IMB 375

J RAMACHANDRAN AND K S MANIKANDAN

ITC LIMITED: INDIA FIRST

February 2012. Y C Deveshwar, Chairman of ITC Limited (ITC), one of India’s oldest and most valuable
companies, started his fourth five-year term at the helm, making him the longest serving chairman of the company.
A nostalgic Deveshwar said:

When I took office as chairman of ITC, I was confronted with a mix of challenges. Just a day
before I took charge, our cigarette business received a retrospective excise duty demand of Rs. 803
a
crore [~$160 million]. The company’s earlier diversification into hotels and paper was faltering.
Before that could be put on a firm footing, a slew of new businesses were launched in edible oils,
financial services, and international trading, which turned out to be disasters. Obviously, there was
criticism given the weak diversification performance. Add to that, a battle for control of the
company had ensued amidst a huge public smear campaign. Also, the competitive landscape of the
country changed with the advent of economic liberalization.

So I had in front of me, a challenging context of old burden and new opportunities. My own
ambition was to create a company that would be an engine of growth for the Indian economy, an
institution with values and vitality that would create wealth for the Indian society. And it could
only be done by creating drivers of growth that are aligned with national priorities. But then
conventional wisdom, imported from mature markets of the West, advocated against
diversification. Even our overseas shareholder thought that it was not a smart idea to diversify and
we should stick to being only a cigarette company. However, our strong belief in creating an
organization to serve national priorities led us to reaffirm our strategy in creating multiple drivers
of growth that could leverage the opportunities of an emerging economy by matching it with the
strengths and core capabilities of the organization. 1

Deveshwar’s ambition of embedding society’s interests in the company’s strategy had resulted in spectacular growth
(Exhibits 1 and 2). In 2011, with revenues of Rs. 31,423 crore (~$6.28 billion) and profit after tax of Rs. 4,987
crore (~$1 billion), the company commanded a market valuation of Rs. 140,000 crore (~$28 billion). An
acknowledged global exemplar in sustainable business practices (Exhibit 3), ITC was a dominant leader in the
cigarette industry; a clear market leader in the Indian paperboard and packaging industry; the second largest hotel
network in the country; and with its pathbreaking e-Choupal initiative, a significant actor in the India’s agri-business
landscape. The strategy consulting major, Boston Consulting Group ranked ITC as the sixth largest sustainable value
creator among consumer goods companies globally. 2

Notwithstanding its stellar performance, doubts remained about Deveshwar’s aspirations to make ITC the No. 1
FMCG (fast-moving consumer goods) player in the country. While the forays into foods and personal care products
had clocked significant revenues – over Rs. 4,500 crore (~$900 million) – they were yet to make an impact on the
company’s profits that were still heavily dependent on the traditional cigarettes business. The accumulated loss of
over Rs. 2,000 crore (~$400 million) in its FMCG businesses (Exhibit 4) was reportedly causing “dissent from
within on the larger FMCG strategy”. 3 However, by reappointing him for the fourth term, the Board of the 100-year-
old company was signaling its strong support to Deveshwar and his ambition and strategy for the company.
Deveshwar, who was conferred the country’s third highest civilian honor, Padma Bhushan said:

….My first objective is to find safe hands for the company. Everything that follows is secondary.
Nothing else is more important for me than to find a pair of safe hands. 4

a
1 crore = 10 million; Rs. 1 crore = US$5 million.

J Ramachandran, Professor of Strategy and Bain Fellow, IIM Bangalore and K S Manikandan, Assistant Professor, IIM Tiruchirappalli; prepared
this case for class discussion. This case is not intended to serve as an endorsement, source of primary data, or to show effective or inefficient
handling of decision or business processes.

Copyright © 2012 by the Indian Institute of Management Bangalore and Indian Institute of Management Tiruchirappalli. No part of the
publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise
(including
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 ITC Limited: India First Page 2 of 22

…My grandchildren, when they grow up, they should be able to get employment in ITC. And not
that this company has disappeared. 5

EARLY YEARS
The Imperial Tobacco Company came into being in August 1910 when British American Tobacco (BAT)
consolidated its Indian operations under a single umbrella. BAT’s engagement with India began when two of its
employees, Jellicoe and Page, came to India in search of an agent to distribute its Wills and Scissors brand of
cigarettes. At that time, cigarettes were virtually unknown in the country, although tobacco consumption was
not. bBAT set about educating people on the “pleasures of smoking cigarettes”. 6 Musical trucks traveled from district
to district advertising the company’s products. Sales soared and very soon an extensive distribution network which
managed to reach hitherto inaccessible hamlets came into being.

Cigarette manufacturing in India started in 1907 when BAT set up a factory in Munger, Bihar. Local sourcing and
processing of tobacco began in July 1912, when BAT established the Indian Leaf Development Company to
explicitly focus on this task. To meet with the packaging and printing requirements of the cigarette business, BAT
set up a packaging and printing facility in 1925. By the time the Imperial Tobacco Company moved to its
headquarters, ‘‘Virginia House’’, in the busy Chowringhee Lane of Kolkata in 1928, 7 it was managing the entire
gamut of BAT's tobacco operations in India.

The years after India’s independence were rather challenging for the company. Taxes (excise duties) were levied on
cigarettes for the first time in 1948 as the newly formed Government of India sought to mobilize resources to fund
the country’s development. Very soon, taxes became the single largest component of the cost of cigarettes as various
state and local governments began to levy taxes on cigarettes. To sustain its profitability, the company raised prices
on its brands steeply. Several of Imperial's brands lost share to lesser-priced brands from local players such as
Golden Tobacco and National Tobacco. By 1961, the company's market share had slipped to less than 40% from a
high of over 70% just after independence. It was at this time that the company began a significant journey that
would ultimately place it as one of the premier marketing organizations in the country and one person who would
play an important role in that journey was Ajit Narain Haksar.

THE HAKSAR ERA (1969–1983)

Born in Gwalior, where his father served the royal Scindia family in various ministerial capacities, Haksar went to
the elite Doon School and then to Allahabad University for his undergraduate studies. He would have followed the
footsteps of his cousin P N Haksar c and opted for a career in civil service, but for the interest in marketing that he
developed during his stint at the advertising agency Hindustan Thompson Associates (HTA), the local affiliate of the
global advertising major J Walter Thompson. He instead went to Harvard Business School. On his return to India in
1948 after completing his MBA, he joined Imperial Tobacco.

Young Haksar founded the “Market Research” department at Imperial. d According to Ram Lakshman, former
member of the company’s Board of Directors, “marketing” was institutionalized during this time. He recalled:

Armchair decision making was replaced by integrating market trends assessed regularly through
personal observation with hard facts thrown up by research. 8

When filter cigarettes came into reckoning in the late sixties, the marketing organization of Imperial was fully
geared to exploit the opportunity. The company introduced Wills Filter with its memorable tagline “Made for each
other”, which emphasized the perfect match between the cigarette and the filter. The brand soon achieved levels of

b
Tobacco was consumed in the form of hookah or bidis or simply chewed. Hookah, a Hindi and Urdu term refers to a single or multi-stemmed
(often glass-based) water pipe for smoking based on water filtration and indirect heat. Bidi in Hindi refers to a thin, often flavored, cigarette made
of tobacco wrapped in a tendu or temburini leaf, and secured with colored thread at one end.
c
P N Haksar went on to serve Indira Gandhi, Prime Minister of India, as her Principal Private Secretary.
d
Haksar also encouraged HTA, the company’s advertising agency, to set up a separate “bias-free” research organization. This led to the founding
of India’s first independent market research agency, the Indian Market Research Bureau (IMRB).

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 ITC Limited: India First Page 3 of 22

loyalty that were unheard of in the country’s marketing history, helping the company regain its formidable market
share.

In 1969, Haksar became the first Indian chairman of the company. Prior to accepting the responsibility, he asked the
senior management of BAT three questions. According to Haksar, they were:

Which comes first – your company or my country? Who runs the Company, BAT, or the
Chairman and the Board of Directors in India? Will the company be required to do what BAT
wants or what the Chairman and the Board of Directors in India consider to be more appropriate
investments with relevance to India?

