2010

Harshavardhan Reddy

PGPM/0911/027

2009-2011

ITC Limited

International

Academy

of

Management

&

Entrepreneurship

2 | P a g e

The Chairman’s Speak

It is ITC‟s endeavour to continuously explore opportunities for growth by synergising and blending its multiple core competencies to create new epicentres of growth. The employees of ITC are inspired by the vision of growing ITC into one of India‟s premier institutions and are willing to go extra to generate value for the economy, in the process creating growing value for the shareholders. – Y.C deveshwar

Mission

To enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder value.

Vision

Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Company‟s stakeholders.

ITC's Core Values

ITC's Core Values are aimed at developing a customer-focused, high-performance organisation which creates value for all its stakeholders:

Trusteeship: As professional managers, we are conscious that ITC has been given to us in "trust" by all our stakeholders. We will actualise stakeholder value and interest on a long term sustainable basis.

Customer Focus: We are always customer focused and will deliver what the customer needs in terms of value, quality and satisfaction.

Respect For People: We are result oriented, setting high performance standards for ourselves as individuals and teams.

We will simultaneously respect and value people and uphold humanness and human dignity.

We acknowledge that every individual brings different perspectives and capabilities to the team and that a strong team is founded on a variety of perspectives.

3 | P a g e

We want individuals to dream, value differences, create and experiment in pursuit of opportunities and achieve leadership through teamwork.

Excellence: We do what is right, do it well and win. We will strive for excellence in whatever we do.

Innovation: We will constantly pursue newer and better processes, products, services and management practices.

Nation Orientation: We are aware of our responsibility to generate economic value for the Nation. In pursuit of our goals, we will make no compromise in complying with applicable laws and regulations at all levels.

Business

FMCG: Cigarettes, Foods, Lifestyle Retailing, Personal Care, Education & Stationery, Safety Matches and Agarbattis.

Hotels

Paperboards and Packaging: Paperboards and Specialty Papers, Packaging.

Agri-Businesses: Agri Commodities, e-choupal, Leaf Tobacco.

Information Technology

Group Companies

Subsidiaries: ITC Infotech, Landbase, Technico Pty Limited, Wimco Limited, Fortune Park Hotels Limited, Surya Nepal Private Limited, King Maker Marketing Inc, Russell Credit Limited, Srinivasa Resorts limited, Bay Islands Hotels Limited, Gold Flake Corporation Limited.

Joint Ventures: Maharaja Heritage Resorts Ltd., ITC Filtrona.

Associate Companies: Gujarat Hotels Limited, International Travel House.

4 | P a g e

History and Milestones

ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. As the Company's ownership progressively Indianised, the name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited'.

ITC's Packaging & Printing Business was set up in 1925 as a strategic backward integration for ITC's Cigarettes business. It is today India's most sophisticated packaging house.

In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. The objective of ITC's entry into the hotels business was rooted in the concept of creating value for the nation.

In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards Limited, which today has become the market leader in India.

In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint venture.

In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing company and a major supplier of tissue paper to the cigarette industry. The merged entity was named the Tribeni Tissues Division (TTD).

Also in 1990, leveraging its agri-sourcing competency, ITC set up the Agri Business Division for export of agri-commodities. The Division is today one of India's largest exporters.

In 2000, ITC forayed into the Greeting, Gifting and Stationery products business with the launch of Expressions range of greeting cards. A line of premium range of notebooks under brand “Paperkraft” was launched in 2002. To augment its offering and to reach a wider student population,

5 | P a g e

the popular range of notebooks was launched under brand “Classmate” in 2003.

In 2008, ITC repositioned the business as the Education and Stationery Products Business and launched India's first environment friendly premium business paper under the “Paperkraft” Brand.

ITC also entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000.

In 2000, ITC spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging opportunities in this area.

ITC's foray into the Foods business is an outstanding example of successfully blending multiple internal competencies to create a new driver of business growth. It began in August 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet dishes.

