ITC- Tobacco Final

Industry - TOBACCO

Company- ITC

Sub- Strategic Management

Symbiosis Institute of Business Management

Bangalore.

Section CSubmitted By:-

Akshay Aware -14176

Abhirup Roy - 14121

Ankit Agrawal - 14178

Hemant Vatkar - 14139

Manu Joseph - 14147

Ranveer Desai - 141771

2

ITCOne of India’s most valuable and admired

companies

Rated by BCG amongst top 10 Consumer Goods companies in

the world in terms of

Total Shareholder Returns (TSR) during 2005-09

One of the foremost in the private sector in terms of :

Sustained value creation (BT-Stern Stewart survey)

Operating profits

Cash Profits

3

Ranks No. 3 among Indian listed Private Sector Companies by

market cap.

Only Indian FMCG Company to feature in Forbes 2000 List

A comprehensive ranking of world’s biggest companies

measured by a composite of sales, profits, assets & market

value

Rated as one of India’s Most Respected Companies (IMRB-

Business World Survey 2006)

4

Key Corporate Strategies

Focus on the chosen business portfolio

FMCG; Hotels; Paper, Paperboards & Packaging; Agri

Business, Information, Technology

Blend diverse core competencies residing in various businesses

to enhance the competitive power of the portfolio

Position each business to attain leadership on the strength of

world class standards in quality and costs

Leverage the goodwill of trademarks

5

Capture emerging opportunities

Further enhance current brand equity

Craft appropriate strategy of organisation and governance

process to :

Enable focus on each business and

Harness diversity of portfolio to create unique sources of

competitive advantage

* (As defined in the company’s strategy)

* Source:- ITC website

7

ITC’s CIGARETTE BUSINESS

Market leadership

Powerful brands across segments

Leadership in all segments - geographic & price

Extensive FMCG distribution network

Direct servicing of 1,00,000 markets & 2 million retail outlets

World-class state-of-the-art technology and products

Investment – `20 billion in six years

Exciting long term growth potential.

8

ITC’s Revenue’s

March 2011in Cr.

March 2010in Cr.

March 2009in Cr.

March 2008in Cr.

March 2007in Cr.

Sales Turnover 30,633.57 26,399.63 23,247.84 21,467.38 19,519.99

March 2011in Cr.

March 2010in Cr.

March 2009in Cr.

March 2008in Cr.

March 2007in Cr.

Tobacco Sales

Turnover19800 17200 15040 15298 14678

9

Key Events

1787 Establishment of the Botanical Gardens at Sibpur, Calcutta (trials to

grow tobacco were conducted).

1910 The British and American Tobacco Company expanded their trade into

India and set up three companies, which later together became the Imperial

Tobacco Company India, i.e. the present Indian Tobacco Company (ITC) Ltd.

1936 A cigarette tobacco research station was established in Guntur to study

the effect of soil and manure on the flavour of tobacco.

1937 Tobacco cultivation was introduced in Karnataka (Mysore State) by the

Mysore Tobacco Company Ltd.

10

India produced 499 million kg of tobacco and ranked second

in production next to the USA (628.7 million kg).

1947 The Indian Central Tobacco Committee (ICTC)

established the Central Tobacco Research Institute for

undertaking research on cigarettes.

Consumption of tobacco has been reduced by anti-tobacco

drives and the ban of consumption in public areas in year 2009

Ban on FDI in India’s tobacco industry in 2010

New proposed pictorial warnings of a cancer-stricken mouth

must be implemented on all tobacco packaging from 1

December 2010.

11

Growth

India is the second- largest producer of tobacco in the world after China.

However, it holds a meagre 0.7 percent share of the $30-billion global trade

in tobacco.

ITC has steadily increased its market share in India and has increased

cigarette production from 57.1 billion sticks in 2007 to 65.8 billion sticks in

2011

Godfrey Phillips is the second largest cigarette company in India. Since

2007, the company has seen continuous growth in market share and has

increased its cigarette production by 43% from 8.7 billion sticks in 2007 to

12.5 billion sticks in 2011.

ITC Direct servicing to 1,00,000 markets & 2 million retail outlets

12

Growth in Revenue (Rs in Crores)

Revenue Mar-11 Mar-10 Mar-09 Mar-08 Mar-07

ITC 30,633.57 26,399.63 23,247.84 21,467.38 19,519.99

Godfrey Phillip 3,069.38 2,617.01 2,276.21 1,828.40 1,597.59

VST 1,396.54 1,125.42 1,004.74 773.44 725.23

Kothari Product 1,333.72 348.72 96.54 200.69 156.88

Total 36,433.21 30,490.78 26,625.33 24,269.91 21,999.69

Growth % 19.49 14.52 9.71 10.32

13

Growth in Profit (Rs in Crores)

Profit Mar-11 Mar-10 Mar-09 Mar-08 Mar-07

ITC 4,987.61 4,061.00 3,263.59 3,120.10 2,699.97

Godfrey Phillip 166.03 118.38 108.9 112.22 88.1

VST 95.01 62.05 61.82 58.35 55.09

Kothari Product 61.61 66.84 11.74 64.46 82.39

Total 5,310.26 4,308.27 3,446.05 3,355.13 2,925.55

Growth % 23.26 25.02 2.71 14.68

14

Growth in Market Share

Cigarette Company Shares Retail Volume (%)‐

2007 2008 2009 2010 2011

ITC Group 67.5 67.8 67.9 71.8 72.9

Godfrey Phillips India Ltd 11.1 11.5 11.9 12.9 13.8

VST Industries Ltd 8.7 8.4 8.5 8.5 8.7

Golden Tobacco Ltd ‐ ‐ ‐ 3.6 1.5

GTC Industries Ltd 9.2 9 8.6 ‐ ‐

Other 3.5 3.3 3.1 3.2 3.1

Total 100 100 100 100 100

15

Market Share of Top Ten India Cigarette Brands Retail Volume (%)‐

Brand Company name 2010 (%)

