technological solutions. Investments continueto be made in your Company's Green Leaf Threshing plants (GLT) at Anaparti Chiralaand Mysuru towards delivering world-class quality and upgrading processing technology. Inline with your Company's strategy to adopt a low-carbon growth path all three unitsat Chirala Anaparti and Mysuru are meeting a significant portion of their energy needsfrom renewable sources.

The Business remains committed to the highest standards of EHS andquality and continues to win recognition in these areas. During the year the Chirala andAnaparti GLTs received the ‘Best Management Award' from Andhra Pradesh LabourDepartment while the Mysuru GLT received the ‘Excellent Energy Efficient Unit'award from CII Hyderabad.

A secular decline in crop output and exports as aforestated along withsustained pressure on domestic legal cigarette volumes due to steep escalation in taxincidence and stringent regulations have led to severe stress on farmer earnings whichhave declined by over Rs 3450 crores over the last three years. Accordingly a morebalanced regulatory and taxation regime that cognises for the unique tobacco consumptionpattern prevalent in India and the economic realities of the country is the need of thehour to support the Indian tobacco farmer and the 46 million livelihoods dependent ontobacco. Restoring export incentives to earlier levels would also go a long way inenhancing the competitiveness on Indian tobacco exports and contribute to increasingfarmer earnings.

The Business will continue to provide strategic sourcing support toyour Company's Cigarette Business even as it sustains its leadership position as amajor exporter of quality Indian tobacco thereby catalysing the multiplier impact ofincreased farmer incomes to benefit the rural economy. With its strong R&D capabilitymodern processing facilities crop development and extension expertise and deepunderstanding of customer and farmer needs your Company is well poised to sustain itsposition as a world-class leaf tobacco organisation.

Other Agri Commodities

Domestic food grain production for 2017 crop year stood at 275 milliontonnes representing a growth of 9% over the previous year. Production of wheat grew by6.5% to 98.5 million tonnes rice production increased by 5% to 109.7 million tonnes andcoarse cereals production increased by 13% to 43.7 million tonnes. Oilseed productiondecreased by 4.5% to 29.9 million tonnes mainly due to lower soybean output whichdecreased by 13.4% to 11.4 million tonnes due to prolonged dry spell at the time offlowering. Based on current expectations of a normal monsoon in 2018 crop year food grainproduction is estimated at around 277 million tonnes.

During 2017-18 world wheat output increased by eight million tonnes toabout 758 million tonnes mainly due to higher production in Russia. Exports from Indiawere negligible due to uncompetitive prices compared to competing origins such as Russiaand Ukraine. India also witnessed higher production by six million tonnes which led toincrease in government procurement by eight million tonnes thereby reducing the surplusavailable for domestic trade. These circumstances resulted in lack of tradingopportunities in wheat during the year both in the export and domestic markets.

Your Company's deep rural linkages and expertise in agri-commoditysourcing coupled with differentiation through value-added services of identitypreservation traceability and certification is a critical source of competitive advantagefor the Branded Packaged Foods Businesses. Given the volatile market conditions caused byclimatic variations changes in Government policies and global demand-supply dynamicsyour Company has invested significantly in building competitively superior agri-commoditysourcing expertise comprising multiple business models wide geographical spread andcustomised infrastructure. These capabilities and infrastructure have created structuraladvantages that facilitate competitive sourcing of agri raw materials for yourCompany's Branded Packaged Foods Businesses. The Business continues to focus ondeveloping capabilities and vectors of differentiation for potential foray into brandedconsumer and institutional segments while increasing the overall efficiency of procurementand logistics operations by consistently pursuing cost optimisation initiatives andeliminating non value-adding activities.

With regard to Aashirvaad atta the Business leveraged its widegeographical sourcing network and multiple sourcing models to secure supplies of criticalgrades with benchmark quality towards meeting the growing requirements of the brand. TheBusiness delivered substantial savings to your Company through efficient logisticsmanagement and other cost optimisation initiatives.

The Business continues to collaborate with reputed researchorganisations such as Indian Agricultural Research Institute Directorate of WheatResearch Punjab Agricultural University and Agharkar Research Institute towards scalingup wheat sourcing from areas that are in close proximity of atta manufacturing plants andincreasing crop production in non-traditional areas. As part of its wheat crop developmentprogramme the Business has facilitated the introduction of location-specific new andimproved seed varieties along with appropriate package of practices in over 114000 acresacross Rajasthan Uttar Pradesh Bihar West Bengal Madhya Pradesh Maharashtra andKarnataka. With a view to supporting the future requirements of your Company the Businesscontinues to focus on deepening capabilities in proprietary crop intelligence scaling upthe sourcing & delivery network and developing blends based on customer requirements.

The Business leveraged its extensive sourcing network and associatedinfrastructure in key growing areas coupled with deep-rooted farmer linkages to sourcehigh quality fruit pulp for your Company's ‘B Natural' brand. The keyinterventions in this area include strategic plantation development for key fruitsvarietal segregation at source for improved colour and taste customised fruit collectionsystems for identified fruits establishing suitable processing protocols and productstandardisation. The Business tailored its sourcing and supply chain network to align withthe requirements of the packaged juices business and enabling migration of the entire BNatural juices portfolio to the ‘Not from Concentrate' proposition - a first inthe industry benefitting both consumers through higher retention of natural nutrients aswell as the Indian farmers. In the processed fruits category the Business sustained itsleadership position in ‘Fairtrade' mango pulp exports from India anchored on acomprehensive portfolio of organic and certified mango products. The Business is workingclosely with small and marginal farmers across four states in building scale and sourcingoptions.

During the year the Business also strengthened its milk procurementnetwork for ‘Aashirvaad Svasti' ghee with significant increase in daily milkcollection. In this regard the Business provided farmers with the required infrastructuresuch as milking machines automatic milk testing equipment and chilling units to improveoperational efficiency and maintain quality with identity preservation and traceability.

Your Company's Spices Business continued to expand in Food SafeMarkets viz. US EU and Japan leveraging its strong backward integration and customerfocused strategies. Export of spices grew at a healthy pace well ahead of industrytrends driven by the addition of new customers and foray into new markets such asAustralia Germany Turkey and Ukraine. During the year the Business scaled up itsIntegrated Crop Management (ICM) programme for chilli and cumin thereby enhancing itsability to produce food safe spices in a sustainable manner. The Business continues topartner with the Governments of Andhra Pradesh and Karnataka for food safe chilliproduction and has also developed backward integration programme for food safe celery andfennel in Punjab and Rajasthan. Your Company's

Spices Business has maintained an unblemished track record on foodsafety parameters leveraging its superior processes and custody of supply chain therebyconsolidating its position as a preferred supplier for food safe customers.

In the domestic market the Business continued to provide strategicsourcing support to the Branded Packaged Foods Business for the ITC Master Chef range ofblended and ‘Super Safe' Spices. Your Company's range of ‘SuperSafe' Spices adhere to stringent EU standards which require the products to betested for over 470 pesticide residues as compared to nine under Indian regulations.

In the Aqua business the Business remains focused on enhancing itspresence in the high value-added segment and expanding its processing base. During theyear the Business launched the ‘ITC Master Chef' range of ‘SuperSafe' frozen prawns which adhere to stringent international standards prevalent inUSA Europe and Japan. These products go through rigorous testing (240+ tests) and are‘individually quick frozen' to ensure freshness. Launched in six citiesleveraging ITC's experience of catering to customers in international markets therange has been well appreciated for its taste and quality.

The year also marked your Company's foray into branded packagedpotatoes and apples under the ‘Farmland' brand in select cities for the retailsegment. The product portfolio comprises a range of differentiated offerings such as lowsugar antioxidant french fry and baby potatoes and apples sourced from Jammu &Kashmir and Himachal Pradesh. The Business also launched ‘ITC Master Chef - SmartOnions' a dehydrated onion product in select markets for the domestic food servicesegment. The product is anchored on delivering the benefits of convenient and fastercooking with less oil and adheres to global standards in safety. The aforestatedinitiatives have met with encouraging response and are planned to be scaled up goingforward.

Your Company believes that it is imperative to take an integrated andholistic view of the agricultural value chain. This requires a joint participatoryapproach from all the stakeholders such as farmers input vendors traders processors andgovernment agencies. In this regard the Government's initiative to develop a uniformand suitable legal framework to undertake reforms in marketing of agricultural producethrough a Central Agricultural Produce Market Committee (APMC) Act as well as introductionof e-auctions to facilitate transparency of transactions and superior price discovery atthe mandis are welcome steps towards stimulating agricultural growth in the country.

More than a decade ago your Company conceptualised and rolled out thee-Choupal network as a platform towards empowering the farming community bydis-intermediating the value chain making available accurate weather related informationenabling price discovery in a transparent manner and disseminating best practices relatingto farming. Your Company continues to focus on providing a range of value-added servicesin rural areas towards enhancing the competitiveness of Indian agriculture and playing acritical enabling role in integrating farmers input vendors and government agenciesbesides facilitating the necessary market linkages.

The unique ‘Choupal Haat' platform seeks to create awarenessand improve access of the rural community to a wide range of areas - ranging fromfinancial services and pharmaceuticals to commercial vehicles and white goods. Along withChoupal Saagars (integrated rural services hubs) this platform fosters round-the-year andlarge scale engagement with the rural community thereby enhancing the vitality of yourCompany's e-Choupal network.

Your Company will continue to leverage the unique e-Choupal platform toserve as a unique delivery mechanism towards enhancing agricultural growth andproductivity and fostering sustainable rural development. The Agri-Business with itsdeep rural linkages and agri-commodity sourcing expertise is well positioned to rapidlyscale up in identified areas that lend to higher value addition while meeting theincreasing requirements for high quality agricultural produce thereby creating a uniquesource of sustainable competitive advantage for your Company's Branded Packaged FoodsBusinesses.

NOTES ON SUBSIDIARIES

The following may be read in conjunction with the ConsolidatedFinancial Statements prepared in accordance with Indian Accounting Standard 110.Shareholders desirous of obtaining the report and accounts of your Company'ssubsidiaries may obtain the same upon request. Further the report and accounts of thesubsidiary 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'ssubsidiary joint venture or associate company.

ITC Global Holdings Pte. Limited Singapore (‘Global') asubsidiary of your Company is under winding up in terms of the Order of the High Court ofthe Republic of Singapore dated 30th November 2007. Consequently your Company is not ina position to consolidate the accounts of Global for the financial year ended 31stDecember 2017.

The Policy for determining Material Subsidiaries adopted by yourBoard in conformity with Regulation 16 Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) Regulations 2015 can be accessed on yourCompany's corporate website at http://www.itcportal.com/aboutitc/policies/policy-on-material-subsidiaries.aspx. Presently your Company does not have any materialsubsidiary.

Surya Nepal Private Limited

The fiscal year ended July 2017 witnessed normalisation of economicactivity with GDP growth of 6.9% (previous year 0.01%) aided by low base effect goodmonsoons and improved energy output leading to higher industrial activity. However severefloods in August 2017 have since impacted the agriculture sector and growth estimates forthe fiscal year ending July 2018 remain subdued at appx. 6%. On the external frontwidening trade deficit muted growth in remittances from overseas and weak balance ofpayments position continue to weigh on macroeconomic stability.

During the year under review Nepal completed its transition to afederal structure with successful completion of elections for all three levels ofgovernment i.e. local level provincial assemblies and federal parliament. Significantreforms such as legislation of the new Labour Act and Social Security Act were implementedduring the year. These measures in conjunction with other enabling policies across allthe three levels of government are expected to enhance the ease of doing business in thecountry and provide a fillip to economic growth in the near term.

The legal cigarette industry contributes 84% of Government'srevenue from the tobacco sector and 10% of the total excise revenue collected by theGovernment. Further the industry provides livelihoods directly and indirectly to morethan four lakh farmers farm workers and others engaged in the cultivation of tobacco andthe tobacco trade. However the legal cigarette industry in Nepal continues to beadversely impacted by a harsh regulatory regime and discriminatory tobacco taxation policywhich is fueling the growth of illegal cigarettes and smokeless tobacco products. This inturn is not only adversely impacting Government revenues but also compromising the tobaccorelated health objectives of the Government.

During the year the company's Revenue from Operations at NepaleseRupees (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 accountingfor about 3% of the total revenues of the Government of Nepal.

