A Case Analysis on ITC Limited

Submitted by Ashok Kumar Raveen Selvan Revathi Priya 13AC06 13AC28 13AC30

Stanley Jebakumar 13AC36 Vinoth Kumar Submitted to : Ms. B. Uma Maheswari 13AC44

Introduction An Indian Conglomerate (103 years old) Has Five Diversified Segments (FMCG, Hotels, Paperboards, Paper & Packaging, Agri Business) 2012-2013 Revenue US$ 8.31 Billion One of Forbes 2000 list Only company in the world to be Carbon Positive, Water Positive, Solid Waste Recycling Positive

Vision Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Company's stakeholders. Mission To enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder value. Corporate Strategies Continue to focus on their existing portfolio Ensure that their business is world class and internationally competitive Enhance competitive power of the portfolio Create distributed leadership within the organization Continuously strengthen & refine Corporate governance process

Developed Vision To make ITC as the worlds most valuable corporations through developing technology, many more new innovative products that add value to the customers and the companys stakeholders. Developed Mission To enhance the wealth generating capability of the enterprise in a digital environment and create a new superior digital way to reach the customers, delivering sustainable stakeholder value. Porters Five Force Model Rivalry Among Competitors Attractiveness Low 1 No of Competitors Industry Growth Large 2 3 High 4 5 Small Competitors like HUL, Cadbury, P&G Remarks

Slow

Fast

FMCG sector grows 17.3% every year (IBEF)

Fixed Cost

High

Low

Economies of Scale avoids most of the fixed costs Not much differentiation is found unless they have varieties No cost involved

Differentiation

Low

High

Switching Cost Openness in terms of sales Excess Capacity Strategic Stakes Barriers to Exit

Low

High

Secret

Open

The process is known Demand is always high in FMCG sector FMCG sector is stable, so people invest more

Large High

Small Low

Attractiveness Low 1 Asset Specialization 2 3 4 High 5 Remarks

High

Low

Hold-up is bilateral

Cost of Exit

High

Low

Market Demand almost nullifies their cost of exit There is no restriction and no need to pay any cost to the government

Government restrictions

High

Low

Barriers to Entry Attractiveness Low 1 Economies of Scale Small 2 3 High 4 5 Large Large Scale Production Remarks

Product Differentiation Brand Identity Switching Cost Access to Channels of Distribution Capital Requirement Access to Technology Access to Raw Material Government Protection

Low

High

Market Expansion

Low Low Easy Small Easy Easy None

High High Limited Large Restricted Restricted Substantial

Consumers are brand conscious No cost for preferring a different brand Planned Distribution Demand is high, so more investment is needed Faster access to information Raw material are easily available No Restriction

Threat from Substitutes Attractiveness Low High 1 2 3 4 5 Availability of close Substitutes Switching Cost Substitutes' price value Profitability of the producers of substitutes High Low Remarks Plenty of Substitutes Low Attractiveness

Low

High

Not much switching cost is involved Comparatively better price

Better

Worse

High

Low

If they lose customers once, its tough to retain them back

Bargaining power of Buyers Attractiveness Low 1 No of Buyers Availability of Substitutes Switching Cost Buyers Threat of Backward Integration Industrys threat of Forward Integration Contribution to Quality Contribution to Cost Buyers Profitability Small 2 3 4 High 5 Large Fourth Largest sector in Indian Economy(IBEF) Many local producers have similar products Almost all variants are of same price Remarks

Many

Few

Low

High

High

Low

Customers long for these products in market

Low

High

No Dominant Suppliers Customers are highly concerned about quality Buyer has no involvement in cost Customer Delight is relatively high

Low High Low

High Low High

Bargaining power of Suppliers Attractiveness Low 1 No of Suppliers Availability of Substitutes Switching Cost Suppliers Threat of Forward Integration Industrys threat of Small 2 3 High 4 5 Large Many Players are there in this industry Many local players are there to produce similar products Almost all variants are of same price Remarks

Few

Many

High

Low

High

Low

Chances of Forward Integration for suppliers is less Buyers do not threaten to integrate backward

Low

High

Backward Integration Contribution to Quality Contribution to Cost Industrys Importance to Suppliers High High Low Low Low High Suppliers are highly concerned about customer retention Suppliers always minimize the cost to gain their edge in market If they lose customers once, its tough to get them back