From my point of view, in order to become the Chairman of Imperial with a clear conscience, the
answers to each of these (questions) were in the affirmative in keeping with the BAT's policy to be
a good citizen in the host country. The proviso was that, in the discharge of such trust being
placed, the Chairman personally, and the Board of Directors in India, would protect – not put at
undue risk – and do their best for the BAT interests in India. 9

Diversification
The early seventies India witnessed a lot of changes in the economic, political and regulatory environments. A
strong nationalist undercurrent swept the country. Taking advantage of the prevailing “sentiment”, Golden Tobacco
launched a tirade against ITC that sought to position it as a “foreign company” which “endangered” indigenous
firms, 10 Ramesh Sarin, e then Vice-Chairman, wrote:

Clearly ITC had to react. It was not enough to hold up its unblemished history and record. It had to
be seen to be moving with the country’s needs. Two major strategies were brought into play by the
ITC Board. One was to enter an industry that earned foreign exchange. The second was to enter
the core sector of industry where the Government found it difficult to attract investment by big
industrial undertakings. 11

However, it was also necessary to convince BAT about the diversification. Haksar observed:

There was, of course, the need to educate the overseas shareholder. In fact, I feel it is necessary for
all Indian managers in foreign companies to perceive that the interests of the overseas shareholder
and national priorities are not always the same. But, there are areas for mutual benefit, and with an
enlightened view, it is possible to satisfy a diversity of interests. 12

To symbolize the move beyond tobacco, the company’s name was changed to I.T.C. Ltd. f Haksar and team zeroed
in on paperboards, hotels, and marine foods. Although, paperboards had linkages to the cigarette business, the
choice of hotels and marine foods was driven by their potential to earn foreign exchange. The hotel business, further,
was attractive because of the absence of competition in the industry. Haksar explained:

The hotel industry scenario in India was composed of aging properties, single property proprietary
businesses, strictly localized; with the exception of Oberoi’s and Tata Group. There was virtually
no competition in the hotel industry; professionalization was still some way down the street. 13

Meanwhile, the Foreign Exchange Regulation Act was enacted, and it restricted foreign equity ownership to 40%.
BAT was hence forced to dilute its stake in the company (Exhibit 5). BAT allowed for the proceeds of the
disinvestment to be retained as a loan by ITC to fund the diversification projects, 14 although it had strong

e
Haksar had identified Ramesh Sarin as one of the rising stars of the company and had pulled him out of a middle-level management job in the
Purchasing department to head the yet to be formed Paperboards division. Sarin subsequently rose to become the Vice Chairman and oversaw all
the diversification initiatives of the company. Widely believed to succeed Haksar, Sarin left ITC to head Voltas, a Tata Group company, months
before Haksar’s tenure came to an end. Haksar later noted that Sarin’s “leaving was a great loss to ITC”.
f
The company was earlier renamed as Indian Tobacco Company in 1970. In 2001, the full stops in its name were dropped and the company was
rechristened as ITC Ltd. ITC publicized this change with the slogan “No stops for India, No stops for ITC”.

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 ITC Limited: India First Page 4 of 22

reservations about the company’s ability to manage them. When Haksar and Sarin first presented the plans for a
paper mill to a BAT committee, a BAT director commented:

Paper mills are difficult and you cannot build them on enthusiasm. We know from our experience g
in the rest of the world. You will not succeed in completing it either in time or within the budgeted
cost. 15

On July 27, 1979, Sarin wrote to the parent company in London:

This letter is written on the first sheet of paper produced at Bhadrachalam Paperboards Limited
(BPL). h It is not indicative of quality, but it does signify human endeavor and enterprise. The
project has been completed before time and within the agreed budgeted cost. 16

To de-risk its entry into the hotel industry, the company sought to strike a partnership with the leading hotel chains
in India of that time – The Oberois and Tata Group’s Indian Hotels. When these efforts failed, the company decided
to establish an independent hotel chain. Branded Welcomgroup, each of the company’s hotel properties was
designed to reflect the history of the region. The first hotel, Hotel Chola, was opened in Chennai, South India in
1975, and showcased the Chola dynasty, which had ruled southern India until the 13th century. Similarly, the
Maurya in New Delhi and the Mughal in Agra that came soon after captured the majesty of these famous dynasties.

Although the venture into hotels and paperboards proved successful, the company’s foray into marine foods was a
failure. Haksar wrote:

The ITC diversification into Marine Products was a monumental failure of mine and nobody
else's. [...] A critique shows that the way the diversification was packaged, the whole premise on
which the business was founded, the assumptions made and the management culture relied on
were erroneous. 17

Notwithstanding the failure of the foray into marine foods, Haksar won accolades for ITC’s transformation. L M
Thapar, the legendary Chairman of Ballarpur Industries noted:

A N Haksar has proved that even multinationals with the traditional attitudes of single product
companies in India are capable of being revitalized and of being given the capacity to thrust into
new directions and opportunities for the benefit of the country – and of their own balance sheets. 18

In 1983, after 14 years at the helm, Haksar stepped down. Jagdish Sapru (an ITC veteran who had joined the
company at the behest of his brother-in-law Haksar) took over as Chairman.

THE SAPRU ERA (1983–1991)

The early Sapru years were dogged by setbacks. In May 1983, following a Supreme Court ruling in the famous
Bombay Tyres International case, the company had to pay Rs. 47 crore (~$9.4 million) as excise duty. i,19 Soon after,
the Central Excise department charged ITC with tax evasion and made a claim amounting to Rs. 803 crore (~$160
million) on the company. The company contested the claim and a long-drawn legal battle ensued. j On the market
front, the company ceded market share to its competitors who had come up with new offerings. For example,
Golden Tobacco’s new brand Flair, promoted with an upper middle class image and lower middle class price tag,
was an instant hit, arriving at a volume of 600 million sticks within three months.

g
BAT had, as a part of its diversification strategy, set up paper mills.
h
BPL was incorporated as a separate company owing to regulatory constraints.
i
In May 1983, the Supreme Court of India struck down Bombay Tyres’ contention that post-manufacturing expenses such as packaging and
marketing were not costs of production and consequently should not attract excise duty. Over 14,000 companies across India (including ITC) that
had withheld excise tax payments to the Government were affected.
j
Finally, in September 2004, the Supreme Court of India ruled the long-fought Rs. 803 crore (~$160 million) excise duty claim case in ITC’s
favor. The Government then brought out an ordinance to retain the amount it had collected as penalties (approximately Rs. 350 crore (~$70
million)), and slapped an additional demand of Rs. 450 crore (~$90 million) on the company. Subsequent negotiations led to a settlement, with
the government retaining the prepaid penalties, while relieving ITC of any further liabilities.

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 ITC Limited: India First Page 5 of 22

The tide changed when the Government, after years of lobbying by the industry and the company, decided to levy
excise duty on the length of the cigarette, instead of the printed price of the cigarette.k ITC benefited the most by the
change in the duty structure as it had a strong portfolio of high-priced brands. The company’s profitability was
shored up further by the strong performance of the subsidiary it set up in 1986 in neighboring Nepal, Surya Nepal
Private Limited. l

Despite the strong improvement in its performance, the company continued to feel the overhang of the charges of
evasion of taxes. Its image and professional reputation had been tarnished. One senior official commented, “Right or
wrong, in the public eye we are made to look like a bunch of thieves”. 20 K L Chugh, then Vice Chairman, stated:

There is definitely a need to diversify into areas which will change our image and will also put the
company on a stronger footing. 21

Sapru then set up an Agri-Business Division (ABD) in Hyderabad and gave it the mandate to produce hybrid seeds,
market edible oil, and export agricultural products. The ABD procured oilseeds, refined them at the state-of-the-art
refinery set up under ITC Agro-Tech Ltd. and then marketed them under the brand names ‘‘Sundrop’’ (sunflower
oil) and ‘‘Crystal’’ (groundnut oil). Both brands were well-received and by 1990, the company was producing
20,000 tons of edible oil with a turnover of Rs. 75 crore (~$15 million).

