PDCS MINOR PROJECT

A Study On Critical Success Factors Of ITC Ltd.

SUBMITTED IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT OF BACHELOR

OF BUSINESS ADMINISTRATION

(BBA)

Submitted to: - Submitted by:-

Ms Anshika Goel Aakash Bhargava

Assistant professor Roll no.06914101710

BBA III (M)(A)

SESSION : 2011 – 2012

JAGANNATH INTERNATIONAL MANAGEMENT SCHOOL

KALKAJI, NEW DELHI

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Acknowledgment

A lot of effort has gone into this training report. My thanks are due to many

people with whom I have been closely associated. .

I would like all those who have contributed in completing this project. First of all, I

would like to send my sincere thanks to Ms. Anshika Goel for her helpful hand in

the completion of my project.

I would like to thank my entire beloved family & friends for providing me monetary

as well as non – monetary support, as and when required, without which this

project would not have completed on time. Their trust and patience is now

coming out in form of this thesis.

Mr. Aakash Bhargava

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Executive Summary

In ITC’s branded packaged foods business, the company has created a new

epicenter of rapid growth by blending its time tested key competencies and

organizational strengths.ITC’s portfolio, currently consisting of 45 value added

products, appeals to changing consumer preferences in virtually all categories –

staple, confectionery, snack foods and biscuits, and ready to eat meals.

The company is engaged in scaling up the supply chain through distributed and

outsourced manufacturing capacity to service market requirement in the cost

effective manner. Significant investment in brand building activities is also

envisaged in the light of heighten competition. Despite sluggish performance and

pressure on margins in recent times the micro trends in FMCG sector shows

compelling opportunities. Per capita consumption and penetration lines of most

FMCG categories in India are relatively low as compared to other south Asian

countries. Branded atta consumption in India is only 5%. Disposable incomes are

projected to grow rapidly and drive up the demand for consumer and FMCG

Goods.

Gross turnover of the company for the year 2004-05 grew by 13% to Rs. 13350.

Pretax Profit increased by 15.3%. The financial for the year include Rs. 692

crores representing net income from exceptional items. ITC has planned to invest

around Rs.3500 crores in the Atta, confectionery businesses and greeting cards

over the next five years with its prime focus on the food business.

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CERTIFICATE OF COMPLETION

This is to certify that AAKASH BHARGAVA student of JAGANNATH

INTERNATIONAL MANAGEMENT SCHOOL, KALKAJI OF BBA OF THIRD

SEMESTER has completed this Project and prepared this report on “A STUDY

ON CRITICAL SUCEES FACTORS OF ITC LTD.” under my guidance. The

matter embodied in this project work has not been submitted earlier for the award

of any degree or diploma to the best of my knowledge and belief.

Ms. ANSHIKA GOEL

Assistant Professor

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TABLE OF CONTENTS

Description Page No.Acknowledgement 2Executive Summary 3Certificate Of Completion 4Introduction 6Company Background 7Culture 11ITC’s Core Values 12Research Methodology 46Findings & Analysis 48Critical Success Factors Of ITC 74Conclusion 80Bibliography 81

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INTRODUCTION

Over the years, ITC has evolved from a single product company to a multi-

business corporation. Its businesses are spread over a wide spectrum, ranging

from cigarettes and tobacco to hotels, packaging, paper and paperboards and

international commodities trading. Each of these businesses is vastly different

from the others in its type, the state of its evolution and the basic nature of its

activity, all of which influence the choice of the form of governance. The

challenge of governance for ITC therefore lies in fashioning a model that

addresses the uniqueness of each of its businesses and yet strengthens the

unity of purpose of the Company as a whole. Globalization will not only

significantly heighten business risks, but will also compel Indian companies to

adopt international norms of transparency and good governance. ITC's

governance policy recognizes the challenge of this new business reality in India.

ITC is one of India's biggest and best-known private sector companies. In fact it

is one of the World's most high profile consumer operations. This SWOT analysis

is about ITC. Its businesses and brands are focused almost entirely on the Indian

markets, and despite being most well-known for its tobacco brands such as Gold

Flake, the business is now diversifying into new FMCG (Fast Moving Consumer

Goods) brands in a number of market sector including cigarettes, hotels, paper,

agriculture, packaged foods and confectionary, branded apparel, personal care,

greetings cards, Information Technology, safety matches, incense sticks and

stationery.

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Company Background

ITC is one of India's foremost private sectors companies with a market

capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 billion.

ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the

World's Most Reputable Companies by Forbes magazine, among India's Most

Respected Companies by Business World and among India's Most Valuable

Companies by Business Today. ITC also ranks among India's top 10 `Most

Valuable (Company) Brands', in a study conducted by Brand Finance and

published by the Economic Times.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty

Papers, Packaging, Agri- Business, Packaged Foods & Confectionery,

Information Technology, Branded Apparel, Greeting Cards, Safety Matches and

other FMCG products. While ITC is an outstanding market leader in its traditional

businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is

rapidly gaining market share even in its nascent businesses of Packaged Foods

& Confectionery, Branded Apparel and Greeting Cards.

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As one of India's most valuable and respected corporations, ITC is widely

perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this

source of inspiration "a commitment beyond the market". In his own words: "ITC

believes that its aspiration to create enduring value for the nation provides the

motive force to sustain growing shareholder value. ITC practices this philosophy

by not only driving each of its businesses towards international competitiveness

but by also consciously contributing to enhancing the competitiveness of the

larger value chain of which it is a part." ITC's 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 hotelier. Over time, the strategic forays into new businesses are

expected to garner a significant share of these emerging high-growth markets in

India.

ITC's Agri-Business is one of India's largest exporters of agricultural products.

ITC is one of the country's biggest foreign exchange earners (US $ 2.8 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.

ITC's wholly owned Information Technology subsidiary, ITC InfoTech India

Limited, is aggressively pursuing emerging opportunities in providing end-to-end

IT solutions, including e-enabled services and business process outsourcing.

ITC's production facilities and hotels have won numerous national and

international awards for quality, productivity, safety and environment

management systems. ITC was the first company in India to voluntarily seek a

corporate governance rating.

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ITC employs over 21,000 people at more than 60 locations across India. The

Company continuously endeavours to enhance its wealth generating capabilities

in a globalizing environment to consistently reward more than 3, 95,000

shareholders, fulfill the aspirations of its stakeholders and meet societal

expectations. This over-arching vision of the company is expressively captured in

its corporate positioning statement:

ITC was established on August 24, 1910 as the Imperial Tobacco

Company of India Limited in Kolkata. Initially, the company was involved in

the trading of imported cigarettes.

In 1925, in a backward integration move, the company started a

packaging and printing business.

The name of the company was changed to India Tobacco Company

Limited (I.T.C. Ltd.) in 1974.

In 1975, I.T.C. Ltd., through ITC-Welcome group, tied up with the US-

based Sheraton Corporation to enter the hospitality industry. It acquired its

first hotel in Madras (later renamed Chennai) in Tamil Nadu and called it

the Welcome group Chola Sheraton.

I.T.C. Ltd established ITC Bhadrachalam Paperboards Ltd. (IBPL) in 1975.

The company started production at its integrated pulp and paper/board

manufacturing facility at Bhadrachalam, Andhra Pradesh, in 1979.

In 1990, I.T.C. Ltd. set up an International Business Division (IBD) for

export of agricommodities.

I.T.C. started a greeting cards business under the brand name

Expressions in the year 2000.

In the same year, I.T.C. also entered the fashion retailing business by

extending its well known cigarette brand Wills. The retail outlets were

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called Wills Lifestyle and offered premium leisure wear for men and

women under the Wills Sport brand.

In September 2001, the company was renamed ITC Ltd (without full stops,

and with no meaning attributed to the alphabets).

In 2001, ITC made an entry into the foods business.

In 2002, the company launched another clothing brand, John Players,

which targeted the urban youth.

In 2004, ITC was one of eight Indian companies to make it to the “Forbes

‘A’ List”8 which featured 400 of “the world’s best big companies”.

In Oct 2005, ITC has launched an exclusive line of prestige fine

fragrances and personal care products under the Essenza Di Wills brand.

In late 2007, ITC launched Fiama Di Wills soaps and shampoos following

the success of Essenza Di Wills.

In Dec 2007 ITC launches ECF (Elemental Chlorine Free). ITC is the first

and only Company in India using the ECF technology.

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PRODUCTS

CULTURE

ITC's Vision

Sustain ITC's position as one of India's most valuable corporations

through world-class performance.

Create growing value for the Indian economy and the Company's

stakeholders.

ITC's Mission

To enhance the wealth generating capability of the enterprise in a

globalizing environment

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Deliver superior and sustainable stakeholder value.

ITC's Core Values

ITC's Corporate Governance initiative is based on two core principles. These are:

Management must have the executive freedom to drive the enterprise forward

without undue restraints; and

i. This freedom of management should be exercised within a framework of

effective accountability.

ITC believes that any meaningful policy on Corporate Governance must

provide empowerment to the executive management of the Company, and

simultaneously create a mechanism of checks and balances which

ensures that the decision making powers vested in the executive

management is not only not misused, but is used with care and

responsibility to meet stakeholder aspirations and societal expectations.

Cornerstones

From the above definition and core principles of Corporate Governance emerge

the cornerstones of ITC's governance philosophy, namely trusteeship,

transparency, empowerment and accountability, control and ethical corporate

citizenship. ITC believes that the practice of each of these leads to the creation of

the right corporate culture in which the company is managed in a manner that

fulfils the purpose of Corporate Governance.

Trusteeship:

ITC believes that large corporations like itself have both a social and economic

purpose. They represent a coalition of interests, namely those of the

shareholders, other providers of capital, business associates and employees.

This belief therefore casts a responsibility of trusteeship on the Company's Board

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of Directors. They are to act as trustees to protect and enhance shareholder

value, as well as to ensure that the Company fulfils its obligations and

responsibilities to its other stakeholders. Inherent in the concept of trusteeship is

the responsibility to ensure equity, namely, that the rights of all shareholders,

large or small, are protected.

Transparency:

ITC believes that transparency means explaining Company's policies and actions

to those to whom it has responsibilities. Therefore transparency must lead to

maximum appropriate disclosures without jeopardising the Company's strategic

interests. Internally, transparency means openness in Company's relationship

with its employees, as well as the conduct of its business in a manner that will

bear scrutiny. We believe transparency enhances accountability.

Empowerment and Accountability:

Empowerment is an essential concomitant of ITC's first core principle of

governance that management must have the freedom to drive the enterprise

forward. ITC believes that empowerment is a process of actualising the potential

of its employees. Empowerment unleashes creativity and innovation throughout

the organisation by truly vesting decision-making powers at the most appropriate

levels in the organisational hierarchy.

ITC believes that the Board of Directors are accountable to the shareholders, and

the management is accountable to the Board of Directors. We believe that

empowerment, combined with accountability, provides an impetus to

performance and improves effectiveness, thereby enhancing shareholder value.

Control:

ITC believes that control is a necessary concomitant of its second core principle

of governance that the freedom of management should be exercised within a

framework of appropriate checks and balances. Control should prevent misuse of

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power, facilitate timely management response to change, and ensure that

business risks are pre-emptively and effectively managed.

ITC’s Philosophy

ITC believes in practicing ethical behaviour among the corporate citizen. The

company follows an HR policy that is regulated by Teamwork, Trust,

Collaboration, Mutuality, Meritocracy, Objectivity, Collaboration, Self-respect and

Human-dignity. It is also deeply committed to make the company a gender

friendly place for each individual while also ensuring enhancement of equal

opportunities for men and women, preventing sexual harassment of any form and

the adherence to good employment practices. It is ensured that the interest of the

company is foremost and in this context acceptance of any kind of gifts or

payments from suppliers or customers is viewed as a serious breach of company

discipline. And such acts are also considered as damaging to the reputation of

the company.

High standards of housekeeping and hygiene are followed to ensure excellent

physical working conditions. It is understood that all the directors, senior

management and employees shall conduct themselves in an honest manner and

avoid any conflict of interest.