Government Actions Attractiveness Low 1 Industry Protection 2 3 4 High 5 Government extends its hand to protect an industry by exempting tax and through other policies Government encourages new entrepreneurs of FMCG products Export duties are less to encourage more exports from India Remarks

Low

High

Industry Regulation Customs and Tariff Restrictions Abroad

High

Low

High

Low

Overall Assessment Attractiveness Low 1 Barriers to Entry Rivalry Among Competitors Barriers to Exit Power of Buyers Power of Suppliers Threat of Substitutes 2 3 High 4 5 Remarks

Barriers to entry is almost less Competition is moderate Barriers to exit is low Power of Buyers is moderate Power of Suppliers is moderate Threat of Substitutes is high

Government Actions Overall Assessment

Government has many supportive policies Ultimately its a good sector to do business

External Opportunities And Threats Opportunities Untapped Rural Markets Mergers and Acquisition Increasing Buying Power of Customers Rapid Growth of Media Growth of New Customers Growth of E-Commerce Brand Consciousness of People Threats Competitors in Market FDI Interventions Emergence of Local Players Government Actions No. of Substitutes Competitive Profile Matrix Factor R&D Expenses Product Innovation Revenue Brand Awareness Attrition Rate (Top Mgmt.) Products Varieties ITC Limited 240 Crores New varieties of Fiama Di Wills US$ 8.31 Billion Very High 0% for past 15 years Few products Hindustan Unilever Limited 22.91 Crores Knorr Soups US$ 3.6 Billion High About 5% Wide range of Products

S. No

Factors

ITC Weight 0.18

Rating 3 2

1 2

R&D Expenses

Weighted Score 0.54 0.26

HUL Weight 0.18 0.13

Rating 3 4

Weighted Score 0.54 0.52

Product 0.13 Innovation

3 4 5

Revenue

0.14

4 4 4

0.56 0.88 0.72

0.14 0.22 0.18

3 3 2

0.42 0.66 0.36

Brand 0.22 Awareness Attrition 0.18 Rate (Top Mgmt.) Product Varieties 0.15 1

6 Total

0.3 3.26

0.15 1

0.6 3.1

External Factor Evaluation Matrix S. No 1 2 3 4 5 6 7 Key External Opportunities Untapped Rural Markets Mergers & Acquisition Increasing Buying Power of Customers Rapid Growth of Media Growth of New Customers Growth of E-Commerce Brand Consciousness of People Total Weight 0.13 0.06 0.08 0.07 0.09 0.06 0.07 0.56 Rating 4 1 2 2 3 1 2 Weighted Score 0.52 0.06 0.16 0.14 0.27 0.06 0.14 1.35

S. No 1 2 3 4 5

Key External Threats Competitors in Market FDI Intervenstions Emergence of Local Players Government Actions No. of Substitutes Total

Weight 0.13 0.09 0.08 0.06 0.08 0.44

Rating 4 3 2 2 2

Weighted Score 0.42 0.27 0.16 0.12 0.16 1.13

S. No 1 2

Key External Factors Opportunities Threats Total

Weighted Score 1.35 1.13 2.48

Internal Strengths And Weaknesses Strengths Brand Name Quality Market Share Good Top Management Product Diversification Big Supply Chain Marketing Team Low Price R&D Department Weaknesses Negative Notion on Tobacco High Taxation

Unrelated Diversification

Internal Factor Evaluation Matrix S No 1 2 3 4 5 6 7 8 9 Key Internal Strengths Brand Name Quality Market Share Good Management Product Diversification Big Supply Chain Marketing Team Low Price R&D Dept Total Weight 0.06 0.1 0.06 0.07 0.1 0.07 0.07 0.13 0.08 0.74 Rating 4 2 4 4 2 4 4 1 3 Weighted score 0.24 0.2 0.24 0.28 0.2 0.28 0.28 0.13 0.24 2.09

S No 1 2 3

Key Internal Weaknesses Negative Notion on Tobacco High Taxation Unrelated Diversification Total

Weight 0.09 0.07 0.1 0.26

Rating 2 3 1

Weighted score 0.18 0.21 0.1 0.49

S. No 1 2

Key Internal Factors Strengths Weaknesses Total

Weighted Score 2.09 0.49 2.58

SWOT Matrix Strength 1. Strong & experienced management 2. Trusted brand in India 3. Diversified products and service portfolios 4. Excellent R&D facilities 5. One of the most liquid script in capital market Opportunity 1.Increase reach in rural markets 2.Mergers and acquisitions to strengthen the brand 3.Increasing purchasing power of people 4.Good source of foreign exchange is available from the export of agri products Threat 1.Negative publicity for smoking could affect its cigarette segment 2. Competition from unbranded products 3. Intense competition from other FMCG and hotel chains 4.Monsoon failures could affect the agri exports Weakness 1. Diversification into various fields would be risky if there s no knowledge in that 2. Largely Dependent on cigarette revenues 3. Low market share in hotels segment