Gold Flake ITC Group 31.2

Wills ITC Group 18.2

Scissors ITC Group 8.4

Four Square Godfrey Phillips India Ltd 7.9

Capstan ITC Group 7.4

Bristol ITC Group 6.9

Charminar VST Industries Ltd 4

Red & White Godfrey Phillips India Ltd 3

Charms VST Industries Ltd 3

Cavenders Godfrey Phillips India Ltd 2.5

16

Growth Potential

Cigarettes account for less than 15% of tobacco consumed in India unlike

world pattern of 85% due to prolonged punitive taxation

Cigarettes (15% of tobacco consumption) contribute the bulk of Revenue to

the Exchequer from tobacco sector

51% of adult Indian males consume tobacco. Only 11% of adult Indian males

smoke cigarettes as compared to 16% who smoke biris and 33% who use

smokeless tobacco

Biri : Cigarettes ratio = 8 : 1

Annual per capita adult cigarette consumption in India is appx. one tenth world

average.

Future growth depends on relative rates of growth of per capita income and

moderation in taxes.

17

2007 2008 2009 2010 20110

10

20

30

40

50

60

70

Market Capitalization(in crs)

market capitalization(in crs)

18

Porter’s Five Forces Model For Indian Tobacco Industry

New Product differentiation.

Very Tough – already cigarettes at different price points, flavours,

and images.

Access to distribution channel is tough – big & established players

are present (e.g. ITC)

Capital requirement is very high for a pan India launching.

Local launch can not catch up scale – Can’t use Economies of

Scale.

Government policy – high tax, no TV/Radio Ads.

Threats of New Entrants=LOW

19

Contd……

Many inputs are required but in small amount –paper, tobacco,

filter.

There are many small scale, unorganized suppliers.

Cigarette companies are big and have direct access to

distribution channel and addicted buyers.

Suppliers don’t have much control over smokers.

Bargaining Power of Suppliers=LOW

20

Contd……

Addicted customers - even after knowing harms – people

can’t leave it.

Smoking has lot of symbolic and emotional values attached

with it.

Product quality not much important to smokers – Research

shows most people cannot differentiate among the brands in a

blind taste.

Low switching costs in terms of price.

Bargaining Power of Buyers=LOW

21

Contd……

Herbal Cigarettes (e.g. Nirdosh) were launched – but did not

become popular (no emotional value).

Nicotine patch is another substitute – but again no comparison

with cigarettes in terms of popularity and usage.

Threat of Substitutes Product=LOW

Intensity of Competition=HIGH

Less price war.

22

Size Of Industry

Bidi Industry

• Bidis are the most popular tobacco products consumed in

India- 48% of the market.

• According to Euromonitor International, the bidi industry in

India is worth Rs200 billion ($4.1 billion USD).

• Bidis are much cheaper than cigarettes and smokeless tobacco

products due to mainly unequal levels of taxation on the

different products.

23

• Bidis cost between Rs2.50-5.00 for 25 sticks (less than one Rs

per stick)whereas the leading brand of gukta costs Rs3-4 per

unit. The leading brand of cigarettes costs Rs 80-88 for 20

sticks (Rs4-4.4 per stick).

• In 2009, Euromonitor reported that bidi volume sales were

down 5% from the previous year because of a ban on smoking

in public places.

24

Contd…….Company Name Location Production and

Distribution Popular Brand (s)

Bharath Beedi Works Mangalore • Produces 60 million bidis a day.

• Popular in North and West India.

• Part of the Bharath Group.

Thirty Brand Beedies

Kerala Dinesh Beedi Workers Cooperative

Kerala • Produces 30 million bidis a day.

• Produces 1.8 billion bidis annually.

• 18 different societies (companies)

Kerala Dinesh Beedi

Mangalore Ganesh Beedi Works

Tamil Nadu Karnataka

• Produces 20 billion bidis annually.

• Claims to produces 30% of the bidis in the organized sector.

501

Pataka Biri Manufacturing Co Ltd

Delhi • Produces 100 million bidis a day.

• Has 10 factories (2004).

502 Pataka Biri

25

The Smokeless Industry

Type of Smokeless Tobacco Description

Khaini/ Kharra Mixture of sun-dried tobacco and lime.

Gutka (Gutkha) A dry mixture of crushed areca nut, tobacco,

catechu (spices),lime, aromas and flavourings as

well as other additives.

Pan Masala General term for areca nut product. Does not

usually contain tobacco and is often confused with

Gutka.

Mawa Uses shavings of areca nut, tobacco and lime.

Gudhaku A paste made of tobacco and molasses.

Zarda Raw tobacco that is scented using spices such as

saffron.

26

Contd….

Historic India Smokeless Tobacco Market Size –

Retail Volume (’000- Tonnes)

2002 - 425.1

2003- 454.8

2004- 484.4

2005- 506.2

2006- 539.1

2007-566

2008- 600

2009- 639

27

Contd……

1. Dhariwal Industries- As one of the oldest smokeless tobacco

companies in India, it is also currently the market leader. The

company is part of the Manikchand Group also.

Dhariwal Industries manufactures its products in Vadodara,

Pune and Bangalore.

Dhariwal Industries produces gutka under the brand name

RMD which is the number one seller in India. The company

also uses the RMD name for pan masala.

Leading Companies and Popular Brands

28

2. Dharampal Satyapal- The second largest smokeless tobacco

company in India. Dharampal Satyapal is part of the DS

Group which also has interests in food and beverages,

packaging, hospitality and hospitality industries, among

others.

The DS Group manufactures tobacco products in Agartala,

Tripura.

Produces two smokeless tobacco brands- Tulsi (gutka) and

Baba (zarda). Also produces pan masala under the Baba name.

