CIGARETTE INDUSTRY IN INDIA

1. INTRODUCTION
The tobacco industry is one of the most profitable industries in the world. Tobacco companies use their enormous wealth and influence both locally and globally to market their deadly products. Even as advocacy groups and policy makers work to combat the tobacco industrys influence, new and manipulative tactics are used by tobacco companies and their allies to circumvent tobacco control efforts. It is important for tobacco control advocates to know which companies are present in their country, how and where they operate, the types and quantity of products sold, and marketing tactics used to sell tobacco products. By being informed about all aspects of the tobacco industry within a country, advocates are better equipped to fight for effective tobacco control policies. It is important to note that the tobacco companies typically report market data annually at least several months after the end of the fiscal year. By its nature, annual market data reported by analysts and tobacco companies are one or two years old. It is also important to note that information about the tobacco industry in India is not always readily available. This is particularly true for the loosely regulated bidi and smokeless sectors. Therefore, general trends, forecast data, and tobacco industry positioning within the market contained here are the most recent we are able to obtain from tobacco analysts, Euromonitor International, and other sources. In India, the tobacco industry is divided into three distinct and powerful sectors: bidis (smoking products hand-rolled in tendu leaves), smokeless tobacco (mainly chewing tobacco) and cigarettes. Bidis are the most popular tobacco products consumed in India- 48% of the market. Smokeless tobacco makes up 38% and cigarettes only 14% of the market.4 Some aspect of the tobacco industry,whether it be tobacco farming, manufacturing, or distribution, is present in every Indian state, making tobacco control a truly national effort. This report, like the tobacco industry in India, has sections on each of the tobacco sectors as well as examples of tobacco promotion, sponsorship and corporate social responsibility efforts designed to increase consumption and industry profits.

2. The Bidi Industry

Bidis are slim hand-rolled, unfiltered cigarettes that are rolled in brown tendu or temburni leaves and held together by a string. The product is often flavoured, and in general bidis are stronger tasting than regular cigarettes. Bidis are cheaper than cigarettes which makes them very popular in rural areas and among the poor.5-6 While bidis are the number one tobacco product used in India, very little is actually known about the organization of the bidi industry. Bidi production is fragmented and because most brands are hand-rolled in individual homes on a small scale, the bidi industry is considered to be a cottage industry.5 In 1995 the Ministry of Statistics and Programme Implementation estimated there were over 6,600 bidi manufacturers in India, compared to 40 cigarette factories and 55 smokeless tobacco factories.4 While recent numbers are not available, it is still clear that bidi manufacturers greatly outnumber other types of product manufacturers. A woman sitting at home rolling 100 sticks a day qualifies as a bidi factory.

The bidi manufacturing industry is divided into two different sectors: organized and unorganized. The organized sector is factory based and production is increasingly mechanized; and the unorganized sector is made up of home-based production and small cooperatives. Most production and hand-rolling is done at home by women and children. Tobacco industry analyst, Euromonitor International, estimates that 20% of bidis are produced in the organized sector and 80% in the unorganized sector. Even organized factories tend to outsource production to individual homes.

Because the bidi industry is fragmented there are no specific figures on how many bidis are sold or produced. It is estimated that 750 billion to 1.2 trillion sticks are produced annually. According to Euromonitor International, the bidi industry in India is worth Rs200 billion ($4.1 billion USD). Bidis are much cheaper than cigarettes and smokeless tobacco products due mainly to unequal levels of taxation on the different products. Bidis cost between Rs2.50-5.00 for 25 sticks (less than one Rs per stick)9 whereas the leading brand of gukta costs Rs3-4 per unit.10 The leading brand of cigarettes costs Rs 80-88 for 20 sticks (Rs44.4 per stick). In 2009, Euromonitor reported that bidi volume sales were down 5% from the previous year because of a ban on smoking in public places.

