ITC Limited Annual General Meeting (AGM)

Voting Advisory www.iias.in

Report Date: 12 July 18 Meeting Date: 27 July 2018 10:00 AM BSE: 500875 | NSE: ITC Proxy Deadline: 25 July 2018 10:00 AM Industry: Tobacco Products E-voting Period: 23 July 2018 9:00 AM to 26 July 2018 5:00 PM Index: S&P BSE Sensex/Nifty 50 E-Voting Site: https://www.evoting.nsdl.com/ Face Value: Re.1 Meeting Venue: Science City, Main Auditorium, JBS Haldane Avenue, Kolkata 700 046 Agenda Items IiAS # Type1 Description of resolution Recommendation See Legend 1 O Adoption of standalone and consolidated financial statements for the year ended 31 See Analysis March 2018 We believe that a comprehensive review of the financials of a company is critical exercise and requires first-hand information and proper due diligence. We do not provide voting recommendations on resolutions for adoption of financial statements, given the limited time between receipt of the annual report and the shareholder meeting. 2 O Approve final dividend of Rs 5.15 per share of face value Re 1.0 each FOR The total dividend payout (including dividend distribution tax) for FY18 aggregates to Rs 75.8 bn. The dividend payout ratio for FY18 was 67.4%. 3 O Reappoint Nakul Anand (DIN: 00022279) as a Director FOR Nakul Anand oversees the Lifestyle Retailing, Hospitality, Travel & Tourism Businesses. He retires by rotation and his reappointment is in line with the statutory requirements. 4 O Reappoint Sanjiv Puri (DIN: 00280529) as a Director FOR Sanjiv Puri has been re-designated as the Managing Director. He retires by rotation and his reappointment is in line with the statutory requirements. 5 O Ratification of Deloitte Haskins & Sells as statutory auditor and to fix their AGAINST remuneration at Rs.29.5mn for FY19 ITC proposes to ratify Deloitte Haskins & Sells as statutory auditors: Deloitte Haskins & Sells G I F V T R

were first appointed as the statutory auditors for ITC in FY10, and last reappointed at the FY14 AGM for a period of five years. Prior to that, the company’s auditors were A.F Ferguson & Co for at least 12 years (part of the same Deloitte network). Hence the audit network has a tenure of 21 years. We believe this is not in keeping with the spirit of Section 139 (2) of the Companies Act 2013 read with the Companies (Audit and Auditor) Rules, 2014. The ratification is not in line with our Voting Guidelines on Auditor (Re)appointments. 6 O Appoint John Pulinthanam (DIN: 07881040) as Non-Executive Director for a period of FOR three years from 27 July 2018 John Pulinthanam was appointed as an Additional Director from 16 May 2018. He is the Chairperson and Managing Director of National Insurance Company Limited (NIC). He has been appointed as the representative of the General Insurers’ (Public Sector) Association of India. His appointment is in line with the statutory requirements. 7 O Approve re-designation of Sanjiv Puri (DIN: 00280529) to Managing Director from CEO FOR & Whole-time Director from 16 May 2018 Sanjiv Puri was appointed as CEO on 5 February 2017. The company now proposes to re- designate him as Managing Director. 8 O Reappoint Sanjiv Puri (DIN: 00280529) as Managing Director for a period of five years FOR with effect from 22 July 2019 and fix his remuneration Sanjiv Puri has been re-designated as Managing Director from 16 May 2018. He is a G I F V T R

professional. His estimated remuneration in FY20 at Rs.258 mn is commensurate with the size and performance of the company. Further, a large proportion of his remuneration is variable since it is expected to emanate from stock options. Given that stock options form

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Voting Advisory

IiAS # Type1 Description of resolution Recommendation See Legend a large part of Sanjiv Puri’s remuneration structure, the company must consider disclosing the maximum number of stock options it proposes to grant or set a cap (in value terms) on the aggregate value of stock options he will be granted as part of his remuneration. 9 O Reappoint Nakul Anand (DIN: 00022279) as Whole-time Director for a period of two FOR years with effect from 3 January 2019 and fix his remuneration His estimated remuneration of around Rs.145 is commensurate with the size and G I F V T R

performance of the company. Further, a large proportion of his remuneration is variable since it is expected to emanate from stock options. Given that stock options form a large part of Nakul Anand’s remuneration structure, the company must consider disclosing the maximum number of stock options it proposes to grant or set a cap (in value terms) on the aggregate value of stock options he will be granted as part of his remuneration. 10 O Reappoint Rajiv Tandon (DIN: 00042227) as Whole-time Director for a period of two FOR years with effect from 22 July 2019 and fix his remuneration His estimated remuneration of around Rs.140 mn, is commensurate with the size and G I F V T R

performance of the company. Further, a large proportion of his remuneration is variable since it is expected to emanate from stock options. Given that stock options form a large part of Rajiv Tandon’s remuneration structure, the company must consider disclosing the maximum number of stock options it proposes to grant or set a cap (in value terms) on the aggregate value of stock options he will be granted as part of his remuneration. 11 S Approve remuneration benefits of Yogesh Chander Deveshwar (DIN: 00044171) as a AGAINST Non-Executive Chairperson from 1 April 2019 to 4 February 2020 Yogesh Chander Deveshwar’s aggregate remuneration was about Rs.194 mn in FY18. With the value of stock options, his aggregate remuneration in FY18 was almost in the same range of that of the CEO, and higher than the other executive directors. We believe that G I F V T R

this, along with the fact that he is paid a monthly salary and granted stock options, does not convey that a well-ordered succession has taken place. 12 O Reappoint Yogesh Chander Deveshwar (DIN: 00044171) as the Non-Executive AGAINST Chairperson of the company from 5 February 2020 to 3 February 2022 The resolution requires us to approve an extension of Yogesh Chander Deveshwar’s term that gets over a year and a half in the future, for further two years into the future. The NRC’s and the board’s rationale (for the term extension) that ‘the size and complexity of the G I F V T R business’ is increasing does not sufficiently explain the need to extend his tenure almost two years before it gets over: we consider it premature for the board to extend Yogesh Deveshwar’s term. 13 S Approve the continuation of Sahibzada Syed Habib-ur-Rehman (DIN: 00050862) as an FOR Independent Director from 20 March 2019 to 14 September 2019 Recent changes in SEBI’s LODR require directors having attained the age of 75 to be reapproved by shareholders through a special resolution. In line with this regulatory change, Sahibzada Syed Habib-ur-Rehman’s (S S Rehman) term as an Independent Director requires shareholder approval: he will cross 75 years on 20 March 2019. His continuation is in line with statutory requirements. 14 S Reappoint Shilabhadra Banerjee (DIN: 02922331) as an Independent Director for a FOR period of five years with effect from 30 July 2019 Shilabhadra Banerjee, 70, has been associated with the company since 4 February 2010: reappointing him for another five years will result in a cumulative tenure of over 10 years. G I F V T R We believe that the tenure of directors is inversely proportionate to their independence. Therefore, we will consider him as non-independent once he crosses tenure of 10 years. 15 O To set annual commission at a maximum of Rs. 10.0 mn for each non-executive FOR director for a period of five years ITC proposes to pay annual commission to each non-executive director between Rs.7 mn and Rs.10 mn, subject to the aggregate commission not exceeding 1% of profits. Having a G I F V T R

cap on the amount of commission to be paid to non-executive directors is a good practice.