The top officials and employees of ITC believe that ITC provides them freedom at

work and resources to experiment. Employees take pride in working for ITC for

its work culture, environment, and the way people are treated. They are

consulted before a new project\system is introduced and their concerns and

suggestions addressed. ITC also gives a lot of input to develop their skill and

career. They give utmost importance to equal opportunities, better work

environment.

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Structure

ITC has a three-tier management structure

At the top are Chairman and Board of Directors, who are responsible for the

strategic supervision of ITC, its wholly owned subsidiaries and their wholly owned

subsidiaries. The ITC board is a balanced board comprising Executive and Non-

Executive Directors. The Board ensures that the Company has clear goals

relating to shareholder value and its growth. It sets strategic goals and seeks

accountability for their fulfilment. There are four board committees, namely, the

Audit Committee, the Nominations Committee, the Compensation Committee

and the Investor Services Committee.

At the second level is the Corporate Management Committee, which is

responsible for the strategic management of the company's businesses within

Board-approved direction/framework. It comprises all the Executive Directors and

three or four key senior members of management.

Third level consists of divisional CEOs of each business assisted by their own

divisional management committees. Corporate Functions of the Executive

Management Team includes Planning and Treasury, Accounting, Legal,

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Secretarial, Human Resources, Communications, Internal Audit and Information

Technology.

Formal 3-tiered governance structure

The company’s organizational structure and governance processes are designed

to support effective management of multiple businesses while retaining focus on

each of them." This three-tier governance structure ensures that:

For and on behalf of the shareholders the company believes in incorporating

strategic governance in its work culture so as to ensure that despite being free

from involvement in the task of strategic management of the Company, it can be

conducted by the Board with objectivity, thereby sharpening and ensuring

accountability of management;

With mundane tasks of everyday executive management being delegated the

management remains focused on issues of immediate importance;

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The Executive management of the individual businesses that are free of handling

strategic management responsibilities of ITC as a whole is then able to

channelize their energies and time in enhancing the effectiveness and overall

growth of their individual units.

Corporate Governance as defined by ITC is a systemic process by which

companies are directed and controlled to enhance their wealth-generating

capacity. A company employs vast sums of societal resources during this

process of wealth generation. ITC is of the firm belief that the governance

process being followed should ensure that these resources are used optimally to

meet the aspirations of its stakeholders and society. This is further reflected in

the deep commitment of the company to contribute to the ‘Triple Bottom Line’,

which is the development of the nation’s economic, ecological and social

resources.

The company believes in empowering the executive management. But corporate

governance ensures a system of checks and balances to ensure that these

powers that are bestowed upon the executive management are used in a

responsible manner so as to meet shareholder and societal expectations. The

core strengths of ITC's governance philosophy are trusteeship, transparency,

empowerment and accountability, control and ethical corporate citizenship. The

practice of each of these creates the right corporate culture that fulfils the true

purpose of Corporate Governance.

Overall, the structure of ITC has high complexity because of horizontal

differentiation within the organization. The most visible evidence is that of

specialization and departmentation. Complexity also increases because of spatial

differentiation.

The ITC Code of Conduct, as adopted by the Board of Directors, is applicable to

all Directors, senior management and employees of the Company. This Code is

derived from three interlinked fundamental principles, viz. good corporate

governance, good corporate citizenship and exemplary personal conduct. The

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Code covers ITC's commitment to sustainable development, concern for

occupational health, safety and environment, a gender friendly workplace,

transparency and audit ability, legal compliance, and the philosophy of leading by

personal example. Since non-adherence to the code is brought to the attention of

the immediate reporting authority, formalization is also there in ITC.

Decision-making is decentralized, as the company believes in giving executive

freedom to the management to drive the enterprise forward without undue

restraints but this freedom of management should be exercised within a

framework of effective accountability.

DESIGN

Looking at the structure and culture of ITC, we can say that its design is based

more or less on the Divisional Structure. ITC has a diversified presence in

different industries and each of its businesses act as an autonomous unit which

are coordinated by the top level, i.e. the board and corporate management

committee. The divisional managers are responsible for performance and hold

complete strategic and operating decision-making authority. The top

management provides support services to the divisions. It acts as an external

overseer, evaluating and controlling performance. Hence the top management is

free from being concerned with the day-to-day operating details so they can pay

attention to the long term. Big picture, strategic decision making is done at the

top level.

Areas of Diversification

ITC has transformed itself from a leading cigarette manufacturer to an umbrella

group that offers a diversified product mix to enhance its brand image and reduce

dependency on tobacco related products. It has forayed into the hospitality

service industry and has become a major player in the hotels segment. Its

position in the FMCG (fast moving consumer goods) business is also on a growth

curve; especially its confectionery and biscuits which are slated to achieve the

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top ranks among its peers. It has made heavy investments to strengthen its IT

(information technology) segment and to compete with the big players like

Infosys and Wipro. Although the ITC group is marketing its image as an ideal

corporate citizen and a company that takes its social responsibility seriously, it

still earns 80% of revenues from selling cigarettes and other tobacco related

products.

The major areas in which ITC has diversified are:

FMCG

• Cigarettes

• Food

• Lifestyle Retailing

• Greetings and stationery

• Safety Matches

• Incense sticks

Hotels

Paperboards and Packaging

• Paperboards and specialty papers

• packaging

Agri-Business

• Agri- exports

• E-choupal

Information Technology

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BCG MATRIX

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Restructuring and Rationalizing

STRATEGIC FOCUS

ITC in FMCG Sector

Cigarettes

ITC is the market leader in cigarettes in India. With its wide range of invaluable

brands, it has a leadership position in every segment of the market. It's highly

popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake,

Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake.

The Company has been able to build on its leadership position because of its

single minded focus on value creation for the consumer through significant

investments in product design, innovation, manufacturing technology, quality,

marketing and distribution.

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All initiatives are therefore worked upon with the intent to fortify market standing

in the long term. This in turns aids in designing products which are contemporary

and relevant to the changing attitudes and evolving socio economic profile of the

country. This strategic focus on the consumer has paid ITC handsome dividends.

ITC's pursuit of international competitiveness is reflected in its initiatives in the

overseas markets. 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 growing volumes of its

brands.

ITC's cigarettes are produced in its state-of-the-art factories at Bengaluru,

Munger, Saharanpur and Kolkata. These factories are known for their high levels

of quality, contemporary technology and work environment.

Cigarettes Business

Foods

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ITC made its entry into the branded & packaged Foods business in August 2001

with the launch of the Kitchens of India brand. A more broad-based entry has

been made since June 2002 with brand launches in the Confectionery, Staples

and Snack Foods segments.

For ITC, the packaged foods is an ideal business to utilize ITC's proven strengths

in the areas of hospitality, branded cuisine, contemporary packaging and

sourcing of agricultural commodities. ITC's world famous restaurants like the

Bukhara and the Dum Pukht, nurtured by the Company's Hotels business,

demonstrate that ITC has a deep understanding of the Indian taste and the

expertise required to translate this knowledge into delightful dining experiences

for the consumers. ITC has stood for quality products for over 98 years to the

Indian consumer and several of its brands are today internationally benchmarked

for quality.

All products of ITC's Foods business available in the market today have been

crafted based on consumer insights developed through extensive market

research. Apart from the current portfolio of products, several new and innovative

products are under development in ITC's state-of-the-art Product Development

facility located at Bengaluru.

ITC has over the last 98 years established a very close business relationship with

the farming community in India and is currently in the process of enhancing the

Indian farmer's ability to link to global markets, through the e-Choupal initiative,

and produce the quality demanded by its customers. This long-standing

relationship is being utilized in sourcing best quality agricultural produce for ITC's

Foods business. The Foods business is today represented in 4 categories in the

market. These are:

1. Ready To Eat Foods

2. Staples

3. Confectionery

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4. Snack Foods

In order to assure consumers of the highest standards of food safety and

hygiene, ITC is engaged in assisting outsourced manufacturers in implementing

world-class hygiene standards through HACCP certification. The unwavering

commitment to internationally benchmarked quality standards enabled ITC to

rapidly gain market standing in all its 6 brands:

1. Kitchens of India

2. Aashirvaad

3. Sunfeast

4. mint-o

5. Candyman

6. Bingo!

Recently, on Aug 1, 2008, ITC Foods has drawn up plans to extend its Kitchen of

India brand to frozen foods. ITC’s Branded Packaged Foods business continues

to expand with sales growing by 23% over the previous year. Apart from the

development costs of new products, the business has had to contend with the

recent economic slowdown and severe cost increases in input commodities

including wheat, vegetable oil, maize and skimmed milk powder, in addition to

the soaring fuel prices.

Having acquired reasonable scale in a relatively short span of time, the business

is progressively focusing on consolidating the portfolio in certain categories,

improving market servicing and driving supply chain efficiencies.

Market and Competition

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Indian Foods market is a monopolistic market. There are many competitors in all

the categories and although they all have similar products available at similar

prices, they are trying to prove themselves different through their marketing

strategies. However, entry to this business is easy and ITC has utilized this fact

very efficiently to their benefit as they entered into the several categories among

this Foods business.

READY TO EAT

ITC entered into the branded and packaged foods business in with the launch of

Kitchens of India brand. In 2004, the company launched KoI brand fruits and

spice conserves and cooking pastes. The fruits and spice conserves, were

developed jointly with Karen Anand, a food expert. Priced at Rs. 70, these were

targeted at the premium segment. The KoI cooking pastes, which were priced at

Rs.30 for a 100g pack, also targeted the high-end market. Multi-purpose cooking

pastes were also launched under the Aashirvaad brand and these were priced at

Rs. 10 for 80g pack. The manufacturing of these products was outsourced to

contract manufacturers for saving the operating cost.

ITC entered the branded spices market in 2005 and the Instant Mix segment in

2006, both under the Aashirvaad Brand. As on April 2006, the total turnover in

the Indian ready-to-eat and ready-to-cook segments was only around Rs. 700

million, but it continued to post an annual growth of 20%. By early 2006, though

ITC had captured a 35% market share in the ready-to-eat segment, MTR was the

clear market leader with close to 60% in market share. ITC exported 40-50% of

KoI brand products (in terms of volumes) to the US, Canada, the UK,

Switzerland, and Australia.

In May 2006, ITC planned to introduce ten more varieties under the KoI brand

within a price range of Rs. 35 to Rs. 98. In 2007, some new products have been

launched under Ready To Eat category like chutneys, curries, conserves,

biryanis (Noor Mahal, Bhori Biryani and some new range of products under

Gharana (Paneer Malai, Keema Mutter). After launching all these products ITC

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FOODS is looking to share 50 to 60% of market by 2008-2009.Following are the

major competitors ITC is competing with in Ready to Eat category:

Brands Description

Gits Gits produces the selected range of popular ready to cook

and instant foods that cover a range of ethnic Indian

cuisine-and where the recipes have "Global pallete

acceptance".

Haldirams Offers packaged Bhel puri chats such as Sev Puri, Chana

Masala,

Samosa, Pakoras, Alu Tikki, Pao Bhaji, Gol Gappa, Dhokla

among

others

Ethnic

Kitchens

Offers packaged sweets, syrups, namkeens, cookies,

pickels, aloo masala, bhujia,bhelpuri,Chana Dal,Kajui

Ladoo and many more items.

MTR MTR foods currently comprises of twenty-two

delicious

and completely authentic Indian curries,gravies and

rice.

Priya

Foods

Priya has a range of popular traditional recipes starting

from Dal Makhani,Navratana Korma to Palak

Paneer,Paneer Butter Masala,Punjabi Chhole and

Rajma Masala along with true southern delicacies

Andhara Veg.,Mango Dal and Gongura Dal.

CONFECTIONERY

Confectionary market in India is about Rs.2500 crore. It is loosely divided into

seven categories:

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1. Hard boiled candies

2. Toffies

3. Eclairs

4. Chewing gum

5. Bubble gum

6. Mints

7. lozenges

ITC has currently in market with its two brands “Mint-o” and “Candyman”. ITC’s

Mint-O fresh secured a 17% share of Indian cough lozenges market ahead of

former leader Perfetti which only achieved 14.3% with chloromint. The Indian

giant marked the confectionary sector in 2002 and has only two brands “mint-o

fresh” and “Candyman”. But in overall confectionary market they are lagging

behind having just 3% market share as compared to market leader Perfetti with

more than 37% market and providing larger number of brands.