Despite being fragmented, the bidi industry still has a powerful voice in Indian politics which keeps taxes on bidi products low and regulations lax. The major lobbying organization for bidis is the All India Bidi Federation which represents the entire bidi industry. Other organizations that lobby nationally and regionally for the bidi industry include: All India Beedi, Cigar & Tobacco Workers Federation (New Delhi) Karnataka State Beedi Workers Federation S.K.Beedi Workers Federation Karnataka Beedi Industry Association Mumbai Beedi Workers Union (Maharashtra) All Bengali Beedi Workers and Employees Federation (Calcutta)

According to Euromonitor International, no single bidi company or brand has more than a 5% market claim. Large bidi producers have their own territory (state or district) where they dominate the market with little competition from other bidi companies. There are a few regional players that sell their bidi brands in more than one state or district, including Ganesh Beedi Works, Kajah Beedi Co and Bharat Bidi Works. There is no national bidi brand and at one time it was estimated that there were over 300 different brands across India.4 Some notable brands include: While bidi production is concentrated in the west and south of India,9 it has also been estimated that each state has around 200 bidi manufactures.

3. The Cigarette Industry

Cigarette consumption makes up a small portion of the tobacco market in India, only 14% of tobacco products sold are cigarettes.4 Retail volume sales have decreased by 9% in the last ten years from 99.6 billion sticks in 1999 to 90.3 billion sticks in 2009.11 Recent declines in cigarette volumes are mainly due to a 2008 increase in the tax on unfiltered cigarettes. The tax increase has also led to many unfiltered brands being removed from the market.30-31 ITC Ltd stopped unfiltered cigarette production entirely and some companies have launched filter versions of their most popular unfiltered brands to maintain their customers.

1999 99.6

2000 98.7

2001 89.3

2002 91.9

2003 94.5

2004 96.5

2005 100

2006

2007

2008 91.2

2009 90.3

101.1 99.8

Historic India Cigarette Market Size- Retail Volume (billion sticks)

Despite recent declines in sales, it is expected that cigarette use will increase overtime as disposable incomes increase in India. Euromonitor International predicted in 2008 that if the smokers who currently smoke bidis switched to factory made cigarettes, then Indias cigarette consumption would increase to around 640 billion sticks. This increase would make India the second largest volume cigarette consumer in the world behind China.

The cigarette market in India is controlled by four locally established companies, but most companies also have close ties to international tobacco companies. The leading transnational tobacco companies (TTC) have recently attempted to increase their shares of the Indian cigarette market but have had little success. The ability of TTCs to increase their presence in India has in part been limited because of restrictions on foreign direct investment (FDI) in cigarette manufacturing.

ITC Group- ITC was established in 1910 under the name Imperial Tobacco Company of India. The company changed its name to ITC in 2001 to reflect its diverse interest in products outside of tobacco.36 ITC is the leading cigarette manufacturer in India with 73% of the market in 2009. Since 2001, ITC has steadily increased its market share in India and has increased cigarette production by 15% from 57.1 billion sticks in 2001 to 65.8 billion sticks in 2009.11 Reportedly, the Indian government has a stake in ITC. While ITC claims that the state does not have any direct shares, the company does report that a large number of ITC shares are held by financial institutions which are majority state owned such as the Life Assurance Corporation of India and Unit Trust of India. The TTC British American Tobacco (BAT) has also has a 32% share. ITC generated RS 262.6 billion ($US 28.9 million) in revenue in 2009 through its interest in cigarettes, hotels, cosmetics and toiletries, packaged food, apparel, paperboards and packaging, and agriculture. ITCs cigarette industry contributed to 66% of the companys total revenue for the fiscal year ending March 2010. ITC has five cigarette factories in Bangalore, Kolkata, Munger, Ranjangaon, and Saharanpur. In addition to its operations in India, ITC also has cigarette subsidiary Surya Nepal, which is a joint venture with British American Tobacco. Website: http://www.itcportal.com/default.aspx

Godfrey Phillips India- Established in India in 1936 as an import company for Godfrey Phillips, UK. The company has since established itself as a major local manufacture of cigarettes in India.

Godfrey Phillips is the second largest cigarette company in India with 14% of the market. Since 2001, the company has seen continuous growth in market share and has increased its cigarette production by 43% from 8.7 billion sticks in 2001 to 12.5 billion sticks in 2009.

