ITC DIVERSIFICATION

GROUP 5
ANKIT YADAV - PGP/20/259
PRATIKSHA JHAWAR - PGP/20/270
NISHI RANJAN TARAI - PGP/20/280
THAITHOILUNG THAIMEI - PGP/20/290
RUPALI - PGP/20/300
HIMANSHU VERMA - PGP/20/369
 1925: Packaging and Printing: Backward
Initial Phases of ITC Integration
1975: Entry into the Hospitality Sector

2001 1979: Paperboards and Specialty Papers

1974 ITC
1970 I.T.C. Limit 1985: Nepal Subsidiary
India Limit ed
1910 Tobacco ed 1990: Agri Business
Company
Imperial Limited
Tobacco 2000: Lifestyle Retailing
Company of
India Limited 2000: Information Technology
Wills, Watkins & Co. by Henry Overton 2001: Branded Packaged Foods
Wills I and his partner Watkins in 1786
Their first brand was Bristol, made at 2002: Education & Stationery Products
theLondonfactory from 1871 to 1974.
Three Castles and Gold Flake followed in 2002: Agarbattis & Safety Matches
1878 and Woodbine ten years later.
In 1901 SirWilliam Henry Willsformed 2005: Personal Care Products
theImperial Tobaccocompany
ITC BUSINESS
PORTFOLIO
 Produc
ts
Diversification
Existing New

Existing
Motivation for diversification Product
Price increase due to excise duty Penetration developme
Increased restrictions on tobacco product nt
Create multiple drivers of growth
Negative impact on use of tobacco product
To make use of surplus cash flows Markets

Market

New
Diversificat
developme
ion
nt
Tobacco
Packaging & printing
FMCG
Hotel
IT
Value Creation in unrelated Business
1975: Entry into the Hospitality Sector - A 'Welcome' Move

1979: Paperboards & Specialty Papers - Development

of a Backward Area

1985: Nepal Subsidiary - First Steps beyond National

Borders

1990: Paperboards & Specialty Papers - Consolidation

and Expansion

1990: Agri Business - Strengthening Farmer Linkages

2002: Education & Stationery Products - Offering the

Greenest products
Value Creation in unrelated Business (contd.)

2000: Lifestyle Retailing - Premium Offerings

2000: Information Technology - Business Friendly Solutions

2001: Branded Packaged Foods - Delighting Millions of

Households

2002: Agarbattis & Safety Matches - Supporting the Small

and Cottage Sector

2005: Personal Care Products - Expert Solutions for

Discerning Consumers

2010: Expanding the Tobacco Portfolio

ITC diversification under Mr. Y C
Deveshwar
The company's net revenues nearly 15-fold to Rs.36,475 crore

Its profit after tax 37 times to Rs.9,845 crore

The distribution highway now handles over 1,500 SKUs

ITCs non-cigarettes businesses have grown seventeen-fold and registered a net segment revenue
of Rs.23,000 crore

From 12 hotels in 1996, ITC has grown to over 100 properties across four brands ITC Hotels,
WelcomHotels, Fortune and WelcomHeritage
Shareholder Value
ITC : Financial Highlights 1996-2016 (Figures in Rs. Crores, *as on 31 st
March 2016)
1996 2016

Gross Income 5,188 53,748

Net Segment Revenue (other than 1,363 23,465
Cigarettes)
PBIT 536 15,008
Profit After Tax 261 9,845
Assets Employed 2,584 49,518
Market Capitalisation 5,571 2,63,989*
CAGR in Total Shareholder Returns in the period 1996-2016: 23.3%
Rapid scale up of FMCG
business
CORPORATE LEVEL
DYNAMICS
Strategic Management Process

Environment Strategy
al Strategy Evaluation
Formulation Implementat and Control
Scanning ion
BCG MATRIX Corporate Strategy SWOT
ANALYSIS
Flowchart
Strengths Weakness

Strong Over
Corporate Brand dependen
Value. ce on
Strategy
Market tobacco
Leader in products.
tobacco
business.
Diversificat Opportunities Threats
ion
Diversificat Emergence
ion of ill
Favoring effects of
Related Unrelated macro tobacco.
Diversificat Diversificat economic New
ion ion conditions. restrictive
policies.
ITC
BUSINESS
STRATEGY
Major Corporate Strategies CORE PRINCIPLES