29

3. Som Sugandh Industries- Also known as the Dilbagh group,

the company is the third largest smokeless tobacco company

in India. The Dilbagh Group is based in New Delhi.

The company produces three smokeless tobacco products- the

second most popular Dilbagh brand (gutka), Talab (gutka) and

Hot (khaini). All three brands are also used to sell pan masala.

Talab Gutkha in particular is packaged “in attractive sachets”

making it a “hot favourite among youth across all income

groups.”

30

• 4. Kothari Products- Also known as Pan Parag India, and

was established in 1973.Most visible product is the Pan Parag

brand which is used to sell gutka but whose main product is

pan masala.

31

Smokeless Tobacco Company Shares ‐ Retail Volume (%) Company Name 2004 2005 2006 2007 2008 2009

Dhariwal Industries Ltd

(Manikchand Group) 12 12 12.3 12.3 12.5 12.5

Dharampal Satyapal Ltd

(DS Group) 9.3 9.5 8.8 7.8 7 7.2

Som Sugandh Ind Ltd 4.2 4 4.7 5 5.5 6

Shree Meenakshi Food

Products Pvt Ltd 2.8 2.8 3 3 3.2 3.5

Kothari Products Ltd 4.3 4.3 4 3.5 2.8 2

Others 67.4 67.4 67.2 68.4 69 68.8

32

Market Share of Top India Smokeless Brands ‐

Retail Volume (%)

Brand Company name Market Share

• RMD Gutkha Dhariwal Industries 12.5

• Dilbagh Som Sugandh Industries 6

• Tulsi Dharampal Satyapal 3.7

• Baba Dharampal Satyapal 3.5

• Goa Shree Meenakshi Food

Products 3.5

• Pan Parag Kothari Products 2

33

The Cigarette Industry

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

2002- 91.9

2003- 94.5

2004- 96.5

2005- 100

2006- 101.1

2007- 99.8

2008- 91.2

2009- 90.3

34

ITC Group

Established in 1910.

Leading cigarette manufacturer in India with 73% of the

market in 2009.

ITC has steadily increased its market share in India and has

increased cigarette production by 15% from 57.1 billion sticks

in 2001 to 65.8 billion sticks in 2009.

ITC generated RS 262.6 billion ($US 28.9 million) in revenue

in 2009 through its interest in cigarettes, hotels, cosmetics and

toiletries, packaged food, apparel, paperboards and packaging,

and agriculture.

35

ITC’s cigarette industry contributed to 65% of the company’s

total revenue for the fiscal year ending March 2010.

ITC has five cigarette factories in Bangalore, Kolkata,

Munger, Ranjangaon, and Saharanpur.

In addition to its operations in India, ITC also has cigarette

subsidiary Surya Nepal, which is a joint venture with British

American Tobacco.

36

Godfrey Phillips India

Established in India in 1936.

Godfrey Phillips is the second largest cigarette company in India with

14% of the market. Since 2001, the company has seen continuous

growth in market share and has increased its cigarette production by

43% from 8.7 billion sticks in 2001 to 12.5 billion sticks in 2009.

Godfrey Phillips India has a leaf division that provided tobacco leaf

for production in- country and for export. The company also sells tea.

The cigarette segment accounted for 92% of Godfrey Phillips India

revenue for the financial year ending March 2010.

37

VST Industries

Established in 1930.

VST Industries is the third largest cigarette company in India

with 9% of the market. Between 2001 and 2009 the company

lost market positioning and saw a 28% decrease in volume

sales.

Since 2008, declines in growth have reversed. VST Industries

reported a 4.5% increase in volume production for the fiscal

year ending in March 2010, as well as record profits.

38

Golden Tobacco

Established in India in 1930 as the first wholly-owned Indian

tobacco company in the country.

Golden Tobacco is the fourth largest cigarette company in

India with 1% of the market. In 2001, the company controlled

10% of the cigarette market but saw a dramatic decline in

market share and production in 2008 after the tax increase on

unfiltered cigarettes.

The company has two major production facilities in Mumbai

and Baroda.

39

Exports & Imports

Unit of

measurement

1970 1980 1990 1995 2000

Cigarette

imports

Sticks in

millions

5 8 68 169 44

Cigarette

exports

Sticks in

millions

27 2187 6363 1220 3655

Tobacco

leaf

imports

Metric tons 32 88 38 409 1423

Tobacco

leaf

exports

Metric tons 47905 71146 69965 7767 97363

40

Tobacco Requirements & Regulations

Tobacco Requirements &

Regulations

Required Regulated

Advertising health warnings/messages

Yes

Manufacturing licensure

Yes

Package health warning/message

Yes

Label design on packaging

Yes

41

Demand Drivers

Population increase.

Purchasing power.

Government Regulations.

Media & Promotions.

42

Analysis of top 3-5 players

(Market Share)

43

Godfrey Philip(Financials)

(In Rs Cr)

(Sep '11) (Mar’11)

Quarterly Yearly

Net Sales 6085.22 21167.58

Other Income 180.8 518.17

PBDIT 2399.79 9051.41

Net Profit 1514.31 4987.61

Income Statement Balance Sheet

(Mar '11) (In Rs Cr)

Total Share Capital 773.81

Net Worth 15953.27

Total Debt 99.2

Net Block 8345.07

Investments 5554.66

Net Current Assets 819.34

Total Assets 16052.47

44

VST Industries(Financials)

(In Rs Cr)

(Sep '11) (Mar '11)

Quarterly Yearly

Net Sales 164.76 584.57


PBDIT 2399.79 9051.41

Net Profit 1514.31 4987.61




Net Worth 264.44

Total Debt 0

Net Block 152.42

Investments 170.99

Net Current Assets -65.87

Total Assets 264.44

45

ITC(Financials)

(In Rs Cr)

(Sep '11) (Mar '11)

Quarterly Yearly

Net Sales 6085.22 21167.58


PBDIT 2399.79 9051.41

Net Profit 1514.31 4987.61




Net Worth 15953.27

Total Debt 99.2

Net Block 8345.07

Investments 5554.06



46

Golden Tobacco(Financials)

(In Rs Cr)

(Sep '11) (Mar '11)

Quarterly Yearly

Net Sales 6085.22 21167.58Other Income 180.8 518.17

PBDIT 2399.79 9051.41

Net Profit 1514.31 4987.61




Net Worth 15953.27

Total Debt 99.2

Net Block 8345.07

Investments 5554.06



47

Future Segmental Changes

Beedi Industry is dwindling down and with the ban on smoking in

public spaces it might go down further.