Godfrey Phillips India has two major stake holders - the KK Modi Group, an industrial conglomerate based in Mumbai, and the international tobacco company Philip Morris International (PMI) which together hold a total of 71% of the company. In May 2009, KK Modi acquired an additional 10.8% stake in Godfrey Phillips from PMI, bringing its total share to 47% and PMIs to 25%.

Godfrey Phillips India has a leaf division that provided tobacco leaf for production incountry and for export. The company also sells tea. The cigarette segment accounted for 92% of Godfrey Phillips India revenue for the financial year ending March 2010. Godfrey Phillips is headquartered in New Delhi and has factories in Ghaziabad (near Delhi) and Andheri (near Mumbai). Currently, a new factory is being built in Rabale.

The company has a strong presence in North and West India, and in an attempt to increase the companys reach in India, Godfrey Phillips is aggressively expanding distribution into the states of Tamil Nadu and Orissa. Website: http://www.godfreyphillips.com/

4. Corporate Social Responsibility (CSR)

Tobacco companies maintain CSR programs in an effort to counter negative attention regarding their deadly business. This practice is particularly prevalent in India. By donating funds to noble causes, the perception of cigarette companies by the public and policy makers improves. The true goals of industry-sponsored programs have been revealed through internal tobacco industry memos released to the public by U.S. legal settlements. CSR programs: Serve the industrys political interests by preventing effective tobacco control legislation. Marginalize public health advocates. Preserve the industrys access to youth. Create allies and preserve influence among policymaking and regulatory bodies. Defuse opposition from parents and educators. Bolster industry credibility.

In India, cigarette companies integrate themselves into local communities that they operate in through CSR activities. They also work nationally to create goodwill with the public and policy makers in an attempt to protect their profits. Since 1990 Godfrey Phillips India has sponsored the Bravery Awards (first under the brand name Red and White and now under the company name). The Bravery Awards annually honors citizens that perform physical and social acts of bravery. Indian film actress Preity Zinta acted as an ambassador of the awards from 2006-08. The awards have also launched blood drives and the Amodini-Women's Empowerment initiative. In 2000, the ITC launched e-Choupal, an IT training program for Indian framers. The program claims to reach over 4 million farming families, connecting them to a digital infrastructure that enables them to link to a more formal market. ITC also supports primary education, women empowerment and environmental initiatives.

Smokeless tobacco companies are also known to use CSR tactics in the communities that they operate in. The DS Group, which includes Dharampal Satyapal, contributes to a wide range of social issues in Assam and Tripura. Activities include the renovation of Pallimangal

H.S. School and contributions to economic development projects of ethnic and tribal groups in North Eastern States. The tobacco industry in India is complex and powerful. Knowing where and how the industry operates is essential to creating and advocating for strong tobacco control policies. Unless strong tobacco control regulations are put in place and enforced in India, the tobacco industry will continue to expand and profit from addicting consumers to its deadly products.

ITC LIMITED

ITC Limited (BSE: 500875) or ITC is an Indian public conglomerate company (25.4% owned by British corporation, British American Tobacco) headquartered in Kolkata, West Bengal, India.[2] Its diversified business includes four segments: Fast Moving Consumer Goods (FMCG), Hotels, Paperboards, Paper & Packaging and Agri Business. ITC's annual turnover stood at $7 billion and market capitalization of over $34 billion. The company has its registered office in Kolkata. It started off as the Imperial Tobacco Company, and shares ancestry with Imperial Tobacco of the United Kingdom, but it is now fully independent, and was rechristened to India Tobacco Company in 1970 and then to I.T.C. Limited in 1974. The company is currently headed by Yogesh Chander Deveshwar. It employs over 29,000 people at more than 60 locations across India and is listed on Forbes 2000. ITC Limited completed 100 years on 24 August 2010. ITC has a diversified presence in FMCG (Fast Moving Consumer Goods), Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology. While ITC is an outstanding market leader in its traditional businesses of Hotels, Paperboards, Packaging, Agri-Exports and Cigarettes, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. Meera Shankar joined the board of ITC Ltd as the first women director in its history. She is an additional non-executive director of the cigarettes-FMCG-hotel major.