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Voting Advisory

IiAS # Type1 Description of resolution Recommendation See Legend 16 O Ratify remuneration of Rs. 450,000 (plus reimbursement of actual expenses) for P. Raju FOR Iyer, cost auditors for the ‘Paper and Paperboard’ and ‘Nicotine Gum’ products of the company for the financial year ending 31 March 2019 The proposed remuneration is comparable to the size and complexity of the business. 17 O Ratify remuneration of Rs. 575,000 (plus reimbursement of actual expenses) for FOR Shome & Banerjee, cost auditors for all products other than the ‘Paper and Paperboard’ and ‘Nicotine Gum’ products of the company for the financial year ending 31 March 2019 The proposed remuneration is comparable to the size and complexity of the business. [1] O/S: Ordinary/Special

IiAS comPAYre has been used for evaluating remuneration data

Disclosure: There is a civil suit filed by ITC Limited against IiAS and two of its employees, in the Calcutta High Court, alleging defamation in relation to its 2017 AGM voting advisory and a report issued by IiAS on succession planning at ITC. ITC has claimed purported damages aggregating Rs. 10bn. The suit is being contested by IiAS and its two employees, and is presently pending before the court.

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Voting Advisory

Company Overview ITC was incorporated in 1910, under the name Imperial Tobacco Company of India Ltd. ITC operates in four segments: FMCG, Hotels, Agri Business, Paper and Paperboards & Packaging. In agriculture, ITC e-Choupal has empowered more than 4 million farmers in 40,000 villages. In manufacturing, ITC has created manufacturing facilities for its FMCG, Paperboards, Packaging and Printing businesses. ITC Hotels has more than 100 hotels in over 70 destinations in the country. ITC’s hotel group operates under 4 brands: ‘ITC Hotel’ at the luxury end, ‘WelcomHotel’ in the 5-star segment, ‘Fortune’ in the mid-market to upscale segment and ‘WelcomHeritage’ in the heritage leisure segment.

Promoters: Price Performance as on 12 July 2018 Publicly held

83.1% 83.4% Market snapshot Market Price (Rs): 262.4 Market Cap (Rs bn): 3202.4 39.5% 32.1% Networth (Rs bn): 525.1 31.8% 52 week H-L (Rs): 353.2-250.35 17.5% Current P/E (x): 28.5 Current P/B (x): 6.3 3-year performance 5-year performance Previous advisory AGM 28 July 2017 ITC S&P BSE SENSEX NIFTY 50

Data Source: www.moneycontrol.com

Financial performance (Consolidated) (Rs. bn) Trend in Shareholding Pattern (%) Period ending 31/03/16 31/03/17 31/03/18 As on FII DII Others Total Income 407.3 445.4 452.9 31-Mar-18 18.0 37.1 44.9 EBITDA 160.1 172.2 183.4 31-Dec-17 18.6 36.7 44.7 EBITDA Margin (%) 39.3 38.7 40.5 30-Sep-17 19.1 36.4 44.5 PBT 148.5 160.2 174.0 30-Jun-17 20.0 35.9 44.1 PBT Margin (%) 36.5 36.0 38.4 31-Mar-16 20.1 35.8 44.1 PAT 93.4 102.9 112.7 31-Mar-15 35.3 20.5 44.3 PAT Margin (%) 22.9 23.1 24.9 31-Mar-14 34.8 20.7 44.5 EPS (Rs.) 11.6 8.5 9.2 [1] Pledged shares: Nil ROANW (%) 26.0 24.3 24.1 Source: BSE ROACE (%) 40.0 36.0 35.4 Debt/EBITDA (x) 0.0 0.0 0.0 Source: ACE Equity

Top Public Shareholders (as on 31 March 2018) Shares Holding No. Name of the Shareholder held (million) as % of total 1 Tobacco Manufacturers (India) Limited 2,978.3 24.40 2 Life Insurance Corporation of India 1,975.1 16.18 3 Specified Undertaking of the Unit Trust of India (SUTTI) 1,025.3 8.40 4 Myddleton Investment Company Limited 486.3 3.99 5 General Insurance Corporation of India 210.9 1.73 6 The New India Assurance Company Limited 195.3 1.60 7 Government of Singapore 167.1 1.37 8 Rothmans International Enterprises Limited 155.0 1.27 9 The Oriental Insurance Company Limited 152.2 1.25 10 ICICI Prudential Life Insurance Company Limited 126.8 1.04 Total 7,472.2 61.23 Source: ITC’s FY18 annual report

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Voting Advisory

Category: Accounts

Resolution 1: Adoption of standalone and consolidated financial statements for the year ended 31 March 2018

IiAS believes that a comprehensive review of the financials of a company is critical exercise and requires first-hand information and proper due diligence. IiAS does not provide voting recommendations on resolutions for adoption of financial statements, given the limited time between receipt of the annual report and the shareholder meeting, but provides analysis of critical ratios. A snapshot of the key accounting parameters are presented below:

Standalone vs Consolidated (Rs. Bn) Revenue by Segment

0.5 3% 11% 18.6 Agri Business 3% 10% 25.0 27% 20% FMCG - Cigarettes 112.2 623.8 FMCG - Others

427.8 67% Hotels 59%

Total income PAT Total Assets

Standalone Subsidiaries Inner ring represents previous year data Outer ring represents current year data Risk Indicators Leverage Profile Period ending 31/03/16 31/03/17 31/03/18 CFO/EBITDA (x) 0.6 0.6 0.7 The company has negligible debt. Exceptional items/Income (%) - - 0.9

Cont. liabilities/Networth (%) 1.7 1.9 1.8 Receivables Days 13 14 20

Related Party Transactions (RPTs) (Rs. bn) Corporate Social Responsibility (CSR)

Particulars Rs. bn % (PAT) On 31-March 2017 2018 Assessment Average 3-yr profits 145.2 - Receivables 0.7 0.6 2.5% of total receivables Prescribed CSR expenditure 2.9 2.0 Payables 0.2 0.3 0.7 % of total payables Actual CSR expenditure 2.9 2.0

Liquidity

Audit Integrity On 31-Mar-18 Rs.bn Parameter Result Current investments 105.7 Name of auditor Deloitte Haskins & Sells Cash flow from operations 131.7 Audit network Deloitte Cash and cash equivalents 29.0 Tenure of audit network Over 10 years (yrs)

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Voting Advisory

Category: Dividends IiAS Indicators # Type Description of resolution Recommendation See Legend Approve final dividend of Rs 5.15 per share of face value Re 2 O FOR 1.0 each

IiAS Assessment Parameters for Dividend Payout Assessment Parameters Comment Details Is growth in dividend higher than growth in profits? No Refer Exhibit 1 Does the company have a stated dividend policy? Yes Target payout ratio not available Does the company have room to pay a higher dividend? No

Discussion The total dividend payout (including dividend distribution tax) for FY18 aggregates to Rs 75.8 bn. The dividend payout ratio for FY18 was 67.4%.