The company's Cigarette business continued to consolidate itsleadership position by leveraging a portfolio of world-class products anchored oninnovation and benchmarked quality backed by a robust distribution network. Adoption ofbest-in-class manufacturing technologies and benchmarked practices ensured delivery ofproducts of international quality. The manufacturing systems of the company continued tomaintain the targeted benchmarks in the areas of quality productivity and sustainability.During the year the company strengthened its quality processes protocols and hygienestandards and introduced new metrics to facilitate ongoing monitoring in these areas.

In the Branded Apparel business ‘John Players' hasestablished itself as a leading brand at the premium end of the branded menswear segmentin Nepal with a significant presence across markets through exclusive branded outletsdepartmental chains and multi-brand outlets. In the Safety Matches business the companystrengthened its market leadership by leveraging its superior trade marketing &distribution reach. The company is now the largest player in both wax and wooden matchessegments. In the Agarbatti business the company scaled up operations and enhanced itsmarket standing by offering a wide portfolio across consumer segments and improvingproduct availability and visibility across markets.

With the objective of creating new drivers of growth the companycommenced import of confectionery products under the ‘Toffichoo' and‘mint-o' brands on a test basis with the approval of the Department of IndustryNepal. 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 upthe business.

The company continues to support and invest in initiatives aimed atenhancing the social and economic capital of the nation. All the initiatives are wovenaround and are in alignment with the sustainable development goals of the Government ofNepal. Accordingly the company continues to:

• assist farmers proximate to the Simara factory in agroforestry through (a) high quality Poplar plantation promoting ‘Grow Wood GrowFood' concept through inter cropping and (b) providing vegetable seeds andconstructing vermi-compost pits to increase productivity and provide alternative sourcesof income generation;

• support animal husbandry extension services covering animalbreeding health and nutrition towards driving milk yield improvement and generatinghigher returns for underprivileged farmers;

• focus on providing community health services through various‘Suswasthya' programmes such as periodic health camps and awareness programmesin the vicinity of the manufacturing units.

The company declared a dividend of NRs. 351.50/- per equity share ofNRs. 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 transformationdriven by increasing adoption of digital technologies emergence of new models of customervalue delivery enhanced focus on experience journeys and client demands for efficiencyespecially in traditional service lines through automation.

The Indian IT Services and Business Process

Management (BPM) industry remained under significant pressure in2017-18 which was marked by increasing headwinds in the form of continued rhetoric onprotectionism labour mobility issues Brexit related uncertainty and subdued traction inthe US Banking and Financial Services Industry. The challenging operating environment forthe Indian IT industry is manifest in the continued deceleration in growth rates reportedduring the year by most of the Indian IT majors with margins coming under increasingpressure.

Technology spending is witnessing a clear shift in favour of digitaltechnologies which are estimated to account for 80% of incremental IT spends. Withtraditional lines of businesses and business models coming under increasing pressure thefragmented IT Services market is gearing up to meet these challenges by strengtheningalternative delivery models and accelerating investments in digital capabilities.

In this context ITC Infotech remains focused on providing specialisedservices led by business and technology consulting. During the year revenue from emergenttechnologies (Data & Digital) saw robust growth. The company has sharply defined itsDigital strategy and is on course to consolidate and drive the Digital line of business.

During the year the company's strategic collaboration with PTCInc. was strengthened with the launch of the ‘Digital Solutions InnoruptionCenter' and ‘ThingWorx Co-Innovation Lab'. This interventionwill facilitate the creation of Augmented Reality solutions across industries such asmanufacturing automotive industrial retail consumer goods healthcare and hospitality.

During the year the company's consolidated Total Income was Rs1652.10 crores (previous year Rs 1554.38 crores) with Profit Before Tax of Rs 81.69crores (previous year Rs 62.44 crores). Net Profit stood at Rs 40.42 crores (previous yearRs 37.95 crores). Revenue growth was driven by new client additions and increasingtraction with existing customers especially in Europe Asia-Pacific Africa Middle Eastand India markets. However INR appreciation vis--vis the US Dollar and a subdued demandenvironment in the USA impacted overall revenue. Consolidation of sales focus in theAsia-Pacific India Middle East and Africa markets enabled synergies and led to stronggrowth in these regions. For the year under review:

a) ITC Infotech India Limited recorded Revenue from Operations of Rs1002.93 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 ofRs 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-ownedsubsidiary of the company recorded Revenue of GBP 42.44 million (previous year GBP 37.00million) and Net Profit of GBP 1.27 million (previous year GBP 1.17 million).

c) ITC Infotech (USA) Inc. (ITC Infotech USA) a wholly-ownedsubsidiary 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 ofUS$ 1.97 million (previous year US$ 1.21 million).

For the year under review ITC Infotech USA paid a maiden dividend ofUS$ 8 per share on 182000 Common Shares (without par value) aggregating US$ 1.46million.

The company's superior service delivery capability continues toearn global recognition. During the year the company was featured in the leader'scategory of ‘2018 Global Outsourcing 100' by the International Association ofOutsourcing Professionals (IAOP) for the twelfth consecutive year. The company was alsorecognised by Information Service Group (ISG) in its Provider Lens: ADM Quadrant Report US2017 and Provider Lens: Managed Digital Workplace Services Quadrant Report US 2017 as a‘Product Challenger' in the categories of End-to-End Application Development& Maintenance Application Support & Maintenance Application Testing and ManagedDigital Workplace Services.

During the year the company successfully organised i-Tech 2017 thethird edition of its annual technology event with ‘Experience Intelligence' asthe theme focusing on emerging technologies around Artificial Intelligence. The eventgenerated strong interest among students start-ups as well as professional developers tocreate solutions for complex business applications as part of a programming‘Codeathon'.

The outlook for the Indian IT Industry in the near term continues toremain subdued with NASSCOM projecting a growth rate between 7% and 9% for 2018-19. Thisis mainly attributable to global protectionist measures in major markets on the one handand increasing complexities in rebuilding new age skill sets required to cater to the fastchanging technology landscape on the other. The company remains committed to itstransformation journey with a sharper focus on select industry verticals and technologyareas. The company will continue to focus on building domain specific digital solutionsacross identified areas and driving efficiencies through automation in delivery and otherinternal processes.

Technico Pty Limited and its subsidiaries

The company continues to focus on upgradation and commercialisation ofits TECHNITUBER seed technology and customising its application acrossvarious geographies. Besides the company is engaged in the marketing of TECHNITUBERseed to global customers produced at the facilities of its subsidiaries in China andCanada and Technico Agri Sciences Limited India a wholly-owned subsidiary of yourCompany. The Canadian subsidiary of the company is also engaged in field multiplication ofseeds.

For the year under review:

a. Technico Pty Limited Australia registered a turnover of AustralianDollar (A$) 2.52 million (previous year A$ 2.46 million) and a Net Profit of A$ 1.45million (previous year A$ 1.36 million).

b. Technico Asia Holdings Pty Limited Australia Technico TechnologiesInc. Canada and Technico Horticultural (Kunming) Co. Limited China - There were nosignificant events to report with respect to these companies.

Technico Agri Sciences Limited

The company's leadership in production of early generation seedpotatoes and strength in agronomy continues to support the Bingo! range of potato chips ofyour Company and in servicing the seed potato requirements of the farmer base of yourCompany's Agri Business.

The year under review was an extremely challenging one for potatofarmers and the seed potato industry. Potato production for the year stood at about 50million tonnes representing a significant growth of 11% over the previous year. Thisexcess production resulted in a sharp fall in potato prices compelling mostfarmers/producers to sell their inventory below cost especially in November/December 2017as the fresh potato crop reached markets. The situation was exacerbated by farmers notbuying new seeds and using leftover potatoes / cheap seeds mainly due to tight liquidityconditions in the market. Consequently the seed potato industry came under significantpressure during the year.

The company's Revenue from Operations for the year stood at Rs76.89 crores (previous year Rs 108.35 crores) with a Net Loss of Rs 14.07 crores (previousyear Net Profit Rs 14.52 crores). Total Comprehensive Income for the year stood at (-) Rs14.02 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 subsidiaryof your Company was incorporated in Sri Lanka with the objective of developing andoperating a mixed-use development project (‘Project') comprising a luxury hoteland a super-premium residential apartment complex situated on 5.86 acres of primesea-facing land in Colombo.

The Project has been accorded ‘Strategic Development Project'status entitling the company to various fiscal benefits in Sri Lanka. Further the Projectis also exempt from Sri Lankan foreign exchange regulations.

During the year the company made steady progress on construction ofthe project. Construction work is in full swing in both the hotel and residential towers.The Experience Centre showcasing the features of the super-premium residentialapartments is nearing completion. The company also appointed internationally renownedinterior designers and consultants for marketing the super-premium residential apartmentsinternationally.

Your Company's investment in WLPL stood at US$ 147 million as at31st March 2018.

Landbase India Limited

The company owns ‘ITC Grand Bharat' - a 104-key all-suiteluxury Retreat at Gurugram which has been licensed to your Company. The Retreat an oasisof unhurried luxury is co-located with the company's prestigious Classic Golf &Country Club a 27-hole Jack Nicklaus Signature Golf Course.

ITC Grand Bharat has received several accolades establishing itselfamongst the top luxury resort destination hotels in the world. During the year theRetreat was ranked # 10 amongst the ‘Top 50 Resorts in Asia' by Conde NastTraveler USA and also adjudged the best Luxury Hotel at the ‘India'sBest' Awards by Travel + Leisure India & South Asia.

During the year the Classic Golf & Country Club hosted variousprestigious tournaments and sustained its leadership position in the corporate tournamentsegment. The Club enjoys strong brand equity with its members guests and the golfingfraternity and continues to receive the patronage of professional and amateur golfers inthe country.

During the year ended 31st March 2018 the company recorded TotalIncome 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 9.89crores (previous year Rs 2.10 crores).

Srinivasa Resorts Limited

The company's hotel ‘ITC Kakatiya' in Hyderabad improvedits performance during the year on the back of higher room occupancy rates and robustgrowth in Food and Beverages revenue. However overall room rates remained under pressure.

The company recorded Total Income of Rs 58.37 crores (previous year Rs54.43 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 stoodat Rs 0.40 crore (previous year (-) Rs 1.50 crores).

During the year ITC Kakatiya received the Times Food Guide awards for‘Dakshin' (Best South Indian Fine Dining) and ‘Marco Polo' (Best RestoBar). Trip Advisor a renowned hotel review website rated ‘Kebabs &Kurries' and ‘Dakshin' as the best restaurants in Hyderabad ranking themNo.1 and No.3 respectively.

The company's 101-key full service hotel in Amritsar located on aland parcel assigned to the company by ITC Limited is under development. Civil works arenearing completion and interior work is underway.

Fortune Park Hotels Limited

The company which caters to the ‘Mid-market to Upscale'segment through a chain of Fortune hotels continues to forge new alliances and expand itsfootprint. Currently the company has an aggregate inventory of nearly 4200 rooms spreadover 54 properties of which 45 are operating hotels. Of the balance nine properties fiveare slated to be commissioned in the ensuing year while four are in various stages ofdevelopment. Three hotels were migrated to the WelcomHotel brand during the year.

The company has established ‘Fortune' as the premier‘value' brand in the Indian hospitality sector. The brand remains a frontrunnerin its operating segment and is well positioned to sustain its leadership position in theindustry.

During the year the company bagged the ‘Today's TravellerAward 2017' as well as the ‘Hospitality India & Explore The World AnnualInternational Travel Award 2017' in the ‘Best First Class Business HotelChain' category. It was also awarded the ‘Versatile Excellence Travel Award(VETA) 2018' in the ‘Best Business Hotel Chain' category by Travelscapes.

During the year ended 31st March 2018 the company recorded TotalIncome 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 2.05crores (previous year Rs 2.39 crores).

The Board of Directors of the company has recommended a dividend of Rs12.50 per Equity Share of Rs 10/- each for the year ended 31st March 2018.

Bay Islands Hotels Limited

Fortune Resort Bay Island the company's hotel in Port Blair withits strategic location excellent architectural design and superior service qualitycontinues to offer a unique gateway to the Andamans. A comprehensive renovation andexpansion programme towards enhancing the market standing of the hotel is currentlyunderway with the first phase (24 rooms) expected to be commissioned shortly.

During the year ended 31st March 2018 the company recorded TotalIncome 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 0.97crore (previous year Rs 0.76 crore).