Perfetti van melle ITC Ltd. Nestle Cadbury Alpenliebe Alpenliebe Creamfills Alpenliebe Lollipop Big Babol Center Fresh Center Fruit Center Shock Chatar Patar Chlor-mint Chocotella Cofitos Fruittella Happydent White Protex Happydent Marbels

Candyman Minto

. Kit Kat . Kit Kat Lite . Milky Bar . Munch . Milk Chocolate . Fun Bar . Polo . Polo Power mint . Munch Pop Choc . Éclairs

Bubbaloo Dairymilk Eclairs % Star Gems Perk Halls

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Mentos Chocoliebe

STAPLES

ITC entered the staples market in 2002 with wheat flour under the Aashirvaad

brand. In 2003, ITC extended the Aashirvaad brand to edible salt. By early 2006,

ITC had a 40% market share in the Rs. 6 billion packaged flour business. Its

closest competitor HLL’s Annapurna brand was trailing behind with a market

share of 18%. The market was growing at 12%. Under its Aashirvad brand ITC

FOODS also launched salt, mixers, ready to cook pastes. In the Rs. 4 billion

organized salt market (as of 2006), Tata Salt was the market leader with a 28%

market share. ITC had only a 5% share of the market. Other players in this

business are HLL (Knorr Annapurna), Nirma (Shudh), Marico Industries (Saffola),

etc.

BISCUITS

Indian biscuit market is estimated to be around 5000 crore. Biscuit industry in

India in the organized sector produces around 60% of the total production, the

balance 40% being contributed by the unorganized bakeries. ITC with its

premium product, SUNFEAST, is acquiring a big share of market. Within few

years, they are able to get 12% share of the market.

Britannia ITC Ltd (Sunfeast) Parle Priyagold

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Tiger

Nutrichoice Junior

Good Day,

50 50,

Treat

Pure Magic,

Milk Bikis

Good Morning.

Marie

Dream cream

Milky Magic

Fit kit

Choco Nut

Butter Nut

Parle-g

Krack-Jack

Monaco

Kreams

Hide and Seek

Milk Shakti

Butter Bite

Classic Cream

Butter Lite

Big Boss

Marie Lite

Magic Gold

SNACKS

Snacks industry overview

Snacks industry in India is worth 1800 Crores of Rs. and growing at 10% is one

of the largest markets in the world, out of which potato chips holds the major

market share of around 85%.

Product Price

(ITC Ltd)

Product Price

(Frito Lay)

Product Price

(Haldiram)

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Bingo

Rs. 5

Rs. 10

Rs. 20

Lays

Rs. 5

Rs. 10

Rs. 20

Lehar Namkeen

Rs. 5

Rs. 20

Kurkure

Rs. 5

Rs. 10

Rs. 20

Namkeen

Rs. 5

Rs. 10

Rs. 20

The foods business is expanding rapidly with sales growth of 35% in the year

2007. This range of product includes more than 150 different products. The

growth of this sector in terms of product categorization is as follows.

Sales in biscuits category grew by 55%.

Sales in staples category grew by 52%

Sales in confectionary grew by 51%.

Sales in RTE grew by 35%

ITC Food is looking to expand its RTE category to maximize its profit.

ITC’S NEW CHALLENGES:

This food industry is the industry with very less profit margins. So low operation

cost is the key. Also, Indian middle class is price sensitive. In this area

international, national and also regional competition is very tough. With that

30

wheat, petrol and labor cost is increasing day by day. Different types of

restrictions imposed by the government are also playing a vital role in reducing

profit margins. For example, exporting non-vegetarian foods out of India is

restricted. To cover this up, ITC is trying to reduce cost of its biscuits by acquiring

mass production of wheat directly from farmers through its e-chaupal initiatives.

Also in this way ITC is able to reduce the price of its staples. As far as

Confectionary market is concerned, ITC is looking to launch its brand of

chocolate in collaboration with an American company. After analyzing the food

sector, one can say that it is one of the toughest market to compete in as all the

market giants are already there.

GROWTH AND INVESTMENT PLANS:

This food sector is the most promising field and has already overtaken IT and

PHARMACEUTICALS Sector of India. Even Indian Government is looking to

develop this sector. That’s the reason central Government has already passed

several projects for food parks. In this way FDI in this sector is possible. Also

government in its 2006 budget has reduced custom duty from 16% to 8% on

packaged food and also excises duty on instant food mixes. This will help ITC to

be competitive in the market. Recently ITC has started exporting packaged food

from its Bangalore plant. It is also planning to open one more new plant in

Calcutta for Indian market. They are looking to add several products in their RTE

list which will be exported as well. Also in late 2007 ITC has acquired one

Australian Plant and seed technology industry. Through this they will provide

highly valuable seeds and other solutions to farmers in India, which ultimately will

increase the productivity and cost effectiveness for their staples and biscuits

business.

Its turnover in the foods business was around Rs. 8 billion in 2005-06 which

further increased to Rs. 10.2 billion in year 2006-2007.

ITC has decided to make an investment of 300 crores over a period of 5 years.

ITC Foods has also decided not to make heavy investments in manufacturing

31

unless volumes pick up. As of today ITC has invested 20 crores in R & D and

planning to invest further 15 crores to produce new products in different

categories.

Thus looking at all the strategy of ITC future investment and planning. The future

investment plan is as follows

Rate of Increase Sales Operating Profits Net Profit/loss

2005 18.07 18.30 37.58

2006 28.16 19.15 2.01

2007 26.34 18.90 20.79

2008 12.76 11.31 15.56

2009(Projected) 21.33 16.92 18.98

Major Strategies Adopted by ITC Foods

Entering the foods business was itself a strategic decision for ITC. While ITC’s

core business, tobacco, was under pressure owing to several factors like

government bans on advertising and on smoking in public places, hikes in the

excise duty for cigarettes, and anti tobacco campaigns, ITC planned to deploy its

surplus in the packaged food business where it saw huge business potential.

Following are some of the strategies that ITC adopted to make its food business

a success:

Entering into less competitive or unexplored markets (Ready to eat,

Staples, Wafers): When ITC entered into the foods business in 2001, it

focused on unleashing the areas where the competition is very less or there is

no competition. It started with packaged ready to eat food and later extended

that to Aashirvaad brand of edible salt and Atta. Recently ITC has announced

its desire to forge in the frozen foods category in the domestic market.

32

Players in this category are limited and ITC hope to exploit this fact. Also, in

Bingo, although the competition is tough but there is only one player with

whom ITC has to compete i.e. Frito Lay. This strategy has helped ITC to

quickly establish itself in the above mentioned businesses.

Distribution Network: ITC already had a huge distribution network due to its

tobacco business. ITC used this network to distribute their biscuits and

wafers. This not only provided a good launch to their products but also helped

in boosting sales. Today, ITC’s Bingo and Sunfeast are available at nearly 1.8

million outlets whereas Parle is available at only 1.5 million outlets.

Market differentiation (Ready to eat, Biscuits): ITC started packaged foods

business with the KoI brand of ready-to cook products. They were positioned

as premium products with target groups including tourists, NRIs, etc. In

Biscuits also, ITC launched differentiated products in each and every

segment. For e.g. it introduced an Orange Marie, a butterscotch cream

biscuit, chilli flakes in a biscuit and even honey flavor under the Sunfeast

brand.

In March 2005, ITC Foods launched Sunfeast Pasta, a whole wheat based

product targeted at children. It was expected to compete with products like

Nestle’s Maggie noodles. With this strategy ITC built for itself new markets.

Cost control strategy (all products): When ITC started the foods

division, its main challenge was to compete with the players who were

already there. To overcome this challenge, ITC realized that they have to

offer products at a price which is either equal or less than what the

competitors are offering. To do this, they planned to capitalize by

leveraging the strength of the group’s other businesses. ITC’s printing and

packaging business provided high-quality, cost-effective, and innovative

packaging. ITC also enjoyed cost advantages over its competitors owing

to its electronic procurement system called e-Choupal. This helped ITC to

compete with the best.

33

Diversification of products (Biscuits, Wafers, and Ready to Eat): One

of the ITC’s successful strategies has been the method of diversifications

among its various products. If we talk just about Bingo, ITC has come up

with 16 flavors in comparison to its competitor ‘Lays’ of ‘Frito Lay’ which

has only 4 major flavors. Same is the case with Ready to Eat food

category and Biscuits. This strategy has helped ITC to attract a wide

range of market.

Extensive advertising (Biscuit, confectionary, wafers): Just like a

Bollywood movie needs good publicity to be a super hit, every new

product launched in the market needs to be known to the consumers

before it is launched. Advertising is where ITC made the difference in

comparison to its competitors. They hired the best professionals and the

best ambassadors in the country to make their products famous. This is

evident form the award winning marketing campaign for Bingo and Minto

Fresh. The tagline "Jab Laila ko karna tha impress to majnu ne khayi mint

o fresh" has stood the test of times and is still widely known and

remembered. Hiring the best people from the film industry and sports

(Sharukh Khan and Sachin Tendulkar for Biscuits, Rakhi Sawant for Minto

Fresh) showed ITC’s urge to be the best.

On television, the company booked 10 to 15 spots per channel per day on youth

channels such as MTV and Star World, mass Hindi channels like Zee and Star

TV, and news channels. It also had around 20 spots on a variety of radio

channels and advertised in most leading national dailies. In the top-30 cities, over

1,000 outdoor hoardings advertised the product. According to industry estimates,

ITC spent close to Rs 100 crore on marketing.This kind of promotion of products

helped ITC to make its products known to everyone and now it was not difficult to

attract consumers.

Regular introduction of new products (all products): Having acquired

reasonable scale in a relatively short span of time, ITC realized that, to

remain in the competition it had to introduce new products regularly. ITC

34

has been expanding its distribution network aggressively and also their

product range. In biscuits and wafers range, it is launching new products

or flavours week after week. Same is the case with Ready to Eat and

Kitchen of India.

Innovation (all products): When the need to introduce new products

arrived, ITC shifted its focus on to the innovation. Also, ITC was innovative

in identifying the market or niche for all its products.

Maintenance of freshness and hygiene (all products): ITC positioned

its wheat flour on the health & hygiene and value for money terms.

Success in the staples business, especially in the branded and packaged

wheat flour business, depended on two factors – an effective distribution

network and the quality of the product. Therefore, ITC attempted to ensure

that the supply chain was responsive, and laid emphasis on making

accurate sales forecasts using inputs from distributors, sales personnel

and a well-managed MIS system. To maintain freshness of the product,

the company strove to minimize the transit time by regulating the shippers

to maintain company-specific transit norms. The physical aspects of the

supply chain like warehouses and trucks were closely monitored to

maintain cleanliness.

From Analyzers to Prospectors (Biscuits): When ITC entered the

biscuits market with Sunfeast in 2003, with three varieties of biscuits -

glucose, marie, and cream, they did what any new player in the market

does, imitating and emulating the leader that was Britannia. Their strategy

was to manufacture those products which are already a success in the

market. But, as ITC got hold of the market, it started to manufacture

flavors which were never heard of. This was the result of ITC’s desire to

exploit new product and market opportunities.

All the above strategies and with the help of launch of Bingo in 2007, ITC

finally tasted success in its food business in 2008 when it became a

profitable business for the first time since its launch in 2001 freshness of

the product, the company strove to minimize the transit time by regulating

35

the shippers to maintain company-specific transit norms. The physical

aspects of the supply chain like warehouses and trucks were closely

monitored to maintain cleanliness.

From Analyzers to Prospectors (Biscuits): When ITC entered the

biscuits market with Sunfeast in 2003, with three varieties of biscuits -

glucose, marie, and cream, they did what any new player in the market

does, imitating and emulating the leader that was Britannia. Their strategy

was to manufacture those products which are already a success in the

market. But, as ITC got hold of the market, it started to manufacture

flavors which were never heard of. This was the result of ITC’s desire to

exploit new product and market opportunities.

All the above strategies and with the help of launch of Bingo in 2007, ITC finally

tasted success in its food business in 2008 when it became a profitable business

for the first time since its launch in 2001.

