ICRA has assigned a CGR2 rating to the Corporate
Governance practices of ITC Limited. This is on a rating scale of CGR1 to CGR6 where CGR1
denotes the highest rating. The CGR2 rating implies that in ICRA’s current opinion,
the rated Company has adopted and follows such practices, conventions and codes as would
provide its financial stakeholders a high level of assurance on the quality of corporate
governance. ICRA’s opinion, however, is not a certificate of statutory compliance or
a comment on the rated Company’s future financial performance, credit rating or stock
price. This is the first Corporate Governance rating of its kind in the country.
ICRA’s Corporate Governance Rating
(CGR) is meant to indicate the relative level to which an organisation accepts and follows
the codes and guidelines of corporate governance practices. Corporate Governance practices
prevalent in a company reflect the distribution of rights and responsibilities among
different participants in the organisation such as the Board, management, shareholders and
other financial stakeholders and the policies and systems laid down and followed for
making business decisions. The emphasis of ICRA rating is on a corporate’s business
practices and quality of disclosure standards that address the requirements of the
regulators and is fair and transparent to its financial stakeholders.
The variables, which have been analysed for
arriving at the rating, are the shareholding structure, governance structure and
management processes, board structure and processes, stakeholder relationship,
transparency/disclosures and financial discipline including transactions with subsidiaries
and associates. Each of these variables have been evaluated with respect to a set of
attributes and a composite score is computed using a proprietary model developed by ICRA.
The `High level of Corporate
Governance’ rating reflects ITC’s transparent shareholding structure, well
structured management decision making processes with adequate delegation of powers and
sound Board structure and process. Further, in ICRA’s opinion, the composition of the
Board as well as the Board Committees, frequency of meetings, quality of agenda papers and
the Board’s involvement in the decision making process satisfy the requirements of
good corporate governance. The rating also reflects conformity with the provisions of
Clause 49 of the Listing Agreement, even though the rating is not to be interpreted as an
indicator for statutory compliance. The rating also factors in the level of disclosure in
the Annual Report and the Company’s decision to balance the extent of disclosures in
the Annual Report with the need to protect shareholder interest in a competitive
environment.
The Company’s corporate strategy aims
at creating multiple drivers of growth anchored on its core competencies. The Company is
currently focussed on four business groups : FMCG, Hotels, Paperboards, Paper &
Packaging and Agri Business. Despite the gestation cost of some of its recent investments
and the restructuring costs on account of exit from edible oils and financial services
business, the Company has been consistently earning a high level of Return on Capital
Employed and has a sound track record in terms of investor servicing as well as dividend
payout.
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