The Board of Directors of the company has recommended a dividend of Rs70/- per Equity Share of Rs 100/- each for the year ended 31st March 2018.

Wimco Limited

The company's business activities comprise fabrication andassembly of machinery for tube filling cartoning wrapping material handling andconveyor solutions for the FMCG and Pharmaceutical industries.

The company's order book was impacted during the year due tosluggish demand conditions prevailing in the FMCG and Pharmaceutical industries.Consequently the company's Revenue from Operations for the year declined to Rs 8.77crores (previous year Rs 16.15 crores) with a Net Loss of Rs 3.03 crores (previous year Rs0.07 crore). Total Comprehensive Income for the year stood at (-) Rs 3.01 crores (previousyear (-) Rs 0.09 crore).

The company is focusing on strengthening its business model wideningits customer base and developing superior solutions towards addressing customerrequirements.

North East Nutrients Private Limited

Your Company holds 76% equity stake in North East Nutrients PrivateLimited (NENPL) a company formed with the objective of setting up a food processingfacility in Mangaldoi Assam to cater to the fast-growing biscuits market in Assam andother north-eastern States.

In August 2015 the company commissioned a state-of-the-art facilitycomprising three biscuit manufacturing lines in Mangaldoi Assam.

During the year the company implemented several initiatives whichresulted in improvement in operational efficiency processing yield and productivity.

The company was awarded the ‘Trophy for Outstanding performance inFood Safety Excellence' 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 yearstood at Rs 3.30 crores (previous year (-) Rs 1.83 crores).

Russell Credit Limited

During the year the company registered Total Revenue of Rs 82.48crores (previous year Rs 59.67 crores) and Net Profit of Rs 63.82 crores (previous year Rs34.22 crores). Total Revenue and Net Profit during the year includes Rs 33.78 crores andRs 18.28 crores respectively attributable to the sale of Non-Convertible Preference Sharesof ICICI Bank. Temporary surplus liquidity of the company is mainly deployed in bondsdebt mutual funds and bank fixed deposits. The company continues to explore opportunitiesto 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 2.55crores). The company holds 50% equity stake in ITC Essentra Limited - a joint venture withEssentra 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 2.25crores). The company continues to provide maintenance services for commercial officebuildings.

ITC Investments & Holdings Limited

The company a Core Investment Company within the meaning of the CoreInvestment Companies (Reserve Bank) Directions 2011 recorded Total Revenue of Rs 0.06crore 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 alsoprovides estate maintenance services. During the year the company recorded Total Incomeof Rs 0.07 crore (previous year Rs 0.07 crore).

Pavan Poplar Limited

The operations of the company continue to be adversely impactedpursuant to the Order of the Honourable High Court of Uttarakhand at Nainital in February2014 dismissing the writ petition filed by the company against the Order of the DistrictMagistrate authorising the State authorities to take possession of the land leased to thecompany. The appeal filed by the company against the aforestated Order was admitted inApril 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 impactedpursuant to the Order of the Honourable High Court of Uttarakhand at Nainital in February2014 dismissing the writ petition filed by the company against the Order of the DistrictMagistrate authorising the State authorities to take possession of the land leased to thecompany. The appeal filed by the company against the aforestated Order was admitted inApril 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 0.06crore).

ITC Global Holdings Pte. Limited

ITC Global Holdings Pte. Ltd (under Judicial Management hereinafter"Global") has withdrawn its suit filed in 2002 claiming US$ 18.10 million fromthe Company.

After protracted litigation of over 15 years the Company wasapproached by the Liquidator of Global with an offer to settle the said suit upon paymentof US$ 2 million.

Subsequently the Liquidator agreed to receive a sum of US$ 200000discontinue the suit unconditionally withdraw all claims and take all steps to completedissolution of Global expeditiously. Your Company without admission of any liabilityremitted the sum of US$ 200000 to Global after receiving RBI's approval for thesame.

NOTES ON JOINT VENTURES

ITC Essentra Limited

The relentless pressure on volumes of the legal cigarette industry onaccount of the steep increase in taxes and intense regulatory burden continues toadversely impact the demand for cigarette filters. Despite such adverse businessconditions the company retained its leadership position of being the preferred supplychain partner for several well-known national and international brands leveraging its corestrengths - strong customer relationships access to world-class innovation superiorexecution consistent delivery and best-in-class quality.

During the year ended 31st March 2018 on a comparable basis thecompany's 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 internalcapabilities on an ongoing basis the company established capability for manufacturingcapsule filters to cater to the anticipated growth in this segment. Investments continueto be made in technology induction and capability building towards sustaining thecompany's position as the innovation and quality benchmark in the Indian cigarettefilter industry. The company continues to focus on scaling up exports by leveraging aportfolio of high quality products. The Board of Directors of the company has recommendeda dividend of Rs 12.00 per Ordinary Share of Rs 10/- each for the year ended 31st March2018.

Maharaja Heritage Resorts Limited

Maharaja Heritage Resorts Limited a joint venture of your Company withJodhana Heritage Resorts Private Limited currently operates 34 heritage properties across13 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 andadventure tourism segments respectively.

During the year ended 31st March 2018 the company recorded TotalIncome 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 Lossof Rs 0.33 crore (previous year Loss at Total Comprehensive Income level was Rs 0.78crore).

The ‘WelcomHeritage Hotels' brand was awarded the ‘BestHeritage Hotel Chain' by Today's Traveller Awards 2017.

Espirit Hotels Private Limited

Espirit Hotels Private Limited (EHPL) is a joint venture between yourCompany and the Ambience Group Hyderabad for developing a luxury hotel complex atBegumpet Hyderabad. Under the terms of the Joint Venture Agreement your Company acquired26% equity stake in EHPL and will inter alia provide hotel operating services uponcommissioning of the hotel.

As reported in the previous year the Ambience Group has expressed itsdesire to review the timing of further investments in EHPL citing concerns about theviability of the project in view of the challenging economic environment and the sluggishdemand conditions currently prevailing in Hyderabad.

Your Company continues to explore its options in this regard. YourCompany's 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 yourCompany and Logix Estates Private Limited for developing a luxury hotel-cum-serviceapartment complex at the company's site located at Sector 105 in NOIDA. Under theterms of the Joint Venture Agreement your Company acquired 26% equity stake in LDPL andwill inter alia provide hotel operating services upon commissioning of the hotel byLDPL.

As reported in the previous year your Company reiterated its positionwith the JV partner that it was committed to developing a luxury hotel-cum-serviceapartment complex as envisaged under the JV Agreement and that it was not interested inprogressing with any alternative project plans proposed by the JV partner. However the JVpartner refused to progress the project and instead expressed its intent to exit from theJV by selling its stake to your Company.

Subsequently the JV partner proposed that both parties should find athird party to sell the entire shareholding in LDPL. In view of these developments yourCompany had filed a petition before the Company Law Board (CLB) submitting that theaffairs of the JV entity were being conducted in a manner that was prejudicial to theinterest of your Company and the JV entity. The matter is currently before the NationalCompany Law Tribunal (NCLT) which replaced the erstwhile CLB. The JV partner had alsofiled a petition before the Honourable Delhi High Court for winding up the JV companywhich was transferred to the NCLT during the year by the Honourable Delhi High Court. Thematters were heard before the NCLT on several occasions during the year and hearing forfinal arguments for both the matters have been scheduled on 23rd May 2018.

During the year ended 31st March 2018 the company recorded a Net Lossof 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). YourCompany's 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 aforestateddevelopments your Company made a provision of Rs 23.45 crores towards diminution in thecarrying value of investment in LDPL.

The financial statements of LDPL for the year ended 31st March 2018are yet to be approved by its Board of Directors. In the absence of audited financialstatements of LDPL the Consolidated Financial Statements of your Company for the yearended 31st March 2018 have been prepared based on financial statements prepared by themanagement of LDPL.

NOTES ON ASSOCIATES

International Travel House Limited

The company offers a full range of travel services including airticketing car rentals inbound and outbound tourism domestic holidays conferencesevents and exhibition management and foreign exchange services to travellers.

During the year ended 31st March 2018 the company recorded TotalIncome of Rs 207.69 crores (previous year Rs 205.74 crores) and Net Profit of Rs 6.95crores (previous year Rs 11.17 crores). Total Comprehensive Income for the year stood atRs 6.02 crores (previous year Rs 10.46 crores).

The Board of Directors of the company has recommended a dividend of Rs4.25 per Equity Share of Rs 10/- each for the year ended 31st March 2018.

Gujarat Hotels Limited

The company's hotel ‘WelcomHotel Vadodara' at Vadodarais operated by your Company under an Operating License Agreement.

During the financial year ended 31st March 2018 the company recordedTotal Income of Rs 5.02 crores (previous year Rs 5.12 crores) Net Profit and TotalComprehensive Income of Rs 3.37 crores (previous year Rs 3.86 crores).

The Board of Directors of the company has recommended a dividend of Rs3.50 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 yearthe company recorded Total Revenue of Rs 23.13 crores (previous year Rs 21.03 crores) andNet Profit of Rs 0.66 crore (previous year Rs 0.22 crore).

The company continued to maintain high levels of operationalresponsiveness benchmark quality and cost efficiency during the year. The company wasconferred the ‘Suraksha Puraskar' by the National Safety Council of India andthe ‘Long Term Nil Lost Time Accident Award' 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 2.78crores). 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 0.20crore). 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 0.09crore). The company continues to explore opportunities to make investments.

INTERNAL FINANCIAL CONTROLS

The Corporate Governance Policy guides the conduct of affairs of yourCompany and clearly delineates the roles responsibilities and authorities at each levelof its three-tiered governance structure and key functionaries involved in governance. TheITC Code of Conduct commits management to financial and accounting policies systems andprocesses.

The Corporate Governance Policy and the ITC Code of Conduct standwidely communicated across the enterprise at all times and together with the‘Strategy of Organisation' Planning & Review Processes and the RiskManagement Framework provide the foundation for Internal Financial Controls with referenceto your Company's Financial Statements.

Such Financial Statements are prepared on the basis of the SignificantAccounting Policies that are carefully selected by management and approved by the AuditCommittee and the Board. These Policies are supported by the Corporate Accounting andSystems Policies that apply to the entity as a whole to implement the tenets of CorporateGovernance and the Significant Accounting Policies uniformly across the Company. TheAccounting Policies are reviewed and updated from time to time. These in turn aresupported by a set of divisional policies and Standard Operating Procedures (SOPs) thathave been established for individual businesses.

Your Company uses ERP Systems as a business enabler and also tomaintain its Books of Account. The SOPs in tandem with transactional controls built intothe ERP Systems ensure appropriate segregation of duties tiered approval mechanisms andmaintenance of supporting records. The Information Management Policy reinforces thecontrol environment. The systems SOPs and controls are reviewed by divisional managementand audited by Internal Audit whose findings and recommendations are reviewed by the AuditCommittee and tracked through to implementation.

Your Company has in place adequate internal financial controls withreference to the Financial Statements. Such controls have been assessed during the yeartaking into consideration the essential components of internal controls stated in theGuidance Note on Audit of Internal Financial Controls over Financial Reporting issued byThe Institute of Chartered Accountants of India. Based on the results of such assessmentcarried out by management no reportable material weakness or significant deficiencies inthe design or operation of internal financial controls was observed. Nonetheless yourCompany recognises that any internal control framework no matter how well designed hasinherent limitations and accordingly regular audit and review processes ensure that suchsystems are reinforced on an ongoing basis.

RISK MANAGEMENT

As a diversified enterprise your Company continues to focus on asystem-based approach to business risk management. The management of risk is embedded inthe corporate strategies of developing a portfolio of world-class businesses that bestmatch organisational capability with market opportunities focusing on buildingdistributed leadership and succession planning processes nurturing specialism andenhancing organisational capabilities through timely developmental inputs. Accordinglymanagement of risk has always been an integral part of the Company's ‘Strategyof Organisation' and straddles its planning execution and reporting processes andsystems. Backed by strong internal control systems the current Risk Management Frameworkconsists of the following key elements:

- The Corporate Governance Policy approved by the Board clearly laysdown the roles and responsibilities of the various entities in relation to risk managementcovering a range of responsibilities from the strategic to the operational. These roledefinitions inter alia provide the foundation for appropriate risk managementprocedures their effective implementation across your Company and independent monitoringand reporting by Internal Audit.