BAT’s foray into financial services, with the acquisition of Eagle Star in 1984 and Allied Dunbar the following year
prompted ITC to follow suit. It set up ITC Classic, a non-banking finance company that was to operate primarily as
an asset financing subsidiary engaged in hire purchase and leasing operations. In 1989, following BAT’s decision to
re-focus on cigarettes and financial services (after an unsolicited takeover attempt by James Goldsmith), ITC
acquired BAT’s 51% stake in Tribeni Tissues Limited (TTL). TTL’s portfolio included cigarette tissues, electrical
insulating paper, MICR checks, and high-grade photocopy paper.

During the Sapru years, in sharp contrast to what was to come later, the relations between the parent company and
ITC were peaceful. Sapru went so far as to suggest that the parent company was ‘‘indifferent’’. He said:

[O]ur overseas shareholder had taken up an attitude of uninvolvement in ITC’s affairs….If the
foreign shareholder gets more and more non-involved, there is always the danger it would sell out
its stake. That would be retrograde. In our effort to export, and to internationalize ITC, the BAT
link becomes important. 22

THE CHUGH ERA (1991–1995)

Chugh’s assumption of office as Chairman of ITC coincided with the Government of India’s reversal of the
country’s four-decade-old protectionist policy. The new policy of economic liberalization that aimed at integrating
India with the global economy made the country an attractive destination for global companies. Chugh realized that
it would not be long before global majors such as R J Reynolds and Philip Morris (Exhibit 6) launched their best-
selling brands in India. He declared:

We must be ready to compete presently in India with global players and eventually compete
globally with global players…The new India calls for more rapid action. 23

The company was quick to move. Over the next two years, ITC re-launched and repositioned each one of its seven
major brands: India Kings, Classic, Wills, Scissors, Bristol, Gold Flake, and Capstan. Keeping with the changing
times, promotional strategies were revamped, fresh advertising campaigns launched, and distribution network
overhauled. When Chugh, to further strengthen ITC’s competitive position, sought to launch BAT’s iconic brands
such as Benson & Hedges, 555 State Express, and Lucky Strike in the Indian market, BAT turned down his request.
It believed that the timing was not “appropriate”. Chugh believed BAT’s decision might, in part, have been
influenced by the fact that it did not have a controlling stake in ITC.

k
In March 2011, the Union Finance Minister proposed an ad valorem component of 10% in addition to the excise duties for cigarettes of more
than 65 mm length. The proposal was later dropped.
l
In 2012, Surya Nepal Private Limited (SNPL), with a turnover of over US $100 million, was the largest private sector company in Nepal.
(Source: http://www.snpl.com.np/profile.htm, accessed May 2012)

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 ITC Limited: India First Page 6 of 22

Even as he strengthened ITC’s position in its traditional business, Chugh sought to take advantage of the
opportunities that were being thrown up by the newly liberalized economy. He identified financial services and
global trading as the new engines of growth. In financial services, the company planned to participate in all the
segments including non-banking financial services, insurance, investment banking, funds management, brokerage,
and even commercial banking. As a first step, the company partnered with Hong Kong-based Peregrine Investment
Holdings, a financial major active in all sections of financial services. Together, they set up two companies: ITC
Peregrine Mutual Funds and ITC Peregrine Capital, in which both partners had an equal stake. m ITC then tied up
with BAT’s insurance subsidiary Eagle Star Insurance Company to enter the insurance sector as and when the
government opened up this sector. It also reached an agreement with Thread Needle Asset Management, a BAT
subsidiary, for asset management. The company further submitted an application to the Government to grant it
permission to enter the commercial and retail banking sector. Chugh said:

We built up Classic as the flagship; we are now putting the whole gamut of the financial services
business into perspective and have the determination to be number one. 24

He showed similar determination with respect to trading in international markets when he declared “We want to
become India’s largest sogososha”. n,25 He carved out the company’s export business into a separate 100%
subsidiary, ITC Global, and headquartered it in Singapore. Within two years of startup, the subsidiary achieved
impressive sales of Rs. 380 crore (~$76 million) and was granted Approved International Trader status by the Trade
Development Board of Singapore. In his address to the shareholders at the Annual General Meeting in 1994, Chugh
said:

While foreign investment into India does benefit the economy in considerable measure, even
greater benefits would be achieved if we nurture and develop our own companies to grow into
India’s multinationals.

To achieve these objectives, Chugh brought back Y C Deveshwar, a graduate of the elite Indian Institute of
Technology, Delhi and an ITC veteran o onto the ITC board and designated him Vice Chairman. Deveshwar was put
in charge of key divisions of ITC – tobacco, paper and packaging, tourism, edible oils, and international business.
Reportedly, some of Chugh’s colleagues were irked by what they saw as his attempt to build a circle of supporters
and manage through them. 26

Turbulent Times
In 1993, when British Prime Minister John Major visited India as the chief guest at the Republic Day Parade, BAT
officials, who were part of the Prime Minister’s entourage, broached the proposal of increasing BAT’s stake in ITC,
with the Government of India. Norman Davis, the BAT nominee on the ITC Board, would later reveal that BAT got
positive signals from the government for this move. More importantly, he added that the ITC management had been
aware of the proposal all along and had assured complete support and quoted a letter from Chugh: “I assure you
without hesitation our fullest support in this project”. 27

However in March 1994, when BAT vice-chairman and Managing Director, Martin Broughton visited India to take
the matter forward, he was cold shouldered by the Finance Ministry. Although Chugh had been present at the 45-
minute meeting with the Finance Minister, BAT believed that he had lobbied with the government to change its
earlier view. Relations between BAT and ITC, under strain because of Chugh’s “failure” to seek BAT’s prior
approval to the company’s partnership with Peregrine, deteriorated further when ITC refused to dispose of
businesses that BAT believed did not fit into its global portfolio. Chugh and his team did not want ITC to be “a little
tobacco company”. 28 They, instead, unveiled plans to further diversify into core sectors such as power, steel, and
cement. Comparing Indian companies with the top 50 of the Fortune 500 companies, Chugh stated:

m
The partnership fell through within a short period owing to irreconcilable differences between the parties over management structure.
n
Japanese term for a trading house
o
At the request of the Government of India, the ITC Board had released Deveshwar in 1991 (with a five-year lien on employment) to take over
the chairmanship of the national carrier, Air India.

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 ITC Limited: India First Page 7 of 22

Indian companies are not yet in such an enviable position and loss of control is today a critical
issue in most leading Indian companies having growth aspirations.[…]The evolution of the
German and Japanese global companies was, in major part, a result of their banks and financial
institutions holding substantial equity stakes in such companies on a permanent basis. 29

BAT opposed all plans to diversify into core sectors. The matter was ultimately resolved at an Extraordinary
General Meeting (EGM) of the shareholders on March 24, 1995. Two days prior to the EGM, BAT issued a terse
press statement alleging ‘‘culpable financial irregularities’’ by the top management of the company and called for
Chugh’s resignation. BAT also said that it would favor diversification into the power sector but under a “more
competent” leadership. Chugh responded aggressively citing the impressive performance of the company under his
leadershipp and in turn accused BAT of being only interested in stripping ITC of its assets to further its own
business interests abroad. He rhetorically asked whether the Indian government would allow the Taj Mahal, the
world heritage monument, to be sold for a billion dollars to a foreigner. Political parties swerved to support Chugh
against what they saw as a multinational takeover attempt. Chugh said:

Jyoti Basu [then Chief Minister of the State of West Bengal] has told me that he will never allow
the British to re-colonize India a second time via Calcutta!q

In his opening remarks at the EGM that set the tone for what was to follow, Chugh said:

I hope that the cause of the individual shareholders will not be sacrificed at the altar of the 31.5%
shareholder. This [the EGM] is the acid test for BAT, and I hope that BAT stands up for the sake
of the other shareholders. 30

In the stormy session that followed, Chugh declared that the resolution that sought to amend the objects clause of the
company facilitating further diversification was adopted; BAT’s demand for a vote got drowned in the brouhaha. In
the board meeting that followed, the company’s auditors Lovelock & Lewis were appointed to investigate the matter
of financial irregularities alleged by BAT. When they submitted their report a couple of months later – a damning
indictment of the way ITC and ITC Global was managed – and held the chairman and top management responsible
for the wrongdoings, 31 Chugh rejected the report:

The special auditors lacked objectivity and integrity, have acted with bias and made every attempt
to support their preconceived judgments to hold me guilty. 32