In 2002, ITC entered the confectionery and staples segments with the launch of the brands mint-o and Candyman confectionery and Aashirvaad atta (wheat flour). 2003 witnessed the introduction of Sunfeast as the Company entered the biscuits segment. ITC's entered the fast growing branded snacks category with Bingo! in 2007. In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the entire value chain found yet another expression in the Safety Matches initiative.

ITC's foray into the marketing of Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the cottage sector.

ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body care products for men and women in July 2005.

Corporate Strategies

Create multiple drivers of growth by developing a portfolio of world class businesses that best matches organisational capability with opportunities in domestic and export markets.

Continue to focus on the chosen portfolio of FMCG, Hotels, Paper, Paperboards & Packaging, Agri Business and Information Technology.

6 | P a g e

Benchmark the health of each business comprehensively across the criteria of Market Standing, Profitability and Internal Vitality.

Ensure that each of its businesses is world class and internationally competitive.

Enhance the competitive power of the portfolio through synergies derived by blending the diverse skills and capabilities residing in ITC‟s various businesses.

Create distributed leadership within the organisation by nurturing talented and focused top management teams for each of the businesses.

Continuously strengthen and refine Corporate Governance processes and systems to catalyse the entrepreneurial energies of management by striking the golden balance between executive freedom and the need for effective control and accountability.

Organization Structure

7 | P a g e

Awards & Accolades

• „ITC received the FICCI Outstanding Vision Corporate Triple Impact Award 2007 for invaluable contribution to the triple bottom line benchmarks of building economic, social and natural capital for the nation.

• Sustainability Leadership Award 2007 conferred on Chairman Y C Deveshwar by the Sustainability Forum, Zurich and SAM/SPG at the International Sustainability Leadership Symposium

• Business Today Award for the Best Managed Company – Retail and Consumer Products, has been conferred on ITC in recognition of its outstanding initiatives in the consumer products segment.

• Ryutaro Hashimoto Incentive Prize 2007 for Environment & Development from the Asia Pacific Forum

• In the first of its kind S&P Environmental, Social and Corporate Governance (ESG) ratings released recently, ITC ranked second among top Indian companies.

• The Company has won the Corporate Social Responsibility Crown Award for Water Practices from UNESCO and Water Digest for its distinguished work carried out in the water sector in India.

• ITC Limited won the top UNIDO award at the International Conference on Sharing Innovative Agribusiness Solutions 2008 at Cairo in recognition for its initiatives in agri business.

• ITC has been conferred the ICAI Award for Excellence in Financial Reporting with its Annual Report and Accounts, adjudged as a commendable entry under the “Manufacturing and Trading Enterprises” category.

• The Best Corporate Social Responsibility Practice Award 2008 jointly instituted by the Bombay Stock Exchange, Times Foundation and the NASSCOM Foundation.

• e-Choupal initiative wins global recognition:

• Stockholm Challenge Award 2006 in the Economic Development category which recognises initiatives that leverage Information Technology to improve living conditions and foster economic growth in all parts of the world.

8 | P a g e

• First Indian Company to win the Development Gateway Award 2005 for the most exemplary contribution in the field of Information & Communication Technologies (ICT) for development during the last 10 years

• World Business Award 2004: International Chamber of Commerce & the HRH Prince of Wales & International Business forum

• Harvard University case study

• Recognised in World Development Report 2008 published by World Bank

• Applauded by President of India Dr APJ Kalam in his “special address during the national symposium to commemorate 60th year of independence”

Performance Track Record

95-96 08-09Cagr 95-96

to 08-09

Gross Turnover 5115 23,144 12.3%

Net Turnover 2536 15,388 14.9%

Market Capitalisation 5571 69,751 21.5%

PBDIT 584 5,393 18.7%

PBIT 536 4,844 18.4%

PBT 452 4,826 20.0%

PAT (After Exceptional Items) 261 3,264 21.4%

EPS Rs (Equalised for 95-96) 0.7 8.65 21.2%

Net Worth 1121 13,735 21.3%

Capital Employed 1886 14,780 17.2%

ROCE% 28.4 32.8

Total Shareholders Returns % 23.0

9 | P a g e

Key Ratios:

Rs. Crs.Q2 09/10

Actuals

Q2 08/09

ActualsGoly %

Gross Turnover External 6309 5634 12.0

Net Turnover External 4293 3763 14.1

PBIT 1510 1192 26.7

PBT 1492 1189 25.5

PAT 1010 803 25.8

Capital Employed 17143 14495 18.3

Rs. Crs.