Smokeless tobacco industry is on the decline as people are

becoming more and more aware of the ill effects of the tobacco.

Cigarettes have also suffered a setback in sales.

Despite recent declines in sales, it is expected that cigarette use

will increase overtime as disposable incomes increase in India

48

Dynamics of the Industry

The basis of competition in the industry is driven mainly via

brand loyalty.

By strong branding and difference in blends competitors try to

create differentiation in the minds of the customers.

49

Business Model:

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, Lucky Strike, Classic,

Gold Flake, Navy Cut, Players, Scissors, Capstan, Berkeley,

Bristol and Flake, Silk Cut and Duke.

50

Strategic Focus:

• Focus on value creation-

Through investment in product design, innovation

manufacturing technology, quality, marketing and distribution.

Fortifying market standing in long term

Design products which are contemporary and relevant to the

changing attitudes and evolving socio economic profile of

consumers.

Key Partners:

• Farmers – ITC encourages farmers to cultivate tobacco.

• Packaging division – The packaging is done by the packaging division of ITC.

• Distributors –It includes the strong established distribution including wholesalers as well as retailers.

Customer Segment:

• Segmentation is done for each brand individually-

Insignia – Higher SES areaWills Classic/Mild/Regular – Higher SES areaWills Navy Cut – Higher SES areaWills Silk Cut – Higher SES areaGold Flake/Lights Filter – Higher and lower

SES area

53

ITC’s Supply Chain:

Farm to warehouse – warehouse to ITC.

Manufacturing of cigarettes-

PMD – Processing of tobacco leaf to tobacco blend.

SMD – Making and Packing.

54

Supply Chain Model:

PMD: Primary Manufacturing Division.SMD: Secondary Manufacturing Division.ILTD: Indian Leaf Tobacco Division.RCTI:-Reliable Cigarette and Tobacco Industries Private LtdATC: Asian Tobacco CompanyHDC: Hyderabad Deccan Cigarette IndustriesMS: Rest of the raw material

Marketing Channel for Cigarettes & Bidis

Distribution Channel of ITC Ltd

57

Cost StructureExpenditure 2011 2010 2009 2008 2007

Raw Materials 8601.13 7140.69 6864.96 6307.79 5807.48

Power & Fuel Cost

421.68 387.34 394.12 309.90 253

Employee Cost 1178.46 1014.87 903.37 745 630.15

Other Manufacturing

Expense

560.57 413.79 402.88 73.52 65.32

Selling & Admin Expense

2408.03 2093.87 1684.41 1609.33 1299.17

Miscellaneous Expense

1120.89 1008.91 516.90 682.72 601.28

Preoperative Expense

Capitalised

-60.54 -71.88 -72.55 -112.75 -42.52

Total Expense 14230.22 11987.59 10694.09 9615.51 8613.88

58

Cost StructureExpenditure

(2011)ITC Godfrey

PhillipsVST Kothari

ProductGolden Tobacco

Raw Materials 8601.13 626.18 293.22 1323.72 49.90

Power & Fuel Cost

421.68 9.45 2.88 0.27 1.44

Employee Cost 1178.46 138.79 60.85 1.24 40.74

Other Manufacturing

Expense

560.57 59.50 0.59 0 0.56

Selling & Admin Expense

2408.03 457.37 73.31 23.44 0

Miscellaneous Expense

1120.89 60.72 15.51 2.90 25.77

Preoperative Expense

Capitalised

-60.54 0 0 0 0

Total Expense 14230.22 1352.01 446.36 1351.57 118.41

59

ITC Godfrey Phillips

VST Kothari Product

Golden Tobacco-5000

0

5000

10000

15000

20000

25000

Sales TurnoverTotal ExpensePAT

2007 2008 2009 2010 20110

5000

10000

15000

20000

25000

30000

35000

Sales TurnoverTotal Expense

60

Profitability Ratio(%) 2011 2010 2009 2008 2007

Operating Profit Margin

34.08 33.02 32.84 31.57 32.51

PBIT Margin 30.05 28.97 28.37 27.50 28.86

Gross Profit Margin

30.97 29.74 29.17 28.44

34.05

Cash Profit Margin

25.17 23.99 24.22 23.45 24.28

Net Profit Margin

22.91 21.30 21.18 21.50 21.40

Return On Capital

Employed

44.94 42.64 34.60 36.60 37.24

Return On Net Worth

31.36 28.98 23.85 25.99 26.01

Return On Long Term

Asset

44.95 42.64 34.75 36.88 37.51

61

Profitability Ratio(%) ITC Godfrey

PhillipsVST Kothari

ProductsGolden Tobacco

Operating Profit Margin

34.08 15.11 24.42 2.13 -40.19

PBIT Margin 30.05 12.20 19.64 2.02 -33.90

Gross Profit Margin

30.97 12.59 20.05 2.07 -41.84

Cash Profit Margin

25.17 12.55 18.66 2.17 -28.31

Net Profit Margin

22.91 10.23 16.66 4.43 -29.64

Return On Capital

Employed

44.94 24.74 47.47 8.17 -9.87

Return On Net Worth

31.36 21.01 36.46 10.32 -171.11

Return On Long Term

Asset

44.95 23.68 47.47 11.04 -9.87

62

2007 2008 2009 2010 201105

101520253035404550

Net Profit MarginReturn On Capital Employed

Net Profit Margin Return On Capital Employed

-40-30-20-10

0102030405060

ITCGodfrey PhillipsVSTKothari ProductGolden Tobacco

63

Against NIFTY

64

Competitor Analysis of each

Segment

Historic India Cigarette Market Size (Retail)