The audit committee of the Board agreed with Chugh. It dismissed the auditor’s report as baseless and absolved
Chugh of all charges. It merely recommended that the company take steps to tighten controls. However, soon
thereafter, Chugh decided to step down in ‘‘the best interests of the growth of the company’’. 33 He was designated
Chairman Emeritus and compensated with salary and perquisites until 1997. Barry Bramley, CEO of the tobacco
arm of BAT, remarked:

He (Chugh) has made an enormous contribution to the company… Let’s forget the past; we want
to talk about the future. 34

BAT was not happy with the idea of entrusting the future to Y C Deveshwar as he was perceived to be close to
Chugh. Further, it wanted the roles of the Chairman and the Chief Executive to be split, with the former held by an
independent non-executive member of the Board. The rest of the Board disagreed and appointed Deveshwar as
Executive Chairman of the troubled company.

p
ITC’s gross income had increased from Rs. 230 crore (~$46 million) in 1991 to Rs. 470 crore (~$94 million) in 1995. Profit after tax rose from
Rs. 78 crore (~$15.6 million) to Rs. 262 crore (~$52.4 million). (Source: Business India, September 11–24, 1995, p. 283)
q
The reference is to the popular understanding that the British colonial rule in India started with the conquest of the territories of the Nawab of
Bengal, whose capital was at Calcutta (later Kolkata), in 1757.

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 ITC Limited: India First Page 8 of 22

THE DEVESHWAR ERA (SINCE 1995)

Deveshwar’s first year as Chairman was crisis-laden. First, the financial services arm – ITC Classic – reported huge
operational losses that almost wiped out its net worth. Next, the company’s global trading arm, ITC Global r, faced
liquidation. Deveshwar acted swiftly. He first infused substantial capital – Rs. 60 crore (~$12 million) – into ITC
Classic. He then hired Mckinsey and Company to develop a turnaround strategy. They recommended the
restructuring of the financial services arm. Deveshwar, however, preferred to divest s ITC Classic though it resulted
in an “exit cost” of Rs. 800 crore (~$160 million):

The financial collapse of Classic Finance would have caused distress and panic among lakhs of
deposit holders, which would have neither been in the interest of the company nor in the national
interest. 35

The company also sold its stake in ITC AgroTech and in ITC Zeneca, the hybrid seeds joint venture that ITC had set
up in 1993 with Zeneca Seeds of UK, to the US Foods major, Conagra. Deveshwar informed the shareholders:

My dictum is that if a business does not add value in the ultimate analysis, we have to get out of
it[...] Unpleasant decisions will be taken, but I hope fairly and firmly, in an issue-based, not
personality-based, manner. 36

The next major crisis was the arrest of the two former Chairmen, Sapru and Chugh, and several of the executives on
the nights of October 30 and 31, 1996 by the Enforcement Directorate of the Government of India. They (and ITC)
were charged with under-invoicing export deals and retaining excess foreign exchange abroad and repatriating them
as profits on other loss-making exports. 37 Deveshwar saw this as an attempt by BAT to discredit the local
management team and thereby to resolve the broad disagreement at the “conceptual level” about the role of ITC –
whether it was an engine for creating value for Indian society or for BAT shareholders. He said:

They [BAT] created an atmosphere whereby everybody was made to believe that this was a
company of crooks! And the only salvation for this company is their taking over!... And the pity
is, most people in India, including the press bought that line. 38

Deveshwar fought back. He appealed to the authorities not to act based on allegations and press campaigns. He then
made a public offer granting authorization for any “anybody to look at any bank account in the world”. He recalled:

I think that was the turning point. Then people began to see the truth. I am happy that today if that
was to happen ever again to any other Indian enterprise, that the media and government would not
take a hasty view. 39

Meanwhile, BAT sought approval from the Government of India to set up a separate 100% subsidiary in the
country. The move failed to fructify because existing regulations required ITC to accord its approval. t Intense
negotiations between ITC and BAT followed. After several rounds of discussion, both parties decided to bury the
hatchet and move forward. Deveshwar declared:

There is complete agreement on corporate strategy between the two companies. It has been agreed
that, fundamentally, we will focus on three business areas: cigarettes and tobacco, hotels, and
paper and packaging…The guiding principle of our strategy is to remain in only those businesses
where we do, or can in the future, dominate the concerned industry; initially, in the Indian, and
then, in the global context. We have no special love for any business, but whatever we choose; we
will do so with a commitment to it. 40

r
ITC Global incurred a loss of Rs. 70 crore (~$14 million) following steep erosion in trade margins, slow-moving stocks, and doubtful
receivables. The company’s request to infuse Rs. 90 crore (~$18 million) in terms of equity and term loans into ITC Global was turned down by
the Government of India.
s
ICICI Bank, one of India’s largest banks, took over the operations of the ailing ITC Classic.
t
Government of India regulation required the foreign partner to get a no-objection clearance from its existing Indian JV partner/subsidiary before
being granted permission to set up another joint venture or wholly owned subsidiary in the same field of economic activity.

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 ITC Limited: India First Page 9 of 22

Focus on the Core

After the agreement, significant investments were made in the cigarette business: “from seed to smoke”. A state-of-
the-art green field plant was set up in Bangalore; the plant at Sahranpur, Uttar Pradesh was upgraded and
modernized. The tobacco threshing units at Chirala, Andhra Pradesh were also made state-of-the-art. ITC started
manufacturing and exporting BAT’s premium brands such as Benson & Hedges. At home, ITC rationalized its
brand portfolio – brands at the upper end of the market were strengthened – to emerge as a much stronger market
leader, a position it retained even in 2012.

The other two core businesses of ITC – hotels and paperboards – too met with Deveshwar’s attention. He observed:

After entering the hotels business 25 years ago, the company lost direction and ventured into
financial services and edible oil businesses. As a result, we failed to make our presence felt in a
number of regions of the country, including in several metros. 41

As a first step, the company undertook a rebranding exercise. It classified the hotels under four categories – the
Luxury (ITC Hotels), Five Star (Welcom Hotels), Heritage (Welcom Heritage), and Budget (Welcom Fortune). It
then set about growing its footprint. ITC Grand Maratha, ITC’s first property in Mumbai, came up in 2001. A
second property in Mumbai, ITC Grand Central, followed. The flagship ITC Maurya Sheraton in New Delhi was
expanded. The new properties in Bangalore (ITC Gardenia) and Kolkata (ITC Sonar) were set up as eco-friendly
hotels. In 2012, the company’s hotel network comprised 100 hotels in over 90 locations. 42 More importantly, the
company was the first in the world to get all its luxury properties achieve the global LEED (Leadership in Energy
and Environmental Design) Platinum rating.

To improve the competitiveness of the company’s paper arm, which had worsened following reduction in custom
tariffs from 250% in the 1980s to 20% by 1995, 43 Deveshwar made significant capital investments in the business.
A state-of-the-art 100,000 tonnes per annum elemental chlorine-free fiber line – the first and the only one in India –
was set up signaling the company’s focus on value-added paperboards. To improve access to cost-effective fibrous
raw material, BPL engaged in extensive social and farm forestry. The development of high-yielding, site-specific,
disease-resistant clones by its R&D wing provided further fillip to the forestry program.

To capture operational and strategic synergies and to give the “full-throated” 44 support that the paperboards and
hotels businesses needed, Deveshwar folded these businesses into ITC. They were placed within the governance
framework that Deveshwar had put in place earlier (Exhibits 7 and 8). Deveshwar said:

It (the new corporate governance structure) places the top management in the unique position of
being able to assume the character of a holding company with the mindset of a venture capitalist,
mentoring existing businesses, and creating newer avenues for growth by blending skills and
capabilities drawn from different parts of the ITC Group. Over time, these blended capabilities
will, in turn, spawn newer competencies thereby imparting multiplier effect to your company’s
growth strategies. 45

New Epicenters of Growth

The explosive growth in information technology and the growing recognition of India’s capabilities in software
made this sector an obvious choice for exploring growth opportunities. The company set up a 100% subsidiary, ITC
Infotech, with headquarters in Bangalore, the IT capital of India. Classified as a Tier-2 player by Forrester Research,
ITC Infotech offered off-shoring solutions in four verticals – Banking, Consumer Packaged Goods & Retail,
Hospitality & Transportation, Manufacturing & Travel, and Financial Services & Insurance. Its clientele included,
among others, BAT, Abbey National Bank, Finnair, and Unilever.