GTO 23144 8.4

NTO 15388 10.3

PBT 4826 5.6

PAT 3264 4.6

Balance Sheet Size* 14782 15.3

Non Cigarettes Business 51% of NTO

(52% SPLY)

(Rs Crores)

2009 2008 Goly% 2009 2008 Goly%

a) FMCG - Cigarettes 15115 13826 9% 7557 6635 14%

- Others 3014 2511 20% 3006 2510 20%

Total FMCG 18129 16337 11% 10562 9145 16%

b) Hotels 1020 1100 -7% 935 1012 -8%

c) Agri business 3846 3868 -1% 3846 3868 -1%

d) Paperboards, Paper & Packaging 2822 2364 19% 2647 2158 23%

Total 25817 23670 9% 17991 16183 11%

Less: Inter segment Revenue (2674) (2314) 16% (2603) (2235) 16%

Sales / Income from Operations 23144 21356 8% 15388 13948 10%

Segment RevenueGTO NTO

10 | P a g e

FMCG – Cigarettes

Market leadership

Powerful brands across segments

Leadership in all segments - geographic & price

Extensive FMCG distribution network

Direct servicing of 1,00,000 markets & 2 million retail outlets

World-class state-of-the-art technology and products

Investment - Rs.10 billion in six years

Exciting long term growth potential

KEY RATIOS

2008 2009

Summarised Financials (Rs. Crores)

Equity 377 377

Networth 12058 13735

Average Capital Employed 11964 13798

NTO 13948 15388

EBITDA 5015 5393

EBIT 4576 4844

PAT* 3120 3264

2008 2009

Key Ratios

Net Worth Per Share (Rs.) ** 32.00 36.39

Debt Equity Ratio 0.02:1 0.01:1

Return on Equity* (%) 27.74 25.31

NTO /Avg.Capital Employed (x) 1.17 1.12

Return on Avg Capital Employed (%) 38.25 35.11

EV/EBITDA (x) 15.05 12.44

Price Earnings Ratio* (x) 24.89 21.34

Earnings Per Share* (Rs.) ** 8.29 8.66

Cash Earnings Per Share* (Rs.) ** 9.63 10.96

EBIT / NTO (%) 32.81 31.48

EBITDA / NTO (%) 35.96 35.05

EBIT / Interest (x) 992.71 264.41

11 | P a g e

Cigarettes account for only 15% of tobacco consumed in India unlike world pattern of 85% due to prolonged punitive taxation

Cigarettes (15% of tobacco consumption) contribute nearly 85% of Revenue to the Exchequer from tobacco sector Of the 58% of adult Indian males who consume tobacco, barely 15% can afford cigarettes

Biri : Cigarettes ratio = 10 : 1

Annual per capita adult cigarette consumption in India is appx. one tenth world average : 85

Future growth depends on relative rates of growth of per capita income and moderation in taxes

Challenges:

Competitive context

Competition including international majors becoming more active

Domestic illegal volumes still very strong. Along with smuggled contraband, emerges as substantive segment

Regulatory & Taxation

Pictorial Graphic warnings in place w.e.f. June 09.

VAT hikes in Maharashtra, Delhi, Rajasthan & Pondicherry- threatening the concept of the „Indian Common Market‟.

Cost table increasing with increase in leaf costs.

Future Growth & Value Capture:

Strategic Rationale:

Blend multiple competencies residing within the ITC Group to create new avenues of growth

Best fit between internal capabilities and emerging market opportunities

Each segment enhances the depth and width of ITC‟s FMCG distribution capability

Business model retains critical elements of value chains within ITC with other elements outsourced.