While the company has a dividend distribution policy, it does not have a target dividend payout ratio. As a good governance practice, we encourage companies to formulate a dividend policy that specifies a target payout ratio.

Exhibit 1: Key ratios (Standalone) Period ending 31-Mar-16 31-Mar-17 31-Mar-18 Dividend per share (Rs) 8.5 4.8 5.2 Profit after tax (Rs.bn) 93.3 102.0 112.2 Profit growth y-o-y (%) (2.9) 9.4 10.0 Total dividend (including DDT) (Rs.bn) 82.3 69.4 75.8 Dividend growth y-o-y (%) 0.4 (15.6) 8.9 Payout Ratio (%) 88.3 68.1 67.4 Source: ACE Equity, company filings, IiAS Research

IiAS recommends voting FOR the resolution.

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Voting Advisory

Category: Board Appointments # Type Description of resolution IiAS Indicators Recommendation See Legend 3 O Reappoint Nakul Anand (DIN: 00022279) as a Director FOR 4 O Reappoint Sanjiv Puri (DIN: 00280529) as a Director FOR 6 O Appoint John Pulinthanam (DIN: 07881040) as Non-Executive Director for FOR a period of three years from 27 July 2018 7 O Approve re-designation of Sanjiv Puri (DIN: 00280529) to Managing FOR Director from CEO & Whole-time Director from 16 May 2018 12 O Reappoint Yogesh Chander Deveshwar (DIN: 00044171) as the Non- AGAINST G I F V T R

Executive Chairperson from 5 February 2020 to 3 February 2022 13 S Approve the continuation of Sahibzada Syed Habib-ur-Rehman (DIN: FOR 00050862) as an Independent Director from 20 March 2019 to 14 September 2019 14 S Reappoint Shilabhadra Banerjee (DIN: 02922331) as an Independent FOR G I F V T R

Director for a period of five years with effect from 30 July 2019

Exhibit 2: Board composition on 7 July 2018 as disclosed in ITC’s FY18 Annual Report and Stock Exchange Filings

** S Age Tenure Name Occupation AC NRC SRC CSR

No (yrs) (yrs) FY18

Other

Category

Pay (Rs.mn) Pay

Directorships Attendance (%) Attendance 1 Nakul Anand Whole-time director ED 62 7 100 8 129.7 2 Sanjiv Puri Managing Director ED 55 3 M 100 4 228.7 3 Rajiv Tandon CFO ED 65 2 M 100 9 125.2 4 Yogesh Deveshwar Former CEO, ITC NED 71 24 M C 100 5 298.6++ (C) 5 Suryakant Mainak Representative, LIC NED 62 4 M M M 100 6 5.3 6 David Simpson Representative, Tobacco NED 60 1 M 100 2 1.5 Manufacturers (India) Limited 7 John Pulinthanam Representative, General NED 58 <1 M NA - Insurers’ (Public Sector) Association of India 8 Sunil Mathur Former Chairperson, LIC ID 74 13 C 100 11 5.1 9 Sahibzada Rehman Former MD, ITC Hotels ID 74 6 M M C 100 - 5.4 Ltd 10 Shilabhadra Former Secretary, ID 70 8 C 100 - 5.0 Banerjee Ministry of Tourism 11 Arun Kumar Duggal Former Chief Executive, ID 72 4 M 100 6 5.0 BoA India 12 Ms. Nirupama Rao Retired IFS Officer ID 68 2 M 67 5 4.5 13 Ms. Meera Shankar Retired IFS Officer ID 68 6 M M 100 3 5.1 There is a civil suit filed by ITC Limited against IiAS and two of its employees, in the Calcutta High Court, alleging defamation in relation to its 2017 AGM voting advisory and a report issued by IiAS on succession planning at ITC. The suit is being contested by IiAS and its two employees, and is presently pending before the court. ** The director categories are as disclosed by the company (in annual reports and / or stock exchange filings), and not as per IiAS’ voting guidelines ++ includes Rs.103.9mn paid in FY18, as performance bonus as Executive Chairperson till 4 February 2017 Pay includes fair value of stock options granted during the year

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ED: Executive Director, ID: Independent Director, NED: Non-executive Non-independent director, (P): Promoter, (C): Chairperson Committees: AC-Audit, NRC-Nomination & Remuneration, SRC-Stakeholders Relationship, CSR-Corporate Social Responsibility Seeking reappointment Seeking appointment 1. Sanjiv Puri has been re-designated to Managing Director from CEO & Whole-Time Director from 16 May 2018, subject to shareholder approval 2. John Pulinthanam was appointed as a GIPSA representative from 16 May 2018 3. Ashok Malik was appointed on 11 April 2017 and resigned with effect from 1 August 2017 4. Zafir Alam was appointed on 26 October 2016 as a GIPSA representative and resigned with effect from 20 March 2018 5. P B Ramanujam resigned as a non-executive director with effect from 1 August 2017 after spending 19 years on the board

Nakul Anand oversees the Lifestyle Retailing, Hospitality, Travel & Tourism Businesses. He retires by rotation and his reappointment is in line with the statutory requirements. We recommend voting FOR his reappointment.

Sanjiv Puri was appointed as CEO on February 2017. The company now proposes to re-designate him as Managing Director. He retires by rotation and his reappointment is in line with the statutory requirements. We recommend voting FOR the resolution.

John Pulinthanam was appointed as an Additional Director from 16 May 2018. He is the Chairperson and Managing Director of National Insurance Company Limited (NIC). He has been appointed as the representative of the General Insurers’ (Public Sector) Association of India (GIPSA). His appointment is in line with the statutory requirements. We recommend voting FOR his appointment.

Director Profiles John Pulinthanam (DIN: 07881040) • Master’s Degree in economics; MBA, Kerala University Qualification • Fellow of the Insurance Institute of India Work experience • Chairperson and Managing Director of National Insurance Company Limited (NIC) Other directorships • National Insurance Company Limited

Yogesh Deveshwar transitioned from an executive to a non-executive chairperson in 2017: he was appointed for a three-year term as non-executive director beginning 5 February 2017. Given the increasing size and complexity of the organization, the Nomination and Remuneration Committee and the board believes it is in the company’s best interest to extend Yogesh Deveshwar’s tenure as Non-Executive Chairperson by another two years: from 5 February 2020 to 3 February 2022. We recommend voting AGAINST the resolution.

The resolution requires us to approve an extension of Yogesh Chander Deveshwar’s term that gets over a year and a half in the future, for another two years further into the future. The NRC’s and the board’s rationale (for the term extension) that ‘the size and complexity of the business’ is increasing does not sufficiently explain the need to extend his tenure almost two years before it gets over: we consider it premature for the board to extend Yogesh Deveshwar’s term. In the past, ITC has stated that Yogesh Deveshwar’s term (and remuneration) as a non-executive director will be focused on mentoring the leadership team and ensuring smooth succession planning. In ‘promoting’ Sanjiv Puri to Managing Director (Resolution #7), we believe the board appears to signal to market participants that he has the reins of the company. If so, shareholders must ask if the board believes the ‘increasing size and complexity of the business’ cannot be managed in the absence of Yogesh Deveshwar at the helm.