Lifestyle retailing was the other new growth driver. The company identified this space as it could leverage ITC’s
trademarks, branding and marketing skills, and the services knowledge built over the years by its hotels division.
The company ventured into apparel retailing by opening its first Wills Lifestyle’ store in 2000 in an upmarket
location in New Delhi retailing relaxed wear for men and women under the brand name Wills Sport. Since then,
Wills Lifestyle chain of exclusive stores has expanded its range to include Wills Classic (formal wear), Wills

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 ITC Limited: India First Page 10 of 22

Clublife (evening wear), John Players (popular range for men) and Miss Players (for young women), and a couture
line under the Wills Signature label after it became the title partner of the high-end Wills Lifestyle India Fashion
Week (WIFW). When TIME Magazine ranked Wills Lifestyle amongst the top five luxury brands in the country in a
Global Luxury Survey, Chittaranjan Dar, former Divisional Chief Executive, Lifestyle Retailing Business Division,
said:

I was particularly happy with this ranking as luxury brands typically have a long heritage attached
to them, and it’s rare for a five-year-old brand to establish itself in the category. 46

Perhaps, the most significant move ITC made during this period was the setting up of e-sourcing hubs, branded as e-
Choupals. u The move came as a last-ditch effort to save the International Business Division (IBD). v Set up in 1990
under Chugh, aiming to offer the world, the best of India’s produce (including soya, wheat, sesame, pepper, shrimp,
and coffee), IBD was hit by the entry of international players after the opening up of Indian markets. By 1999,
disadvantaged by an inefficient supply chain, lack of scale, and a distinctive value proposition vis-à-vis the
international players, ITC was considering closing down IBD, when its 38-year-old divisional head, S Sivakumar,
wanted to give it one last try. His idea was to use information and communication technology (ICT) to re-engineer
the supply chain and hence help source agri-commodities efficiently. After a detailed review, the project was given a
go-ahead. The e-Choupal hubs selectively disintermediated the middlemen who had a tight hold on the Indian
agricultural value chain by directly reaching out to the farmers through Internet technology. w e-Choupal soon
became the largest initiative among all Internet-based interventions in rural India, reaching out to over 4 million
farmers in nearly 40,0000 villages and helping ITC source farm produce worth over Rs. 400 crore (~$80 million) a
year. ITC also morphed the e-Choupal network into a distribution engine to providing crucial ‘‘last mile
connectivity’’ to both its products and that of its more than 100 partner companies covering a wide range of products
and services that included consumer products, consumer durables, agricultural inputs, paid extension services, etc.
Regulatory uncertainties, however, proved to be a speed breaker. Lack of uniformity in the application of the
amended Agriculture Produce Commodities Act by the individual states, and restrictions on commodities trading
and export of agriculture produce in response to inflationary pressures, hindered the rapid expansion of the e-
Choupal network. The explosive growth in mobile telephony prompted Sivakumar to deepen the engagement with
farmers by integrating the mobile phone with the physical and digital network of e-Choupals. He said:

The mobile phone will be the nervous system of tomorrow's rural India. It will play a vital role in
value creation, value delivery, and value capture for the farmer and his family through remote
delivery and personalization of services. 47

The success of e-Choupal and the social capital generated by the project encouraged the company to envision a
larger role for itself in the Indian economy and society. Drawing a distinction between an ‘‘Indian’’ company and a
company operating in India, Deveshwar, in his address to the shareholders in 2001, said:

The difference lies in the depth of commitment to the Indian economy. A global company per se,
by definition, tends to be committed to the primacy of shareholder value above all else, and
towards this end would source globally from locations where quality and cost are most
competitive, and manufacture and add value where it is most efficient to do so in supplying to
target markets to maximize profits. On the other hand, an “Indian” company would go the extra
mile in partnership with other participants in the economy to create conducive conditions for
international competitiveness towards maximizing value for the Indian society of which it is a
part. 48

ITC significantly widened its engagement with the community through a host of activities ranging from afforestation
to primary education in rural areas. The reach and impact of the company’s community focused initiatives were
massive. The company’s social and farm forestry program, covering over 100,000 hectares of land, created over 460
lakh person days of employment potential (1 lakh = 0.1 million), its integrated watershed development program,
covered approximately 50,000 hectares, providing critical irrigation to water-stressed areas. The micro-credit

u
Choupal means "gathering place" in Hindi.
v
The division was later re-named as Agri-Business Division.
w
ITC set up kiosks (computers and Internet access) manned by trained farmers in rural areas that enabled farmers to access information in their
local language on the weather, market prices, scientific farm practices, and risk management.

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 ITC Limited: India First Page 11 of 22

program resulted in more than 20,000 women being gainfully employed through micro-enterprises and self-
employment. The education initiative in government primary schools and other supplementary learning centers in
rural areas benefited over 200,000 children. The company’s livestock upgradation initiatives covering nearly
400,000 milch animals resulted in improved milk yields and therefore, better income streams for thousands of
farmers. In his address to the shareholders in the centenary year, Deveshwar declared:

ITC is deeply rooted in India’s soil. All of us who have had the privilege of serving ITC are
inspired by the worthy cause of nurturing ITC’s Indian soul and its commitment to create ever-
growing value for the Indian society. Your company’s professional employees are dedicated to
this super-ordinate goal. 49

The company also made significant progress with its ecology-oriented initiatives. It turned ‘'water positive'’ in 2002,
‘‘carbon-positive’’ in 2006, and ‘‘solid waste recycling positive’’ in 2007, and sustained these environmental
distinctions ever since. These achievements coupled with the continued superior performance on the business front
resulted in the company gaining global recognition as an exemplar of triple bottom linex performance.

FMCG Major
In 2002, Deveshwar outlined the contours of the strategy that could eventually redefine the company. He said:

The e-Choupal initiative in its fullness would provide your company with an invaluable agri-
commodity sourcing capability to strengthen your company’s agri-trading business. It is your
company’s strategic intent to leverage this strength in conjunction with the traditional capabilities
related to branding, trade marketing and distribution to create growth opportunities...one such
opportunity being actively pursued is in the area of value-added branded foods. 50

The company entered the branded foods market with the launch of its ready-to-eat gourmet food Dal Bukhara y
under the ‘‘Kitchens of India’’ brand. It followed this up with brand launches in the confectionery, staples and snack
foods segments. The company’s Ashirvaad brand of attaz wrested leadership from Unilever’s Indian subsidiary,
Hindustan Unilever; its cough lozenge brand, Mint-o Fresh, dethroned long-time market leader Perfetti. Other
notable successes of the division included Bingo, the company’s finger snacks range and its Sunfeast range of
biscuits. Deveshwar attributed the success to the company’s ability to capture synergies by leveraging the diverse set
of skills that had been built over the years in its various businesses. He said:

On the surface, cigarettes are different from hotels and atta, but it just needed someone to piece it
all together. We started with the packaged food business and introduced the packaged Bukhara. At
lunch and dinner times, people lined up for meals at our restaurant. So, we packaged it leveraging
our restaurant strength. We have chefs who deal with the Indian palate every day. What did we do
with Bingo? We created flavors that wooed the Indian palate—mustard for the east and paneer
tikka for the north, etc. When we created the Aashirvaad brand of atta, we did not just buy wheat;
we bought 18 grades of wheat, using the e-Choupal network. Then we blended them—based on
feedback on regional tastes from our chefs—using our tobacco-blending skills. Result: what we
sell in the west is not what we sell in the north and the east. We created mass customization in a
commodity. We simply identified our core competence and then encouraged people to piece it
together. 51

The company’s paper business leadership team pieced together the company’s diverse competencies in branding,
distribution, and manufacturing to enter the greetings card market, until then dominated by Archies and Hallmark. It
quickly garnered a 20% share. However, the rapid growth of e-cards prompted the company to withdraw from this
market. The rechristened SBU (strategic business unit), called the Educational and Stationery Products SBU, then
focused on the children’s school notebook market and its Classmate brand became the largest brand in the segment.

x
Triple bottom line entails, in addition to the traditional disclosure of ‘‘financial’’ metrics, the reporting of the effects of a firm’s activities on the
‘‘environmental’’ and ‘‘social’’ fronts.
y
Dal Bukhara, an Indian lentil preparation, was a popular dish at the famed Bukhara restaurant, ITC Maurya Sheraton, Delhi.
z
Atta is the Hindi word for wheat flour.

