itc limited

ITC
Company Profile
Introduction

The company for this assignment is ITC, which is one of the most reputed brands in the Indian
subcontinent.The company was set up in 1910 and was called the Imperial Tobacco Company in its
early years. It witnessed several identity shifts over the years and has been known as ITC Limited
since 2001. The company completed 100 years in 2010. About 80% cigarettes sold in India are
manufactured by ITC.

ITC also features as one of world's largest sustainable value creator in the consumer goods industry
in a study by the Boston Consulting Group. ITC has been listed among India's Most Valuable
Companies by Business Today magazine. The Company is among India's '10 Most Valuable
(Company) Brands', according to a study conducted by Brand Finance and published by the
Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business
Weeki

Over the years, ITC diversified into multiple businesses spanning branded fast moving consumer
goods (FMCG), paperboards and packaging, agribusiness, hotels and information technology. In
2014-15, ITC had revenues of 5.8 billion (excluding excise duties collected), profit before tax of $2.2
billion and profit after tax of $1.5 billion. (See the financial statements in Exhibit 1 at the back of this
case study.) Its revenue grew by 9.7% over the previous year. Growth was fuelled by an 11.3% rise in
non-cigarette FMCG products, 8.1% in agricultural business and 8.7% in cigarettes.

Cigarettes contributed significantly to ITC’s profits, though they faced tremendous competition from
crude tobacco substitutes manufactured by India’s informal sector, whose products do not attract
taxes as high as those levied on cigarettes, and also from products made by firms that evaded taxes.ii

ITC saw great promise in its non-cigarette, branded FMCG products. Its diversified business includes
five segments: Fast-Moving Consumer Goods (FMCG), Hotels, Paperboards & Packaging, Agri
Business & Information Technology.

Competative Landscape

Although cigarettes has been the core competency of ITC and it still holds a market share than the
distant second, the Philip Morris (Marlboro). Its consumption has been hit by the nationwide
awareness campaigns against cancer and thus prices went up by 8-9% with the government
increasing taxes on cigarettes for the fifth successive year. is lower than 13% hike in FY16 and 21%
hike in FY15, shows the clear motive of the government to increase the taxes so as to aim at
decrease in the cigarette consumption by 10 % in 2016iii. The tax collected will be used towards the
health infrastructure development to reduce the deaths caused by tobacco consumption in India.

Generally the cigarette sector in India has been in a decline phase as discussed above, directed by
the stricter laws end a higher taxation imposed by the Indian Government to deaths by cancer. The
production of cigarettes had reached the S-Curve with the rising prices of cigarettes and the
reduction in the population of smokers due to the number of campaigns by the Government on the
public health.

As cigarette smoking is an addictive habit, ITC launched a less harmful cigarettesiv, E-Cigarettes in
India by its ITC EON range of cigarettes, which have been a hit with the youth who wish to move
over their cigarette smoking habits. The E cigarette market as an industry is in an emergent phase in
India with many people switching to E cigarettes. As shown in Exhibit 1

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 Internationalisation Strategy

ITC has resorted to the Internationalisation In the extremely competitive US market, ITC offers high-
quality, value-priced cigarettes and Roll-your-own solutions. In West Asia, ITC has become a key
player in the GCC markets through its export operations. India is exporting tobacco in more than 80
nations, over all continents.

At present the industry is providing livelihood to more that 25 million people in India. Out of the
total tobacco items exported from India, unmanufactured tobacco shares around 80 percent to 85
percent of the export while the manufactured tobacco products hold around nearly 20 percent to 25
percent. In the unmanufactured tobacco exports, Flue Cured Virginia tobacco accounts to the single
largest item with nearly 75 percent to 80 percent export. The other exported varieties are- Burley,
HDBRG, Natu, DWFC, Top leaf and Jutty. All these are used for making cigarettes. Non cigarette
tobacco exported worldwide are Lalchopadia, Judi, Rustica. These are used for chewing and making
bidis. Around 8 percent to 10 percent non- cigarette tobacco is exported in throughout the world.
Contrary to international trends, non cigarette tobaccos are the dominated item in the nation’s
export. The current situation in the international tobacco market is proved to emerge out as the
favorable market for the indian tobacco export. The prices of brazilian export have almost equalized
the most expensive american tobacco cost. Zimbabwean farm prices have also seen an upward
trend. There are several advantages which can be put forth for favoring the indian tobacco. Like low
unit production cost, average export prices of indian tobacco FCV, which are found more
competitive than that of the prices of Brazil, USA, Zimbabwe.v

As ITC has enjoyed monopolistic rents in India, due to the lower production cost with good quality of
production, ITC has taken an Internationalisation strategy, engaging in direct exports to the various
companies which are supported by the local partners in the various companies for distribution. Due
to its lower cost and higher quality it has been a major competitor even in the world market.