Sahibzada Syed Habib-ur-Rehman (S S Rehman) will complete his term on 14 September 2019. He will attain the age of 75 on 20 March 2019. ITC proposes the continuation of S S Rehman as an Independent Director till the completion of his present term. We recommend voting FOR the resolution.

Shilabhadra Banerjee, 70, has been associated with the company since 4 February 2010: reappointing him for another five years will result in a cumulative tenure of over 10 years. We believe that the tenure of directors is

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Voting Advisory

inversely proportionate to their independence. Therefore, while we currently recommend voting FOR his reappointment, we will consider him as non-independent once his aggregate board tenure crosses 10 years.

Nirupama Rao has attended 67% of the board meetings in FY18 and in FY17. We expect directors to take their responsibilities seriously and attend all board meetings.

Exhibit 4: Committee Composition as on 31 March 2018** Name of Committee No of Chairperson % of Regulatory requirements directors independence ** Audit Committee 4 Independent 75% 67% of the committee to be independent including chairperson Nomination and Remuneration 5 Independent 60% 50% of the committee to be Committee (NRC) independent including chairperson Securityholders Relationship 3 Independent 33% Chairperson should be non- Committee executive CSR and Sustainability 6 Non-Independent 33% Minimum three directors; at least Committee Non-Executive one should be independent. ** As disclosed by the company in its FY18 Annual Report; not as per IiAS’ voting guidelines 1. Yogesh Deveshwar has been a part of the NRC earlier in his capacity as an executive director and continues now as a non-executive director. Yogesh Deveshwar attended all NRC meetings in FY17 and FY18. 2. Rajiv Tandon (CFO), M Ganesan (Head of Internal Audit), and representatives of statutory auditors are invitees to the audit committee 3. R K Singhi is the secretary to the four board committees listed above in Exhibit 4

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Voting Advisory

Category: Auditors IiAS Indicators # Type Description of resolution Recommendation See Legend 5 O Ratify the appointment of Deloitte Haskins & Sells as statutory AGAINST G I F V T R auditors for FY19 and fix their remuneration

Discussion ITC proposes to ratify Deloitte Haskins & Sells as statutory auditors: Deloitte Haskins & Sells were first appointed as the statutory auditors for ITC in FY10, and last reappointed at the FY14 AGM for a period of five years. Prior to that, the company’s auditors were A.F Ferguson & Co for 12 years (part of the same Deloitte network). Hence the audit network has a tenure of 21 years. IiAS believes this is not in keeping with the spirit of Section 139(2) of the Companies Act 2013 read with the Companies (Audit and Auditor) Rules, 2014. The ratification is not in line with our Voting Guidelines on Auditor (Re)Appointments. Therefore, IiAS recommends voting AGAINST the resolution.

Exhibit 5: Regulatory snapshot: Companies (Audit and Auditor) Rules, 2014 6. Manner of rotation of auditors by the companies on expiry of their term (1) The Audit Committee shall recommend to the Board, the name of an individual auditor or of an audit firm who may replace the incumbent auditor on expiry of the term of such incumbent. (2) Where a company is required to constitute an Audit Committee, the Board shall consider the recommendation of such committee, and in other cases, the Board shall itself consider the matter of rotation of auditors and make its recommendation for appointment of the next auditor by the members in annual general meeting. (3) For the purpose of the rotation of auditors: (i) in case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the Act shall be taken into account for calculating the period of five consecutive years or ten consecutive years, as the case may be; (ii) the incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms.

Explanation I - For the purposes of these rules the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.

Explanation II - For the purpose of rotation of auditors,- (a) a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation; (b) if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.

Exhibit 6: IiAS Voting Guidelines on Auditor (Re)appointment (extract) The Act mandates rotation of individual auditors every five years and of the audit firm after a maximum period of ten years i.e. (after two terms of five years each) for listed companies. A cooling-off period of five years is required, to be considered eligible for re-appointment. The Act gave companies a three-year period to comply, which expired in FY17.

IiAS policy on auditor (re)appointment is guided by the same principles as laid down in the regulations. Fundamentally, IiAS believes that auditor tenure of over 10 consecutive years blunts the objectivity of the audit process and the independence of the auditor, as they may take ownership over interpretation of policy.

While applying the ten-year limit, IiAS will take into account the aggregate tenure of the auditor(s) and its network firms.

We encourage audit committees to assess audit quality by using tangible metrics while (re)appointing auditors or ratifying their audit appointments. For more details, see our report on Audit Quality Indicators. The Kotak Committee on Corporate Governance has also recommended that audit quality indicators should be made public by companies. SEBI has opined that this issue falls within the purview of ICAI / NFRA, and that these institutions will examine and implement this recommendation as they deem fit.

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Voting Advisory

Category: Remuneration IiAS Indicators # Type Description of resolution Recommendation See Legend Reappoint Sanjiv Puri (DIN: 00280529) as Managing Director for a 8 O period of five years with effect from 22 July 2019 and fix his FOR G I F V T R

remuneration

IiAS Assessment Parameters for Managerial Remuneration Assessment Parameter Comment Is the remuneration for promoter? No Is the current remuneration higher than that of peers? No Is the proposed remuneration in line with industry peers? Yes Is there a significant hike in remuneration from previous term/year? No Is the remuneration commensurate with the growth in profits/operations? Yes Is the proposed resolution open-ended? Yes Is there a component of performance-linked pay in the proposed salary? Yes

Discussion Sanjiv Puri has been re-designated as the Managing Director 16 May 2018. The company proposes to reappoint him for five years with effect from 22 July 2019 and pay him remuneration as Managing Director on the following terms:

Exhibit 7: Change in Remuneration Terms Particulars Old Terms New Terms as Managing Director as CEO & Whole – Time Director Consolidated Salary Rs.13.4 mn Rs. 18.0 mn Performance Bonus Capped at 300% of consolidated salary Capped at 300% of consolidated salary Perquisites++ Capped at Rs.1.5 mn per annum Capped at Rs.1.5 mn per annum Contribution to PF and superannuation Upto 27% of salary Upto 27% of salary Gratuity Upto 8.33% of salary Upto 8.33% of salary Other benefits • Rent-free accommodation • Rent-free accommodation • Medical expenses for self and • Medical expenses for self and family family • Chauffeur-driven car • Chauffeur-driven car • Telephone expenses • Telephone expenses • Long-service awards as per • Long-service awards as per company rules company rules • Encashment of unavailed leave at • Encashment of unavailed leave at the time or retirement / cessation the time or retirement / cessation • Costs incurred by the company in • Costs incurred by the company in connection with joining / transfer / connection with joining / transfer / retirement, as per company rules retirement, as per company rules Stock options Will be eligible to receive stock options, Will be eligible to receive stock options, however the quantum is undisclosed however the quantum is undisclosed ++ Perquisites include gas, electricity, water, furnishings, leave travel concession for self and family, club fees, personal accident insurance, sampling of the company’s products and services.