12 | P a g e

FMCG Business Initiatives Branded Packaged Foods

Leverages:

Unique Agri sourcing skills

ITC Welcomgroup‟s specialist cuisine & bakery knowledge

FMCG distribution synergies

ITC R&D Centre, Bangalore

5 chosen categories:

Staples

Aashirvaad Atta, Salt, Spices

Biscuits

Sunfeast

Salty Snacks

Potato chips, Bridge products : Bingo!

Confectionery

Candyman, Mint-o

Ready to Eat

Kitchens of India (Ready to Eat, Conserves & Chutneys and Frozen Foods), Aashirvaad (Instant Mixes & Cooking Pastes), Sunfeast Pasta

Aashirvaad Atta:

Current market leader amongst national branded players; leverages the e-choupal network for cost-quality optimisation and region specific offerings

Sunfeast Biscuits:

Differentiated & innovative products; continues to build consumer franchise; distributed & outsourced supply chain being ramped up

13 | P a g e

Targeted cost management actions shore up margins

Number of innovative products in the pipeline leveraging the capabilities of the ITC R&D Centre

Business working on improving product mix and supply chain efficiencies

FMCG Business Initiatives Lifestyle Retailing

Leverages trade mark and services expertise of hotels

Relaxed wear market growth > 20% p.a

Upmarket product range available in exclusive Wills Lifestyle stores (~ 50) and multi-branded outlets/ large format retail stores across the country

Product and brand range being expanded

Designer association with leading Indian designers – „Wills Signature‟ line

Premium segment comprising the „Classic‟ range of formal wear, „Wills Sport‟ relaxed wear and „Wills Clublife‟ evening wear

Strong distribution network in place for the mid-market brand „John Players‟

Wills Lifestyle rated amongst the top 5 Luxury brands in the country in a Global Luxury Survey conducted by TIME Magazine

Cost management actions implemented. Stores rationalization/relocation and rental renegotiations carried out/underway. Operating costs also being targeted

FMCG Business Initiatives Education & Stationery

Products Business

Leverages print and paper know-how. Forward linkages with new paper capacity (already commissioned).

An emerging (currently Rs 9000 cr stationery) market in India - growth driven by increasing cross-cultural exposure

14 | P a g e

Mostly commoditized. Offers opportunity for branding

Robust distribution network in place to scale up the Stationery business significantly

„Classmate’ brand already the most widely distributed brand in India. Scholastic products launched

Branded Copier Paper „Paperkraft‟ footprint being enhanced. Enthusiastic customer response based on green credentials.

Serves to expand the width of ITC‟s FMCG distribution capability with negligible incremental investment

Comprehensive portfolio approach with new variant/category launches.

FMCG Business Initiatives Safety Matches

Current industry consumer spend estimated at Rs. 1250 crores p.a. for 24 billion match boxes

Fragmented supply base arising from policy of reservation for small scale industry

Mass market moving from 0.50 p price point to Re 1.00.

ITC markets its brands with value added products across each price point

Support SMEs with complementary marketing strengths

„AIM‟ – India‟s largest selling Safety Matches brand

Successful acquisition of WIMCO Ltd. by Russell Credit

Key brands: Homelites, Ship, Cheetah Fight etc.

FMCG Business Initiatives Incense sticks (Agarbattis)

Current industry consumer spend estimated at over Rs. 900 crores p.a.

Fragmented supply base arising from policy of reservation for small scale industry

ITC markets its brands with value added products across each price point

15 | P a g e

Support cottage sector with complementary marketing strengths

„Mangaldeep‟ : the only National brand in the country

FMCG Business Initiatives Personal Care Products

Current industry consumer spend estimated at over Rs. 21000 crores p.a. (growing at 12%)

Brand wise Highlights

Essenza Di Wills (Super Premium) – Portfolio‟s premium imagery augmented with launch of „Aqua‟ for men in fine fragrances and grooming range

Fiama Di Wills (Premium) – Launched with Shampoos/Soaps/Shower Gels/Conditioners

Vivel Di Wills and Vivel (Mid) – Soaps and Shampoos

Superia (Popular) – Soaps and Shampoos

Products well received in the market, gaining customer acceptance

Supported by investments in brands – celebrity endorsements

Investments being made in Research & Development and strategic tax incentivised manufacturing sites.