1999200020012002200320042005200620072008200980

85

90

95

100

105

Retail Volume (Billion Sticks)

Retail Volume (Billion Sticks)

SOURCE: Euro-Monitor International

Market Share of Competitors

Gold Flake31%

Wills18%

Scissors8%

Four Square8%

Capstan7%

Bristol7%

Charminar4%

Red & White3%

Charms3%

Cavenders3%Others

7%

Sales

Decrease in Consumption

• For the last few years Cigarette Industry has seen a

considerable loss in consumption of cigarettes.

• But this has not deterred the market of any brands profits.

• Considerable increase in price of cigarette’s.

Call For Foreign Investment

• New competitors entering in market like Japan Tobacco Inc.

• JT Inc has 50% stake in JT India and other half by Thakkar

Family.

• JT Inc was willing to increase the stake in JT India, but

prevented by Foreign Investment Promotion Board and later

FDI in Cigarette Industry.

• JT India affiliated with ITC to manufacture Berkely Cigarette

which has about 1.3 % market share.

• Foreign Investors already have a market share in ITC, Godfrey

Philips, etc like British American Tobacco (BAT), Philip

Morris International (PMI)

• BAT currently has 32% stake in ITC, further increase in stake

is limited due to Indian FDI laws.

• PMI has 25% stake in Godfrey Philip’s.

• PMI Started Manufacturing its International Brand “Marlboro”

independently.

SWOT ANALYSIS-ITC Tobbaco

Strengths of ITC Tobacco.• Indian tobacco company pioneer in tobacco industry.

(leadership position with 80% market share)

• Oldest cigarettes manufacturer.

• Its Gold Flake tobacco brand is the largest FMCG brand in

India - and this single brand alone holds31% of the tobacco

market.

• Technological know how.

• Investment – Rs 20 billion in six years

SWOT Analysis.

Strengths of ITC tobacco. (cont…)

• People Perspective.

• Repute of the parent company.

• Tobacco occupies prime place in the Indian economy on

account of its contribution to agriculture and export sector.

• Trusted Brand.

• Large setup of Logistic and supply chain across the country.

• Direct servicing of 1,00,000 markets & 2 million retail outlets.

• Exciting long term growth potential

SWOT Analysis.

Strengths of ITC tobacco. (cont…)

• Advantages from the ITC’s diversified business.

(distribution and supply chain, operation of scale and

economic of scale, increase in Brand value)

SWOT Analysis.

Weakness of ITC tobacco.

• Public awareness on the harmful effects of tobacco.

• Tobacco advertising ban.

• It still has to consolidate its foot in the cigar market largely

dominated by Godfrey Philips.

• Highly Taxed industry.

• Warning sign and images on the pack of the Tobacco.

SWOT Analysis.

Opportunities of ITC tobacco.

• Rising level of incomes

• The improving standard of living of the Middle Class

• Rising consumption levels

• Large size and favourable growth trends of the market.

• Advancement in medical Reach in cancer treatment drug.

SWOT Analysis.

Opportunities of ITC tobacco. (cont…)

• ITC is moving into new and emerging markets like developing

countries of Eastern Europe, Africa and South America etc.

• Untapped teenage population of India.

• Cigarettes account for less than 15% of tobacco consumed in

India unlike world pattern of 85%.

• 51% of adult Indian males consume tobacco. Only 11% of

adult Indian males smoke cigarettes as compared to 16% who

smoke biris and 33% who use smokeless tobacco.

SWOT Analysis.

77

Biri : Cigarettes ratio = 8 : 1

Annual per capita adult cigarette consumption in India is appx. one tenth world average

Threats of ITC tobacco.

• Government regulations.

• Tobacco may be contributing to four of the five leading causes

of death. (CANCER)

• Good reputation of competitors and loyal customers.

• Brand Loyalty due to nature of the product.

• Environmental effect.

• Difficult to penetrate market.

SWOT Analysis.

Threats of ITC tobacco. (Cont…)

• Various N.G.O’s and Forums against the use and consumption

of tobacco.

• Competition including international majors becoming more

active

• Domestic illegal volumes still very strong. Along with

smuggled contraband, has emerged as substantive competition.

• New graphic health warnings notified and change to be

effective from 1st Dec 2011

SWOT Analysis.

SWOT ANALYSIS-Competitors

Godfrey Philips

Godfrey Philips

• S-Strengths

– Godfrey Phillips India is partnering with some of the top

most players in the international tobacco industry.

– The second biggest tobacco company in India.

– Godfrey Phillips India can claim to be the first and only

tobacco company to organize the fragmented cigar market

in India and secure its position as the market leader in the

cigar distribution.

Godfrey Philips

• W-Weaknesses

– Weakness can be citied on aspects of low popularity of

most of its products.

– Most of its products cater to niche markets.

– The revenues generated from the niche markets are not that

much.

– No sole authority.

Godfrey Philips

• O-Opportunities

– Presence in the Middle East, West Africa, South East

Africa and South East Asia, Godfrey Phillips India can

strengthened its position as an international player by

entering new markets.

– Opportunity is also there for expanding market in Indian

tobacco market.

Godfrey Philips

• T-Threats

– ITC getting into the cigar market.

– Godfrey Philips has to defend its market share in this

regard as ITC boosts of a very good logistics and supply

chain.

– Godfrey Philips has a mere 12% market share so it has to

defend that aggressively.