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Voting Advisory

Exhibit 8: Sanjiv Puri’s remuneration (past and estimated) (Rs. Mn) FY19 FY20 Max FY17 FY18 IiAS estimate IiAS estimate remuneration Consolidated salary A 10.34 14.40 15.70 17.29 18.00 Perquisites and benefits B 2.42 3.35 3.77 4.15 4.32 Performance bonus C 4.15 22.91 25.21 27.73 54.00 Cash component of remuneration D=A+B+C 16.91 40.66 44.67 49.17 76.32 Fair value of stock options G 74.34 188.23 209.14 209.14 209.14 Aggregate remuneration H=D+G 91.25 228.89 253.81 258.31 285.46 Multiple to median employee remuneration 59x 108x

No. of stock options (No.) E 1,35,000 2,70,000 3,00,000 3,00,000 3,00,000 Weighted average fair value per option (Rs.) F 550.67 697.13 697.13 697.13 697.13 Fair value of stock options (Rs. Mn) G 74.34 188.23 209.14 209.14 209.14 Assumptions underlying IiAS’ estimates • Consolidated salary will grow at 9% in FY19. Consolidated salary for FY20 is prorated for the increase based on new terms beginning 22 July 2019 • Ratio of perquisites to salary will be maintained at 24% • Annual profits will grow at an estimated 10% - performance bonus is expected to trail that proposed increase, subject to a cap of 300% of consolidated salary • Stock options are expected to increase in FY19 following Sanjiv Puri’s re-designation as Managing Director • The multiple to median employee remuneration is as reported in the annual reports. IiAS believes the ratio does not consider the fair value of stock options granted in the year.

In FY18, Sanjiv Puri’s monetary remuneration was 108x the median employee remuneration.

Exhibit 9: Remuneration of peers Company Name of Pay Total income PAT Year Designation Name Director (Rs mn) (Rs bn) (Rs bn) P.D. Narang ED 233.8 Dabur FY18 80.53 13.6 Sunil Duggal CEO 234.7 Godrej Managing Director & FY17 Vivek Gambhir 175.9 93.4 13.0 Consumer CEO Managing Director & HUL FY18 Sanjiv Mehta 193.7 359.3 52.1 CEO ITC FY18 Sanjiv Puri As Managing Director 258.3* 452.9 112.7 Rajesh Gopinathan CEO & MD 124.9 TCS FY18 1267.5 258.3 N. G. Subramaniam COO & ED 93.0 Source: Company filings, IiAS ComPAYre * Proposed remuneration in FY20 ^ Srinivas Phatak was appointed from 1 December 2017 For Dabur we have taken an average of the fair value of the options granted during FY18 to arrive at the ESOP value.

The proposed remuneration for Sanjiv Puri is commensurate with the size and complexity of the responsibilities and is comparable to peers. Further, a large proportion of his remuneration is variable. Therefore, IiAS recommends voting FOR the resolution.

Given that stock options form a large part of Sanjiv Puri’s remuneration structure, the company must consider disclosing the maximum number of stock options it proposes to grant or set a cap (in value terms) on the aggregate value of stock options he will be granted as part of his remuneration.

July 2018 ITC Limited 12

Voting Advisory

Category: Remuneration IiAS Indicators # Type Description of resolution Recommendation See Legend Reappoint Nakul Anand (DIN: 00022279) as Whole-time Director 9 O for a period of two years with effect from 3 January 2019 and fix FOR G I F V T R

his remuneration

Discussion Nakul Anand oversees the Lifestyle Retailing, Hospitality, Travel & Tourism Businesses. The company proposes reappoint him for two years and fix his remuneration on the following terms.

Exhibit 10: Change in Remuneration Terms Particulars Old Terms New Terms Consolidated Salary Rs. 9.6 mn Rs. 12.0 mn Performance Bonus Capped at 200% of consolidated salary Capped at 200% of consolidated salary Perquisites++ Capped at Rs.1.0 mn per annum Capped at Rs.1.0 mn per annum Contribution to PF and superannuation Upto 27% of salary Upto 27% of salary Gratuity Upto 8.33% of salary Upto 8.33% of salary Other benefits • Rent-free accommodation • Rent-free accommodation • Medical expenses for self and • Medical expenses for self and family family • Chauffeur-driven car • Chauffeur-driven car • Telephone expenses • Telephone expenses • Long-service awards as per • Long-service awards as per company rules company rules • Encashment of unavailed leave at • Encashment of unavailed leave at the time or retirement / cessation the time or retirement / cessation • Costs incurred by the company in • Costs incurred by the company in connection with joining / transfer / connection with joining / transfer / retirement, as per company rules retirement, as per company rules Stock options Will be eligible to receive stock options, Will be eligible to receive stock options, however the quantum is undisclosed however the quantum is undisclosed ++ Perquisites include gas, electricity, water, furnishings, leave travel concession for self and family, club fees, personal accident insurance, sampling of the company’s products and services.

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Voting Advisory

Exhibit 11: Nakul Anand’s remuneration (past and proposed) (Rs. Mn) FY19 FY20 Max FY17 FY18 IiAS estimate IiAS estimate remuneration Consolidated salary A 9.60 9.60 10.46 11.41 12.00 Perquisites and benefits B 6.54 6.77 7.38 8.05 8.47 Performance bonus C 12.96 19.20 20.93 22.81 24.00 Cash component of remuneration D=A+B+C 29.10 35.57 38.77 42.26 44.47 Fair value of stock options G 74.34 94.11 104.57 104.57 104.57 Aggregate remuneration H=D+G 103.44 129.69 143.34 146.83 149.04 Multiple to median employee remuneration 74x 83x

No. of stock options (No.) E 1,35,000 1,35,000 1,50,000 1,50,000 1,50,000 Weighted average fair value per option (Rs.) F 550.67 697.13 697.13 697.13 697.13 Fair value of stock options (Rs. Mn) G 74.34 94.11 104.57 104.57 104.57 Assumptions underlying IiAS’ estimates Source: Annual reports, AGM Notices, IIAS research and estimates • Consolidated salary will grow at 9% in FY19 and in FY20. • Ratio of perquisites to salary will be maintained at FY18 levels • Annual profits will grow at an estimated 10% - performance bonus is expected to trail that proposed increase; subject to a 200% cap of consolidated salary • Stock options are estimated as 50% of those granted to Sanjiv Puri. This assumption is based on past trends of stock option grants to executive directors vis-à-vis the CEO. • The multiple to median employee remuneration is as reported in the annual reports. IiAS believes the ratio does not consider the fair value of stock options granted in the year.