Create multiple drivers

of growth

Distributed leadership

Management

Executive Freedom
Empower

framework
Freedom within a
in the management

Globally recognized
transformational
strategies

Continuous refinement
of corporate
governance process
CHALLENGES IN ITC
DIVERSIFICATION

Post Independence Era:

Excise duty on cigarettes in 1948

Loss in market share to local rivals such as Golden Tobacco
and National Tobacco
1970s-1990s :

nationalist undercurrent of mid 70s

Perception of foreign-owned organization
with a colonial mindset.
Rs.803 crore excise case alleged that ITCs
cigarettes were being sold in the market at
a price higher than the printed maximum
retail price.
Failure of marine business
1990- 2016:

Opposition from Parent company

BAT
Accusation of Financial irregularity
by BAT
2016 -
In October 1996, the Enforcement PRESE
Directorate arrested former ITC
Chairmen JN Sapru and KL Chugh as NT
well as 12 top ITC executives.
Selling of major businesses.
 Transformation of ITC:

The strategy was executed transformational paradigm that

rested upon three complementary pillars:
Vision
Values
Vitality

Drivers of Transformation:
Full-throated diversification: Since ITCs earlier diversification projects had run into
choppy waters because of insufficient investments, Mr.Deveshwar was convinced that judicious
but full-throated diversification was indeed the best way forward.
Long Term Focus: Shedding undue preoccupation with tactical results, the company
continued to make substantial investments into its Hotels business during the prolonged period
of downturn over the years following the 2008 recession. As a result of such commitment, ITC
now operates Indias second largest hospitality chain with 105 hotel properties at around 90
locations.
Top down Approach: The common thread that runs through all ITCs successful launches is the
premium positioning of its products. Premiumisation has been the cornerstone of the company's
diversification strategy. Enter the premium segment and then gradually spread the reach with
ROAD AHEAD
 CURRENT CHALLENGES AND ROAD AHEAD
The steep increase in the tax rates on cigarettes, both at the Central and at the State level, has led to the
undesirable consequence of shifting consumption to lightly taxed (bidis etc) or tax evaded tobacco
legal trade; 11%
products.
48% of adult Indian males consume tobacco. Only 10% of adult Indian males smoke cigarettes as
compared to 16% who smoke bidis and 33% who use smokeless tobacco.

The domestic legal cigarette industry is faced with the growing menace of illegal cigarettes.

India is the 4 th Largest Illegal cigarette Market in the World; resulting in Revenue loss of over 9000 cr.
illegal trade; 89%
p.a. to the National Exchequer

Fall in volumes of duty paid cigarettes by 4.4% during the period 2005 to 2010, the duty-not-paid
volumes grew by 49.3% during the same period.

Attractive tax arbitrage opportunities, as a result of the high level of taxes on the legal domestic
cigarette industry in India, incentivises illegal flow of cigarettes into the Country

Another dangerous outcome of the increasing volume of illicit trade is that it encourages the entry of
organised criminal syndicates, which can have serious law and order consequences for the country.

Using economies of scale, can reduce the price further.

Go for further differentiated and innovative products like ice burst ciggerates
FUTURE PLAN OF FMCG businesses need investments
To gain entry in new market innovation and
ACTION differentiation more diversification and penetration in
the existing market required
With a strategy based on acquisitions and organic
growth, ITC's plan is to take the non-cigaretteFMCG
FMCG business to Rs 1,00,000 crore over the next 15 years
from Rs 8,100 crore in 2013-14.
The company has set a revenue target of Rs. 1
trillion from its new FMCG business by 2030
The main challenge forITCin achieving these
targets, however, lies elsewhere: is the company
ready with the next rung of leaders to drive growth
Anincrease in the number and complexity of
International NTMs, both in trade of goods and services.
Trade One way this is being addressed is by strengthening
the private sector voice in policy making
In the long term - for positive brand image they
need to focus more on sustainable activities like low-
Brand Image
carbon and green growth strategy and CSR activities
like E-chaupal
Disclaimer: Members at ITC do not promote use or consumption of
Tobacco