- The Risk Management Committee constituted by the Board monitors andreviews the strategic risk management plans of the Company as a whole and providesnecessary directions on the same.

- The Corporate Risk Management Cell through focused interactions withbusinesses facilitates the identification and prioritisation of strategic and operationalrisks development of appropriate mitigation strategies and conducts periodic reviews ofthe progress on the management of identified risks.

- A combination of centrally issued policies and divisionally-evolvedprocedures brings robustness to the process of ensuring that business risks areeffectively addressed.

- Appropriate structures are in place to proactively monitor and managethe inherent risks in businesses with unique / relatively high risk profiles.

- A strong and independent Internal Audit function at the Corporatelevel carries out risk focused audits across all businesses enabling identification ofareas where risk management processes may need to be strengthened. The Audit Committee ofthe Board reviews Internal Audit findings and provides strategic guidance on internalcontrols. The Audit Compliance Review Committee closely monitors the internal controlenvironment within your Company including implementation of the action plans emerging outof internal audit findings.

- At the Business level Divisional Auditors continuously verifycompliance with laid down policies and procedures and help plug control gaps by assistingoperating management in the formulation of control procedures for new areas of operation.

- A robust and comprehensive framework of strategic planning andperformance management ensures realisation of business objectives based on effectivestrategy implementation. The annual planning exercise requires all businesses to clearlyidentify their top risks and set out a mitigation plan with agreed timelines andaccountabilities. Businesses are required to confirm periodically that all relevant riskshave been identified assessed evaluated and that appropriate mitigation systems havebeen implemented.

Your Company endeavours to continually sharpen its Risk Managementsystems and processes in line with a rapidly changing business environment. In thisregard it is pertinent to note that some of the key businesses of your Company haveadopted the ISO 31000 Standard and the Risk Management systems and processes prevalent inthese businesses have been independently assessed to be compliant with the said globalStandard on risk management. This intervention provides further assurance on the robustnature of risk management practices prevalent in your Company.

During the year the Risk Management Committee was updated on thestatus and effectiveness of the risk management plans. The Audit Committee was alsoupdated on the effectiveness of your Company's risk management systems and policies.

Your Company sources several commodities for use as inputs in itsbusinesses and also engages in agri-commodity trading as part of its Agri Business. YourCompany has a comprehensive risk assessment framework and well laid out policy to managethe risks arising out of the inherent price volatility associated with such commodities.This includes robust mechanisms for monitoring market dynamics on an ongoing basis towardsmaking informed sourcing decisions continuous tracking of net open positions &‘value at risk' against approved limits use of futures contracts to hedgecommodity price risk as applicable hedging associated foreign exchange risk throughappropriate instruments assessment of country risk and counter-party exposure forsuitable mitigation plans. Additionally your Company's strategy of backwardintegration in areas such as sourcing of agri-commodities e.g. wheat potato fruit pulpand leaf tobacco in-house manufacturing of paperboards paper and packaging (includingpulp production and print cylinder making facilities) facilitates access to criticalinputs at benchmark quality and competitive cost besides ensuring security of supplies.Further each of your Company's businesses continuously focuses on product mixenrichment towards protecting margins and insulating operations from spikes in inputprice. The combination of policies and processes as outlined above adequately addressesthe various risks associated with your Company's businesses.

AUDIT AND SYSTEMS

Your Company believes that internal control is a necessary concomitantof the principle of governance that freedom of management should be exercised within aframework of appropriate checks and balances.

Your Company remains committed to ensuring an effective internalcontrol environment that inter alia provides assurance on orderly and efficient conduct ofoperations security of assets prevention and detection of frauds / errors accuracy andcompleteness of accounting records and the timely preparation of reliable financialinformation.

Your Company's independent and robust Internal Audit processesboth at the Business and Corporate levels provide assurance on the adequacy andeffectiveness of internal controls compliance with operating systems internal policiesand regulatory requirements.

Independent consultants have confirmed compliance of Internal Auditsystems and processes with the Standards on Internal Audit (SIA) issued by the Instituteof Chartered Accountants of India (ICAI). Although the Standards are recommendatory innature such validation evidences the contemporariness of the Internal Audit function.

The Internal Audit function consisting of professionally qualifiedaccountants engineers and IT Specialists is adequately skilled and resourced to deliveraudit assurances at highest levels. In the context of the IT environment of your Companysystems and policies relating to Information Management are periodically reviewed andbenchmarked for contemporariness. Compliance with the Information Management policiesreceive focused attention of the Internal Audit team. Qualified engineers in the InternalAudit function review the quality of design planning and execution of all ongoingprojects involving significant expenditure to ensure that project management controls areadequate and yield ‘value for money'.

Processes in the Internal Audit function have been continuouslystrengthened for enhanced effectiveness and productivity including the deployment ofbest-in-class tools for analytics in the Audit domain certification as complying with ISO9001:2015 Quality Standards in its processes ongoing knowledge improvement programmes forstaff etc. The Audit methodology is also designed to validate effectiveness of criticalIT controls that are embedded in the business systems leading to greater alignment withthe business process environment.

The Audit Committee of your Board met eight times during the year. TheTerms of Reference of the Audit Committee inter alia included reviewing the effectivenessof the internal control environment evaluation of the Company's internal financialcontrol and risk management systems monitoring implementation of the action plansemerging out of Internal Audit findings including those relating to strengthening of yourCompany's risk management systems and discharging of statutory mandates.

HUMAN RESOURCE DEVELOPMENT

Your Company firmly believes that it is its people who energise andmake the organisation exceptional both in driving world-class performance as well as infostering and enhancing its reputational capital. Your Company's unique talent brand- ‘Building Winning Businesses. Building Business Leaders. Creating Value forIndia.' - backed by its strong corporate equity has been crucial in attracting andretaining high quality talent. This talent pool and its strong alignment with yourCompany's Vision has contributed substantially to enhancing your Company'sstanding as one of India's most valuable corporations.

Integral to your Company's approach to human resource developmentis its distinctive Strategy of Organisation. This strategy ensures that while eachbusiness is equipped to focus on its own product market it can also fully leverage yourCompany's institutional strengths and the synergies arising out of its multi-businessportfolio. At the same time it focuses on developing and nurturing distributed leadershipso that each of your Company's businesses is managed by a team of competentpassionate and inspiring leaders capable of building a future-ready organisation throughcontinuous learning innovation and world-class execution.

Your Company's innovative engagement initiatives with premiercampuses across India and use of social media have effectively showcased the career andleadership opportunities thereby attracting high quality talent at both the entry level aswell as for middle and senior level positions. Management students across leadinginstitutes in India ranked your Company amongst the Top 5 most preferred employers in‘Campustrack' a survey carried out by Nielsen in 2017. Your Company alsofeatured among India's most attractive employers in Universum's 2017 survey ofIndian B-schools. Over the years your Company's unique ‘Assistants UnderTraining' programme has played a vital role in developing a robust talent andleadership pipeline that has fuelled both growth in existing businesses as well as entryinto new ones.

Your Company's human resource management systems and processes aimto enhance organisational capability and vitality so that each business operates toworld-class standards and is equipped to seize market opportunities. At the same time itssteadfast commitment to investing in talent management practices ensures that these arerelevant effective and drive performance and achievement of the highest order. Given theintensely competitive business landscape and your Company's ambitious growth agendayour Company's human resources team has further strengthened the Talent Acquisitionprocess by sharpening the understanding and assessment of ‘organisation fit'. Asa recognition of its unique employee-centric policies and practices the latest RandstadBrand Research Survey findings have ranked your Company amongst the Top 10 employers inIndia.

Your Company believes that the achievement of its growth objectiveswill depend largely on the ability to innovate continuously connect closely with thecustomer as well as create and deliver superior and unmatched customer value. Towardsthis end your Company has assiduously built a culture of continuous learning innovationand collaboration across the organisation by providing cutting-edge learning anddevelopment inputs to employees which focus on the five capability platforms that havebeen identified as relevant to making businesses future-ready - Strategic Value ChainLeadership Innovation and Human Resources Development along with a judicious blend ofcoaching mentoring and on-the-job training.

It is a matter of pride that during the year your Company won globalrecognition at the 2017 ATD Excellence in Practice Awards in the Learning and Developmentcategory for entries titled ‘Integrated Talent Management: Talent Development fromInternal Resources Opportunity for Career Growth - ITC Gurukul' and ‘Learningand Development: Integrated Technical Talent Development Process - Munger Unit'.

During the year your Company completed the second edition of itsEmployee Engagement Survey - iEngage 2018 which captures the perceptions and views ofemployees on various workplace dimensions such as Employee Engagement PerformanceEnablement Managerial Effectiveness Trust Growth and Development Compensation andBenefits and Work Life Balance. The employee participation rate in the survey was over 95%which is amongst the highest for organisations of comparable size. Based on aggregatedscores it is reported that ‘Pride of Association' remains extremely high andthere is progressive improvement on key indices of overall Employee EngagementPerformance Enablement and Managerial Effectiveness.

Your Company believes that alignment of all employees to a sharedvision and purpose is vital for winning in the marketplace. It also recognises themutuality of interests with key stakeholders and is committed to building harmoniousemployee relations. This aspect of human resources has never been more relevant orimportant than today when driven by an ambitious growth agenda your Company is in theprocess of commissioning several world-class Integrated Consumer Goods Manufacturing andLogistics facilities across the country. Your Company's best-in-class‘Good' ER practices have fostered a collaborative spirit across all sections ofemployees. Bolstered by continuous investment in contemporary management practices andmanufacturing systems this has supported significant enhancement in quality andproductivity. During the year under review your Company successfully concluded long-termagreements at several of its manufacturing units and hotel properties and also ensuredsmooth commencement of operations at greenfield locations. Your Company was also conferredthe coveted ‘National Award for Excellence in Employee Relations 2017 - SignificantAchievement in Employee Relations' in the pan-India category by the EmployersFederation of India (EFI).

Your Company believes that the drive for progress is in never beingsatisfied with the status quo. We are confident that every one of your Company's26000 plus employees will relentlessly strive to meet the bold growth agenda deliverworld-class performance innovate newer and better ways of doing things uphold humandignity foster team spirit and discharge their role as ‘trustees' of allstakeholders with true faith and allegiance.

Your Company is committed to perpetuate this vitality of ITC - itsgrowth in physical terms and also as a great institution - so that it continues to growand succeed in its relentless pursuit of creating enduring value.

WHISTLEBLOWER POLICY

Your Company's Whistleblower Policy encourages Directors andemployees to bring to the Company's attention instances of unethical behaviouractual or suspected incidents of fraud or violation of the ITC Code of Conduct that couldadversely impact your Company's operations business performance and / or reputation.The Policy provides that your Company investigates such incidents when reported in animpartial manner and takes appropriate action to ensure that requisite standards ofprofessional and ethical conduct are always upheld. It is your Company's Policy toensure that no employee is victimised or harassed for bringing such incidents to theattention of the Company. The practice of the Whistleblower Policy is overseen by theAudit Committee and no employee has been denied access to the Committee. The WhistleblowerPolicy is available on your Company's corporate website‘www.itcportal.com'.

SUSTAINABILITY - CONTRIBUTION TO THE ‘TRIPLE BOTTOM LINE'

Inspired by the opportunity to sub-serve larger national prioritiesyour Company redefined its Vision to not only reposition the organisation for extremecompetitiveness but also make societal value creation the bedrock of its corporatestrategy. This superordinate Vision spurred innovative strategies to address some of themost challenging societal issues including widespread poverty unemployment andenvironmental degradation. Your Company's sustainability strategy aims at creatingsignificant value for the nation through superior ‘Triple Bottom Line'performance that builds and enriches the country's economic environmental and socialcapital. The sustainability strategy is premised on the belief that the transformationalcapacity of business can be very effectively leveraged to create significant societalvalue through a spirit of innovation and enterprise.

Your Company is today a global exemplar in sustainability. It is amatter of immense satisfaction that your Company's models of sustainable developmenthave led to the creation of sustainable livelihoods for around six million people many ofwhom belong to the marginalised sections of society. Your Company has also sustained itsposition of being the only Company in the world of comparable dimensions to have achievedthe global environmental distinction of being carbon positive (for 13 consecutive years)water positive (for 16 years in a row) and solid waste recycling positive (for 11 years insuccession).