VST Industries

VST Industries

• S-Strengths

– Popular in rural areas with it’s products i.e various bidis &

cigarettes

– Third largest player of Cigarette industry in India.

– Embarked upon a major modernization program designed

to improve its competitive ability in domestic and

international markets.

VST Industries

• W-Weaknesses

– Low popularity of most of its products.

– Products restricted only to rural areas not much

exposed in urban areas.

– Not much revenues are generated through their sales.

– Very less market share.

VST Industries

• O-Opportunities

– It can increase their market share in rural areas

– Put some entry barrier on other competitors so that

they cannot enter.

VST Industries

• T-Threats

– ITC & Godfrey Philips getting into the bidis &

cigarette market.

– VST Industries has to defend its market share in

this regard as ITC & Godfrey Philips boosts of a

very good logistics and supply chain.

Golden Tobacco

Golden Tobacco

• S-Strengths

– Golden Tobacco is a professionally managed organization

in the field of tobacco and tobacco related products.

– It is the first wholly owned company which specializes in

manufacturing & exporting an exclusive range of

Cigarettes, Flavor Cigar & Non Tobacco smoking product.

– Constant R & D to develop the finest blends.

Godfrey Phillips India Ltd

FS1

• FS1 is the premium line of cigarettes launched by Four Square. Each Turkish

Blend cigarette in the FS1 pack attributes its distinct taste and aroma to Luxury

Long Leaf blended with the finest Indian handpicked tobaccos. It is designed to

give the Ultimate Taste Experience. FS1 comes in 3 variants – Full Flavour, Extra

Smooth and Regular.

Four Square

• Four Square is a well established and leading cigarette brand in India. Launched

way back in 1964, the brand commands trust and reputation amongst its consumers

and is known for its innovative ways to meet the changing consumer preferences.


• Today, the Four Square franchise has a wide portfolio of variants that are available

in both King-size and Regular-size segments, namely - Four Square Kings, Four

Square Special, Four Square Premier, Four Square Fine Blend and Four Square

Rich Gold.

• Four Square Introduced tactile packaging with micro-embossing technology. A

series of innovative limited editions were launched to infuse new energy into the

brand


Marlboro

• Godfrey Phillips India has an arrangement with Philip Morris to manufacture and

distribute their brands, including the iconic Marlboro brand of cigarettes. Available

at select cities in India at approximately 65,000 retail outlets, the brand has 7

variants including the recently launched Marlboro Gold Advance.

• The launch of Marlboro Compact in the Premium Regular Size Segment have

further strengthened the brand in India


Red & White

• Enjoying an iconic stature and a strong emotional bond with its loyal

consumers, Red & White is one of the fastest growing regular filter

brands. With a presence in markets such as those of Punjab, Haryana and

Delhi, it is available as a R&W Filter, R&W Plain, R&W Super and

R&W Premium. The brand continues to retain its iconic popularity as

‘Red & White peene walon ki baat hi kuch aur hai’ still resonates strongly

with consumers and is one of the most memorable ad-lines in India.


North Pole

• An innovative brand from the stable of Godfrey Phillips India, it is the largest

selling menthol cigarette in India.

Stellar

• India’s first slim cigarette brand Stellar “Exquisite Taste” saw the addition of two

new variants – “Supreme Taste” – the full flavour variant- and “Smooth Taste”- the

light variant. They were launched successfully in Kolkata in Oct 2010

Tipper

• Tipper is a brand driven by innovation, superiority of imagery and offering. The

new Tipper Filter variant has been able to attract a significant share of Tipper's

erstwhile micro consumers.


Cavanders

• Cavanders is one of the oldest and most trusted brands from the house of Godfrey Phillips

India. Associated with a unique taste and value proposition, Cavanders has always enjoyed

a strong emotional connect with consumers owing to its unique positioning of

"Friendship". The brand is available in a host of variants ranging from Cavanders Gold

Leaf and Magna in the plain segment to Cavanders Gold, Cavanders Special and

Cavanders Magnum filter in the Regular size filter and Cavanders Magna filter in the

Micro filter segment. Through the variants stated, Cavanders has a foothold across the

length and breadth of India.

• Cavander Gold lauched in Mar 2010 has now become a significant brand in the existing

markets and is growing at a healthy pace.


Pan Vilas – Pan Masala

• The brand takes an extra effort to ensure quality and establish trust by using a

natural alternate to banned Magnesium Carbonate and applying the best worldwide

technology in manufacturing.

• It is a treat for those discerning people who can go to any length for the elusive

perfect taste. Thus “Shauq badi cheez hai” aptly captures the brand’s ethos of

passionate indulgence

• It has been launched in the four key markets of India in early 2010.


• Pan Vilas is manufactured at Baramati, a state-of-the-art plant that employs some of

the world’s most advanced food processing technologies. Our success in meeting

strict test launch metrics and the overwhelming response to Pan Vilas from both

consumers and the trade industry has further given Godfrey Phillips India the

confidence to introduce a national rollout in 2010-11.

Sonna Bidi

• To fulfill its commitment to constantly seek out new opportunities, Godfrey Phillips

India has forayed into the bidi market, which is estimated at Rs. 12000 to 15000

Crores, with a production of 700 billion sticks per annum.


• The Sonna brand, targeted at the discerning quality seeker is known for good quality tendu

leaves and consistently filled tobacco.

• The brand has also taken the market by a storm with its various innovations.

• Sonna Bidi launched a first in the bidi industry-a filter bidi under the umbrella brand and

presently has both filter and non-filter variant.

• The filter bidi, especially, has created a buzz in the market.

• Four Square is targeted at the popular segment metrosexual male (around 25 years)while Red

& White is for the regular segment within the age group of 30-35 yrs.

• Jaisalmer is in the premium segment while Cavenders is for the lower middle class above 35

years.

• Maxus is for the regular smoker aspiring for king size value.