SO Strategy
With its strong brand image it could extend its markets in rural regions (S2,O1 )

WO Strategy
With the mergers and acquisitions it can improve its hotels segment (W3,O2)

ST Strategy
Finding alternatives to overcome monsoon failures with its organised R&D facilities (S4,T4)

WT Strategy
Could increase the market share of hotels chain through vigorous marketing (W3,T3)

BCG Matrix

Star
Agri Business Hotels Paperboards & Packaging

Question Mark
FMCG (Food Products)

Growth

Cash Cow
FMCG (Cigarettes)

Dog
ITC - Infotech

Market Share
IE Matrix

Grand Strategy Matrix

QSPM Matrix Strategy 1 Tapping the rural market Strategy 2 Increasing the market share of Hotels

S. No

Key External Opportunities Untapped Rural Markets Mergers & Acquisition Increasing Buying Power of Customers Rapid Growth of Media Growth of New Customers Growth of ECommerce Brand Consciousness of People Total

Strategy 1 Weight AS 0.13 0.06 0.08 0.07 0.09 0.06 0.07 0.56 4 2 2 3 2 TAS 0.42 0.16 0.14 0.27 0.14 1.13 AS 1 2 2 3 1 -

Strategy 2 TAS 0.06 0.16 0.14 0.27 0.06 0.69

1 2 3 4 5 6 7

S. No 1 2 3 4 5

Key External Threats Competitors in Market FDI Intervenstions Emergence of Local Players Government Actions No. of Substitutes Total

Weight AS 0.13 0.09 0.08 0.06 0.08 0.44 4 2 2 -

Strategy 1 TAS 0.52 0.16 0.12 0.8 AS 4 2

Strategy 2 TAS 0.52 0.16 0.68

S. No 1 2 3 4 5 6 7 8 9

Key Internal Strengths Brand Name Quality Market Share Good Management Product Diversification Big Supply Chain Distribution channel Low Price R&D Dept Total

Weight AS 0.06 0.1 0.06 0.07 0.1 0.07 0.07 0.13 0.08 0.74 4 2 2 4 4 1 -

Strategy 1 TAS 0.24 0.2 0.2 0.28 0.28 0.13 1.33 AS 4 2 4 1 -

Strategy 2 TAS 0.24 0.2 0.28 0.13 0.85

S. No 1 2 3

Key Internal Weakness Negative Notion on Tobacco High Taxation Unrelated Diversification Total

Weight 0.09 0.07 0.1 0.26

Strategy 1 AS 2 1 TAS 0.18 0.1 0.28 AS 3 -

Strategy 2 TAS 0.21 0.21

Strategy 1 S. No 1 2 3 4 Key Factors Opportunities Threats Strengths Weaknesses Total Space Matrix Weight TAS 0.56 0.44 0.74 0.26 2 1.13 0.8 1.33 0.28 3.54

Strategy 2 TAS 0.69 0.68 0.85 0.21 2.43

S.No
1 2 3

Factors Industrial Strength

Viral Marketing & Promotions Brand Image Diversification Total

Ratings
5 3 2 10 -1 -2 -3 -6

Competitive Advantage
1 2 3 70% Market Share in Indian Cigarette Industry 0% Attrition Rate in Top Mgmt. for the past 15 years Spends nearly 240 Crores for R&D Projects Total

S.No
1 2 3

Factors Financial Strength

Net Profit has increased by 17% during 2012-2013 Phenomenal increase of ROC from 28.4% to 45.7 Has a liquidity ratio of 1.27 Total

Ratings
5 4 2 11 -4 -2 -6

Environmental Stability
1 2 High Inflation rate in India Low Switching cost in FMCG industry Total ES Average is -6/2 = -3 IS Average is 10/3 = 3.33 CA Average is -6/3 = -2 FS Average is 11/3 = 3.66 Directional Vector Coordinates X-axis : -2+3.33 = 1.33 Y-axis : -3+3.66 = 0.66

The Firm is in good shape in a stable and growing industry. So it is better for the firm if it continues its same aggressive style.