To contribute to the nation's efforts in combating climate changeyour Company's strategy of adopting a low-carbon growth path is manifest in itsgrowing renewable energy portfolio establishment of green buildings large-scaleafforestation programme and achievement of international benchmarks in energy and waterconsumption. During the year over 43% of your Company's total energy requirementswere met from renewable energy sources - a creditable performance given its expandingmanufacturing base. In addition the practice of ensuring that premium luxury hotelsoffice complexes and factories of your Company are certified at the highest level by theUS Green Building Council / Indian Green Building Council and the Bureau of EnergyEfficiency (BEE) continues.

Your Company has adopted a comprehensive set of sustainability policiesthat are being implemented across the organisation in pursuit of its ‘Triple BottomLine' agenda. These policies are aimed at strengthening the mechanisms of engagementwith key stakeholders identification of material sustainability issues and progressivelymonitoring and mitigating the impacts along the value chain of each Business.

Your Company's 14th Sustainability Report published during theyear detailed the progress made across all dimensions of the ‘Triple BottomLine' for the year 2016-17. This report is in conformance with the Global ReportingInitiative (GRI) Guidelines - G4 under ‘In Accordance - Comprehensive' categoryand is third-party assured at the highest criteria of ‘reasonable assurance' asper International Standard on Assurance Engagements (ISAE) 3000. The 15th SustainabilityReport covering the sustainability performance of your Company for the year 2017-18 isbeing prepared in accordance with the GRI Standards and will be made available shortly.

In addition the Business Responsibility Report (BRR) as mandated bythe Securities & Exchange Board of India (SEBI) was brought out as an annexure to theReport and Accounts 2017 mapping the sustainability performance of your Company againstthe reporting framework suggested by SEBI. The BRR for the year under review is annexed tothis Report and Accounts.

Corporate Social Responsibility (CSR)

Your Company's overarching commitment to create significant andsustainable societal value is manifest in its CSR initiatives that embrace the mostdisadvantaged sections of society especially in rural India through economic empowermentbased on grassroots capacity building. Towards this end your Company adopted acomprehensive CSR policy in 2014-15 outlining programmes projects and activities thatyour Company plans to undertake to create a significant positive impact on identifiedstakeholders. All these programmes fall within the purview of Schedule VII of theprovisions of Section 135 of the Companies Act 2013 and the Companies (Corporate SocialResponsibility Policy) Rules 2014.

The key elements of your Company's CSR interventions are to:

- Deepen engagement in identified core operational geographies topromote holistic development design interventions in order to respond to the mostsignificant development challenges of your Company's stakeholder groups.

- Strengthen capabilities of Non-Government Organisations (NGOs) /Community Based Organisations (CBOs) in all the project catchments for participatoryplanning ownership and sustainability of interventions.

- Drive the Development agenda in a manner that benefits the poor andmarginalised communities in your Company's factory and agri-catchments therebysignificantly improving Human Development Indices (HDI).

- Ensuring behavioural change through focus on demand generation forall interventions thereby enabling participation contribution and asset creation for thecommunity.

- Continue to strive for scale by leveraging government partnershipsand accessing the most contemporary knowledge / technical know-how.

Your Company's stakeholders are confronted with multi-dimensionaland inter-related concerns at the core of which is the challenge of securing sustainablelivelihoods. Accordingly interventions under your Company's Social InvestmentsProgramme (SIP) are appropriately designed to build their capacities and promotesustainable livelihoods.

The footprint of your Company's projects is spread over 25States/Union Territories covering 188 districts.

Social Forestry

Your Company's pioneering afforestation initiative through theSocial Forestry programme is currently spread across 17 districts in six States covering2.95 lakh acres in 4900 villages impacting over 109000 poor households. Together withyour Company's Farm Forestry programme this initiative has greened over 6.83 lakhacres till date and generated about 124 million person days of employment for ruralhouseholds including poor tribal and marginal farmers. Integral to the Social Forestryprogramme is the Agro-Forestry initiative which currently extends to over 101900 acresand ensures food fodder and wood security.

Besides enhancing farm level employment generating incomes andincreasing green cover this large scale initiative is also contributing meaningfullytowards the nation's endeavour in creating additional carbon sinks for tacklingclimate change.

In addition to the above the Social and Farm Forestry initiative ofyour Company through a multiplier effect has led to improvement in pulpwood and fuelwoodavailability in Andhra Pradesh and Telangana. This initiative is also contributingmeaningfully towards the nation's endeavour in creating additional carbon sinks fortackling climate change.

During the year your Company's Social Forestry programme wasscaled up in West Tripura district Malkangiri district (Odisha) and Sukma district(Chhattisgarh). In Tripura your Company plans to promote bamboo plantations covering anarea of 5000 acres over the next five years. In addition your Company aims to promote20000 acres under Agro-Forestry in Malkangiri and Sukma districts in order to providelivelihood opportunities to small and marginal farmers.

Soil and Moisture Conservation

The Soil and Moisture Conservation programme promotes the developmentand management of local water resources in moisture-stressed areas by facilitatingvillage-based participation in planning and implementing such measures as well asbuilding reviving and maintaining water harvesting structures. The coverage of thisprogramme currently extends to 42 districts across 14 States. During the year the areaunder watershed increased by 98180 acres taking the cumulative coverage area till 2017-18to over 8.74 lakh acres. 2341 water harvesting structures were built during the yeartaking the total number of water harvesting structures to 12440.

Biodiversity

The focus of the programme is on reviving ecosystem services providedto agriculture by nature comprising natural regulation of pests pollination nutrientcycling soil retention and genetic diversity which have witnessed considerable erosionover the past few decades. During the year your Company's biodiversity conservationinitiative covered 4290 acres in seven States and 14 districts taking the cumulativearea under biodiversity conservation to 16093 acres. While the conservation work is beingcarried out in select plots of village commons this intervention significantly benefitsagricultural activity in the vicinity of these plots through soil moisture retentioncarbon sequestration and by acting as hosts to insects and birds.

Sustainable Agriculture

The Sustainable Agriculture programme attempts to de-risk farmers fromerratic weather events through the promotion of climate smart agriculture premised ondissemination of relevant package of practices adoption of appropriate mechanisation andprovision of institutional services. Currently 4.15 lakh acres are covered under theSustainable Agriculture programme which has a significant multiplier effect in terms ofadoption by the farming community. Of this 1.14 lakh acres were covered through ChoupalPradarshan Khets demonstration farms to disseminate scientific and technological bestpractices directly benefitting more than 64000 farmers. 2084 Farmer Field Schoolsdisseminated advanced agri-practices to farmers and 381 Agri Business Centres deliveredextension services arranged agri-credit linkages and established collective inputprocurement and agricultural equipment on hire. In pursuit of your Company'slong-term sustainability objective of increasing soil organic carbon a total of 2731compost units were constructed during the year taking the total number till date to over37500 units.

The ‘Village Adoption Programme' pioneered by yourCompany's Agri Business presently covers 190 model villages in the states of AndhraPradesh Karnataka Telangana and Rajasthan. This initiative is aligned to the PrimeMinister's Sansad Adarsh Gram Yojana (SAGY) an initiative to promote holistic ruraldevelopment. An assessment of the impact created by this programme by an independentagency showed that it has generated significant economic surplus for the farming communityincluding creating sustainable rural livelihoods and improved standards of living.

Livestock Development

The programme provides an opportunity for farmers to convert anexisting asset into a source of additional income with the potential of developing into asustainable source of livelihood. The programme provided extension services includingbreeding fodder propagation and training of farmers in order to increase their incomesthrough enhanced productivity of milch animals in seven States and 25 districts. Duringthe year 2.02 lakh Artificial Inseminations (AIs) were carried out which led to the birthof 0.79 lakh cross-bred progeny. Cumulatively the figures for AIs and calving stand at22.21 lakh and 7.51 lakh respectively.

Your Company is also working with dairy farmers in Bihar and Punjab toimprove farm productivity through several extension services and to facilitate higher milkproduction. Qualified teams comprising veterinarians and para-veterinarians have beendeployed to facilitate animal breeding animal nutrition and animal health servicestowards improving farm productivity and promoting commercial dairy farming among farmers.

Women Empowerment

This initiative has provided a range of gainful employmentopportunities to over 61000 poor women so far who have been supported with capacitybuilding and financial assistance by way of loans and grants. To date 20100 ultra-poorwomen in the core catchments had access to sustainable sources of income through non-farmlivelihood opportunities. In addition the programme provided a source of livelihood to325 women in Uttar Pradesh engaged in making agarbattis using pedal machines. This is ahome based activity for most women providing supplementary income to them.

Education

The Primary Education Programme aims to provide children from weakersections of society in your Company's factory catchment areas access to educationwith focus on learning outcomes and retention. Operational in 22 districts of 12 Statesthe programme covered 46891 children during the year thus taking the total coverage tonearly 5.60 lakh children. In addition 162 government primary schools were providedinfrastructure support comprising boundary walls additional classrooms sanitation unitsand furniture taking the total number of government primary schools covered till date to1644. To ensure sustainable operations and maintenance of infrastructure provided 351School Management Committees were strengthened and 397 Child Cabinets and Water andSanitation (WATSAN) Committees were formed in various schools with the active involvementof students and teachers.

Skilling & Vocational Training

The Skilling & Vocational Training programme provides training inmarket linked skills to youth to enable them to compete in the job market. 11619 youthwere enrolled under different courses during the year of which 40% were female and 37%belonged to the SC/ST communities. The programme is operational in

28 districts of 17 States and has so far covered over 55000 youth. Inaddition the programme covered 1500 youth who were trained with requisite skills andprovided increased opportunities for entrepreneurial development.

The Company continues to work with the Welcomgroup Graduate School ofHotel Administration (WGSHA) together with Dr TMA Pai Foundation to cater to the evergrowing need for professionally trained human resources in the hospitality industry. WGSHAhas been recently rated by CEO World Magazine amongst the Top 50 hospitality schools inthe world. In addition since the inception of ITC Culinary Skills Training CentreChhindwara in 2014 77 trainee chefs in seven batches have successfully completed the sixmonths programme wherein cooking skills are imparted to youth from economicallymarginalised communities.

Health & Sanitation

Your Company continues to adopt a multi-pronged approach towardsimproving public health and hygiene. To promote a hygienic environment through preventionof open defecation and reduce incidence of water-borne diseases 7494 IndividualHousehold Toilets (IHHT) were constructed in 24 districts of 16 States in collaborationwith the respective State Governments/District sanitation departments. With this a totalof 31473 IHHTs have been constructed so far in your Company's catchment areas. Inaddition 23 community toilets were constructed/renovated in Bihar West Bengal and NewDelhi. Along with sanitation infrastructure development special focus was given toawareness campaigns to create demand and drive behavioural change.

To make potable water available to local communities in four districtsof Andhra Pradesh and Telangana Reverse Osmosis (RO) water purification plants were setup in villages with poor quality water. 15 new RO plants were established in 2017-18taking the total to 101 which provided safe drinking water to over 120000 rural people.

The Company continued to enhance awareness on various health relatedissues through a network of 348 women Village Health Champions (VHCs) who covered nearlythree lakh women adolescent girls and school children during the year. The programme isoperational in seven districts of Uttar Pradesh and four districts of Madhya Pradesh. TheVHCs conducted over 7000 village meetings and participated in over 4000 group eventsapart from making door-to-door visits focusing on aspects like sanitation menstrual andpersonal hygiene family planning diarrhoea prevention and nutrition. Through yourCompany's ‘Savlon Swasth India Mission' a combination of audio-visualaids games and practical training was leveraged to encourage healthy hygiene habits.Nearly 14 lakh children from around 3300 schools in 18 towns were covered during theyear. Additionally access to handwashing was enabled through the unique ‘IDGuard' initiative to over 3.5 lakh children in 1000 schools. Nearly 1.36 lakhbeneficiaries were covered under Mother and Child Health initiative aimed at improving thehealth-nutrition status of women adolescents and children. This was achieved bystrengthening institutional capacity promoting greater convergence with existinggovernment schemes and increasing access to basic services on maternal child andadolescent health nutrition and child protection.