Investment in R&D

• The R&D facility at Godfrey Phillips India employs some of India’s best scientists,

cigarette designers, blenders and flavourists, and has the distinction of getting an

ISO 17025 certification.

• GPI’s is the first laboratory in the Indian tobacco industry to be accredited with

such a certification.

• GPI have also been recognised by the Department of Science & Technology (the

apex body governing affairs related to Science and Technology in India).

Investment in R&D

• We consider our R&D capabilities to be a vital component of our business strategy

that equips us with a long term edge over our competitors.

• Located alongside our production facilities, our R&D division extends its

competencies to combine synergies and create the best blends for domestic and

international markets.

• Our participation each year, along with 58 other prominent cigarette companies of

the world such as PMI, BAT and JTI, helps cross calibrate our results with the best

in the business.

• Our Z- scores, which determine the quality of analytical data, vis-à-vis the best in

the world, have proven to be excellent year on year.

Tie Up with Altadis Cigars

• In 2004, Godfrey Phillips initiates new strategy to push up cigar sales

• As per the agreement with Altadis, GPI imports and markets Altadis cigars in India.

• The brands that have been introduced by Godfrey Phillips in India includes Don

Diego. These cigars are artfully blended and hand made in the Dominican Republic

and are known to be one with generation of history and heritage.

• Santa Damiana is another cigar that comes from the Dominican Republic. Santa

Damiana is famous for its stunning flavour and superior construction.

Tie Up with Altadis Cigars• We also have Hav-a-Tampa, which is renowned as America’s most preferred cigars.

• Hav-a-Tampa is a century old brand with a global presence.

• It is the largest selling brand in Asia too.

• The company is also distributing Phillies, which is available in various flavors such

as vanilla, cognac, strawberry and chocolate

Focus on Exports

• In 2004, to enhance the capacity utilisation of the company, Godfrey Phillips

outlined a business strategy with a focus more on exports.

• “At present, we are utilising only 50% of our total capacity. GPI has targeted to

increase its exports to bring them on par with domestic sales over the next ten

years. So that, we can utilise our entire capacity.” A GPI official said.

• The company, which had a capacity to manufacture 1.7 billion sticks per year

against a licence for 2.5 billion, wanted international volumes to equal domestic

volumes over the next ten years

Focus on Exports

• GPI announced the pumping of Rs 600 crore over the next five years to modernise

its two plants at Mumbai and Ghaziabad to match standards as per international

specifications.

• GPI’s export volumes, which grew 36% year-on-year in 2003-04, were expected to

add 40% to Godfrey Phillips’ turnover in the next three years

• In 2004, with the vision of becoming a leading tobacco player in India and beyond,

the Company has split into two strategic business units - domestic and international

- headed by two independent CEOs.

• Prior to the restructuring, our exports business had grown rapidly to form 15% of

domestic volume.

Focus on Exports

• A focused international division will help Godfrey Phillips focus better on the

international business.

• Their long term goal in ten years was to make our export business as large as their

domestic business.

• It also looked into investing in marketing and warehousing infrastructure in its

potential export markets, which include Africa, the Middle East, China, South East

Asia, Eastern Europe, Russia and South America.

Focus on Exports

• The markets GPI is targeting are all Virginia tobacco-using markets, though the

company says it will consider importing blended tobaccos if it decides to enter

blended tobacco-using markets.

• North America, however, is not something the company is looking at.

• “Four to five companies in the Middle East and Europe currently outsource

manufacture of their cigarette brands to GPI in India,” said GPI’s senior official.

• Godfrey Phillips is the market leader in Cigars in India.

• Though Godfrey Phillips does not intend to begin manufacturing cigars, the company

has plans to export cigars to SAARC countries.

• In 2004, GPI decided to export its own brand of cigarettes to the Middle-East and

African countries.

Focus on Exports

• By 2004, the company has already dispatched the first consignment of cigarettes to

the Republic of Guyana.

• The new international brand ‘Force 10’ was officially launched in Guyana on June

10, 2004.

• In 2004, for the first time the company stated exporting cigarettes under its own

brand, while it used to export cigarette to the Middle East and African countries for

other brands under contract manufacturing basis before.

• The company targeted to tap over 10 per cent of Guyana’s market in the first year

of the launch of ‘Force 10.’

Distribution Strategy

• In 2004, Godfrey Phillips also decided to extend its distribution channel to all

metros and semi-metros

• This strategy will not only ensure product availability but also grow the market in

each of these areas through cigar appreciation programmes. In 2004, the company

had made inroads into Kolkata, Hyderabad and Vishakapatnam.

Godfrey Phillips tie up with Hotels

• In 2004, GPI were the only organised player in the Indian cigar market.

• GPI was marketing their cigars in selected markets.

• In 2004, GPI tied-up with Taj group of hotels, ITC Hotels, Grand Hyatt and

departmental stores like Asiatic.

• GPI also formed marketing alliances with other leading hotel groups, bars, pubs

and shopping malls in different metros.

Expanding to New Markets

• In 2004, Godfrey Phillips Ltd (GPI) ,for the first time, started pushing its cigarette

brands on a large scale in South India.

• In January 2003, the company launched Tipper, a lower-end cigarette brand

projected at the bidi-smoking market.

• In 2004, GPI extended the Tipper brand to other products and launched new

cigarettes specifically for the southern markets in Tamil Nadu, Karnataka, Andhra

Pradesh and Kerala.

• Their focus was on Andhra Pradesh initially and slowly expand to Tamil Nadu and

the rest of South India.


• By 2004, they completed their entry into Andhra Pradesh.

• “Andhra Pradesh has been completed. We will enter Tamil Nadu, Kerala and

Karnataka this year. Apart from Tipper, we will launch more brands for the South

Indian market,” a GPI senior official disclosed.

