ITC Group
ITC Group - Tobacco - India-Company Analysis Report
Strategic Direction
·
ITC is one of India’s foremost
private sector companies, and the largest cigarette company. Although it has a
wide product range, cigarettes is the biggest segment (65% of total sales).
Other products include hotels, paperboards and speciality papers, packaging,
agri-business, packaged food and confectionery, information technology, branded
apparel, personal care, greetings cards, safety matches and other FMCG.
·
Its diversified status
originates from its corporate strategy aimed at creating multiple drivers of
growth, anchored on its time-tested core competencies: unmatched distribution
reach, superior brand-building capabilities, effective supply chain management
and acknowledged service skills in hoteliering. Over time, its strategic forays
into new business are expected to garner a significant share of these emerging
high-growth markets in India.
·
The company’s core strategy is
to continuously endeavour to enhance its wealth-generating capabilities in a
globalising environment to consistently reward shareholders, fulfil the
aspirations of its stakeholders and meet the expectations of society.
·
In cigarettes its strategy is
to retain leadership in all segments and grow the mid and low tar segments, in
view of rising incomes and growing awareness of the health dangers of high tar
cigarettes.
·
ITC undertakes innovative
marketing activities and creates excitement around its current brands in order
to retain its leading position, particularly in view of the strong regulatory
environment which restricts around advertising and promotion.
·
ITC plans to aggressively focus
on distribution as a strategy for growth. The company already has one of the
widest and deepest retail reaches (over two million retailers), and is
constantly working to upgrade that further.
·
It also plans to harness its
high technology for providing less harmful cigarettes to consumers and strive
to provide products in line with emerging consumer needs.
·
ITC wants to leverage its
leadership position and be a spokesperson for the cigarette industry and
negotiate with the government to reduce the imbalanced tax burden and other
difficulties for the cigarette industry.
Key Facts
|
Full name
of company:
|
ITC Group
|
|
Address:
|
Virginia
House, 37, Jawahar Lal Nehru Road, Kolkata – 700071, West Bengal, India
|
|
Tel:
|
+91 33 2288
9371
|
|
Fax:
|
+91 33 2288
2953
|
|
www:
|
www.itcportal.com
|
|
Activities:
|
Cigarettes
and other tobacco products. Hotels, paperboards and speciality papers,
packaging, agri-business, packaged food and confectionery, branded apparel,
greetings cards and other FMCG
|
Source: Euromonitor International from
company research
|
|
2005
|
2006
|
2007
|
|
Net sales
|
Rs78.7
billion
|
Rs100.7
billion
|
Rs128.3
billion
|
|
Net profit
|
Rs21.9
billion
|
Rs22.4
billion
|
n/a
|
|
Number of
employees
|
n/a
|
More than
20,000
|
More than
20,000
|
Source: Company research
Company Background
·
ITC is one of India’s foremost
private sector companies with a market capitalisation of nearly US$18 billion
and a turnover of over US$4.75 billion. It is a top rated company and ranked
amongst the “World’s Most Reputable Companies” by Forbes magazine.
·
Within India, cigarettes are
synonymous with ITC, and the company held the lion’s share of the category in
2007 of 62%. It is considered amongst “India’s Most Respected Companies” by
Business World and amongst “India’s Most Valuable Companies” by Business Today.
Four of the top five cigarettes brands in 2007 were ITC brands, and it was in
the list of India’s top 10 “Most Valuable (Company) Brands”, in a study
conducted by Brand Finance and published by the Economic Times.
·
ITC Group has a diversified
portfolio, with a presence in cigarettes, hotels, paperboards and speciality
papers, packaging, agri-business, packaged food and confectionery, information
technology, branded apparel, personal care, greetings cards, safety matches and
other FMCG.
·
ITC was incorporated on 24
August 1910 under the name of Imperial Tobacco Company of India Ltd. The
company was rechristened ITC Ltd on 18 September 2001. It started the Packaging
and Printing Business Division as part of its backward integration strategy for
the tobacco business, but today this stands as one of the most successful
packaging houses.
·
In 1985 ITC started its first
overseas venture in Nepal, Surya Tobacco Company, as an Indo-Nepal and British
joint venture. In August 2002, Surya Tobacco Company became a subsidiary of ITC
Group and its name was changed to Surya Nepal Private Limited (Surya Nepal).
·
In 2000 it went into apparel
retailing under the brand name “Wills Lifestyle”, retailing formal as well as
casual wear for both men and women.
·
ITC employs over 21,000 people
at more than 60 locations across India.
·
British American Tobacco holds
a 31.7% stake in ITC Group.