Solid Waste Management

Your Company's waste recycling programme

‘WOW - Well-Being Out of Waste' enables the creation of aclean and green environment and promotes sustainable livelihoods for waste collectors.During the year the programme continued to be executed in Hyderabad Coimbatore ChennaiBengaluru Delhi Muzaffarpur and major districts of Andhra Pradesh. The quantum of drywaste collected during the year was 50196 tonnes from 562 wards. The programme hascovered 77 lakh citizens 33 lakh school children and 2000 corporates since its inception.The Programme creates sustainable livelihoods for 14500 waste collectors by facilitatingan effective collection system in collaboration with municipal corporations. Besides theintervention has also created over 80 social entrepreneurs who are involved in maximisingvalue capture from dry waste collected.

In addition another programme on solid waste management under theMission Sunehra Kal initiative has spread to 13 districts of eight States covering 98000households and collected 7603 tonnes of waste during the year. This programme focuses onminimising waste to landfill by managing waste at source. Home composting was practiced by2516 households. Under this programme in 2017-18 5711 tonnes wet waste was compostedand 616 tonnes of dry waste recycled and only 17% of the total waste was sent tolandfills.

ITC Sangeet Research Academy

The ITC Sangeet Research Academy (ITC SRA) which was established in1977 is an embodiment of your Company's sustained commitment to a priceless nationalheritage. The Company's pledge towards ensuring enduring excellence in ClassicalMusic education continues to drive ITC SRA in furthering its objective of propagatingclassical music on the age-old principle of the ‘Guru-Shishya Parampara'. TheAcademy through its eminent Gurus imparts quality education in Hindustani Classical Musicto its Scholars. Padma Shri Pt.Ulhas Kashalkar Padma Shri Pt.Ajoy Chakrabarty Pt.ArunBhaduri Pt.Partha Chatterjee Pt.Uday Bhawalkar Vidushi Subhra Guha and Shri OmkarDadarkar are the present Gurus of the Academy. The focus of the Academy remains onnurturing exceptionally gifted students carefully hand-picked from across India whoreceive full scholarship to reside and pursue music education in the Academy's campusunder the tutelage of the country's most distinguished stalwarts. The objective is tocreate the next generation of masters of Hindustani Classical Music for the continuedpropagation of a precious legacy.

Forging Partnerships with NGOs

The meaningful contribution made by your Company's SocialInvestments Programme to address some of the country's key development challengeshas been possible in significant measure due to your Company's partnerships withglobally renowned NGOs such as BAIF DB Tech DSC FES MYRADA Pratham SEWA BharatOutreach WASH Institute and Water for People amongst others. These partnerships whichbring together the best-in-class management practices of your Company and the developmentexperience and mobilisation skills of NGOs will continue to provide innovative grassrootssolutions to some of India's most challenging problems of development in the years tocome.

CSR Expenditure

The annual report on Corporate Social Responsibility activities asrequired under Sections 134 and 135 of the Companies Act 2013 read with Rule 8 of theCompanies (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) strategiesare directed towards achieving the greenest and safest operations across all yourCompany's units by optimising natural resource usage and providing a safe and healthyworkplace. Systemic efforts continue to be made towards natural resource conservation bycontinuously improving resource-use efficiencies and enhancing the positive environmentalfootprint following a life-cycle based approach.

Your Company's focus on inculcating a green and safe culture issupported through the adoption of EHS standards that incorporate best internationalstandards codes and practices which are verified through regular audits.

Your Company is addressing the critical area of climate changemitigation through several innovative and pioneering initiatives. These include continuousimprovement in energy efficiency enhancing the renewable energy portfolio integratinggreen attributes into the built environment better efficiency in material utilisationmaximising water use efficiencies and rain water harvesting maximising reuse andrecycling of waste and utilising post-consumer waste as raw material.

Energy Conservation and Renewable Energy

Your Company is well positioned to benefit from India - specific energyconservation and renewable energy promotion schemes such as Perform Achieve and Trade(PAT) and Renewable Energy Certificates (RECs) promoted by the Government of India. As aresponsible corporate citizen your Company has made a commitment to reduce dependence onenergy from fossil fuels. All the factories hotels and offices recently commissioned byyour Company have been designed with green features to minimise their carbon footprint.Despite the addition of several ICMLs Hotels and a BCTMP pulp mill and lower generationof black liquor due to health restoration of one of the Soda Recovery Boilers at theBhadrachalam unit during the year more than 43% of your Company's total energyrequirements were met from carbon neutral fuels such as biomass wind and solar.

Your Company has drawn up action plans based on a mix of energyconservation and renewable energy investments to progressively scale up the share ofrenewable energy in the total energy consumption to 50% notwithstanding the significantenhancement in its scale of operations planned going forward.

Water Security

With water scarcity increasingly becoming an area of serious concernyour Company continues to focus on an integrated water management approach that includeswater conservation and harvesting initiatives at its units - while at the same timeworking towards meeting the water security needs of all stakeholders at the localwatershed level. Interventions have been spearheaded to improve water use efficiencies byadopting latest technologies and increasing reuse and recycling practices within the fencewhile also working with farmers and other community members towards improving their wateruse efficiencies. The supply side interventions include enhanced capture and storage ofrainwater (in soil and storage ponds) and recharging aquifers. These initiatives haveresulted in the creation of rainwater harvesting potential that is over three times thenet water consumption of your Company's operations.

Greenhouse Gases and Carbon Sequestration

The greenhouse gas (GHG) inventory of your Company for the year 2017-18compiled as per the ISO 14064 Standard has been assured as in the earlier years at thehighest ‘Reasonable Level' by an independent third party. During the year yourCompany achieved the ‘Leadership' position in the Climate Change and Waterdisclosures of CDP.

Reaffirming your Company's commitment to the ethos of‘Responsible Luxury' all luxury hotels of your Company are Leadership in Energy& Environmental Design (LEED) Platinum certified making it a trailblazerin 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 ratedbuilding in the world by the US Green Building Council (USGBC-LEED).

ITC Grand Chola the 600-key super-premium luxury hotel complex inChennai is amongst the world's largest LEED Platinum certified greenhotels besides holding a 5-Star rating from the Green Rating for Integrated HabitatAssessment (GRIHA) Council. The data centre at Bengaluru ITC Sankhya is the first datacentre in the world to receive the LEED Platinum certification by USGBC.

Several of your Company's factories and office complexes have alsoreceived the Green Building certification from Indian Green Building Council (IGBC) theLEED certification from USGBC and star ratings from the Bureau of EnergyEfficiency (BEE).

Large infrastructure investments such as the

ITC Green Centre at Manesar (LEED Platinum certified) andthe upcoming ITC Green Centre at Bengaluru (pre-certified for LEED Platinum)continue to demonstrate your Company's commitment to green buildings. To date 23buildings of your Company have achieved Platinum certification by USGBC/IGBC. In order tocontinually reduce your Company's energy footprint green features are integrated inall new constructions and also incorporated in existing hotels manufacturing unitswarehouses and office complexes.

Over twice the amount of Carbon Dioxide emissions from yourCompany's operations are being sequestered through its Social and Farm Forestryinitiatives. Besides mitigating the impact of increasing levels of GHG emissions in theatmosphere these initiatives help greening of degraded wasteland prevent soil erosionenhance organic matter content in soil and enhance ground water recharge.

Waste Recycling

Your Company continues to make significant progress in reducingspecific waste generation through constant monitoring and improvement of efficiencies inmaterial utilisation and also in achieving almost total recycling of waste generated inoperations. In this way your Company has prevented waste reaching landfills and theassociated problems of soil and groundwater contamination and GHG emissions all of whichcan adversely impact public health. In the current year your Company has achieved over99% waste recycling with the Paperboards and Specialty Papers Business which accountsfor 90% of the total waste generated in your Company recycling 99.9% of the total wastegenerated by its operations. During the year this Business also recycled over 112000tonnes of externally sourced post-consumer waste paper thereby creating yet anotherpositive environmental footprint.

Safety

Your Company's commitment to provide a safe and healthy workplaceto all has been reaffirmed by several national and international awards and certificationsreceived by various units. Your Company's approach has been to institutionalisesafety as a value-led concept with focus on inculcating a sense of ownership at all levelsin order to drive behavioural change. In line with this approach several of yourCompany's operating units are progressively implementing behavioural-based safetyinitiatives and customised risk assessment programmes to strengthen their safety culture.Your Company continuously strives to improve on safety performance by incorporatingbest-in-class engineering standards in the design and project execution phase itself forall investments in the built environment besides optimising costs. Environment Health& Safety audits before commissioning and during the operation of units continued to becarried out to verify compliance with standards.

Promoting Thought Leadership in Sustainability

The ‘CII-ITC Centre of Excellence for SustainableDevelopment' established by your Company in 2006 in collaboration with theConfederation of Indian Industry (CII) continues to focus on its endeavour to promotesustainable business practices amongst Indian enterprises. The major highlights during theyear include the following:

• The 12th edition of the Centre's flagship event theSustainability Summit was held on

6th-7th September 2017 in New Delhi with focus on achieving SustainableDevelopment Goals by the year 2030. Key dignitaries included Dr Mahesh Sharma Minister ofState for Culture (I/C) and Minister of State for Environment Forest & ClimateChange Shri Nitin Jairam Gadkari Union Minister of Road Transport and HighwaysShipping Water Resources River Development and Ganga Rejuvenation Mr. Sanjiv PuriManaging Director ITC Limited and H.E. Mr Tomasz Kozlowski Ambassador of European Unionto India and Bhutan.

• The 12th CII-ITC Sustainability Awards 2017 took place inDecember 2017. Since 2006 696 businesses have applied for the Awards of which 212 havebeen recognised so far. In 2017 out of 105 applicants 24 companies were declared winnersin various categories.

• The CII-NITI Aayog ‘Cleaner Air Better Life'initiative was launched in November 2017 to address the concerns of air pollution in DelhiNCR.

• The Centre promoted capacity building in sustainability througha range of training and consulting assignments. In 2017 almost 2000 participants werecovered through 75 programmes conducted both in India and abroad. Topics included ValueInnovation CSR Rules and Impact Measurement Sustainability Reporting IntegratedReporting Cluster Platform for Transformative Solutions Human Rights and Biodiversity.

• In November 2017 the Centre participated in the 23rd Conferenceof Parties under United Nations Framework Convention on Climate Change held at BonnGermany. The Centre organised the first session from the India Pavilion which wasinaugurated by Dr. Harsh Vardhan Minister of Environment Forests and Climate Change(MoEFCC) along with a keynote address by Mr. A.K. Mehta Additional Secretary MoEFCC.

R&D QUALITY AND PRODUCT DEVELOPMENT

Your Company continues to invest in a comprehensive Research &Development programme leveraging its world-class infrastructure benchmarked processesstate-of-the-art technology and a business-focused R&D strategy.

ITC's Life Sciences & Technology Centre (LSTC) Bengalurucontinues to focus on its mandate to develop unique sources of competitive advantage andbuild future readiness. LSTC seeks to achieve this by harnessing contemporary advances inseveral relevant areas of science and technology and blending the same with classicalconcepts of product development and leveraging cross-business synergies. This challengingtask of driving science-led product innovation is being carefully addressed by identifyingthe required set of core competency areas of science. LSTC has evolved over the years andis presently resourced with nearly 350 highly qualified scientists world-classmeasurement systems and state-of-the-art facilities to conduct experimental researchrapid prototyping and process development. Several Centres of Excellence have beenestablished over the past few years in these areas in LSTC. In addition a number of areascentred around these capabilities have secured global quality certifications.

The Agrisciences R&D team continues to engage in evaluating andintroducing several germplasm lines of identified crops including Casuarina and Eucalyptusto increase the genetic and trait diversities in these species. This intervention wouldfacilitate the development of new varieties with higher yields better quality and othertraits relevant for your Company's Businesses. These new lines are being introducedcommercially and will enable farmers increase their revenues and earnings significantly onaccount of productivity gains and improved disease resistance. Besides pulpwood speciesthe Agrisciences team continues to focus on delivering world-class solutions usingcontemporary technologies in crops such as wheat soya potato and rice. This includesevaluating and building research collaborations with globally recognised centres ofexcellence with a view to accelerating the journey towards demonstrating multiple‘proofs of concept'. These collaborations covering identified crops andspecies are designed in a manner that enables your Company in gaining fundamentalinsights into several technical aspects of plant breeding and genetics and the influenceof agro-climatic conditions on the growth of these species. Such interventions willaccelerate LSTC's efforts in creating future generations of crops that are moreadaptable to varied agro-climatic conditions thereby providing farmers relatively saferand more profitable alternatives whilst helping secure your Company's supply chainand contributing to the vitality and competitiveness of your Company's BrandedPackaged Foods Businesses. Further these outcomes have a strong potential to contributetowards augmenting the nation's ecological capital and biodiversity as well.