HISTORY
ITC was formed on August 24, 1910 under the name Imperial Tobacco Company of India Limited. Later the name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. ITC contains a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care . Finally the company changed its name to 'ITC Limited on September 2001. The earlier decades of the Company's existence were mainly depending on growth and consolidation of the Cigarettes and Leaf Tobacco businesses, In the Seventies it started to

transform into a corporate. In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. The objective of ITC's entry into the hotels business was rooted in the concept of creating value for the nation In 1979, ITC entered the Paperboard business by promoting ITC Bhadrachalam Paperboards Limited, which today has become the market leader in India. In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint venture. Since inception, its shares have been held by ITC, British American Tobacco and various independent shareholders in Nepal. In August 2002, Surya Tobacco became a subsidiary of ITC Limited and its name was changed to Surya Nepal Private Limited (Surya Nepal). Also in 1990, leveraging its tends to 10 states covering over 4 million farmers. ITC's first rural mall, christened 'Choupal Saagar' was inaugurated in August 2004 at Sehore. On the rural retail front, 24 'Choupal Saagars' are now operational in the 3 states of Madhya Pradesh, Maharashtra and Uttar Pradesh. In 2000, ITC forayed into the Greeting, Gifting and Stationery products business with the launch of Expressions range of greeting cards. A line of premium range of notebooks under brand Paperkraft was launched in 2002. To augment its offering and to reach a wider student population, the popular range of notebooks was launched under brand Classmate in 2003. Classmate over the years has grown to become Indias largest notebook brand and has also increased its portfolio to occupy a greater share of the school bag. Years 2007- 2009 saw the launch of Children Books, Slam Books, Geometry Boxes, Pens and Pencils under the Classmate brand. In 2008, ITC repositioned the business as the Education and Stationery Products Business and launched India's first environment friendly premium business paper under the Paperkraft Brand. Paperkraft offers a diverse portfolio in the premium executive stationery and office consumables segment. Paperkraft entered new categories in the office consumable segment with the launch of Textliners, Permanent Ink Markers and White Board Markers in 2009. ITC also entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills Clublife evening wear (2003). In 2000, ITC spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging opportunities in this area.

Today ITC Infotech is one of Indias fastest growing global IT and IT-enabled services companies and has established itself as a key player in offshore outsourcing, providing outsourced IT solutions and services to leading global customers across key focus verticals Manufacturing, BFSI (Banking, Financial Services & Insurance), CPG&R (Consumer Packaged Goods & Retail), THT (Travel, Hospitality and Transportation) and Media & Entertainment. ITC's foray into the Foods business is an outstanding example of successfully blending multiple internal competencies to create a new driver of business growth. It began in August 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet dishes. In 2002, ITC entered the confectionery and staples segments with the launch of the brands mint-o and Candyman confectionery and Aashirvaad atta (wheat flour). 2003 witnessed the introduction of Sunfeast as the Company entered the biscuits segment. ITC's entered the fast growing branded snacks category with Bingo! in 2007. In just over a decade, the Foods business has grown to a significant size with over 200 differentiated products under six distinctive brands, with an enviable distribution reach, a rapidly growing market share and a solid market standing. In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the entire value chain found yet another expression in the Safety Matches initiative. ITC now markets popular safety matches brands like iKno, Mangaldeep, Aim, Aim Mega and Aim Metro. ITC's foray into the marketing of Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the cottage sector. ITC's popular agarbattis brands include Spriha and Mangaldeep across a range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa. ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body care products for men and women in July 2005. Continuing with its tradition of bringing world class products to Indian consumers the Company launched 'Fiama Di Wills', a premium range of Shampoos, Shower Gels and Soaps in September, October and December 2007 respectively. The Company also launched the 'Superia' range of Soaps and Shampoos in the mass-market segment at select markets in October 2007 and Vivel De Wills & Vivel range of soaps in February and Vivel range of shampoos in June 2008.

List of Products & Brands

In FMCG, ITC has a strong presence in :

Cigarettes: W.D. & H.O. Wills, Gold Flake Kings, Gold Flake Premium,Gold Flake Super Star, Navy Cut, Insignia, India Kings, Classic (Verve, Menthol, Menthol Rush, Regular,Citric Twist, Mild & Ultra Mild), 555, Benson & Hedges, Silk

Cut, Scissors, Capstan, Berkeley, Bristol, Lucky Strike, Players and Flake.