Exhibit 12: Pay vs Performance Particulars FY14 FY15 FY16 FY17 FY18 Nakul Anand's pay (Rs. mn) 23.7 27.7 27.8 29.1 35.6 ESOP Value (Rs. mn) 104.0 120.8 102.1 74.3 94.1 Total Nakul Anand's pay (Rs. mn) 127.7 148.5 129.9 103.4 129.7 Total income (Rs. bn) 362.9 400.9 407.3 445.4 452.9 Net profit (Rs. bn) 88.9 96.6 99.1 93.4 102.9

Exhibit 12: Pay vs Performance (Normalized) for Nakul Anand

FY14 FY15 FY16 FY17 FY18

Nakul Anand's pay Total Income PAT

July 2018 ITC Limited 14

Voting Advisory

Exhibit 13: Remuneration of peers Company Name of Pay Total income PAT Year Designation Name Director (Rs mn) (Rs bn) (Rs bn) P.D. Narang ED 233.8 Dabur FY18 80.53 13.6 Sunil Duggal CEO 234.7 Godrej FY17 Managing Director & Vivek Gambhir 175.9 93.4 13.0 Consumer CEO ITC FY18 Nakul Anand ED 143.3* 452.9 112.7 Managing Director & Sanjiv Mehta 193.7 CEO HUL FY18 Srinivas Phatak ED - Finance & IT 10.1^ 359.3 52.1 Executive director Pradeep Banerjee 54.8 (Supply Chain) FY18 Rajesh Gopinathan CEO & MD 124.9 TCS 1267.5 258.3 N. G. Subramaniam COO & ED 93.0 Source: Company filings, IiAS ComPAYre * FY19 Proposed remuneration

The proposed remuneration for Nakul Anand is commensurate with the size and complexity of the responsibilities and is comparable to peers. Further, a large proportion of his remuneration is variable. Therefore, IiAS recommends voting FOR the resolution.

Given that stock options form a large part of Nakul Anand’s remuneration structure, the company must consider disclosing the maximum number of stock options it proposes to grant or set a cap (in value terms) on the aggregate value of stock options he will be granted as part of his remuneration.

July 2018 ITC Limited 15

Voting Advisory

Category: Remuneration IiAS Indicators # Type Description of resolution Recommendation See Legend 10 O Reappoint Rajiv Tandon (DIN: 00042227) as Whole-time Director for a period of two years with effect from 22 July 2019 and fix his FOR G I F V T R

remuneration

Discussion Rajiv Tandon is the CFO. The company proposes reappoint him for two years and fix his remuneration on the following terms.

Exhibit 14: Change in Remuneration Terms Particulars Old Terms New Terms Consolidated Salary Rs. 9.6 mn Rs. 12.0 mn Performance Bonus Capped at 200% of consolidated salary Capped at 200% of consolidated salary Perquisites++ Capped at Rs.1.0 mn per annum Capped at Rs.1.0 mn per annum Contribution to PF and superannuation Upto 27% of salary Upto 27% of salary Gratuity Upto 8.33% of salary Upto 8.33% of salary Other benefits • Rent-free accommodation • Rent-free accommodation • Medical expenses for self and • Medical expenses for self and family family • Chauffeur-driven car • Chauffeur-driven car • Telephone expenses • Telephone expenses • Long-service awards as per • Long-service awards as per company rules company rules • Encashment of unavailed leave at • Encashment of unavailed leave at the time or retirement / cessation the time or retirement / cessation • Costs incurred by the company in • Costs incurred by the company in connection with joining / transfer / connection with joining / transfer / retirement, as per company rules retirement, as per company rules Stock options Will be eligible to receive stock options, Will be eligible to receive stock options, however the quantum is undisclosed however the quantum is undisclosed ++ Perquisites include gas, electricity, water, furnishings, leave travel concession for self and family, club fees, personal accident insurance, sampling of the company’s products and services.

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Voting Advisory

Exhibit 15: Rajiv Tandon’s remuneration (past and proposed) (Rs. Mn) FY19 FY20 Max FY17 FY18 IiAS estimate IiAS estimate remuneration Consolidated salary A 9.60 9.60 10.46 11.41 12.00 Perquisites and benefits B 2.29 2.30 2.51 2.74 2.88 Performance bonus C 2.51 19.20 20.93 22.81 24.00 Cash component of remuneration D=A+B+C 14.40 31.10 33.90 36.95 38.88 Fair value of stock options G 74.34 94.11 104.57 104.57 104.57 Aggregate remuneration H=D+G 88.74 125.22 138.47 141.52 143.45 Multiple to median employee remuneration 53x 83x

Exhibit 16: Remuneration of peers Company Name of Pay Total income PAT Year Designation Name Director (Rs mn) (Rs bn) (Rs bn) P.D. Narang ED 233.8 Dabur FY18 80.53 13.6 Sunil Duggal CEO 234.7 Godrej FY17 Managing Director & Vivek Gambhir 175.9 93.4 13.0 Consumer CEO ITC FY18 Rajiv Tandon CFO 138.5* 452.9 112.7 Managing Director & Sanjiv Mehta 193.7 CEO HUL FY18 Srinivas Phatak ED - Finance & IT 10.1^ 359.3 52.1 Executive director Pradeep Banerjee 54.8 (Supply Chain) FY18 Rajesh Gopinathan CEO & MD 124.9 TCS 1267.5 258.3 N. G. Subramaniam COO & ED 93.0 Source: Company filings, IiAS ComPAYre * FY19 Proposed remuneration

The proposed remuneration for Rajiv Tandon is commensurate with the size and complexity of the responsibilities and is comparable to peers. Further, a large proportion of his remuneration is variable. Therefore, IiAS recommends voting FOR the resolution.

Given that stock options form a large part of Rajiv Tandon’s remuneration structure, the company must consider disclosing the maximum number of stock options it proposes to grant, or set a cap (in value terms) on the aggregate value of stock options he will be granted as part of his remuneration.

July 2018 ITC Limited 17

Voting Advisory

Category: Remuneration IiAS Indicators # Type Description of resolution Recommendation See Legend Approve remuneration benefits of Yogesh Chander Deveshwar 11 S (DIN: 00044171) as a Non-Executive Chairperson from 1 April 2019 AGAINST G I F V T R

to 4 February 2020

IiAS Assessment Parameters for Managerial Remuneration Assessment Parameter Comment Is the remuneration for promoter? No Is the current remuneration higher than that of peers? Yes Is the proposed remuneration in line with industry peers? No Is there a significant hike in remuneration from previous term/year? No Is the remuneration commensurate with the growth in profits/operations? NA Is the proposed resolution open-ended? Yes Is there a component of performance-linked pay in the proposed salary? Yes

Discussion Yogesh Chander Deveshwar transitioned from an executive to a non-executive chairperson in 2017: he was appointed as a non-executive director for a three-year term beginning 5 February 2017. Yogesh Deveshwar was charged with ensuring a smooth transition and mentoring the new leadership at ITC. To this extent, the NRC (of which he was a member) and the board decided to provide him with additional remuneration and benefits as a non- executive director.

A recent amendment to SEBI Regulations requires companies to seek shareholder approval by way of a special resolution when the remuneration payable to a single non-executive director in that year exceeds 50% of the aggregate remuneration payable to all non-executive directors. Therefore, ITC has approached shareholders once again to approve his remuneration from 1 April 2019 to 4 February 2020.