Recognising the unique construct of your Company in terms of its strongpresence in Agri Branded Packaged Foods and Personal Care Products Businesses aconvergence of R&D capabilities is being leveraged to deliver future products aimed atnutrition health and well-being. In keeping with the above during the year your Companylaunched a variety of potatoes which are low in sugar content and rich in antioxidants.LSTC has created a Biosciences R&D team to design and develop several long-termresearch platforms evolving multi-generation product concepts and associated claims thatare fully backed by scientific evidence for the Branded Packaged Foods and Personal CareProducts Businesses. Multiple value propositions have been identified in the area offunctional foods which are being progressed to products of the future with strongscientifically validated claims via clinical trials. Several of these initiatives havecompleted clinical assessment of safety and efficacy of products in line with globalstandards and specifically for the Indian population. These interventions will go a longway in enabling your Company to become a world-class producer of nutritionally superiorfood products in the near term. Similar advances have been made in the skin care haircare and health/hygiene arena. Intellectual property arising from these efforts have alsobeen secured as appropriate and as of 31st March 2018 your Company has filed 756patents.

LSTC has a clear vision and road map for long-term R&D backed by awell-crafted Intellectual Property strategy. With scale speed science and sustainabilityconsiderations LSTC is poised to deliver long-term competitive advantage for yourCompany.

In line with your Company's relentless focus on operationalexcellence and quality each Business is mandated to continuously innovate on processesand systems to enhance their competitive position.

During the year your Company's Hotels Business leveraged its‘Lean' and ‘Six Sigma' programmes to improve business processefficiencies. This will further enhance capability to create superior customer valuethrough a service excellence framework. The Paperboards Paper & Packaging Businessescontinued to pursue ‘Total Productive Maintenance' (TPM) programmes in allunits 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 contractmanufacturing units) and hotels operate in compliance with stringent food safety andquality standards. Almost all Company owned units / hotels and contract manufacturingunits of the Branded Packaged Foods Businesses are certified by an accredited third partyin accordance with ‘Hazard Analysis Critical Control Points' (HACCP) / ISO 22000standards. Additionally the quality of all FMCG products of your Company is regularlymonitored through ‘Product Quality Ratings Systems' (PQRS).

PROCEEDINGS INITIATED BY THE ENFORCEMENT DIRECTORATE

In the proceedings initiated by the Enforcement Directorate in 1997 inrespect of some of the show cause memoranda issued by the Directorate after hearingarguments on behalf of your Company the appropriate authority has passed orders in favourof your Company and dropped those memoranda.

Your Company in respect of some of the remaining memoranda has filedwrit petitions challenging their validity before the Honourable Calcutta High Court.These petitions are pending. Meanwhile some of the prosecutions launched by theEnforcement Directorate have been quashed by the Honourable Calcutta High Court whileothers are pending.

TREASURY OPERATIONS

During the year your Company's treasury operations continued tofocus on deployment of surplus liquidity and management of foreign exchange exposureswithin a well-defined risk management framework.

Market interest rates during the first half of the year were stable onthe back of declining inflation low credit offtake and a 25 bps reduction in policy ratesby RBI. However market interest rates witnessed a steep and unanticipated rise fromNovember 2017 mainly due to shrinking liquidity in the banking system deterioration ofmacro-economic variables such as inflation fiscal and current account deficit lower debtmarket investments by domestic as well as Foreign Portfolio Investors and higherGovernment borrowing.

All investment decisions relating to deployment of surplus liquiditycontinued to be guided by the tenets of Safety Liquidity and Return. Treasury operationsfocused on proactive rebalancing of portfolio duration and mix in line with the evolvinginterest rate environment. Further allocation to debentures bank fixed deposits andmoney market instruments was increased taking advantage of the year-end seasonal spike ininterest rates.

Your Company's risk management processes ensured that alldeployments were made with proper evaluation of underlying risk while remaining focused oncapturing market opportunities.

During the year the Indian Rupee (INR) traded largely within a band ofRs 64 to Rs 65 per US$. The stability of INR against the US$ was aided mainly by robustforeign investment inflows and depreciation of US$ against Euro and Yen. However bouts ofINR depreciation were witnessed on account of rise in crude oil prices geo-politicaltensions and in the run-up to US Federal Reserve meetings. Likewise INR appreciation wasseen on the back of positive macro-economic developments such as upgrade of India'sSovereign rating by Moody's roll out of GST and implementation of Insolvency andBankruptcy Code. In this scenario your Company adopted a proactive forex exposuremanagement strategy which included the use of foreign exchange forward contracts andplain vanilla options to protect business margins and reduce risks / costs.

As in earlier years commensurate with the large size of the temporarysurplus liquidity under management treasury operations continue to be supported byappropriate control mechanisms including independent check of 100% of transactions byyour Company's Internal Audit department.

DEPOSITS

Your Company's erstwhile Public Deposit Scheme closed in the year2000. As at 31st March 2018 there were no deposits due for repayment except in respectof two deposit holders totalling to Rs 20000/- which have been withheld on the directivesreceived from the government agencies.

There was no failure to make repayments of Fixed Deposits on maturityand the interest due thereon in terms of the conditions of your Company's erstwhileSchemes.

Your Company has not accepted any deposit from the public / membersunder Section 73 of the Companies Act 2013 read with the Companies (Acceptance ofDeposits) Rules 2014 during the year.

DIRECTORS

Changes in Directors

Mr. Ashok Malik (representing the Specified Undertaking of the UnitTrust of India) resigned from the Board of Directors of your Company (‘theBoard') with effect from close of work on 31st July 2017 and Mr. Zafir Alam[representing General Insurers' (Public Sector) Association of India(‘GIPSA')] resigned from the Board with effect from 20th March 2018. YourDirectors would like to record their appreciation for the services rendered by Messrs.Malik and Alam.

Mr. Pillappakkam Bahukutumbi Ramanujam who resigned as an IndependentDirector of your Company with effect from 1st August 2017 expired on 11th February2018. Your Directors deeply mourn the demise of Mr. Ramanujam and place on record theirappreciation for the valuable contribution made by Mr. Ramanujam during his tenure.

The Board at the meeting held on 16th May 2018 on the recommendationof the Nomination & Compensation Committee (‘the Committee') appointed Mr.John Pulinthanam as Additional Non-Executive Director of the Company with effect from thesaid date representing GIPSA. By virtue of the provisions of Article 96 of the Articlesof Association of your Company and Section 161 of the Companies Act 2013 (‘theAct') Mr. Pulinthanam will vacate office at the ensuing Annual General Meeting(‘AGM') of your Company.

On the recommendation of the Committee the Board also recommended forthe approval of the Members the appointment of Mr. Pulinthanam as a Non-ExecutiveDirector of your Company liable to retire by rotation for a period of three years fromthe date of the ensuing AGM.

The Board at the meeting held on 16th May 2018 on the recommendationof the Committee re-designated Mr. Sanjiv Puri as Managing Director of the Company witheffect from the said date subject to the approval of the Members. At the said meeting onthe recommendation of the Committee the Board also recommended for the approval of theMembers the re-appointment of Mr. Puri as a Director not liable to retire by rotationand also as Managing Director of the Company for a period of five years with effect from22nd July 2019.

Messrs. Nakul Anand and Rajiv Tandon will complete their present termas Wholetime Directors on 2nd January 2019 and 21st July 2019 respectively. The Boardat the meeting held on 16th May 2018 on the recommendation of the Committee recommendedfor the approval of the Members the re-appointment of Messrs. Anand and Tandon asDirectors and also as Wholetime Directors of the Company for a period of two years witheffect from 3rd January 2019 and 22nd July 2019 respectively.

Mr. Shilabhadra Banerjee will complete his present term as anIndependent Director on 29th July 2019. The Board at the meeting held on 16th May 2018on the recommendation of the Committee recommended for the approval of the Members there-appointment of Mr. Banerjee as an Independent Director of the Company for a period offive years with effect from 30th July 2019. Mr. Sahibzada Syed Habib-ur-Rehman who willcomplete his present term as an Independent Director on 14th September 2019 will attainthe age of seventy five years on 20th March 2019. The Board at the aforesaid meeting onthe recommendation of the Committee recommended for the approval of the Memberscontinuation of Mr. Rehman as an Independent Director of the Company from the day heattains the age of seventy five years i.e. 20th March 2019 till the remaining period ofhis current term i.e. up to 14th September 2019 in compliance with the Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment)Regulations 2018.

It may be recalled that the Members at the 105th AGM held on 22nd July2016 appointed Mr. Yogesh Chander Deveshwar as Chairman and Non-Executive Director of theCompany for a period of three years with effect from 5th February 2017. Given theincreasing size and complexity of the organisation the Committee and the Board are of theview that it would be in the best interest of the Company for Mr. Deveshwar to continue inhis capacity as Chairman for some more time. Accordingly the Board at the meeting held on16th May 2018 on the recommendation of the Committee recommended for the approval ofthe Members the re-appointment of Mr. Deveshwar as Non-Executive Director not liable toretire by rotation and Chairman of the Company for the period from 5th February 2020 to3rd February 2022.

Requisite Notices under Section 160 of the Act have been received inrespect of Messrs. Pulinthanam Puri Anand Tandon Banerjee and Deveshwar who havefiled their consents to act as Directors of the Company if appointed.

Appropriate resolutions seeking your approval to the above areappearing in the Notice convening the 107th AGM of your Company.

Retirement by Rotation

In accordance with the provisions of Section 152 of the Act read withArticle 91 of the Articles of Association of the Company Messrs. Nakul Anand and SanjivPuri will retire by rotation at the ensuing AGM and being eligible offer themselves forre-election. The Board has recommended their re-election.

Number of Board Meetings

Six meetings of the Board were held during the year ended 31st March2018.

Attributes Qualifications & Independence of Directors and theirAppointment

As reported in earlier years criteria for determining qualificationspositive attributes and independence of Directors were approved by the Nomination &Compensation Committee pursuant to the Act and the Rules thereunder in respect ofDirectors including Independent Directors. The Corporate Governance Policy inter aliarequires that Non-Executive Directors be drawn from amongst eminent professionals withexperience in business / finance / law / public administration and enterprises. The BoardDiversity Policy of the Company requires the Board to have balance of skills experienceand diversity of perspectives appropriate to the Company. The Articles of Association ofthe Company provide that the strength of the Board shall not be fewer than five nor morethan eighteen.

Directors are appointed / re-appointed with the approval of the Membersfor a period of three to five years or a shorter duration in accordance with retirementguidelines and as may be determined by the Board from time to time. All Directors otherthan Independent Directors are liable to retire by rotation unless otherwise approved bythe Members. One-third of the Directors who are liable to retire by rotation retire everyyear and are eligible for re-election.

The Independent Directors of your Company have confirmed that they meetthe criteria of Independence as prescribed under Section 149 of the Act and Regulation 16of the Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations 2015 (‘Listing Regulations 2015').

The Company's Policy on remuneration of Directors Key ManagerialPersonnel and other employees is provided under the section ‘Report on CorporateGovernance' in the Report and Accounts.

Board Evaluation

As reported in earlier years the Nomination & CompensationCommittee pursuant to the Act and the Rules thereunder and the Listing Regulations 2015formulated the Policy on Board evaluation evaluation of Board Committees'functioning and individual Director evaluation. In keeping with ITC's belief that itis the collective effectiveness of the Board that impacts Company performance the primaryevaluation platform is that of collective performance of the Board as a whole. Boardperformance is assessed against the role and responsibilities of the Board as provided inthe Act and the Listing Regulations

2015 read with the Company's Governance Policy. The parameters forBoard performance evaluation have been derived from the Board's core role oftrusteeship to protect and enhance shareholder value as well as to fulfil expectations ofother stakeholders through strategic supervision of the Company. Evaluation of functioningof Board Committees is based on discussions amongst Committee members and shared by therespective Committee Chairman with the Board. Individual Directors are evaluated in thecontext of the role played by each Director as a member of the Board at its meetings inassisting the Board in realising its role of strategic supervision of the functioning ofthe Company in pursuit of its purpose and goals.