FMCG business initiatives:

Concurrently, ITC‟s IT subsidiary assists in web-enabling business processes

CRM initiatives

ERP transaction processing systems

SCM including the e-choupal capability

SMIS system for efficient supply chain management of FMCG products hosted on ITC‟s Virtual Private Network.

16 | P a g e

SWOT Analysis

Strengths: ITC leveraged it traditional businesses to develop new brands for new segments. For example, ITC used its experience of transporting and distributing tobacco products to remote and distant parts of India to the advantage of its FMCG products. ITC master chefs from its hotel chain are often asked to develop new food concepts for its FMCG business.

ITC is a diversified company trading in a number of business sectors including cigarettes, hotels, paper, agriculture, packaged foods and confectionary, branded apparel, personal care, greetings cards, Information Technology, safety matches, incense sticks and stationery.

Weaknesses: The company's original business was traded in tobacco. ITC stands for Imperial Tobacco Company of India Limited. It is interesting that a business that is now so involved in branding continues to use its original name, despite the negative connection of tobacco with poor health and premature death.

To fund its cash guzzling FMCG start-up, the company is still dependant upon its tobacco revenues. Cigarettes account for 47 per cent of the company's turnover, and that in itself is responsible for 80% of its profits. So there is an argument that ITC's move into FMCG (Fast Moving Consumer Goods) is being subsidised by its tobacco operations. Its Gold Flake tobacco brand is the largest FMCG brand in India - and this single brand alone hold 70% of the tobacco market.

Opportunities: Core brands such as Aashirvaad, Mint-o, Bingo! And Sun Feast (and others) can be developed using strategies of market development, product development and marketing penetration.

ITC is moving into new and emerging sectors including Information Technology, supporting business solutions.

e-Choupal is a community of practice that links rural Indian farmers using the Internet. This is an original and well thought of initiative that could be used in other sectors in many other parts of the world. It is also an ambitious project that has a goal of reaching 10 million farmers in

17 | P a g e

100,000 villages. Take a look at eChoupal here http://www.itcportal.com/agri_exports/e-choupal_new.htm

ITC leverages e-Choupal in a novel way. The company researched the tastes of consumers in the North, West and East of India of atta (a popular type of wheat flour), then used the network to source and create the raw materials from farmers and then blend them for consumers under purposeful brand names such as Aashirvaad Select in the Northern market, Aashirvaad MP Chakki in the Western market and Aashirvaad in the Eastern market. This concept is tremendously difficult for competitors to emulate.

Chairman Yogi Deveshwar's strategic vision is to turn his Indian conglomerate into the country's premier FMCG business.

Per capita consumption of personal care products in India is the lowest in the world offering an opportunity for ITC's soaps, shampoos and fragrances under their Wills brand.

Threats: The obvious threat is from competition, both domestic and international. The laws of economics dictate that if competitors see that there is a solid profit to be made in an emerging consumer society that ultimately new products and services will be made available. Western companies will see India as an exciting opportunity for themselves to find new market segments for their own offerings.

ITC's opportunities are likely to be opportunities for other companies as well. Therefore the dynamic of competition will alter in the medium-term. Then ITC will need to decide whether being a diversified conglomerate is the most competitive strategic formation for a secure future.

TC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited'. Its beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000.

18 | P a g e

Forward-looking Statements

Statements in this presentation describing the Company‟s objectives, future prospects, estimates, expectations etc. may be “forward looking statements” within the meaning of applicable securities laws and regulations. Investors are cautioned that “forward looking statements” are based on certain assumptions of future events over which the Company exercises no control. Therefore there can be no guarantee as to their accuracy. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those that may be projected or implied by these forward looking statements. Such risks and uncertainties include, but are not limited to: growth, competition, acquisitions, domestic and international economic conditions affecting demand, supply and price conditions in the various businesses in the Company‟s portfolio, changes in Government regulations, tax regimes and other statutes, and the ability to attract and retain high quality human resource.