# Exhibit 17: Remuneration terms of Yogesh Chander Deveshwar as a non-executive director (Rs. mn) 5-Feb-17 to FY18 1-Apr-19 to Remarks / IiAS 31-Mar-17 4-Feb-2020 Assumptions Remuneration A - 120.00 101.40 @Rs. 10mn per month Perquisites and benefits## B 31.77 72.94 61.63 At the FY18 rates ++ Commission C - 0.60 8.45 Max annual commission Cash component of remuneration D=A+B+C 31.77 193.54 171.48 Fair value of stock options G 6.97 6.97 Assumed same as FY18 Aggregate remuneration H=D+G 200.51 178.45 Multiple to median employee remuneration 453x Not considering fair value of stock options

No. of stock options (No.) E 10,000 Eligible to Based on ITC’s Weighted average fair value per option (Rs.) F 697.13 receive stock Remuneration Policy Fair value of stock options (Rs. Mn) G 6.97 options Source: Annual reports, IiAS estimates ++ Based on a maximum of Rs. 10 mn annually as proposed in resolution #15 ## perquisites include rent free furnished accommodation, medical expenses for self and spouse, chauffeur-driven company car for personal use, and personal accident insurance #Does not include sitting fees, which Yogesh Deveswhar will receive additionally as a non-executive director. In FY18, Yogesh Deveshwar’s sitting fees aggregated Rs. 1.05 mn

July 2018 ITC Limited 18

Voting Advisory

Yogesh Deveshwar’s aggregate remuneration (not including sitting fees and fair value of stock option grants) was Rs.193.54 mn1 in FY18, which was 453x of the median employee remuneration. His aggregate remuneration in FY18 was almost in the same range of that of the CEO and higher than that of the other executive directors (Nakul Anand and Rajeev Tandon). This, along with the fact that he is paid a monthly salary, suggests that the previous executive corporate head by commanding a similar remuneration as the current CEO even in his non-executive capacity is likely to yield a parallel power within the professional management of the organization. For a smooth transition, we expect the previous CEO to step down from his responsibilities and allow the Managing Director and other executive directors to shoulder the responsibilities of running the business.

The remuneration is not in line with our voting guidelines: therefore, we recommend voting AGAINST this resolution.

The company must consider disclosing the maximum amount of stock options he will be eligible to receive.

Exhibit 18: IiAS Voting Guidelines on remuneration to Non-Executive Directors Non-executive directors have a material role to play in the governance structures of companies. However, for directors who have transitioned from executive to non-executive role within the organization or where their roles appear more executive in nature or where their remuneration is higher than the executive directors, it may have material implications for the chain of command within and outside the organization. In such circumstances, IiAS will generally not support the remuneration of the director.

Shareholders must engage with the company to understand the increase in perquisite component of Yogesh Deveshwar’s overall remuneration. As a component of remuneration, perquisites and other benefits aggregated less than Rs. 10 mn in FY15 and in FY16. However, in FY17, perquisites and other benefits aggregated Rs.65.13 mn and in FY18, these were Rs. 72.94mn.

Exhibit 19: Yogesh Deveshwar’s remuneration by components over the past four years (Rs. Mn) Financial year FY15 FY16 FY17 FY18 Nature of directorship Executive Executive Executive Non- Total Non- executive executive Consolidated salary / remuneration 43.20 43.20 60.16 - 60.16 120.00 Perquisites and other benefits 8.92 7.65 33.36# 31.77 65.13 72.94 ++ Performance bonus / commission 86.40 86.40 190.36 - 190.36 0.60 Sitting Fees - - - - 1.05 Cash component of remuneration A 138.52 137.25 283.88 31.77 315.65 194.59 Fair value of stock options D 241.52 204.09 148.68 6.97 Aggregate remuneration E=A+D 380.04 341.35 464.33 201.56

No. of stock options (No.) B 2,70,000 2,70,000 2,70,000 10,000 Weighted average fair value per option (Rs.) C 894.52 755.90 550.67 697.13 Fair value of stock options (Rs. Mn) D = BxC 241.52 204.09 148.68 6.97 ++ of this, Rs. 103.94 mn was paid in FY18 towards executive chairmanship till February 2017 Source: Annual reports # Residual value: Total perquisites in FY17 aggregated Rs. 65.13 mn of which Rs. 31.77mn was attributable to his tenure as a non-executive director. Therefore, the residual value of Rs.33.36 mn (Rs. 65.13mn less Rs. 31.77mn) is assumed to be attributed to his tenure as an executive director

1 IiAS estimated for Yogesh Deveshwar’s remuneration aggregated Rs. 127mn for FY18 when the resolution was brought to vote during the 2017 AGM. The actual amount paid was higher – largely on account of a significantly higher quantum of perquisites and other benefits.

July 2018 ITC Limited 19

Voting Advisory

Category: Commission to Non-Executive directors IiAS Indicators # Type Description of resolution Recommendation See Legend To set annual commission at a maximum of Rs. 10.0 mn for each 15 O FOR G I F V T R non-executive director for a period of five years

Discussion ITC proposes to increase the annual commission it pays non-executive directors effective 1 April 2019 for the following five years. At the 2016 AGM, the shareholders had approved payment of commission annually (for a three- year period) to each of the non-executive directors in the range of Rs. 3.0 mn to Rs. 6.0 mn, subject to an overall cap of 1% of profits. The company now proposes to set annual commission to non-executive directors in the range of Rs. 7.0 mn to Rs. 10.0 mn, subject to an overall cap of 1% of profits. The commission will be paid over and above sitting fees.

Exhibit 20: Details of commission paid to the Non-Executive Directors (Rs.mn) Name of the non-executive director FY16 FY17 FY18 1 Yogesh Deveshwar Not applicable - 0.60 2 S. Banerjee 1.24 2.00 4.00 3 A. Duggal 0.98 2.00 4.00 4 S. B. Mathur 1.80 2.00 4.00 5 P. B. Ramanujam 1.80 2.00 4.00 6 S. S. H. Rehman 1.80 2.00 4.00 7 Ms. M. Shankar 1.80 2.00 4.00 8 S. B. Mainak 1.68 2.00 4.00 9 Anil Baijal 1.80 2.00 2.99 10 A V Girija Kumar 1.80 1.96 1.24 11 R E Lewill 1.80 2.00 0.90 12 K Vaidynath 1.80 2.00 1.30 13 D. R. Simpson Not on the board wef 27-Jan-2017 0.70 14 Zafir Alam Not on the board wef 26-Oct-2016 1.72 15 Ms. N. Rao Not on the board wef 8-Apr-2016 3.92 16 Ashok Malik Not on the board Not on the board - 17 Serajul Haq Khan 1.80 1.57 Not on the board 18 A Ruys 0.56 Not on the board Not on the board Total 20.66 23.53 41.38

Commission as a % of standalone profits 0.02% 0.02% 0.04% Source: Annual Reports, IiAS research and estimates

Having a cap on the amount of commission to be paid to non-executive directors is a good practice. IiAS recommends voting FOR the resolution.

July 2018 ITC Limited 20

Voting Advisory

Category: Cost Auditors IiAS Indicators # Type Description of resolution Recommendation See Legend 16 O Ratify remuneration of Rs. 450,000 (plus reimbursement of actual expenses) for P. Raju Iyer, cost auditors for the ‘Paper and Paperboard’ FOR and ‘Nicotine Gum’ products of the company for the financial year ending 31 March 2019 17 O Ratify remuneration of Rs. 575,000 (plus reimbursement of actual expenses) for Shome & Banerjee, cost auditors for all products other FOR than the ‘Paper and Paperboard’ and ‘Nicotine Gum’ products of the company for the financial year ending 31 March 2019

Discussion For FY19, the Board approved the appointment and remuneration of P. Raju Iyer to conduct audit of cost records at Rs. 450,000 (plus service tax and reimbursement of out-of-pocket expenses) in respect of ‘Paper & Paperboard’ and and ‘Nicotine Gum’ products and Shome & Banerjee to conduct audit of cost records maintained in respect of the other applicable products of the company – Flexibles, Soyabean Oil, Facewash, Handwash, Cylinders, Coffee, Milk Powder etc. at Rs. 575,000 (plus service tax and reimbursement of out-of-pocket expenses).