Production by Factory
·
ITC has four main factories,
one each at Bangalore, Munger, Saharanpur and Kolkata. All the facilities offer
cutting edge technology, and there is a high emphasis on quality of production,
quality control and efficiency. In recognition of very high standards of
production, these facilities have received several domestic awards as well as
the five star Health and Safety Rating from the British Safety Council for all
its cigarette factories. This rating greatly helps in export markets, and is
recognition of globally competitive standards.
|
Product
|
2005
|
2006
|
2007
|
|
Cigarettes
|
69.9
billion
|
75.8
billion
|
77.0
billion
|
Competitive Positioning
·
ITC was the leader in cigarettes
in 2007 with the lion’s share of 62%. Four of the top five brands in cigarettes
were from ITC in the same year. It has a very wide portfolio, with brands in
all tar and price segments. Although it is the leader in cigarettes, it is
absent in the cigars category and beedies.
·
Although present in the
mid-priced and economy range, it is perceived as a high quality player, and
associated with safer cigarettes, unlike competitors such as Godfrey Phillips
India Ltd, GTC Industries Ltd and VST Industries Ltd, which are perceived
mainly as mid to low price players.
·
In the high tar cigarette
segment, which is the dominant category in India, it leads, and some of its top
brands in this segment are Gold Flake, Wills, Capstan and Bristol. In the mid
tar segment, again it leads, with Wills Classic Milds, Gold Flake Light and
Benson & Hedges Lights. In the low tar segment its strong brands are
Rothmans Special Milds, Silk Cut Lights and Classic Ultra Mild. Here it
competes mainly with Marlboro Lights (Philip Morris India Ltd) and a large
number of contraband brands such as Rothmans, Dunhill and Marlboro.
·
ITC’s cigarette business
appeared resilient to near-term uncertainties (VAT), having passed through the
acid test of the highest ever price increase in cigarettes (close to 20%), with
the sales drop lower than expected (nine month estimates for FY08 show a 1.5%
drop, as against the broader market which expected a drop of 5-10%). The
company’s focus on providing quality products which are ‘safer’ (better tar and
nicotine than its competitors) has enabled a loyal customer base.
·
It maintained its pace of
growth by enhancing the product mix in favour of high value brands. Strong
growth in disposable income provides the enabling environment for improving the
product mix.
·
In cigarettes, the focus
continued to be on delivering superior value to consumers through the
introduction of modern format packaging in all segments, and design enhancement
of leading brands based on the latest technology. On the manufacturing front,
investments were being channelled towards the enhancement of quality, variety
and productivity.
·
In line with the company’s
strategy of continuous and consistent offering of value added world class
products to the Indian consumer, a unique IT-enabled ‘Six Sigma’-based product
development process was implemented during the year. This strategic
intervention enabled the launch of several key initiatives across the brand
portfolio in terms of pack modernisation, limited edition offerings in
different flavours and the introduction of ‘Silk Cut’ in King Size and Regular
Filter.
·
It also launched Classic
Riviera Whiff, positioned as a premium and less harmful cigarette.
·
ITC, to keep look-alikes of its
brands off the market, redesigned some of its packs under the Gold Flake brand.
·
It launched limited edition
packs in the Classic range (music theme with jazz and blues available ) to
reflect the refined tastes of its audience. Such initiatives brought excitement
and reinforced image and brand loyalty in a market which is strictly regulated
to discourage advertising and promotion. Such measures are commendable and help
the company to maintain its edge.
·
One of the strongest
competitive edges which ITC has is its spectacular distribution network of
about two million retailers, whom it services at an average frequency of three
days, and reaches villages with populations as low as 2,000. Most such villages
in India are not connected by motorable roads. In comparison, most other large
cigarette companies such as GPI, GTC and VST reach only about 0.8-0.9 million
retailers.
·
It is one of the companies
which faces pressure from contraband cigarettes, as it has many premium brands
such as Insignia and India Kings which face unfair competition from smuggled
brands such as Rothmans and Marlboro, which often retail at a 15%-20% discount
to the legitimate brands. However, due to good quality, these brands have been
able to build a loyal customer base and continue to give contraband a tough
fight. However, in years such as 2007, when high tax led to steep price rises
of about 20%, these brands faced severe pressure from contraband.
|
Product
type
|
Share
|
Rank
|
|
Cigarettes
|
62.2%
|
1
|
|
High tar
cigarettes
|
61.9%
|
1
|
|
Mid tar
cigarettes
|
99%
|
1
|
|
Low tar
cigarettes
|
87.7%
|
1
|
Source: Euromonitor International
