“What we are leveraging is our distribution bandwidth. As forproducts and services, if it is an emerging market, it makes sense for us to get in on ourown.”

Vital Statistics

Company Performance FY02 - FY05 Revenues: Rs76.4bn RONW 27.8 % Net profit: Rs21914mn Growth rate 22.6% CAGR Net profit margin: 28.7% ROCE 31.9%

Smart Achievements

• Increased the reach of e-choupal to 5,500 kiosks across six states. Generated Rs 8,500mn in sourcing and Rs 500mn in distribution. Launched concept of Choupal Sagars to thrust into the rural retail space. Merged ITC Bhadrachalam with ITC and enhanced cash flow of ITC Bhadrachalam by 75%

• Acquired paperboards business of BiltIndustrial Packaging Company including its 65,000 MT per annum manufacturing facility in Tamil Nadu, improved the business with a better sales mix so that exports are growing at 20% against the market growth of 8%

• Started marketing popular safety matchesbrands, agarbattis, wheat flour and biscuits, and personal care products and packagedfoods

• Innovation: set up a Rs2,270mn modernized pulp mill at Bhadrachalam in an attempt to become the first producer ofelemental chlorine free (ECF) paperboards and specialty paper (PSP) in the country

Summary

April 04, 2005: Yogi Deveshwar, Chairman, ITC Limited signed a 'deed of settlement' with the revenue secretary K M Chandrasekar, ending a seventeen year old feud. The Government agreed to withdraw its claim of Rs. 4,530mn on ITC. In return ITC agreed to forego Rs. 3,500mn it had paid as pre-deposit to the government's excise duty claim of Rs. 8,030mn. For Deveshwar this was not just a settlement, it was a sign off on firmly establishing ITC's image as a fair player. In fact in the lastfew years Deveshwar has been on a mission to clean up the company's image and bring itrespect. ITC was always regarded with a degree of skepticism on the basis of its mainstaybusiness, as well as the various disputes it was involved in. But today it has a newimage. A large part of this can be attributed to Deveshwar's rural initiatives. Today ITCis considered a grassroots Indian company that has invested heavily in crucial sectors ofthe economy much before such efforts became laudable.

• Buoyed by the initial success Deveshwarhas scaled up quickly. From 2,700 kiosks in 14,000 villages in 2000, today there are 5,500 choupals in over 35,000 villages covering more than 3.5mn farmers across seven states (Madhya Pradesh, Karnataka, Andhra Pradesh, Uttar Pradesh, Maharashtra, Kerala andRajasthan). Currently in a mere five years. The initative already generates Rs 8,500mn insourcing and Rs 500mn in distribution.

• By 2010 Deveshwar plans to extend reachto 11mn farmers across 100,000 villages in fifteen states. When you compare this to Hindustan Lever's eshakti, which according to a recent Business World article earns alittle over Rs. 1,000mn, the magnitude of Deveshwar's accomplishment can be trulyappreciated. Now he is planning for revenues from e-choupal to overtake that of tobacco by 2010.

• One reason why e-choupal has been sosuccessful is because the project generates employment in the villages. Farmers areemployed as workers and even picked as a sanchalaks to organize the choupal.
  
  In addition Deveshwar is continuously providing value added services to his customers. For example when Sivakumar, CEO, International Business Division ITC, received feedback fromthe sanchalaks that there was high rural demand for personal care products, he immediately told Deveshwar of this opportunity. Deveshwar realized that through e-choupal ITC had acaptive customer base and using the same infrastructure, it could sell a range of productsand services to the rural community.

• So began the second phase of thee-choupal initiative in September 2004. Deveshwar launched a new concept of Choupal Sagars. These were basically fashioned to be rural malls. The idea behind Choupal Sagarwas to leverage ITC's penetration into the villages. Through its network of e-choupals ITCwas already broadcasting the latest commodity prices to the farmer. If they found theselucrative, the farmers sold their produce to ITC.