Foods:

(Kitchens Pasta brands

of in

India; Aashirvaad,Minto,Sunfeast,Candyman,Bingo,Yippee, Sunfeast

Ready to Eat, Staples, Biscuits, Confectionery, Noodles and Snack Foods);

Apparel: (Wills Lifestyle and John Players brands); Personal care: (Fiama di Wills; Vivel; Essenza di Wills; Superia; Vivel di Wills brands of products in perfumes, haircare and skincare).

Stationery: (Classmate and PaperKraft brands) Safety Matches and Agarbattis: [Ship (through ownership

of WIMCO); iKno; Mangaldeep; Aim brands]

Other businesses include:

Hotels: ITC's hotels (under brands including WelcomHotel) have evolved into being India's second largest hotel chain with over 80 hotels throughout the country. ITC is also the exclusive franchisee in India of two brands owned by Sheraton International Inc.- The Luxury Collection and Sheraton which ITC uses in association with its own brands in the luxury 5 star segment. Brands in the hospitality sector owned and operated by its subsidiaries include Fortune and WelcomeHeritage brands.

Paperboard, Specialty Paper, Graphic and other Paper; Packaging and Printing for diverse international and Indian clientele. Infotech (through its fully owned subsidiary ITC Infotech India Limited which is a SEI CMM Level 5 company)

Rural Initiatives
ITC's Agri-Business is India's second largest exporter of agricultural products. ITC is one of the India's biggest foreign exchange earners (US $ 2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. The company places computers with Internet access in rural farming villages; the e-Choupals serve as both a social gathering place for exchange of information (choupal means gathering place in Hindi) and an e-commerce hub. What began as an effort to re-engineer the procurement process for soy, tobacco, wheat, shrimp, and other cropping systems in rural India has also created a highly profitable distribution and product design channel for the companyan e-commerce platform that is also a low-cost fulfillment system focused on the needs of rural India. The e-Choupal system has also catalyzed rural transformation that is helping to alleviate rural isolation, create more transparency for farmers, and improve their productivity and incomes.

Corporate Philanthropy
ITC e-choupal creatively leverages information technology to set up a meta-market in favour of India's small and poor farmers, who would otherwise continue to operate and transact in 'un-evolved' markets. As of July 2010, services through 6500 Echoupal across 10 states, reach more than 4 million farmers in about 40,000 villages. Free access to Internet is also opening windows of rural India to the world at large. ITC e-choupal is now being regarded as a reliable delivery mechanism for resource development initiatives. Its potential is being tested through pilot projects in healthcare, educational services,water management and cattle health management with the help of several service providers including non-governmental organizations. Classmate notebooks were launched with the initiative of contributing 1 rupee towards the education of poor children,from every four notebooks it sold.

Classmate, has launched a programme called Classmate Ideas for India challenge. The programme would be a part of the company's centenary initiative.[6] The nation-wide programme would invite ideas of the youth, who have the potential to transform India. Classmate Ideas for India challenge plans to reach out to 25 lakh students across 30 cities, 500 schools and 200 colleges across the country.

Forbes ranking
ITC features on the Forbes Global 2000 rankings for 2007 at position 1256. ITC is the only Indian FMCG company that features on the Forbes Global 2000 rankings for 2009 at position 987. ITC also featured on the Forbes World's Most reputable Companies List at position 95.

Management ITC
Name Yogesh Chander Deveshwar Pradeep Vasant Dhobale Anil Baijal Angara Venkata Girija Kumar Sunil Behari Mathur Hugo Geoffrey Powell Anthony Ruys Krishnamoorthy Vaidyanath S S H Rehman Designation Chairman Executive Director Non -Executive Director Non- Executive Director Non- Executive Director Non -Executive Director Non -Executive Director Non- Executive Director Addnl. & Non Exe-Director

ITC Ltd Address:

Virginia House, 37, Jawaharlal Nehru Road, Kolkatta, West Bengal 700071 Tel: 033-22889371 033-22886426 Fax: 033-22882358 Email: isc@itc.in Website: http://www.itcportal.com