While the Board evaluated its performance against the parameters laiddown by the Nomination & Compensation Committee the evaluation of individualDirectors was carried out anonymously in order to ensure objectivity. Reports onfunctioning of Committees were placed before the Board by the Committee Chairmen. TheIndependent Directors Committee of the Board also reviewed the performance of thenon-Independent Directors including the Chairman of the Company pursuant to Schedule IVto the Act and Regulation 25 of the Listing Regulations 2015.

KEY MANAGERIAL PERSONNEL

Mr. Rajendra Kumar Singhi was appointed by the Board as the CompanySecretary of the Company with effect from 4th February 2018. Mr. Biswa Behari Chatterjeeretired from the services of the Company with effect from close of work on 3rd February2018 and consequently ceased to be the Company Secretary with effect from the said date.

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 CharteredAccountants (‘DHS') were appointed with your approval at the 103rd AGM to holdsuch office till the conclusion of the 108th AGM. On the recommendation of the AuditCommittee the Board recommended for the ratification of the Members the appointment ofDHS from the conclusion of the ensuing AGM till the conclusion of the 108th AGM. On therecommendation of the Audit Committee the Board also recommended for the approval of theMembers the remuneration of DHS for the financial year 2018-19. Appropriate resolutionfor the purpose is appearing in the Notice convening the 107th AGM of the Company.

Cost Auditors

Your Board as recommended by the Audit Committee appointed for thefinancial year 2018-19:

(i) Mr. P. Raju Iyer Cost Accountant for audit of Cost Recordsmaintained by the Company in respect of ‘Paper and Paperboard' and‘Nicotine Gum' products.

(ii) Messrs. Shome & Banerjee Cost Accountants for audit of CostRecords maintained in respect of all applicable products of the Company other than‘Paper and Paperboard' and ‘Nicotine Gum' products.

Pursuant to Section 148 of the Act read with the Companies (Audit andAuditors) Rules 2014 appropriate resolutions seeking your ratification to theremuneration of the said Cost Auditors are appearing in the Notice convening the 107th AGMof the Company.

Secretarial Auditors

Your Board appointed Messrs. Vinod Kothari & Company PractisingCompany Secretaries to conduct secretarial audit of the Company for the financial yearended 31st March 2018. The Report of Messrs. Vinod Kothari & Company is provided inthe Annexure forming part of this Report pursuant to Section 204 of the Act.

CHANGES IN SHARE CAPITAL

During the year 56911840 Ordinary Shares of Rs 1/- each fullypaid-up were issued and allotted upon exercise of 5691184 Options under theCompany's Employee Stock Option Schemes.

Consequently the Issued and Subscribed Share Capital of your Companyas on 31st March 2018 stands increased to Rs 12204294911/- divided into12204294911 Ordinary Shares of Rs 1/- each.

The Ordinary Shares issued during the year rank pari passu with theexisting Ordinary Shares of your Company.

EMPLOYEE STOCK OPTION SCHEMES

Disclosures with respect to Stock Options as required under Regulation14 of the Securities and Exchange Board of India (Share Based Employee Benefits)Regulations 2014 (‘the Regulations') are available in the Notes to theFinancial Statements and can also be accessed on the Company's corporate website‘www.itcportal.com' under the section ‘Shareholder Value'. During theyear there has not been any material change in the Company's Employee Stock OptionSchemes.

Your Company's Auditors Messrs. Deloitte Haskins & Sellshave certified that the Employee Stock Option Schemes of the Company have been implementedin accordance with the Regulations and the resolutions passed by the Members in thisregard.

INVESTOR SERVICE CENTRE

The Investor Service Centre of your Company (‘ISC')registered with the Securities and Exchange Board of India as Category II Share TransferAgent for providing in-house share registration and related services continues to providebest-in-class services to the shareholders and investors. During the year the ISO QualityManagement System Certification for investor servicing by ISC was upgraded to ISO9001:2015 from ISO 9001:2008 by Messrs. Det Norske Veritas (‘DNV') accreditedagency for this purpose. DNV also accorded to ISC's systems and processes a‘Level 5' rating the highest rating level for the ninth year in succession.These accreditations stand testimony to the robust and effective systems your Company hasin place for providing quality investor services.

During the year a Shareholder Satisfaction Survey was conducted byyour Company to assess the performance standards of ISC. Amongst the shareholders whoparticipated in the Survey 97% expressed that they were satisfied with the servicesprovided by ISC.

RELATED PARTY TRANSACTIONS

All contracts or arrangements entered into by the Company with itsrelated parties during the financial year were in accordance with the provisions of theCompanies Act 2013 and the Securities and Exchange Board of India (Listing Obligationsand Disclosure Requirements) Regulations 2015. All such contracts or arrangements were onarm's length basis and in the ordinary course of business and have been approved bythe Audit Committee. No material contracts or arrangements with related parties wereentered into during the year under review. Accordingly no transactions are required to bereported in Form No. AOC-2 in terms of Section 134 of the Act read with Rule 8 of theCompanies (Accounts) Rules 2014.

Your Company's Policy on Related Party Transactions as adopted byyour Board can be accessed on the corporate website at http://www.itcportal.com/aboutitc/policies/policy-on-rpt.aspx.

DIRECTORS' RESPONSIBILITY STATEMENT

As required under Section 134 of the Companies Act 2013 your Directors confirmhaving:

a) followed in the preparation of the Annual Accounts the applicable accountingstandards with proper explanation relating to material departures if any;

b) selected such accounting policies and applied them consistently and made judgementsand estimates that are reasonable and prudent so as to give a true and fair view of thestate of affairs of your Company at the end of the financial year and of the profit ofyour Company for that period;

c) taken proper and sufficient care for the maintenance of adequate accounting recordsin accordance with the provisions of the Companies Act 2013 for safeguarding the assetsof 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 suchinternal financial controls were adequate and operating effectively; and

f) devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.

CONSOLIDATED FINANCIAL STATEMENTS

Your Company's Board of Directors is responsible for thepreparation of the consolidated financial statements of your Company & itsSubsidiaries (‘the Group') Associates and Joint Venture entities in terms ofthe requirements of the Companies Act 2013 and in accordance with the accountingprinciples generally accepted in India including the Indian Accounting Standardsspecified under Section 133 of the Act.

The respective Board of Directors of the companies included in theGroup and of its associates and joint venture entities are responsible for maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets and for preventing and detecting frauds and other irregularities; the selectionand application of appropriate accounting policies; making judgments and estimates thatare reasonable and prudent; and the design implementation and maintenance of adequateinternal financial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error which have been used for the purpose ofpreparation of the consolidated financial statements by the Directors of your Company asaforestated.

OTHER INFORMATION

Compliance with the conditions of Corporate Governance

The certificate from your Company's Auditors Messrs. DeloitteHaskins & Sells confirming compliance with the conditions of Corporate Governance asstipulated under the Listing Regulations 2015 is annexed.

Compliance with requirements relating to downstream investments

Your Company's Auditors Messrs. Deloitte Haskins & Sellshave certified that the Company and its subsidiaries are in compliance with therequirements relating to downstream investment as laid down in the Foreign ExchangeManagement (Transfer or Issue of Security by a Person Resident outside India) Regulations2017 and other applicable FEMA Regulations.

Integrated Report

The Company has voluntarily prepared its first Integrated Report forthe financial year 2017-18. As a green initiative the Report has been hosted on theCompany's corporate website at http://www.itcportal.com/about-itc/shareholder-value/.

Going Concern status

There is no significant or material order passed during the year by anyregulator court or tribunal impacting the going concern status of the Company or itsfuture operations.

Extract of Annual Return

The information required under Section 134 of the Act read with Rule 12of the Companies (Management and Administration) Rules 2014 is provided in the Annexureforming part of this Report.

Particulars of loans guarantees or investments

Details of Loans Guarantees and Investments covered under theprovisions of Section 186 of the Companies Act 2013 are provided in Notes 4 5 6 9 and27 (v) (a) (ii) to the Financial Statements.

Particulars relating to Conservation of Energy and TechnologyAbsorption

Particulars as required under Section 134 of the Companies Act 2013relating to Conservation of Energy and Technology Absorption are also provided in theAnnexure to this Report.

Compliance with Secretarial Standards

The Company is in compliance with the applicable Secretarial Standardsissued by the Institute of Company Secretaries of India and approved by the CentralGovernment under Section 118(10) of the Act.

Employees

The total number of employees as on 31st March 2018 stood at 26147.

There were 72 employees who were employed throughout the year and werein receipt of remuneration aggregating Rs 102 lakhs or more or were employed for part ofthe year and were in receipt of remuneration aggregating Rs 8.5 lakhs per month or moreduring the financial year ended 31st March 2018. The information required under Section197(12) of the Companies Act 2013 and the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 is provided in the Annexure forming part of this Report.

Dividend Distribution Policy

The Company's Dividend Distribution Policy is provided in theAnnexure forming part of this Report and is also available on the Company's corporatewebsite ‘www.itcportal.com'. There has been no change in the Policy during theyear.

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements that involve risks anduncertainties. 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 itsBusinesses are intended to identify such forward-looking statements. The Companyundertakes no obligation to publicly update or revise any forward-looking statementswhether as a result of new information future events or otherwise. Actual resultsperformances or achievements could differ materially from those expressed or implied insuch forward-looking statements. Readers are cautioned not to place undue reliance onthese forward-looking statements that speak only as of their dates. This Report should beread in conjunction with the financial statements included herein and the notes thereto.

CONCLUSION

Inspired by the opportunity to serve a larger national purpose yourCompany redefined its Vision about two decades ago to transform itself into a vibrantengine of growth that would make a substantial contribution to the Indian economy whilstrewarding shareholders by creating growing value for the Indian society.

Over the last 22 years your Company has created multiple drivers ofgrowth by developing a portfolio of world-class businesses across all sectors of thenational economy spanning agriculture manufacturing and services. Your Company ranksamongst the Top 3 in the private sector in terms of Contribution to the Exchequer. Overthe last 22 years your Company's Value Addition aggregated Rs 4.1 lakh crores ofwhich nearly 75% accrued to the Exchequer at the Central and State levels. During thisperiod your Company's net revenue and post-tax profit have recorded an impressivecompound annual growth of 13.3% and 18.6% respectively. Total Shareholder Returnsmeasured in terms of increase in market capitalisation and dividends have grown at acompound rate of 22.4% per annum during this period placing your Company amongst theforemost in the country in terms of efficiency of servicing financial capital.

Your Company's non-cigarette businesses have grown over 19-foldsince 1996 and presently constitute appx. 59% of net segment revenue. In aggregate thenon-cigarette businesses account for over 80% of your Company's operating capitalemployed about 90% of the employee base and over 80% of annual investments.

Your Company today is the leading FMCG marketer in India apre-eminent hotel chain and a globally acclaimed icon in green hoteliering the clearmarket leader in the Indian Paperboard and Packaging industry a pioneering trailblazer infarmer and rural empowerment through its Agri Business and a global exemplar insustainable business practices.

Aligned with the Government's Make in India Vision your Companyis building national assets in the manufacturing and tourism sector. As stated earlier inthis Report around 15 world-class Integrated Consumer Manufacturing & Logisticsfacilities are being built to deliver sustainable competitive advantage to yourCompany's FMCG businesses. Several projects with an aggregate outlay of Rs 25000crores are in various stages of implementation / planning across the length and breadth ofthe country facilitating regional and national economic development. Recognising thattomorrow's world will belong to those who create own and nurture intellectualcapital your Company continues to invest in augmenting the capability of its globallybenchmarked Life Sciences and Technology Centre to ensure that its Businesses arefuture-ready and contribute to building intellectual property assets for the nation.

Your Company's Board and employees are inspired by the Vision ofsustaining ITC's position as one of India's most admired and valuable companiescreating enduring value for all stakeholders including the shareholders and the Indiansociety. The vision of enlarging your Company's contribution to the Indian economy isdriven by its ‘Let's Put India First' credo anchored on the core values ofTrusteeship Transparency Empowerment Accountability and Ethical Citizenship which arethe cornerstones of ITC's Corporate Governance philosophy.

Inspired by this Vision driven by Values and powered by internalVitality your Directors and employees look forward to the future with confidence andstand committed to creating an even brighter future for all stakeholders.

On behalf of the Board
Y. C. DEVESHWAR Chairman
16th May 2018
Gurugram S. PURI Managing Director
India R. TANDON Director & Chief Financial Officer