• After consolidating its position in the northern and western regions for over the years,

in 2009, Godfrey Phillips India (GPI) targeted 20% market share in the next three

years as against 12.5% in 2009.

• “We believe that the new markets such as West Bengal and Tamil Nadu will prove to

be a success for GPI. We are taking on a dominant player in these region and we

hope to garner sizeable chunk of the market share with our unique and special

products.” an GPI official said.


• GPI was the late entrant into these markets, but the company hoped to make a

strong footfall with wide distribution network, extensive coverage through number

of retail outlets and brand building image.

Marketing Strategies

• When the advertising ban on cigarettes to come into effect on May 1, 2004 Godfrey Phillips

India (GPI) said it does not rule out the possibility of extending its cigarette brands into other

products.

• ITC extended the Wills cigarette brand into lifestyle clothing in 2001 in anticipation of the ban

• But GPI said that it does not believe in surrogate advertisement and therefor is not going to

use that tactic.

• GPI also says it will continue to advertise the Red & White Bravery Awards, which it does not

consider to be surrogate in the first place.

• GPI’s senior vice-president Sandeep Kumar told FE, “We cannot rule out extension of

cigarette brands into other lines, though I don’t think we will get into clothes. If we do extend

into other lines, however, it will be for commercial growth and not for surrogate advertising

intent.”


• The Godfrey Phillips National Bravery Awards is a social initiative of Godfrey

Phillips India, instituted in 1990, to honour courageous people in Indian society.

• The award intends to recognise the ordinary citizens who have selflessly performed

extraordinary, little-known acts of physical bravery and social acts of courage,

thereby setting an example for others to follow.

• The award was formerly known as Red and White Bravery Awards but its name

was changed in 2003, in response to protests from various quarters about surrogate

advertising for the Red and White cigarette brand.

• In 2006, film actor Preity Zinta was appointed as the brand ambassador of the

awards.


• In 2011, Nita Kapoor, Executive Vice-President (Marketing & Corporate Affairs),

Godfrey Phillips India Ltd, said, “Given the uncertainty caused by weakened

economies consumers are going to be less naïve in terms of simply believing

marketing messages. The power of social Web in boosting communication to new

heights of access and information-sharing has created a new world where consumer

expectations are less accepting and more ‘Prove it to me' than ever before.”

• In such a milieu, Kapoor believes that “Brands will necessarily have to prove their

propositions and take them to the next level of belonging to a larger community and

not just their immediate target group.”

• This shows GPI’s obvious inclination to the digital marketing space which can be

utilised well to catch up the ground lost because of their late entry into the industry.

Strategies Employed by

ITC Tobacco

Backward Integration:

• ITC Tobacco imbibed a packaging unit into its delivery chain

for its cigarettes in 1925 as backward integration.

• As a result it developed into a Packaging and Printing

Business division which operates independently as a SBU and

caters not just to the Tobacco division but to many other

customers as well.

Promotion Strategy:

• ITC has launched a premium fashion wear brand under the

name ‘Wills Lifestyle’.

• It shares the name ‘Wills’ with ITC’s brand of cigarettes.

• The fashion shows conducted by Wills Lifestyle and their

stores even though do not advertise the tobacco product but do

serve as a promotion owing to its name.

Push Strategy:

• ITC put up its posters in kirana stores.

• Promoters informed the retailers that a ‘Mystery shopper’

would visit their shop and ask for a cigarette.

• The retailers were supposed to offer him only a ITC brand

cigarette only unless he insisted for another brand.

• The retailers following this pattern would be entitled to gifts

and trips in some cases.

• This helped in increase the awareness of ITC cigarette brands

since the retailer offered an ITC brand to every customer in his

anticipation.

• Increased sales.

• Prizes created favoritism among retailers.

Growth Strategy:

• Joint Venture:

In 1985 ITC set up ‘Surya Tobacco Co.’ in Nepal as an Indo-

Nepal and British joint venture.

Shares held by ITC, British American Tobacco and various

independent shareholders.

In 2002 Surya became a subsidiary of ITC Ltd and changed to

‘Surya Nepal Pvt Ltd’.

Growth Strategies (contd…)

• Acquisition:

In 1990 ITC acquired ‘Tribeni Tissues Ltd’, a specialty

paper manufacturing company.

Tribeni was the supplier of tissue paper for cigarettes.

It helped in obtaining operational synergy.

(Tribeni was merged with Paperboard Division in

2002.)

Diversification Strategy:

• In 2001 government of India announced ban on advertising of

cigarette companies and imposed restrictions on sale of

tobacco products.

Prohibition on smoking in public places.

Prohibition on sale of tobacco products to people below 18 yrs

of age.

Not allowed to advertise through any media.

Sponsorships by such companies also banned

• International brands continue advertising on satellite channels.

• Rising Excise duties.

• Tobacco industry becomes unattractive.

• Hence ITC diversified its capital across different non-tobacco

industries such as lifestyle retailing, hospitality, packaged food

etc.

Corporate Social Responsibility of ITC

ITC Perspective:

• Effective growth strategy for nation must address rural India

which has 75% of country’s poor.

• India’s rural transformation cannot be brought about by

government alone; only an inspired public-private partnership

could do this.

E-Choupal:

• Leveraging IT to cluster all value chain participants.

• Real time information and customized knowledge provided to

farmers.

• Aligning farm output with market demand to secure

profitability.

Cause of Underprivileged children:

• ITC’s notebook brand ‘Classmate’ donates Re 1 from each

sold notebook for the cause of underprivileged children.

• ITC supports 60,000 children providing uniforms, books,

improving school buildings.

• It runs 674 Supplementary Learning Centres.

Women Entrepreneurs:

• ITC has organized village women into micro-credit lending

groups increasing income.

• IT means better nutrition, healthcare and education for their

children.

• Training for working is also provided.

133

THANK YOU

ITC- Tobacco Final

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