Branded Packaged Foods

36

ITC in Hotel Industry

ITC Limited entered the hotels business in 1975 with the acquisition of a hotel in

Chennai, which was rechristened Hotel Chola. Since then the ITC-Welcomgroup

brand has become synonymous with Indian hospitality. Today amongst India's

finest and fastest growing hotel chains, it consists of over 70 hotels across as

many destinations in India. These include super deluxe and five star hotels,

heritage palaces, havelis and resorts and full service budget hotels.

The 440-room ITC Maurya at New Delhi is not only amongst the leading

business hotel in the country, but is in a class by itself. Complete with the 'ITC

One', the hotel has played host to a galaxy of world dignitaries, including Bill

Clinton and Bill Gates. In fact, even as he was leaving the White House, the

former US President nostalgically recalled the memories of a fabulous Indian

meal he and his family had at the Bukhara restaurant in the hotel.

Bukhara has been declared the Best Indian Restaurant in the world, by 'The

Restaurant Magazine', UK The 386-room ITC Maratha, opened in February

2001, is perceived as amongst the leading and the finest properties in Mumbai,

designed in a grandiose classic style, the hotel pays tribute to Mumbai's colonial

roots and the spirit of the Great Marathas.

In keeping with its plan to have a presence in every major business destination in

India, ITC-Welcomgroup unveiled one of Asia's finest business resort, the 238-

room ITC Sonar in Kolkata on December 31, 2002.

Another landmark hotel - the ITC Grand Central in Parel, Mumbai was formally

inaugurated in January 2005. This five star deluxe property with 242 suites and

rooms offers international standards of service, state of the art amenities and

culinary excellence. ITC Mughal at Agra, a proud recipient of Asia's first Aga

Khan Award for Architecture, is an outstanding resort hotel, lavishly spreading

37

across 35 acres of beautifully landscaped Mughal gardens. ITC-Welcomgroup

also pioneered a holistic concept of "branded accommodation" in the hospitality

industry. It was the first to launch the powerful idea of a 'Hotel within a Hotel' by

segmenting and branding the hotel services. It created the exclusive 'ITC One',

'The Towers' and the 'Executive Club' each catering to the needs of the global

business traveller with unmatched quality and a range of services.

In 2007, ITC-Welcomgroup entered a new phase in its collaboration with

Starwood Hotels & Resorts. ITC-Welcomgroup now has an exclusive tie-up with

Starwood in bringing its premium brand, the ‘Luxury Collection’, to India. The

seven hotels which are part of this collection are: ITC Maurya in Delhi, ITC

Maratha in Mumbai, ITC Sonar in Kolkata, ITC Grand Central in Mumbai, ITC

Windsor in Bengaluru, ITC Kakatiya in Hyderabad and ITC Mughal in Agra. The

agreement also includes the rebranding of WelcomHotel New Delhi as a

Sheraton, while the Chola and the Park in Chennai, and the Rajputana in Jaipur

retain their Sheraton connections. The Welcome Heritage brand brings together

a chain of palaces, forts, havelies and resorts that offer a unique experience.

Welcom Heritage endeavours to preserve ancient royal homes and the historical

Indian grandeur, opulence of romance, valour and adventure for the future Indian

generations. Welcom Heritage Hotels, provide a fine range of hotel services

inside these architectural legacies present in Rajasthan, Punjab, Himachal

Pradesh, Madhya Pradesh, Uttaranchal, Jammu & Kashmir, West Bengal, Tamil

Nadu, Haryana and Karnataka.

ITC-Welcomgroup was also the first to brand its cuisine. The Bukhara, the

Dakshin and the Dum

Pukht are today powerful cuisine brands, which delight connoisseurs in

restaurants in several ITC Welcomgroup hotels. Others included Dublin, West

View and the Pan Asian. Fortune hotels are a part of the well thought-out growth

strategy that brings out the mid-level business and leisure traveler under the ITC-

Welcomgroup umbrella, offering full service properties without compromising on

38

quality. With a strong presence at Ahmedabad, Thiruvananthapuram, Calicut,

Darjeeling, Jamshedpur, Vapi, Hyderabad, Gurgaon, Indore, Ootacamund,

Madurai, Jodhpur, Tirupati and Port Blair, it will be shortly commissioning several

more hotels across India.

Hotel Business

ITC in Agricultural Industry

ITC's International Business Division (IBD) is the country's second largest

exporter of agriproducts with exports of over Rs. 1000 Crores (Rs. 10 billion). Its

domestic sales of agriproducts are in excess of Rs. 1500 Crores (Rs. 15 billion).

It currently focuses on exports of :

Feed Ingredients – Soyameal

Foodgrains - Rice (Basmati & Non Basmati), Wheat, Pulses

Edible Nuts - Sesame Seeds, HPS Groundnuts, Castor oil

Marine Products - Shrimps and Prawns

Processed Fruits - Fruit Purees/Concentrates, IQF/Frozen Fruits, Organic

Fruit Products, Fresh Fruits

39

Coffee & Spices - Coffee, Black Pepper, Chilly, Turmeric, Ginger, Celery

and other Seed Spices Although one of the relatively younger business

divisions of ITC, it has, in a short span established itself as a first-choice

supply chain partner of several leading international customers. Its major

customers include Cargill, Marubeni, Toepfer, among others, who source

agriculture commodities and food products from India. Its customer

relationship management has enabled it to achieve a very high reputation for

quality, reliability and value added services. ITC's unique strength in this

business is the extensive backward linkages it has established with the

farmers. This networking with the farming community has enabled ITC to

build a highly cost effective procurement system. ITC has made significant

investments in webenabling the Indian farmer. Christened 'e-Choupal', ITC's

web plan for the farmer centres around providing Internet kiosks in villages.

Farmers use this technology infrastructure to access on-line information from

ITC's farmer friendly website. Data accessed by the farmers relate to the

weather, crop conditions, best practices in farming, ruling international prices and

a host of other relevant information.

Currently, the 'e-Choupal' website - www.echoupal.com - provides information to

farmers across the nine States of Madhya Pradesh, Haryana, Uttaranchal, Uttar

Pradesh, Rajasthan, Karnataka, Maharashtra, Andhra Pradesh and Kerala. ITC

plans to extend the 'e-Choupal' to cover 10 million farmers across 100,000

villages covering 15 Indian states. Following the impressive success of e-

Choupal, the Company unveiled the first 'Choupal Saagar' near Sehore in

Madhya Pradesh in August 2004. Eighteen more 'Choupal Saagars' have

commenced operations in the states of Madhya Pradesh, Maharashtra and Uttar

Pradesh. The 'Choupal Saagar' is a rural hypermarket which provides multiple

services under one roof. It creates a platform for farmers to sell their produce.

Farmers can also buy quality products for their farm and household consumption

from 'Choupal Saagar'. These rural malls also provide farmers the invaluable

additional services of soil testing, banking, insurance, medical facilities and

40

restaurant. Such mall, in synergistic combination with the e-choupal network,

serves as the core infrastructure to support ITC's rural distribution strategy. Over

the next 7-10 years ITC plans to open over 700 such hypermarkets. The

business is progressing a pilot project for retailing fresh fruits and vegetables.

Three Choupal Fresh Cash & Carry Stores are currently operational at

Hyderabad, Pune & Chandigarh. The Company has set up a complete

warehousing and cold chain infrastructure for ensuring the availability of fresh

products in the market, besides direct linkages with the farmers for sourcing farm

fresh produce.

In Processed Fruits category, ITC exports from HACCP Certified plants to

Western Europe, North

Africa, Mid-East, Japan and North America, a wide range of Processed Fruits

products made from Mango (Alphonso, Kesar & Totapuri), Guava, Papaya, &

Pomegranate for Industrial and Consumer use. ITC is the leading Indian exporter

of Organic Fruit Products Certified to European (EC 2092/91) & US (NOP)

Standards.

Fresh Table Grapes & Pomegranates are sourced from ITC's EUREPGAP

Certified Farmer groups & retailed through prominent supermarkets like

Sainsbury's & Albert Heijn in Europe , Daiei in Japan.

ITC's countrywide network of procurement teams, handling agents and

contemporary warehousing facilities enable it to source quality merchandise even

at short notice. ITC's processors are handpicked reliable outfits which ensure

hygienic processing and modern packaging. Strictest quality control is exercised

at each stage to preserve the natural flavour, taste and aroma of the various agri-

products.

ITC has been a significant exporter of seafoods from India since 1971. It exports

frozen as well as cooked shrimps and other seafood products to Japan, USA and

Europe. Its well-known brands include Gold Ribbon, Blue Ribbon, Aqua Kings,

41

Aqua Bay, Aqua Feast and Peninsular. ITC's International Business Division

continues to use innovation as its core strategy to retain its position as the one-

stop shop for sourcing agri-commodities from India.

Other businesses

ITC’s e- choupal

ITC’s International Business Division, one of India’s largest exporters of

agricultural commodities, has conceived e-Choupal as a more efficient supply

chain aimed at delivering value to its customers around the world on a

sustainable basis. The e-Choupal model has been specifically designed to tackle

the challenges posed by the unique features of Indian agriculture, characterised

by fragmented farms, weak infrastructure and the involvement of numerous

intermediaries, among others.

42

‘e-Choupa’ also unshackles the potential of Indian farmer who has been trapped

in a vicious cycle of low risk taking ability > low investment > low productivity >

weak market orientation > low value addition > low margin > low risk taking

ability. This made him and Indian agribusiness sector globally uncompetitive,

despite rich & abundant natural resources. Such a market-led business model

can enhance the competitiveness of Indian agriculture and trigger a virtuous

cycle of higher productivity, higher incomes, enlarged capacity for farmer risk

management, larger investments and higher quality and productivity. Further, a

growth in rural incomes will also unleash the latent demand for industrial goods

so necessary for the continued growth of the Indian economy. This will create

another virtuous cycle propelling the economy into a higher growth trajectory.

Stunted Growth: From Field to Factory

Farmers in Madhya Pradesh made their living in much the same style as their

predecessors 50 years earlier. The process of getting crops to market began with

farmers harvesting the soybeans and loading them onto tractors and bullock

carts. Farms varied in size from under five acres for a small farmer to greater

than 12 acres for a large farmer. An average farmer, with about nine acres of

farmland, could expect an annual net income of approximately Rs. 20,000 ($443)

from soybeans and wheat together. After the harvest, farmers hauled their loads

of produce 30-50 kilometers to the closest mandi and then waited for the crop to

43

be auctioned. The auction began when a government-appointed bidder valued

the produce and set the initial bid. From here, government-licensed buyers called

commission agents (CAs) bid upwards until the crop was sold.

ITC contracted with a specific CA in each mandi to bid on behalf of the company.

Prices were authorized by ITC’s office in Bhopal, MP. Here ITC employed a team

of traders who followed the global market. Although the CA knew what price ITC

would pay, nothing prevented him from buying from the farmer at a much lower

price, selling to ITC at market price, and pocketing the difference.

Once a CA won an auction, the farmer brought his tractor to that CA’s shop in the

mandi and waited for the produce to be weighed on a manually operated balance

scale that accommodated only small increments of the lot. The actual weight of

the crop was often manipulated at this point because of the inaccuracy of the

crude beam scales. For example, if the farmer brought 20 quintals of loose

soybeans to the mandi, he could expect to lose about 10 kilograms total during

the transactions, or 0.5% of his original lot. This translated to a loss of about 100

Rs. ($2.22) per lot. After the weighing process, the product was bagged and the

farmer was paid. According to the law, CAs were supposed to pay the farmer

immediately, but, in smaller mandis, farmers were often paid after an unofficial

credit period. The CA would simply tell the farmer to return after a few days for

the money.

On any given day, at least 1,000 farmers could be found trying to file into the

market to sell their produce. Some had to wait for two or three days just to get

into the crowded marketplace. Once inside the mandi, the farmer was faced with

further challenges of the chaos and pressure that characterized the market yard.

The Bhopal mandi, hosting an average of 1,700 farmers a day and the sole

destination for farmers in Dahod, was a dusty yard with a perimeter of booths

belonging to the various CAs. It teemed with adolescent boys who ran through

the crowd, kicking up dust and eating beans off the farmers’ carts. Laughing,

joking men loitered and watched the auctioneers.