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 ITC Limited: India First Page 12 of 22

With plans to gain a ‘‘major share of the schoolbag’’, the company extended the brand to include pens, pencils,
geometry boxes, etc. 52

The company also garnered significant positions in the safety matches and incense sticks (Agarbattis)53 markets. The
company’s brand ‘‘Aim’’ was the largest-selling safety match brand in the country. Its success prompted the long-
time market leader WIMCO to exit the space. ITC bought it. For its foray into the Rs. 1,800 crore (~$360 million)
incense sticks market, ITC collaborated with several non-governmental organizations and government agencies in
natural resource-rich but economically backward states of the country and its Mangaldeep brand quickly became the
second largest in the country.

In line with Deveshwar’s “audacious but not ambitious” 54 goal of becoming the No. 1 FMCG company in the
country, ITC entered the intensely competitive personal care market with the launch of a super-premium range of
products comprising shampoos, conditioners, shower gels, and soaps under the brand name Fiama Di Wills. The
personal care portfolio was expanded with the launch of Vivel and Superia range of soaps, shampoos, and skin care
products targeting the premium and popular segments, respectively. However, success proved to be elusive.
According to Damodar Mall, group customer director of Future group, aa despite the company getting its “basic
brand metrics” right and displaying a “willingness to invest”, there was no “significant trial and adoption” of these
brands. 55 An unperturbed Deveshwar said:

Brands are tough to build. But analysts and others, they want to quickly see what we have got
now. I think we will make it. There is good chance for us to succeed… We are there to give all it
all that we have got. And there is a huge amount of synergy that ITC as an institution can provide
to these businesses. But we got to be patient…then it would pay the shareholders of this company
for 200 years, 300 years. 56

The FMCG sector in the country has long been dominated by multinational subsidiaries. Many of them such as
Hindustan Unilever, Colgate Palmolive, Procter and Gamble, and Nestle had a long presence in the country. Others,
Pepsi, Perfetti, L’Oreal, etc., although relative late entrants into the Indian market, quickly established strong and in
some instances, leadership positions in the Indian market. ITC’s goal of becoming the No. 1 FMCG player
effectively implied that the company had to compete with every major FMCG multinational in the country. And the
battle was clearly bruising (Exhibit 9). Deveshwar however remained upbeat. He said:

Let me say once for all. It is ITC’s stated aspiration to be a very large FMCG player. If you show
me any fast-moving consumer good and ask me whether ITC will be interested in that space, the
answer is ‘‘Yes, we aspire to’’. But how quickly we can get there, whether we have the ingredients
of success, I cannot really tell you. But definitely, it is our aspiration to be the No. 1 FMCG player
in the country. 57

Succession
Deveshwar preferred a successor who would take this vision forward. He outlined the attributes that he looked for in
his successor:

….The man in my position has to govern to ensure that there is commitment to values of the
company. Then, there are processes to sustain vitality and to reenergise the company from time to
time. That is a compelling vision that is driving the company forward. There are mechanisms of
accountability. There are good strategies and good people in place. And, of course, you require
bandwidth to be able to do this. Then you need elasticity of bandwidth. So, these are some
leadership qualities that are required. We will be searching for people to be groomed. 58

As part of the grooming process, Deveshwar inducted Nakul Anand and Pradeep Dhobale, chief executives of the
hotels and paper and paperboards businesses, to the company’s board of directors. He had already elevated Kurush
Grant, the head of cigarettes and other FMCG businesses, to the board in 2010. Grant, who had turned round the
foods division – it earned profits for the first time in the quarter ending December 2010 – was aware that his real big

aa
Future group was one of the largest players in India’s emerging organized retail sector.

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 ITC Limited: India First Page 13 of 22

test would be the performance of the Rs. 500 crore (~$100 million) personal care business that had reportedly lost
about Rs. 250 crore (~$50 million). 59 A confident Grant said:

It’s true we have been a late starter in the personal care business. But, we are here to stay and need
to give that much time to grow the business. 60

Pradeep Dhobale, who had played a significant role in turning around the ailing paper business, was aware that
sustaining the growth of the paper business would be a key challenge. He said:

Though we are open to acquiring existing plants, there aren’t many opportunities currently
available. For a company like us, it makes no sense to acquire any plant that produces less than
100,000 tonnes a year. We have already decided on expanding the capacity of the Bhadrachalam
factory by 100,000 tonnes; it currently produces around 420,000 tonnes a year. This will cost Rs.1,
000–1,100 crore [~$200–$220 million]. 61

Nakul Anand, under whose leadership the hotels division had overtaken the market leader Indian Hotels in terms of
number of properties (120 against 114) and was now focused on closing the gap in the number of rooms (8,000
against 12,000 of the leader, Indian Hotels) 62 relied on his insecurities to motivate him! He said:

Typically when you do well, you are driven by ambition. I did well as a product of my insecurity
that always pushed me to work doubly hard. 63

Recalling his own journey to the top, Deveshwar said:

I was fortunate that I got recognition at a very early age at ITC. I became the head of a factory at
28, head of a division at 31 and a director on the board at 37. I had the experience of running
multiple businesses — packaging, hotels, and tobacco..... It is extremely important to get early-
success experience because it fuels growth and, in turn, helps personal growth. So, creating
success experience is the first step in a virtuous cycle. 64

When asked in a television interview whether BAT was waiting for him to retire so that they could takeover,
Deveshwar said:

..whoever is watching this show, people who are in power or the general civil society should bear
this in mind, that this [ITC] is a ‘‘national asset’’, this is a ‘‘national institution’’ and that this
should not happen. It has not been created to be lost just by one man fading away… And I will
have to fade away one day and everyone has to fade away one day. That is the truth of life… And
it is my task to create an institutional mechanism of governance at the very top so that there are
checks and balances and that it retains its ‘‘Indian’’ character and continues to reinvent itself to
create value for Indian society. 65

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 ITC Limited: India First Page 14 of 22

Exhibit 1
ITC – Financial performance (1996–2011)

Year
Ending
March 31 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006a 2007 2008 2009 2010b 2011b
(in Rs.
crore)
Gross
5188 599.6 6924 7701 8069 8827 9983 11195 12040 13585 16511 19842 21966.8 23678.5 26874 31423
income
Excise
2580 3078 3694 4063 4134 4475 4781 5159.1 5344.6 5710.1 6433.9 7135.8 7408.41 7531.61 8106.4 9436.8
duties, etc.
Net income 2608 2913 3230 3638 3936 4353 5202 6035.4 6695.3 7875.3 10077 12706 14558.4 16146.9 18767 21986.4
PBDIT 583.9 769.8 958.4 1194 1460 1836 2046 2323.4 2585.5 3028.4 3613.5 4292.9 5014.84 5393.47 6688.7 7972.3
PBIT 536.1 706.7 872.5 1092 1342 1696 1847 2086 2343.9 2715.5 3281.1 3930 4576.38 4844.06 6080.06 7316.3
PBT 452.2 586.7 791.5 938 1229 1600 1780 2056.2 2319.1 2673.1 3269.2 3926.7 4571.77 4825.74 6015.3 7268.2
PAT 261.1 346.9 526.2 632.4 792.4 1006 1190 1371.4 1592.9 2191.4 2235.4 2700 3120.1 3263.59 4061.6 4987.6
Dividends* 61.35 108 121.5 149.8 224.6 270.5 334.1 418.84 558.83 881.7 1134.7 1364.5 1543.18 1633.87 4452.3 4002.1
EPS (Rs.)** 11.53 14.14 21.44 25.4 32.29 38.59 46.94 55.41 64.31 60.4 6.07 6.96 8.28 8.65 10.64 6.45
Market
capitalization 5571 8792 17523 23633 18038 19987 17243 15581 25793 33433 73207 56583 77765 69751 100476 140408
***
Foreign
exchange 619.2 634.7 759.1 649.6 687.7 697.1 947.6 1294 1077.5 1268.7 1793.5 2283.2 2168.41 2225.71 2355.1 2814.3
earnings
Debt to
0.68 0.53 0.74 0.56 0.23 0.24 0.06 0.02 0.03 0.01 0.02 0.02 0.02 0.01 0.01 0.01
equity ratio
Note: PBDIT – Profit before depreciation, interest, and taxes; PBIT – Profit before interest and tax; PBT – Profit before tax; PAT – Profit after tax; EPS – Earnings per share

*Including income tax on dividend (except 2002); **Includes adjustment for 1:10 stock split and 1:2 bonus issue; ***Based on year-end closing prices, quoted on the Bombay Stock Exchange; a Stock split
to change its face value to Re. 1 per share from the earlier Rs. 10; b Special centenary dividend. (Source: Annual Reports; Prowess, CMIE database); 1 crore = 10 million; Rs. 1 crore ~= US$5 million.