Diversification Strategy

ITC has been largely associated with unrelated diversification, with holding luxurious Hotels in India,
some of the world’s top restaurants rated in the world top list of restaurants like The Bukhara and
the Dum Pukht in running in its hotels. It also has also taken the Wills brand name and extended it as
a lifestyle brand, which targets the premium segment in apparels. It also has created a number of
brands like Fiama di vills in personal care, Bingo and Sunfeast in confectionaries among a huge
portfolio. ITC is a huge Indian conglomerate.

Its related diversification strategy has been in the E Cigarettes where ITC is using its distribution
network to reach out to the masses.

Another approach on the diversification can be:

Horizontal diversification: It extended its lineup from the Wills brand to India Kings, Insignia as its
holding of its licences in 555, Lucky Strike and Benson and Hedges among other brands. It also owns
the E cigarette brand EON, which is both a horizontal and related diversification

Vertical Diversification: It owns a very good E choupal system which is aimed at the use of the
Internet to reach to the farmers in rural areas, giving them a fair price for their crop share, as the
Information asymmetry has led to the farmers being cheated for their crops being bought at a lower
price. It uses a hub and spoke model, with the ITC representative visiting farmers in small villages,

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 inspecting a quality for their produce, and assuring the nationwide price per unit which is updated
daily. So the farmer an reach out to the ‘hub’ warehouse which is centrally located for many such
villages, and sell at the price updated. This type of Vertical Diversification to reach out the
stakeholders has been appreciated as it pays them a fair price and and quality of supplies is bought,
eliminating the middlemen. Another type of diversification has been in the form of the various ITC
speciality stores owned by the ITC in retail like the Wills lifestyle stores to sell its brand produced
directly in its stores.

Stakeholder Analysis

ITC has many stakeholders with the major ones as Customer and Farmers and also has many CSR
initiatives taken up. It is very well connected to its stakeholders and is a successful to reaching its
stakeholders. As shown in Exhibit 2

Synthesis of Findings

ITC is a very successful company investing in towards rural infrastructure development, and reaches
its stakeholders very well. Its positioning of its various companies has been shown in Exhibit 2.

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 Exhibit 1

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 Exhibit 2

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 Exhibit 3

Products and Quality: ITC is a century old company and its eputation of being the
finest and the best quality producer in India, makes the customers trust even its
Customer newer brands

Hub and Spoke model: The model of acquiring good quality of raw materials at a
Suppliers fair price is a move towards reducing the disparity that exists among the farmers

Primary ITC is an employee friendly company, which pays its employees well to keep the
stakeholders Employees Internal customer satisfaction high, it also has a very well structured pay structure .
It has a very good responsibility structure for the community as it reaches out the
farmersthrough its hub ans spoke model. At the Hub exists the mini mall where the
farmers can buy their equipment and the needed raw materials apart from meeting
Community with the other farmers.

As ITC is a listed company in the Bombay Stock Exchange, it keeps releasing its
figures regularly and keeps its financers updated. Its revenues has been aroung $8
Financers bn USD for the FY 2015-2016 and a market capitalisation around $22 bn USD

ITC is following the rules applicable of 80% pictoral description against cancer on its
packets sold in India. It also follows the strict regulations and high taxes imposed on
Government its tobacco products
Secondary ITC is a very reputed company, acquiring gods at fair prices, Its stationery lineup
Stakeholders Classmate uses eco friendly paper, reducing the wood pulp required to
manufacture. It also donated a part of the stationary items charged towards rural
educational infrastructure development. Its hotels focus on energy consumption
Advocate Groups optimisation.

i
http://www.itcportal.com/about-itc/profile/index.aspx
ii
ITC case study by Dr. Sunil Vachani, Indian Institute of Management
Bangalore
iii
http://economictimes.indiatimes.com/industry/cons-
products/tobacco/budget-2016-excise-duty-on-tobacco-products-up-by-10-15-
cigarettes-set-to-cost-more/articleshow/51189987.cms
iv
http://www.planeteon.in/
v
http://www.indianindustry.com/trade-information/indias-tobacco-
export.html

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