44

Farmers suffered as a result of the time it took to sell produce in the mandi, for

they were dependent on timely cash flow for subsistence. Thus, when harvest

time arrived, they all descended upon the mandi at once. The crop had to go to

market immediately, and, more importantly, it had to be sold. Farmers were stuck

in the position of not being able to turn down a CA’s offer; in many cases it had

taken him all day to reach the mandi from his village, and to return with a full cart

of unsold produce would be a waste of time and money. Farmers rarely had

access to adequate storage facilities in which to hold the crop if it was not sold. If

a farmer were able to store the soybeans, and sell before or after harvest,

without the time pressures associated with a perishable product, he would have

more leverage over their value. This was impossible, however, under the

prevailing system, where the farmer did not have other options.

Once a transaction had taken place, the CA brought the produce to an ITC

processing facility. There, ITC paid him for the cost of the soybeans. This was

effectively a reimbursement, since the CA had paid the farmer in the mandi from

his own resources at the time of the sale.

The farmers’ isolation from one another and lack of telecommunications meant

they had no way of knowing ahead of time what price would be offered the day

they arrived at the mandi other than word of mouth. As a result, price discovery

occurred only at the end of their growing and selling process.

Knowledge shared and captured in the traditional choupal could be

extraordinarily useful to farmers, but it had traditionally been limited to verbal

communication. In the absence of telecommunications, and even electricity in

some places, news from the closest city could take days to reach an outlying

farming village.

The uncertainty surrounding cash flow prevented the farmers from creating a

sound financial base; instead, they had become locked into subsistence living.

Prices of Indian soybeans generally followed the agriculture futures market on

the Chicago Board of Trade and the Kuala Lumpur Commodity Exchange.

45

Given the volatility of the spot market, and the fact that the value of agricultural

commodities was based on largely uncontrollable factors such as weather,

disease, and pest infestation, farmers needed to be aware of market activity.

They needed to understand their product in its global context, so that they could

plan their activities with more confidence.

The Agricultural

Produce Marketing Act, under whose aegis mandis were established, prohibits

procurements outside the mandi. ITC convinced the government that e-Choupal

would operate according to the spirit of the Act and thus e-Choupal procurement

was in line with its goals. Since ITC would not be using the mandi infrastructure

for its procurement, and would have to incur its own costs with the e-Choupal.

Infrastructure, the government offered to waive the mandi tax on the produce

procured through the e-Choupal. However, ITC recognized that the tax was a

major source of revenue for the government and local mandis and, as ITC’s

competition was also subject to the tax, the tax itself was not making ITC

uncompetitive. ITC therefore chose to continue paying the tax rather than risking

the relationships with the government and the mandis.

Research Methodology

Sample and Sampling Method

Sampling is the process of collecting information only from a small representative

part of the population. Stratified Random Sampling is one amongst the most

elementary random sampling techniques. A stratified random sampling is a

method that allows each possible sample to have an equal probability of being

picked and each item or individual in the entire population have an equal chance

of being included in the sample. For this project work, without replacement

sampling method is used. It means that a person or item once selected is not

returned to the frame and therefore cannot be selected again. This selection

process continues until the desired sample size ‘n’ is obtained.

46

Sample Selection : As the objective of the project is to study the Employee

Engagement to know the perception of the Employees, sample is selected from

Voice and Non voice based profiles.

Source of data: For the purpose of the study the following sources of data are

used.

Primary data: Primary data refers to the collection of first hand data.

Data is collected through

Questionnaire

Observations

Questionnaire: Questionnaire is prepared and circulated to the employees to

know their opinion.

Observations: Observations were done during the visits to the organization.

Secondary data:

Secondary data refers to the data, which is not newly generated but rather

obtained from.

Published sources.

Unpolished sources i.e., information about the performance of the

company

Report on the study.

47

Review of literature etc.

i. Sampling chosen with the Random method

ii. Sampling Area would be Delhi & NCR and near area only

iii. Sample Size: 100

48

Findings &Analysis

Performance Track Record

Rs Crs 95-96 09-10Cagr 95-96 to 09-10

Gross Turnover 5115 26,260 12.4%Net Turnover 2536 18,153 15.1%Market Capitalisation 5571 100,475 22.9%PBDIT 584 6,677 19.0%PBIT 536 6,069 18.9%PBT 452 6,015 20.3%PAT (After Exceptional Items) 261 4,061 21.7%EPS Rs (Equalised for 95-96) 0.7 10.73 21.4%Net Worth 1121 14,064 19.8%Capital Employed 1886 14,957 15.9%ROCE% 28.4 40.6Total Shareholders Returns % 24.3%

ITC – Key Financials – 2009/10

Rs crs09/10

Actuals08/09

ActualsGoly %

Gross Turnover External 26260 23144 13.5

Net Turnover External 18153 15612 16.3

PBDIT 6677 5393 23.8

PBIT 6069 4844 25.3

PBT 6015 4826 24.7

PAT 4061 3264 24.4

49

2009/10 : Segment Revenues

2009/10 : Segment Results

2009-10 2008-09 Goly3. Segment Results a) FMCG - Cigarettes 4,938 4,184 18.0 - Others (350) (483) 27.7 Total FMCG 4,589 3,700 24.0 b) Hotels 217 316 (31.5) c) Agri Business 436 256 70.3 d) Paperboards, Paper & Packaging 684 509 34.5 Total 5,926 4,781 23.9 Less : i) Interest (Net) 53 18 191.2 ii) Other net un-allocable expenditure/ income (143) (63) 127.6

Total PBT 6,015 4,826 24.7

Full Year

50

2009-10 2008-09 Goly1. Segment Revenue (Gross) a) FMCG - Cigarettes 17,283 15,115 14.3 - Others 3,642 3,014 20.8

Total FMCG 20,925 18,129 15.4 b) Hotels 911 1,020 (10.7)

c) Agri Business 3,862 3,846 0.4 d) Paperboards, Paper & Packaging 3,234 2,822 14.6

Total 28,931 25,817 12.1 Less : Inter segment revenue 2,672 2,674 (0.1) Gross sales / income from operns. 26,260 23,144 13.5

2009-10 2008-09 Goly2. Segment Revenue (Net) a) FMCG - Cigarettes 9,321 7,781 19.8 - Others 3,634 3,006 20.9

Total FMCG 12,955 10,786 20.1 b) Hotels 851 935 (9.1)

c) Agri Business 3,862 3,846 0.4 d) Paperboards, Paper & Packaging 3,108 2,647 17.4

Total 20,776 18,215 14.1 Less : Inter segment revenue 2,622 2,603 0.8 Net sales / income from operns. 18,153 15,612 16.3

Full Year

2009/10 : Se3gment Capital Employed

2009-10 2008-09 Goly4. Capital Employed a) FMCG - Cigarettes * 2,998 2,936 2.1 - Others 1,719 2,101 (18.2) Total FMCG 4,717 5,037 (6.4) b) Hotels 2,457 2,189 12.3 c) Agri Business 1,580 1,039 52.1 d) Paperboards, Paper & Packaging 3,711 3,771 (1.6) Total Segment Capital Employed 12,465 12,035 3.6

* Local Tax Provision not incl. 628.64 542.86 15.8

Full Year

Awards

• ‘ITC received the FICCI Outstanding Vision Corporate Triple Impact

Award 2007 for invaluable contribution to the triple bottom line

benchmarks of building economic, social and natural capital for the nation.

• Global Leadership Award conferred on Chairman Y C Deveshwar by the

US India Business Council of the US Chamber of Commerce

• Sustainability Leadership Award 2007 conferred on Chairman Y C

Deveshwar by the Sustainability Forum, Zurich and SAM/SPG at the

International Sustainability Leadership Symposium

• Business Today Award for the Best Managed Company – Retail and

Consumer Products, has been conferred on ITC in recognition of its

outstanding initiatives in the consumer products segment.

• Ryutaro Hashimoto Incentive Prize 2007 for Environment & Development

from the Asia Pacific Forum

• In the first of its kind S&P Environmental, Social and Corporate

Governance (ESG) ratings released recently, ITC ranked second among

top Indian companies.

51

• The Company has won the Corporate Social Responsibility Crown Award

for Water Practices from UNESCO and Water Digest for its distinguished

work carried out in the water sector in India.

• ITC Limited won the top UNIDO award at the International Conference on

Sharing Innovative Agribusiness Solutions 2008 at Cairo in recognition for

its initiatives in agri business.

• ITC has been conferred the ICAI Award for Excellence in Financial

Reporting with its Annual Report and Accounts, adjudged as a

commendable entry under the “Manufacturing and Trading Enterprises”

category.

• The Best Corporate Social Responsibility Practice Award 2008 jointly

instituted by the Bombay Stock Exchange, Times Foundation and the

NASSCOM Foundation.

• e-Choupal initiative wins global recognition:

• Stockholm Challenge Award 2006 in the Economic Development category

which recognises initiatives that leverage Information Technology to

improve living conditions and foster economic growth in all parts of the

world.

• First Indian Company to win the Development Gateway Award 2005 for

the most exemplary contribution in the field of Information &

Communication Technologies (ICT) for development during the last 10

years

• World Business Award 2004: International Chamber of Commerce & the

HRH Prince of Wales & International Business forum

• Harvard University case study

• Recognised in World Development Report 2008 published by World Bank

• Applauded by President of India Dr APJ Kalam in his “special address

during the national symposium to commemorate 60th year of

independence”

52

e-choupal: Strategic Thrust

ITC in Paper Industry

ITC is one of the world's most modern and contemporary manufacturers of

packaging and graphic series of boards. ITC's Paperboards business has a

manufacturing capacity of 360,000 (TPA) tonnes per annum and is India's market

leader across all carton-consuming segments including cigarettes, foods,

beverages, pharma, personal care & toiletries, durables and match shells. ITC

53

makes some of the premium graphic boards used for greeting cards, covers,

sleeves, tags and playing cards. The Company produces both Virgin and

Recycled boards spanning the full requirement of a packaging customer. The

erstwhile ITC Bhadrachalam Paperboards Limited was incorporated in 1975. It

set up an integrated pulp and paper/board manufacturing facility in 1979 at

Bhadrachalam in Andhra Pradesh in South India, 300 kms. east of Hyderabad.

Since then, the mill facilities have been continuously upgraded to achieve

internationally benchmarked quality standards and operational efficiencies. In

1998, the Paperboards business commissioned a new production line for coated

boards. This production line incorporated Paper Machine 4, with original capacity

of 120,000 tonnes per annum (TPA) and finishing & packing lines sourced from

internationally renowned suppliers. This machine has been fitted with a

sophisticated 'Web Detection and Inspection system' and since been modernised

further with the addition of the latest web forming technology.

The PM4 board machine can deliver international quality boards for Cigarette,

Liquid, Food and Pharma Packaging by providing a flawless surface for print

reproduction. To meet the growing requirement for high quality paperboards ,

PM5 was commissioned in 2003 with a capacity of 80,000 TPA.

In September 2002, ITC's Bhadrachalam Paperboard Unit commissioned a

110,000 TPA Elemental Chlorine Free (ECF) fibre line. This is a state-of-the-art

fibre line and the only one in India, which meets effluent norms, set by the

Ministry of Environment and Forests of the Government of India and Pollution

Control Boards. The product range has also been enhanced as ECF pulp

uniquely fulfills the demand for food-grade packaging and environment-friendly

paper. To meet its growing need for bleached pulp, a second ECF pulp line with

a capacity of 120000 TPA is now nearing completion at Bhadrachalam.

ITC is the largest exporter of coated boards from India. The Company exports

nearly 15 percent of the coated boards it produces. Its coated boards fulfill

54

exacting customer requirements in Malaysia, Sri Lanka, Bangladesh, Iran,

Australia, UAE, UK, Italy, Poland and Russia.