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 ITC Limited: India First Page 15 of 22

Exhibit 2
ITC – Segment-wise performance

Segment revenue

(in Rs. crore) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FMCG – Cigarettes 8020.9 8764 9230.3 10003 11330 12834 13826 15115 17283 19287.6
FMCG – Others 22.06 109.2 304.16 563.39 1013.5 1704.4 2511.1 3014 3641.7 4482.3
Hotels 162.38 193.41 257.53 577.25 783.35 985.67 1100.2 1020.3 910.81 1077.4
Agri-business 1147.8 1658.1 1708.8 1780.1 2678.4 3691.4 3868.4 3846 3862.1 4748

Paperboards, printing
1031 1162.9 1253.3 1565.3 1895.7 2100.1 2364.3 2822 3233.6 3666.9
& packaging

(Source: Company Annual Reports)

Segment results (Profits before interest, tax and depreciation)

(in Rs. crore) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FMCG – Cigarettes 1693.1 1923.5 2033.3 2288.8 2708.8 3172.2 3634 4183.8 4938.1 5766.8
FMCG – Others –73.44 –122.44 –174.36 –195.23 –171.81 –201.99 –263.52 –483.45 –349.51 –297.6
Hotels –0.5 10.09 32.51 140.94 258.09 350.78 410.77 316.18 216.64 266.6
Agri-business 10.97 84.05 89.8 96.41 90.86 123.55 129.19 256.18 436.36 566.3

Paperboards, printing, 162.17 226.27 229.85 279.99 351.42 416.78 453.14 508.63 684.26 819.2
& packaging

(Source: Company Annual Reports)

Segment capital expenditure

(in Rs. crore) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FMCG – Cigarettes 139 114.97 71.33 116.34 206.9 550.47 445.08 402.01 443.95 312.9
FMCG – Others 31.53 17.67 19.13 58.31 79.26 192.52 308.79 195.53 166.35 112.1
Hotels 199.9 214.12 46.71 101.35 77.3 162.4 302.37 367.02 417.94 323.3
Agri-business 9.31 23.16 62.45 62.74 79.53 106.62 114.29 36.81 11.58 91.1
Paperboards,
printing, & 172.32 115.74 471.31 184.55 133.74 470.14 886.32 578.78 208.08 249.5
packaging

(Source: Company Annual Reports)

1 crore = 10 million; Rs. 1 crore ~= US$5 million.

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 ITC Limited: India First Page 16 of 22

Exhibit 3
ITC – Recognitions for triple bottom line performance

• Features among 2010 Forbes listing of Asia’s Fab 50, annual ranking of the best of Asia-Pacific’s biggest
listed company.
• Features among 2009 Forbes listing of World’s Most Reputable Companies.
• First from India and among the first 10 companies in the world to publish its Sustainability Report in
compliance (at the highest A+ level) with the latest G3 guidelines of the Netherlands-based Global
Reporting Initiative (GRI), a UN-backed, multi-stakeholder international initiative to develop and
disseminate globally applicable Sustainability Reporting Guidelines.
• Won the inaugural ‘‘World Business Award’’ instituted by United Nations Development Program,
International Chamber of Commerce and HRH Prince of Wales International Business Leaders Forum, for
making significant efforts to create sustainable livelihood opportunities and enduring wealth in developing
countries.
• ‘‘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.
• ‘‘Golden Peacock Awards’’ for ‘‘Corporate Social Responsibility (Asia)’’ in 2007 and the award for
‘‘CSR in Emerging Economies 2005’’. These awards are instituted by Institute of Directors, New Delhi in
association with World Council for Corporate Governance.
• The ‘‘Ashoka – Changemakers ‘Health for All’ Award 2006’’ for the Rural Health Services model for
delivery of health services through the e-Choupals.
• First Indian company and second in the world to win the prestigious ‘‘Development Gateway Award’’.
ITC won the $100,000 award for the year 2005. The award recognized ITC’s e-Choupal as the most
exemplary contribution in the field of Information and Communication Technologies for development
during the last 10 years.

Exhibit 4
ITC – FMCG performance estimates

(in Rs. crore) Turnover* Profit/(Loss)*

Cigarettes and cigars 17283 5,000
Lifestyle retailing 400 (80) (loss at SBU level)
Foods 2,200 –80
Agarbattis 62 1.3 (pre-tax profit)
Stationery and educational products 500 22 (pre-tax profit)
Safety matches 250 –16
Personal care 500 –280
* Approximate estimated figures (Source: ITC King’s Ambit, Forbes India, July 2010)

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 ITC Limited: India First Page 17 of 22

Exhibit 5
ITC – Shareholding structure

Foreign Indian Foreign

(in %) company Institutional Institutional
holding holding holding

1950 100 0 N.A.

1954 93.4 0.05 N.A.
1970 74.7 10.05 N.A.
1974 60 18.6 N.A.
1976 39.9 28.3 N.A.
1985 32.8 34.2 N.A.
1993 31.5 38 N.A.
2001 32.78 35.43 11.03
2005 32.4 33.8 17.49
2010 31.62 37.14 13.4
2011 31.19 35.89 14.14

(Source: Business World, December 14–27, 1994; Company Annual Reports)

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 ITC Limited: India First Page 18 of 22

Exhibit 6
Global tobacco majors
Philip Morris International

Philip Morris International has been the world’s leading tobacco company with operations in about 160 countries.
Apart from owning Marlboro, the world’s No. 1 cigarette brand, Philip Morris owned seven of the top 15 cigarette
brands in the world. Until March 2008, Philip Morris International was the tobacco wing of the Altria group
(previously named Philip Morris Inc.), which had diversified interests in tobacco, breweries, financial services, and
foods. In March 2008, the tobacco business was spun out as Philip Morris International with 100% of the shares
being distributed to Altria’s shareholders. Earlier in 2007, Altria spun out Kraft Foods, its foods arm.

In 2011, Philip Morris International held a 36% stake in Godfrey Philips India, India’s second largest tobacco
company. The rest of the stake in Godfrey Philips was held by the Modi Group (36%), financial institutions, and the
public. Its leading brands included Four Square, Jaisalmer, Stellar, Cavender, I-gen, and Tipper. The Marlboro brand
was launched in India in 2011.

British American Tobacco

British American Tobacco has been the world’s second largest tobacco company with a global market share of
approximately 12.5%. Its major global brands included Dunhill, Kent, Lucky Strike, and Pall Mall.

Although the company had diversified into other businesses in the past, by 1998, it divested all its other businesses
to focus on tobacco – and sought new geographical markets to drive growth. To the question on whether the
company had any plans to diversify into other businesses in the future, the company website categorically stated
that, “No. We are confident in the future of tobacco as a dynamic, evolving business with real growth prospects, and
our goal is to achieve leadership of the global tobacco industry.”

ITC Limited has been one of the three associate companies of BAT where it held a minority stake. The other two
companies were Skandinavisk Tobakskompagni AS (32%) of Denmark and Reynolds American Inc. (42%) of USA.
In over 60 other countries, BAT held a majority stake in the companies and most of them were 100% subsidiaries.