As per Section 148 of the Companies Act, the remuneration has to be ratified by shareholders of the company. Accordingly, consent of shareholders is sought through ordinary resolution in order to ensure compliance with the section.

The total remuneration proposed to be paid to the cost auditors in the financial year ending 31 March 2019 is reasonable compared to the size and scale of the company’s operations.

IiAS recommends voting FOR the resolutions.

July 2018 ITC Limited 21

Voting Advisory

Legend

IiAS recommendations are based on IiAS’ Voting Guidelines, which are published on our website. The data and regulations reviewed while arriving at a recommendation are disclosed to market participants. This gives investors and companies clarity regarding the basis for our recommendations.

IiAS recommendations are non-binding in nature. Investors may have their own voting rationale which may, on aspects, differ from those of IiAS. On such occasions, investors must use these recommendations as a guiding tool.

Our voting recommendations do not constitute advice to buy, sell or hold securities.

To allow for a more nuanced discussion on resolutions, IiAS recommendations may be supplemented with a risk or a transparency indicator (refer table below). This helps balance the narrative for proposals which have multiple connotations in terms of their implications for the company and its stakeholders.

Risk Indicator Coverage Description This symbol is used for resolutions which in IiAS’ opinion indicate corporate Governance G governance practices that have room for improvement or are non-compliant with Matters regulations or their intent. This symbol is used for resolutions which in IiAS’ opinion benefit the controlling Inequitable shareholders (or any other class of shareholders) at the expense of the public I Treatment shareholders. This also includes resolutions which may result in excessive dilution or disproportionate voting powers. Financial This symbol is used for resolutions which, as per IiAS, will have a negative impact F Impact on the company’s financials. This symbol is generally used for resolutions associated with corporate Valuation restructurings, which include schemes of arrangement, and slump sales, where a V Divergence fair valuation cannot be ascertained or where IiAS believes the valuation is prejudicial to the interests of public shareholders. This symbol is used for operating decisions taken by the company management and IiAS will usually recommend voting FOR such resolutions. However, they carry R Other Risks an element of risk which may subsequently have a negative impact on the

financials. Investors are therefore advised to review the risk factors highlighted by IiAS in its analysis before voting.

Transparency Quality of Description Indicator Disclosure Indicates that the disclosures on the resolution are significantly superior to other T Leadership similar resolutions. IiAS encourages other companies to emulate such disclosure

levels. Indicates lack of adequate disclosures supporting the resolution. Investors are T Weak advised to seek further clarifications from the company to make a more informed

decision.

July 2018 ITC Limited 22

Voting Advisory

Disclaimer This document has been prepared by Institutional Investor Advisory Services India Limited (IiAS). The information contained herein is solely from publicly available data, but we do not represent that it is accurate or complete and it should not be relied on as such. IiAS shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not be taken as the basis for any voting or investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of the individual resolutions referred to in this document (including the merits and risks involved). The discussions or views expressed may not be suitable for all investors. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. IiAS reserves the right to make modifications and alterations to this statement as may be required from time to time. However, IiAS is under no obligation to update or keep the information current. Nevertheless, IiAS is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither IiAS nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report.

Confidentiality This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IiAS to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information provided in these reports remains, unless otherwise stated, the copyright of IiAS. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of IiAS and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

IiAS Voting Guidelines IiAS' voting recommendations are based on a set of guiding principles, which incorporate the basic tenets of the legal framework along with the best practices followed by some of the better governed companies. These policies clearly list out the rationale and evaluation parameters which are taken into consideration while finalizing the recommendations. The detailed IiAS Voting Guidelines are available at our website. The draft report prepared by the analyst is referred to an internal Review and Oversight Committee (ROC), which is responsible for ensuring consistency in voting recommendations, alignment of recommendations to the IiAS’ voting criteria and setting and maintaining quality standards of IiAS’ proxy reports. Details regarding the functioning and composition of the ROC committee are available at https://www.iiasadvisory.com/about. In undertaking its activities, IiAS relies on information available in the public domain i.e. information that is available to public shareholders. However, in order to provide a more meaningful analysis, IiAS, generally seeks clarifications from the subject company. IiAS reserves the right to share the information provided by the subject company in its reports. Further details on IiAS policy on communication with subject companies are available at https://www.iiasadvisory.com/about.

Analyst Certification The research analyst(s) for this report certify/ies that no part of his/her/their compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. IiAS’ internal policies and control procedures governing the dealing and trading in securities by employees are available at https://www.iiasadvisory.com/about.

July 2018 ITC Limited 23

Voting Advisory

Conflict Management IiAS and its research analysts may hold a nominal number of shares in the companies that IiAS covers (including the subject company), as on the date of this report. A list of IiAS’ shareholding in companies is available at https://www.iiasadvisory.com/about.

However, IiAS, the research analyst(s) responsible for this report, and their associates or relatives, do not have actual/beneficial ownership of one per cent. or more securities of the subject company, at the end of the month immediately preceding the date of publication of this report. A list of shareholders of IiAS as of the date of this report is available at https://www.iiasadvisory.com/about. However, the preparation of this report is monitored by an internal Review and Oversight Committee (ROC) of IiAS and is not subject to the control of any company to which such report may relate and which may be a shareholder of IiAS.

Other Disclosures IiAS is a SEBI registered research entity (proxy advisor registration number: INH000000024).

IiAS further confirms that, save as otherwise set out above or disclosed on IiAS’ website (www.iias.in): • IiAS, the research analyst(s) responsible for this report, and their associates or relatives, do not have any financial interest in the subject company. • IiAS, the research analyst(s) responsible for this report, and their associates or relatives, do not have any other material conflict of interest at the time of publication of this report. • As a proxy advisory firm, IiAS provides subscription, databased and other related services to various Indian and international customers (which could include the subject company). IiAS generally receives between INR 10,000 and INR 25,00,000 for such services from its customers. Other than compensation that it may have received for providing such services to the subject company in the ordinary course, none of IiAS, the research analyst(s) responsible for this report, and their associates or relatives, has received any compensation from the subject company or any third party for this report. • None of IiAS, the research analyst(s) responsible for this report, and their associates or relatives, has received any compensation from the subject company or any third party in the past 12 months in connection with the provision of services of products (including investment banking or merchant banking or brokerage services or any other products and services), or managed or co-managed public offering of securities of the subject company. • The research analyst(s) responsible for this report has not served as an officer, director or employee of the subject company. • None of IiAS or the research analyst(s) responsible for this report has been engaged in market making activity for the subject company.

July 2018 ITC Limited 24