ITC has set up India's first world-class plant for the manufacture of premium Cast

Coated Boards that meet highly sophisticated packaging and printing

requirements. The Unit at Bollaram has been expanded further to accommodate

specialized converting production lines. ITC has added a modern Poly-extrusion

line to its production facility, to meet the growing demand for food packaging and

beverage cups. A 2nd poly-extrusion line is due for commissioning in Jan 2008 ,

to meet the growing demand for barrier boards. The Super-Calendering line

installed at Bollaram Unit near Hyderabad has also added Art Boards and Ivory

Cards to its product range. ITC has also pioneered the development of Liquid

Packaging Boards and Plasterboard liners. Continuous product development has

reinforced ITC's market leadership in the Paperboards business.

ITC's Paperboards business has a strong customer focus. The Company's

Paperboards business devoutly practices a 'TPM' philosophy during each stage

of manufacture. Lean management techniques have also been introduced in

making the operations more responsive and efficient.

Statistical Process & Quality control supplement the state-of-the-art on-line

process controls and scanning systems in the production lines. ITC is the premier

manufacturer of Specialty Papers in India, with a diversified product portfolio.

ITC's Specialty Papers are used in the manufacture of opaque lightweight fine

printing papers, cigarettes, papers for decorative laminates, electrical insulation-

grade papers , fireworks fuse tissue and automotive filter paper.

This Division pioneered the manufacture of Specialty Papers for the Indian

cigarette industry in 1949. It currently offers a comprehensive range of Cigarette

Tissues, Plug Wrap, Tipping Base, Printed tipping papers and Metallising Base.

The Specialty Papers Unit of PSPD at Tribeni, Chandrahati, West Bengal aims to

reach out and fulfill existing and emerging customers needs. The Unit

55

reconfigures systems and processes to meet specific customer requirements.

Quality control processes at the Unit are designed to ensure consistent high

quality at every stage of manufacture. On-line monitoring and documentation of

production parameters are carried out for continuous correction and updation of

quality standards.A Product Development Team ensures Total Quality

Management (TQM) in all operations. The TQM group closely dovetails its

operations with marketing, production and research teams to ensure international

standards in products and services. The business creates long-term product

development solutions on the basis of customer specifications and market

trends.ITC has demonstrated strong capability in product development and

research in pulp and paper. The Company has collaborated with the United

Nations Development Programme (UNDP) and the Government of India on

research programmes to develop high quality pulp. The Division exports cigarette

tissues and décor paper for laminates to Iran, Turkey , Nepal, and Bangladesh.

ITC in Apparels

ITC’s Lifestyle Retailing Business Division has established a nationwide retailing

presence through its Wills Lifestyle chain of exclusive specialty stores. Wills

56

Lifestyle, the fashion destination, offers a tempting choice of Wills Classic work

wear, Wills Sport relaxed wear, Wills Clublife evening wear, fashion accessories,

Essenza Di Wills – an exclusive range of fine fragrances and bath & body care

products for men and women and Fiama Di Wills – a range of premium

shampoos and shower gels. Wills Lifestyle has also introduced Wills Signature,

designer wear by leading designers of the country. With a distinctive presence

across segments at the premium end, ITC has also established John Players as

a brand that offers a complete fashion wardrobe to the male youth of today. The

recent launch of Miss Players with its range of trendy fashion wear for young

women has been a successful addition to the youth portfolio. With its brands, ITC

is committed to build a dominant presence in the apparel market through a robust

portfolio of offerings. This season, Wills Lifestyle presents a complete fashion

wardrobe that complements every facet of your lifestyle - at work, when you're

relaxed, while you party and for those special occasions. Wills Lifestyle has been

established as a chain of exclusive specialty stores providing the Indian

consumer a truly 'International Shopping Experience' through worldclass

ambience, customer facilitation and clearly differentiated product presentation.

Our stores have established themselves as preferred shopping destinations in

the prime shopping districts across the country.

At Wills Lifestyle, customers can browse at leisure, and shop in a relaxed and

pleasing atmosphere. The use of space is refreshing, which is reflected even in

the spacious changing rooms. Every store offers an international retailing

ambience with the extensive use of glass, steel and granite, reflecting the most

contemporary trends in store design, thereby creating a splendid backdrop for

the premium offerings. superbrand 2006 was awarded to Wills Lifestyle by the

Superbrands Council of India. At the Images Fashion Awards 2001 & 2003, Wills

Lifestyle was declared ' The Most Admired Exclusive Brand Retail Chain of the

Year'. Wills Lifestyle is now title partner of the country’s most premier fashion

event - Wills Lifestyle India Fashion Week. Taking the celebration of the event to

its stores, Wills Lifestyle has partnered with leading designers Rohit Bal, Rajesh

Pratap Singh, Manish Malhotra and Rohit Gandhi - Rahul Khanna to create a

57

new edition of Designer wear, which is now available at Wills Lifestyle Wills

Sport, fashionable relaxed wear for men and women has, over fifteen seasons,

become the vibrant face of contemporary fashion. At the Images Fashion Awards

2001, Wills Sport was declared ‘The Most Admired Brand Launch of the Year'.

Following this, Wills Sport was declared 'The Most Admired Women's wear

Brand of the Year', at Images Fashion Awards 2002. This season, Wills Sport

presents a collection designed to complement your exuberant lifestyle. Vibrant

designs create magic in breezy fabrics. Racy stripes and enchanting details add

charm to the purest linen and cotton. Wills Classic work wear was launched in

November 2002, providing the premium consumer a distinct product offering and

a unique brand positioning. Featuring luxurious fabrics crafted to perfection with

the most contemporary styling, Wills Classic work wear is positioned as the

brand for new age leaders, who are changing the rules of business and

encouraging a dynamic culture of enterprise, innovation and teamwork.

Showcasing the epitome of new age luxury. Featuring the finest shirts, crafted in

Italy. Complemented by exquisite trousers and jackets, made by European

master craftsmen. Experience a new language of charming sophistication this

season. Wills Lifestyle complements the range of premium apparel with a

tempting choice of fashion accessories.

This season a wider choice of accessories will be offered across ties, cuff links,

socks, caps, hand bags, wallets, belts, eyewear and shoes. With the introduction

of premium formal and relaxed jackets in the range, Wills Lifestyle will continue to

offer the definitive look of the season. Continuing with its philosophy of bringing

to Indian consumers world class products that enrich the quality of their lives, ITC

launched Essenza Di Wills - an exclusive range of fine fragrances and bath &

body care products for men and women in July 2005. Inizio, the signature range

under Essenza Di Wills provides a comprehensive grooming regimen with

distinct lines for men (Inizio Homme) and women (Inizio Femme).The rich and

sensual fine fragrances are all day offerings designed by the leading international

fragrance houses in France. The personal care range includes a host of bath and

58

body care products that share the same olfactory signature of the men’s and

women’s fine fragrances to offer you a harmonized fragrance experience.

ITC forayed into the youth fashion segment with the launch of John Players in

December 2002 and John Players is committed to be the No. 1 fashion brand for

the youth. This

foray leverages ITC’s proven competencies in understanding consumer insights,

brand building and design capabilities. Hrithik Roshan, Superstar and Youth Icon,

with his innate style, vibrancy and playfulness best personifies the core attributes

of the brand as its ambassador.

FMCG Business Initiatives Lifestyle Retailing

ITC in Information Technology

ITC InfoTech, a global IT services company, is today one of India’s fastest

growing IT and ITES service providers. Since it's inception in October 2000, the

59

company has established itself as key player in offshore outsourcing, providing

outsourced IT solutions and services to leading global customers. While an

enterprise range of technology capabilities and world class quality processes

form the foundation of ITC InfoTech’s cutting-edge IT service strength, a sharp

domain focus ensures that IT and It’s delivery always places business needs

ahead of technology.

The company enjoys the rare advantage of having a practitioner's expertise with

a strong vertical focus in Consumer Packaged Goods (CPG) and Retail, Travel,

Hospitality and Transportation, and Manufacturing - domains that its parent, ITC

Limited, has traditionally dominated – as well as in the main stay of technology

service providers: Banking, Financial Services and Insurance.

ITC InfoTech offers services through a global delivery platform with a strength of

over 2,000 employees and delivery centers across North America, Europe and

Asia-Pacific that serve Fortune-listed companies in 42 countries. ITC InfoTech

conforms to the highest standards in international process quality, with ISO

27001, ISO 9001, SEI CMM Level 5 and BS 7799 accreditations. These reflect

the company’s ongoing enterprise-wide focus to ensure that every engagement

program and project delivers international quality consistently.

Industry Recognition: Premier analyst and market research agencies have

recognized ITC Infotech’s position as the preferred IT partner. It has been:

Featured amongst Top 100 Global Outsourcing Companies in the leader

category-International Association Of Outsourcing professionals.

Ranked amongst Top 10 Speciality Application Development Providers-Global

Services, CMP Media.

Named amongst major Indian global service providers for PLM implementation

and engineering services-ARC Advisory

Listed as a leading Player in CRM & CPG Space – Forrester

60

Mentioned amongst Top Offshore SAP Service Providers – Forrester

Referred to as a Key Offshore Testing Services Provider-AMR Research.

ITC Infotech

STRATEGIES OF ITC

Corporate Strategies

61

Market Strategies

Limitations

Assumes market growth rate. A firm may grow the market.

A “Dog” may be helping other products.

High market share/Growth is not the only success factor.

Linkage between market share and profitability is questionable.

62

Key instruments for success

Successful green meetings are achieved through an optimal combination of:

1. Influencing decision-making: To maximise success, you need to ensure

sustainability is considered throughout the decision-making process. Try

to ensure that location and service providers are selected according to

their compliance with green criteria and/or influenced towards it. Top

management support for greening is critical.

2. Awareness raising: Making staff, service providers and participants

aware of green aspects in good time means they will be prepared to act

responsibly. People need to know why greening is important, to be

motivated to behave accordingly.

3. Access to sustainable products, services and techniques: Access to

appropriate sustainable technologies and practices increases the potential

options for greening. At the same time, meetings can increase demand

and a market can be created. Once available, these products and services

will be used far beyond meetings.

4. Communication: Communicating all aspects in a way that all involved,

including participants are proud about achievements and results, and

ensuring that information is provided before, during and after the meeting

is crucial in ensuring success and a lasting legacy.

5. Measurement: Measuring the environmental footprint and quantifying the

achievements of the meeting will build credibility and provide data on

which future meetings can be improved. It also provides case studies and

figures for PR and Communications purposes.

6. Procurement: As in any situation, during a meeting our consumption

decisions have major environmental implications. Those responsible for

procurement must consider how to minimise the environmental impacts

63

(and maximise the social benefits) of the products and services purchased

for the meeting (e.g., catering services, paper for printing, electricity used

to power the venue).

THE ITC CLASSIC SUCCESS STORY

“ITC is ready to hawk ITC Classic to anyone, for even a rupee.”

- An ITC Classic manager in 1997.

“There is no value in ITC Classic. I wonder how ICICI will benefit from the

merger!”

- A stockbroker in 1997.

TROUBLED TIMES

In late 1996, almost half of the executives on board of the tobacco to hotels

major ITC Ltd. were in jail on charges of FERA and excise violations. It was at

this point that the downfall of ITC Classic Finance (Classic), ITC's flagship

financial services 49% subsidiary, began.

The scandals in ITC had a massive damaging effect on the ITC brand and

corporate image. The impact got reflected on Classic too and it was inundated

with desperate fixed deposit holders wanting to withdraw their funds. Funds

worth over Rs 50 crore were withdrawn within a few days after the crisis broke

out. The continuing uncertainty on fund flows into the company and the eroded

value of its portfolios began scaring off potential investors and foreign partners as

well. International Finance Corporation (IFC), which was to provide a credit of $

45 million to Classic, also held back the offer till ‘things cleared up.'

Analysts were quick to raise fingers at Classic's negative cash flows, its huge

asset liability mismatch and the slow process of divestment of stakes held by

Classic in the ITC group companies. Like the proverbial ‘final nail in the

64

coffin,'Classic declared a Rs 285 crore loss in June 1997, which almost wiped out

its entire net worth.