Japan Tobacco International

Japan Tobacco International (JTI) has been the international tobacco business of Japan Tobacco, the world's third
largest industry player, with a global market share of 11%. The group was formed in 1999 when Japan Tobacco Inc.
purchased the international tobacco operations of the US multinational RJ Reynolds. In 2007, Gallaher, a major
British-based multinational tobacco company was acquired by Japan Tobacco.

Japan Tobacco launched operations in India when it bought RJ Reynolds globally. Japan tobacco owned 50% of the
company with the rest being held by domestic investors. Japan Tobacco applied to the Foreign Investment
Promotion Board (FIPB) in July 2008 to increase its stake in the company to 74%. After deferring decision on the
proposal for more than two years, the Government decided to ban all FDI (foreign direct investment) in cigarette
manufacturing in April 2010. JTI closed its India operations in December 2011.

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 ITC Limited: India First Page 19 of 22

Exhibit 7
ITC – Corporate governance framework

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 ITC Limited: India First Page 20 of 22

Exhibit 8
ITC – Board of Directors (2011–2012)

Executive Chairman

Y C Deveshwar Joined ITC in 1968 after graduating from IIT-Delhi. On the board of ITC since 1984.
(63 years) Took over as Chairman in 1996. Member of Nominations Committee.
Executive Directors
Appointed director in 2010. Joined ITC in 1980. Involved the incubation and
development of all ITC's new initiatives in the FMCG sector. In 2011, responsible for
Kurush Grant (54 ITC's FMCG businesses – Cigarettes, Foods, Personal Care, Lifestyle Retailing,
years) Education and Stationery Products, Matches and Agarbattis.
Appointed director in 2011. Joined ITC in 1977. Holds responsibility of the Paperboards
Pradeep Dhabole & Specialty Papers and Packaging businesses, and Finance and IT functions. Played a
(56 years) significant role in the turnaround of Paperboards business in the early 2000s.
Appointed director in 2011. Joined ITC in 1978. Holds responsibility of the Hospitality,
Nakul Anand (55 Travel & Tourism businesses of ITC. Also serves as Chairman of the National Council
years) of Tourism of the Confederation of Indian Industry.
Non-executive Directors

Had been on the Board of ITC since 1995, first as a nominee and then as a
Basudeb Sen representative of UTI, and from 2000 in his individual capacity.
A retired IAS officer. Joined the ITC Board as an Independent Non-Executive Director
B Vijayaraghavan in 1996.
Had been on the Board of ITC since 1998, first as a representative of General
Insurance Corporation of India and its erstwhile subsidiaries and then in his individual
P B Ramanujam capacity. Member of Nominations Committee.

Has been on the Board of ITC since 2001, first as Executive Director and as Non-
K Vaidyanath Executive Director since January 2011. Member of Nominations Committee.
Had been on the ITC Board since 2005, first as a representative of Life Insurance
Corporation of India (LIC) and then in his individual capacity. Member of
S B Mathur Nominations Committee.
Joined the ITC Board as a Non-Executive Independent Director in 2006. Formerly
Chairman and Managing Director of Industrial Development Bank of India. Member of
S H Khan Nominations Committee.
On the ITC Board since 2006 first as a representative of the Specified Undertaking of
the Unit Trust of India (SUUTI) and then as a representative of LIC. Member of
D K Mehrotra Nominations Committee.
A retired civil servant. Joined the ITC Board as a representative of the SUUTI in 2007.
Anil Baijal Member of Nominations Committee.
H G Powell BAT's representative on ITC Board since May 2008.
Anthony Rhys BAT's representative on ITC Board since January 2009.
Representative of the SUUTI on the ITC board since February 2010. Member of
S Banerjee Nominations Committee.
Representative of General Insurers' (Public Sector) Association of India on ITC board
A V Girija Kumar since March 2010. Member of Nominations Committee.

(Source: www.itcportal.com, Accessed May 2012; Annual Report 2011)

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 ITC Limited: India First Page 21 of 22

Exhibit 9
ITC – Valuation

Segment valuation (in

Segment
Rs. crore)
Cigarettes 103,704
Hotels 2,679
Agri business 7,271
Paper & packaging 11,480
Other FMCG –1,913
Cash 3,444
Holding discount 5%
Total valuation 120,541

(Source: Morgan Stanley, February 2010)

1 crore = 10 million; Rs. 1 crore ~= US$5 million.

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 ITC Limited: India First Page 22 of 22

Endnotes

1
Sometimes, not taking a risk is the biggest risk, Outlook Business, 18 February 2012.
2
ITC is world’s sixth largest value creator: BCG Report, Financial Express, 22 September 2011.
3
ITC King’s Ambit, Forbes India, July 2010.
4
Interview, The Economic Times, 16 June 2011.
5
From centre-half to referee, Business Today, 5 February 2012.
6
Basu, C. Challenge and Change, The ITC Story, 1910–1985, Calcutta, IN: Orient Longman, 1988, p. 13.
7
Ibid, Pg. 75.
8
Ibid, Pg. 162.
9
Haksar, A. Bite the bullet, New Delhi, IN: Viking, Penguin Books India, p. 198–199.
10
Challenge and change, p. 197.
11
Bite the bullet, Pg. 347.
12
Business India, 2 January 1983
13
Bite the bullet, p. 363.
14
Challenge and change, p. 209.
15
Bite the bullet, p. 348.
16
Ibid, p. 356.
17
Ibid, p. 433.
18
Business India, 2 January 1983.
19
Business India, 5 June 1983.
20
The Changing Face of ITC, Business India, 15 April 1990.
21
Ibid.
22
The fruits of the Sapru Years, Business World, 18 June 1991.
23
Rebuilding brands, Business Today, 6 June 1993.
24
A giant gets going, Business World, 5 April 1994.
25
Global gambit, Business World, 31 May 1994.
26
Exit Chugh, Business World, 24 September, 1995.
27
The war at ITC, Business World, 27 December, 1994.
28
Interview, Business Today, 21 May1994.
29
ITC Limited, Chairman’s Speech, 1994.
30
Showdown, Business World, 18 April 1995.
31
The gunslingers choose not to shoot, Business World, 22 August 1995.
32
Exit Chugh, but the action isn’t over yet, Business World, 3 October 1995.
33
Exit Chugh, Business World, 24 September 1995
34
Exit Chugh, but the action isn’t over yet, Business World, 3 October 1995.
35
ITC Limited, Chairman’s Speech, 1998.
36
Tough times for ITC’s new boss, Asia Week, 1 March 1996.
37
ITC – The inside story, Business Standard, 21 November 1996.
38
Interview with Vir Sanghvi, http://www.youtube.com/watch?v=htd5S8JcSME, Accessed August 2010.
39
Ibid.
40
Interview, India Today, 21 September 1997.
41
ITC Hotels carries out rebranding exercise, http://www.tribuneindia.com/2000/20000806/biz.htm#1, Accessed August 2010.
42
ITC Limited, Annual Report, 2011.
43
ITC Limited, Chairman’s Speech, 1999.
44
Interview with Vir Sanghvi.
45
ITC Limited, Chairman Speech, 1998.
46
We want to be FMCG #1, Business Today, 2 December 2007.
47
The M-Choupal, Outlook Business, 12 June 2010
48
ITC Limited, Chairman’s Speech, 2001.
49
ITC Limited, Chairman’s Speech, 2010.
50
ITC Limited, Chairman’s Speech, 2002.
51
Interview, Business Today, 2 December 2007.
52
ITC targets the schoolbag, Business Standard, 18 January 2010.
53
ITC to light up NE with homegrown agarbattis, The Economic Times, 9 January 2010.
54
Beyond tobacco, Business India, 15 June 2008.
55
One against all, The Economic Times, 12 May 2010.
56
Interview with Vir Sanghvi.
57
Interview, CNBC TV, August, 2005.
58
No smoke, all fire in the belly, The Economic Times, 16 June 2011.
59
ITC King’s ambit, Forbes India, July 2010.
60
How ITC is working its way down in FMCG markets? The Economic Times, 30 October 2011.
61
There’s enough untapped opportunity in India, Mint, 4 February 2011.
62
Changing fortunes, Business World, 9 February 2011.
63
A man of method, Business India, 13 June 2010.
64
Sometimes, not taking a risk is the biggest risk, Outlook Business, 18 February 2012.
65
Interview with Vir Sanghvi.

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