Meanwhile, troubles mounted as redemptions kept increasing - from Rs 750

crore in mid 1996, deposits came down to Rs 550 crore in May 1997. From a

peak level of one million depositors, Classic was left with just six lakh. ITC gave

Classic a Rs 75 crore credit line to maintain cash flow to meet the redemption

pressure. There were even reports that Classic had to take inter-corporate

deposits to fund the outflow. The sustained downturn in the capital markets

during 1995-96 added to the company's woes and soon, key personnel began

leaving the company

Already neck-deep in legal troubles, ITC realized that it would be better off

without Classic to add to its problems. ITC then initiated discussions with Daiwa

Securities of Japan and a few Korean, British and American investment banks for

a possible tie-up.

A Business Today report claimed that ITC was desperate not to let Classic go for

liquidation, as that would have reflected badly on its brand power. ITC

announced that it was even willing to infuse more funds to keep Classic afloat.

Both GE Capital and the Hinduja Group evinced interest in Classic. Since they

laid down very stiff terms for the buy-out and valued Classic much below ITC's

expectations, talks did not proceed further.

Nothing seemed to be working out in favor of Classic as there were no takers for

a company with non-performing assets of over Rs 350 crore and an investment

portfolio that was by any standards an extremely poorly executed one.

At this juncture, ICICI Ltd. stepped in as the ‘knight in the shining armor'to rescue

Classic, taking the corporate world and the media by surprise. All those involved

in the issue kept asking themselves - What did ICICI see in Classic that so many

other companies could not?

65

CLASSIC: THE ITC FOSTERED BABY

Named after ITC's premium cigarette brand ‘Classic,'Classic was incorporated in

1986. Classic was a non-banking finance company (NBFC) predominantly

engaged in hire purchase and leasing operations. Besides, the company

undertook investment operations on a substantial scale. The company did very

well in the initial years and developed a strong network to mobilize retail

deposits. Its fund-based activities such as corporate leasing, bill discounting and

equities trading also grew substantially over the years.

At a compounded annual growth rate of 78% during 1991-96, Classic's annual

turnover increased from Rs 17.3 crore to over Rs 310 crore and net profits from

Rs 2.3 crore to Rs 31 crore in the same period. By June 1996, the company had

a deposit portfolio of Rs 800 crore consisting mainly of retail deposits. The capital

market boom of the early 1990s was responsible to a large extent for Classic's

impressive financials. Around 50% of Classic's assets had to be kept in financing

and a further 25% was to be held in liquid funds or cash to handle cash outflows.

However, Classic was free to invest the remaining 25% as it deemed fit - which

happened to be in the ‘boom stocks.'When the markets crashed in 1992, Classic

had to face heavy losses.

Like most other finance companies, Classic too saw the 1995-96 stock market

downturn taking a toll on its performance. A sharp increase in cost of funds, weak

capital market conditions and the general liquidity crunch marked the beginning

of the company's poor financials. Almost all the 145 scrips in the stock-in-trade

list in the company's balance sheet had lost nearly half their value during 1995-

96. While Classic's quoted investments stood at Rs 231.06 crore as on March 31,

1996, the market value as on that day was just Rs 57.40 core. In 1996, ITC had

to infuse Rs 60 crore in Classic by buying up group company shares held by it.

Soon after this, troubles began at ITC's headquarters with the Enforcement

Directorate (ED) initiating large-scale investigations against ITC top brass in

connection with various issues of unethical practices. Almost half of the ITC

66

board was arrested and the intensive negative media coverage significantly

harmed the ITC brand equity.

Amidst all this, it seemed as if ITC had given up all hopes of ever being able to

find a suitable partner for Classic.

THE CLASSIC POST-MORTEM

Many management consultants remarked that though Classic emerged as a full-

scale financial services company in early 1990s, it never matured from its original

status as an asset financing subsidiary. A majority of Classic's problems

stemmed from the structural anomalies like cross holdings in other group

companies. Although consultants McKinsey & Co and Arthur Andersen (who had

been mandated to go into the details of restructuring Classic in the mid 1990s),

had emphasized the need for untangling Classic from the corporate maze of

cross holdings in the group companies, no action was taken to do so.

A Classic source remarked, “McKinsey could not even figure out why some of the

financial services companies existed and why Classic should hold equity in such

companies.” McKinsey wanted to form Classic into a single financial services

company by merging various group companies involved in financial services

such as Classic Infrastructure Development Ltd., International Travel House

Summit, Sage, Pinnacle, ITC Agrotech Finance and a host of other small

companies. McKinsey further recommended that Classic should reduce its

investment banking exposure, concentrate more on asset financing and re-enter

niche segments like automobile finance.

The Arthur Andersen study talked about the need for a leaner organization with

strong management. The consultants identified a complete lack of focus as the

most crucial problem faced by Classic. However, ITC sources brushed aside the

recommendations stating that, “Reorganizing the business is very much on our

agenda but our immediate concern is to keep the company liquid.”

67

After the Rs 285 crore loss was recorded, Classic sold its heavily eroded

investments in Morgan Stanley and Jaiprakash Industries, which helped in

covering the losses to a certain extent. However, its portfolio still comprised

shares that had seen heavy erosion in their values. Classic had to hold large

amounts of shares of other ITC group companies like ITC Bhadrachalam and

International Travel House, whose share prices had also taken a beating. The

company could not even sell these shares because of their low prices. Though

ITC bought back Rs 69 crore worth of Bhadrachalam shares, financial analysts

remained skeptical of Classic's portfolio. Some of its investments in group

companies like Greenline Construction, Minota Aquatech and ITC Agrotech

Finance etc. were illiquid for all practical purposes and only artificially inflated the

company's net worth and the asset values.

Classic also had a huge asset-liability mismatch. Its asset-financing portfolio was

functioning fine till September 1995, when due to a liquidity crunch it had to miss

on installment repayments. Eventually, the volume of overdue payments reached

as high as Rs 300 crore. A Classic executive said, “Most of our assets are

wholesale in nature while our liabilities are retail. When the market got gripped by

a panic, all wanted their funds, but we cannot make our assets liquid at such

short notice.”

In 1995, Classic had entered into a lease and buy-back deal of used electricity

meters with the Rajasthan State Electricity Board (RSEB). Later, RSEB defaulted

on lease rentals worth Rs 40 crore, forcing Classic to make provisions to

repossess the meters and settle the losses. Classic's real estate forays also did

not prove to be beneficial for the company. Analysts also remarked that the fact

that over the years, Classic had become increasingly dependent on public

deposits. Public deposits, deemed to be a rather volatile source of fund, had to

be resorted to by Classic mainly due to the reluctance of banks to fund NBFC

operations during that period. This later resulted in the heavy redemption rush

putting a strain on the company's cash reserves.

68

The Classic Post-Mortem contd….

The credit rating agency, Credit Rating Information Serviced Ltd. (CRISIL)

downgraded Classic's rating for its fixed deposit scheme and non-convertible

debentures from AA to A+ and from FAA+ to FAA-, respectively in June 1996

and further to A- and FA, respectively in December 1996. An internal CRISIL

note revealed some other important issues that had led to Classic's demise. The

note stated: “Although the company's asset portfolio remained fairly well-

diversified in terms of the client base/industry spread, the high growth rate, and

the inherent risk in corporate plant and machinery financing had an adverse

impact on the company's asset quality, resulting in difficulty in timely recovery of

dues from a number of clients.” The note further criticized Classic's exposure to

the corporate asset financing business in general, and to the machinery segment

in particular, which was inherently deemed to be risky.

Classic was also reported to have made a tactical error by shifting its focus from

its primary business of hire purchase and leasing to secondary market

operations. The company was blamed to have entered the latter arena to ‘get

rich quick'by stock market deals, besides to spread the risk associated with asset

financing. In 1995-96, a former Classic director said, “Only about 55% of

Classic's business was in hire purchase and leasing, while the rest was in stock

market operations.”

The Merger

ITC soon realized that only one of the country's three mega-financial institutions -

Industrial Development Bank of India (IDBI), Industrial Finance Corporation of

India (IFCI), or ICICI would be in a position to absorb Classic's losses and bad

loans. ITC approached IDBI and ICICI and held extensive discussions with both

the FIs. Eventually, a deal was struck with ICICI at a swap ratio of 1 ICICI share

for 15 shares of Classic

69

In January 1998, shareholders of Classic approved the company's amalgamation

with ICICI with 99.93% of the votes in favor of the resolution. Justifying the

merger from ICICI's perspective, Kamath said, “Our goal is to move towards

universal banking with a spectrum of financial solutions. Any opportunity to move

closer to the goal will be capitalized.” However, a section of ICICI shareholders,

holding shares of both ICICI and ITC Classic, opposed the merger resolution

claiming that the merger ratio was unfair and was ‘leaked'to the market.

They said that the price dropped and adjusted to the merger ratio much before

the announcement of the ratio by the company. They also alleged that if the

market price of the share was one of the considerations, then the fall in the price

of the share just before the merger was a clear indication that the swap ratio was

already in the market before the announcement. Voices were also raised against

ICICI's decision to retain only those Classic employees whom it found capable

after internal evaluations. However, since the dissenting shareholders were in

minority, the resolution was successfully tabled.

ITC and its affiliate companies subscribed to a preferential share issue of Rs 350

crore of ICICI as part of the merger proposal. The preferential share capital

carried a nominal interest of Re 1 for every Rs 1 crore of share capital issued for

a period of 20 years. The infusion of funds in ICICI by ITC was to take care of

any future liabilities arising out of the merger. One-fourth of Classic's asset base

of Rs 1,000 crore accounted for investments in subsidiaries that operated in the

stockbroking and mutual funds business. As ICICI was not interested in them,

ITC provided Rs 272 crore to repay secured creditors, and to make up for the

losses due to the decline in the investments made by these subsidiaries.

It was decided to prepay Classic's creditors to reduce its interest burden. ITC

also assumed the liabilities and obligations in relation to all guarantees and

indemnities issued by Classic. ICICI accepted to absorb the Classic personnel as

per its requirements and the rest were redeployed by the ITC group.

70

The Merger Post Mortem

Media reports claimed that pressure from FIs coupled with desperation drove ITC

to hand Classic on a platter to ICICI. K.V. Kamat, managing director, ICICI had

maintained right from the beginning that he would consider the deal as long as it

did not involve any cash outgo. The issues of ITC bringing in substantial funds,

providing cushion against bad debts and loans and accepting an ‘unfair'swap

ratio kept surfacing in the media. The only silver lining for the unhappy Classic

shareholders'seemed to be the fact that they could hope for a better future with

ICICI.

TABLE

GAINERS AND LOSERS

   ICICI  Classic  Investors

The Upsides Risk-free takeover

of a retail network

since ITC would

pay Rs 622 crore

for ITC Classic's

NPA.

Selling off a

business it was not

keen on, which

enabled BAT to

enter financial

services on its own.

Acquiring, for every

15 shares in a sick

company, 1 ICICI

share whose value

was bound to rise.

The

Downsides

ITC Classic's

NPAs might be

larger than

projected, and its

depositors might

cash out.

A fall in profits in

1997-98, since it

would also have to

cope with the Rs

800 crore excise

duty claims.

An ICICI share

would have to rise

by 400% if the pre-

merger ITC Classic

share price was to

be realized.

Source: Business Today, December 22, 1997.

As far as ICICI was concerned, it seemed to be a clear ‘win'proposition. The

biggest benefit for ICICI was Classic's retail network comprising eight offices, 26

outlets, 700 brokers and a depositor-base of 7 lakh investors. ICICI planned to

use this to strengthen the operations of ICICI Credit (I-Credit), a consumer

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finance subsidiary that ICICI had floated in April 1997. Kamath said, “The retail

network will help us save two to three years. Our estimate of opening 15-20

branches to reach a million people at the retail level required at least 2-3 years.

This offer came our way, which had the retail network already in place.” An

additional benefit for ICICI was in the form of the Rs 110 crore tax-break because

of Classic's losses and the provisions for bad loans. This was something ICICI

badly needed since its net profits of Rs 572 crore during the first half of 1997-98

had increased by 71.77% per cent.

The Merger Post-Mortem Contd….

While ICICI was happy over getting a large deposit base of about seven lakh, it

seemed to have ignored the fact that the base was built on high interest rates

offered by Classic - about 16%. ICICI was forced to give this promised interest

while the going rates were much lower. Also, deposits aggregating Rs 550 crore

were to mature by 1999, threatening to be a cash outflow burden on ICICI.

However, ICICI tried to average out the interest outgo by asking the depositor

coming in for renewals to switch over to ICICI books. This was easy to do as the

depositors got the security of an AAA-rated institution. ICICI soon began the

‘clean-up operation'of Classic's balance sheet by substituting high-interest

liabilities. As 75% of Classic's clients were ICICI clients as well, ICICI was

confident of recovering 8-16% of the outstanding amounts from various parties.

ICICI sources claimed that the Classic merger would not affect the dividend or

the non-performing assets of ICICI. This was supported by his justification that

Classic was a company with an asset base of just Rs 1000 crore, while ICICI's

asset base was as large as Rs 41,000 crore.

SWOT Analysis

Strengths

ITC leveraged it traditional businesses to develop new brands for new segments.

For example, ITC used its experience of transporting and distributing tobacco

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products to remote and distant parts of India to the advantage of its FMCG

products. ITC master chefs from its hotel chain are often asked to develop new

food concepts for its FMCG business.

ITC is a diversified company trading in a number of business sectors including

cigarettes, hotels, paper, agriculture, packaged foods and confectionary, branded

apparel, personal care, greetings cards, Information Technology, safety matches,

incense sticks and stationery.

Weaknesses

The company's original business was traded in tobacco. ITC stands for Imperial

Tobacco Company of India Limited. It is interesting that a business that is now so

involved in branding continues to use its original name, despite the negative

connection of tobacco with poor health and premature death.

To fund its cash guzzling FMCG start-up, the company is still dependant upon its

tobacco revenues. Cigarettes account for 47 per cent of the company's turnover,

and that in itself is responsible for 80% of its profits. So there is an argument that

ITC's move into FMCG (Fast Moving Consumer Goods) is being subsidised by its

tobacco operations. Its Gold Flake tobacco brand is the largest FMCG brand in

India - and this single brand alone hold 70% of the tobacco market.

Opportunities

Core brands such as Aashirvaad, Mint-o, Bingo! And Sun Feast (and others) can

be developed using strategies of market development, product development and

marketing penetration.

ITC is moving into new and emerging sectors including Information Technology,

supporting business solutions.

e-Choupal is a community of practice that links rural Indian farmers using the

Internet. This is an original and well thought of initiative that could be used in

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other sectors in many other parts of the world. It is also an ambitious project that

has a goal of reaching 10 million farmers in 100,000 villages.

ITC leverages e-Choupal in a novel way. The company researched the tastes of

consumers in the North, West and East of India of atta (a popular type of wheat

flour), then used the network to source and create the raw materials from farmers

and then blend them for consumers under purposeful brand names such as

Aashirvaad Select in the Northern market, Aashirvaad MP Chakki in the Western

market and Aashirvaad in the Eastern market. This concept is tremendously

difficult for competitors to emulate.

Chairman Yogi Deveshwar's strategic vision is to turn his Indian conglomerate

into the country's premier FMCG business.

Per capita consumption of personal care products in India is the lowest in the

world offering an opportunity for ITC's soaps, shampoos and fragrances under

their Wills brand.

Threats

The obvious threat is from competition, both domestic and international. The laws

of economics dictate that if competitors see that there is a solid profit to be made

in an emerging consumer society that ultimately new products and services will

be made available. Western companies will see India as an exciting opportunity

for themselves to find new market segments for their own offerings.

ITC's opportunities are likely to be opportunities for other companies as well.

Therefore the dynamic of competition will alter in the medium-term. Then ITC will

need to decide whether being a diversified conglomerate is the most competitive

strategic formation for a secure future.

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Critical Success Factors Of ITC

Critical factors in the apparent success of the venture are ITCs extensive

knowledge of agriculture, the effort ITC has made to retain many aspects of the

existing production system, including retaining the integral importance of local

partners, the company's commitment to transparency, and the respect and

fairness with which both farmers and local partners are treated. There are more

success factors of ITC:-

Site and location

Positioning and guest profile

Financial strength

Brand recognition

Yield management

Differential pricing

Lead Management In The ITC Sector: Five Success Factors

Lead management – a critical topic for sales success

In many ways, today's ITC market has become a market of attrition. Long gone

are the times when dispatchers took customers' orders on the phone and

"assigned" shipments on the basis of the value of this or that account.

Consequently, it has become more important than ever to find the quickest and

most effective way of converting leads into key-account customers. GP+S has

drawn up a set of guidelines on lead management with the cooperation of the

Sales and Marketing Working Group in BITKOM, the German Association for

Information Technology, Telecommunications and New Media. The Working

Group's brief was to explore how Sales and Marketing departments could ensure

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that investments in advertising ultimately generate revenue. The group was

made up primarily of representatives from companies focused on the B2B sector.

Goals of lead management

The principal aim of lead management is to expedite the generation of revenue

from sales. Lead management boosts efficiency by promoting a work-sharing

process in which only the most productive and cost-effective resources are

employed in each individual phase. In most companies this is no longer driven by

Sales only: instead, the Sales, Sales-Support and Marketing organizations jointly

take on this challenge. The primary goal is accompanied by a multiplicity of

secondary goals, any or all of which can achieve strategic importance depending

on the overall situation and the objectives specific to a given company:

Lead management objectives

Process-oriented, efficient selling

Transparency across the customer-relationship process by tracking

contacts in the Sales funnel

Safeguarding of market shares

More in-depth understanding of the market through market analysis in

conjunction with leads generation

Metrics for the analysis of the effects of marketing-related measures

Optimization of the interface between Marketing and Sales with regard to

a more intense dialog

Shorter time-to-market phase: push new solutions onto the market in less

time

Higher ROI from product-development, marketing and sales investments

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Lead management: the situation as-is

What is a good criterion for gauging success? If satisfaction with an achieved

state is an important indicator for success, lead management has a good chance

of emerging as "relatively unsuccessful" in the ITC sector. What are the reasons

for this and what are the factors that have to be considered in order to achieve

success?

The BITKOM group of experts headed by GP+S has identified five success

factors for lead management. All five are discussed in detail below. They have

been identified on the basis of many years' hands-on experience amassed by

leading ITC companies (including SAP, Microsoft, Telekom, Compuware).

The five success factors in lead management

Establish organizational preconditions

Establish technical preconditions

Ensure quality of leads

Create transparency

Generate a positive attitude

Success factor No. 1: Establish organizational preconditions

Corporate management often grants lead management a certain amount of

attention, while remaining no more than partly aware of the organizational

complexity involved. Successful lead management, however, depends on

organizational measures that can be implemented only by top-level

management, or by management on the business unit or regional level. The

construct starts with defining the correct goals for lead management in harmony

with the corporate goals and ends with generating models for remuneration.

These models should be geared toward promoting achievement of the goals as

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effectively as possible and establishing conflict-reducing incentives for the

various instances involved in setting up and operating lead management.

Success factor No. 2: Establish technical preconditions

The most important resource for successful lead management is an end-to-end,

proven, crossdivisional and (if necessary) cross-company lead-management

process. The quality and efficiency of this process should be checked and

evolved on a rolling basis.

The lead management process can develop its full potential and efficiency when

it is supported by suitable information technologies. Software solutions like CRM

systems are important tools, but they in turn require an effective and smoothly

functioning work and workflow process.

Under best-case conditions they are in harmony with the targets laid down by

Marketing and Sales and in the incentive systems, which can integrate sales-

structure mapping.

In most instances, the introduction of new processes and software solutions

involves some measure of deviation from familiar work practices, so initially a

certain amount of extra time has to be allowed. Individuals, moreover, are

frequently unable to perceive any immediate or direct benefit.

In the Sales arena, the benefit is usually accompanied by an unwanted increase

in transparency. When systems of this nature are introduced or relaunched,

therefore, it is essential for executive management to lend its support to the

move and make sure that the benefits for each role are clearly demonstrated and

communicated.

High data quality and a certain amount of data are crucial to the success of lead

management. Consequently, the system has to be used by many operators and

the currency of the data stock must be ensured at all times.

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The degree of utilization, however, depends on the extent to which the benefit

has been specifically established for each group of stakeholders (managerial and

operative levels, marketing officers, direct sales, indirect sales, etc.) in credible

terms and in a format suitable for training.

A change management process that balances out different interests is another

critical aspect. Accompanying changes within the organization in this way helps

demonstrate benefit and eliminate doubt in a way that "top-down management" is

unlikely to match.

Success factor No. 3: Ensure the high quality of the leads

The stakeholders will not maintain their support for lead management in the long

term unless the quality of the leads continuously meets or exceeds expectations.

Vis-à-vis Sales, therefore, Marketing should pursue the "quality, not quantity"

approach. Only good leads are of use to Sales and create a positive image for

Marketing and for lead management. This holds good for both direct and indirect

sales.

Good planning is critical to quality lead management. Successful lead

management, therefore, starts with annual marketing planning, and given the

dynamism of ITC markets the 12-month plan should be revised several times as

it runs its course, and updated accordingly.

Sales and Marketing have to join forces to work on planning, because this

enables integrated client communication ("speaking to the market with one

voice") and establishes the basis for efficient cooperation. If the sales model

involves indirect channels, the officers responsible for sales partner support

should also be brought into the planning process.

Planning should also include accompanying measures to ensure that targets are

achieved. Image work and work on the company's mindshare both fall into this

category, as do measures to boost data quality, so that prospects can be

addressed as effectively as possible and their interest stirred.

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High data quality is frequently underestimated in terms of good lead quality. In

our experience data quality is of crucial importance to the success of leads

generation. In-depth planning is essential for leads distribution, as the basis for

realistic assessment and as a precaution to prevent over-expectations.

It is vitally important to avoid giving the impression that lead generation on the

part of Marketing is something akin to advance selling, largely relieving Sales of

its responsibility to exert itself to the full to ensure that leads actually convert into

purchasing clients.

Success factor No. 4: Create transparency in the lead-management

process

The planning process has to be checked from beginning to end to ensure that

implementation at the requisite level of quality is possible given the available

human resources and budget, and with the available stock of addresses.

Additional checks have to be run on the basis of logged conversion rates and

with due provision made for the leads assigned to each sales unit in order to

assess whether it is realistic to expect the planned leads to generate income

compatible with the revenue targets.

In terms of transparency, other key points include stipulating the content and

frequency of progress reports and scheduling regular meetings for reporting.

Sales must be required to report on its follow-up activities and the conversion of

leads to income, while at the same time taking part in an ongoing process of

improvement embracing the entire lead management system.

In the long term, only a closed control loop comprising of target agreement,

planning, implementation, and results monitoring to drive target adjustment, etc.

can sustain cost reductions and quality improvements.

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Success factor No. 5: Generate a positive attitude among employees

Our many years of experience clearly indicate that in the lead-management

system or, more accurately, in work with a lead-management system, many and

diverse emotions are stirred. Although these emotions can be subdued or

directed by organizational measures, they cannot be eliminated entirely.

Consequently, the following can contribute to success:

CONCLUSION

To be handled with care.

Strategic forays into emerging high growth markets.

E-Choupal is a transformational strategy.

Strong brand building capability will be tested.

Corporate strategy of creating multiple drivers of growth anchored on its

core competencies and distribution reach.

Embracing difficult and challenging corporate strategy. (Ex: Paperboards).

Improved security for hotel guests.

Floor access control in hotels through key card system.

Precision analysis of products in Food Business.

Process optimization for product development in Food Business.

Automation of lighting controls.

Use of Solar energy for hot water generation and outside area illumination.

Installation of PNG (Piped Natural Gas) fuelled generator sets and PNG

fired calendar and tumbler drier machines in hotel laundries.

Improvements to reduce heat gain/cooling losses from building envelops

in hotels.

Impact of measures for reduction of energy consumption and consequent

impact on the cost of production of goods.

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Bibliography

http://www.itcportal.com

http://www.google.co.in/

http://www.blonnet.com/

http://www.just-food.com/

http://www.thehindubusinessline.com

http://www.indiainfoline.com/

http://www.foodindia.org

http://www.nseindia.com/

http://www.zoomerang.com/build/survey-modify.zgi

http://www.perfettivanmelle.in

http://www.cadburyindia.com

http://www.gps –consulting.com

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