Industry - TOBACCO

Company- ITC
Sub- Strategic Management

Symbiosis Institute of Business Management Bangalore. Section C

Submitted By:Akshay Aware -14176 Abhirup Roy - 14121 Ankit Agrawal - 14178 Hemant Vatkar - 14139 Manu Joseph - 14147
1 Ranveer Desai - 14177

ITC One of Indias 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
2

 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 worlds biggest companies measured by a composite of sales, profits, assets & market value Rated as one of Indias Most Respected Companies (IMRB-

Business World Survey 2006)

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
4

 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 companys strategy) * Source:- ITC website

5

ITCs 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.
7

ITCs Revenues
March 2011 in Cr. March 2010 in Cr. March 2009 in Cr. March 2008 in Cr. March 2007 in Cr.

Sales Turnover

30,633.57

26,399.63

23,247.84

21,467.38

19,519.99

March 2011 in Cr.

March 2010 in Cr.

March 2009 in Cr.

March 2008 in Cr.

March 2007 in Cr.

Tobacco Sales Turnover

19800

17200

15040

15298

14678

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.

 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 Indias tobacco industry in 2010

New proposed pictorial warnings of a cancer-stricken mouth

must be implemented on all tobacco packaging from 1 December 2010.
10

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
11

Growth in Revenue (Rs in Crores)

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

ITC
Godfrey Phillip VST

30,633.57
3,069.38 1,396.54

26,399.63
2,617.01 1,125.42

23,247.84
2,276.21 1,004.74

21,467.38
1,828.40 773.44

19,519.99
1,597.59 725.23

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
12

Growth in Profit (Rs in Crores)

Profit ITC Godfrey Phillip VST Kothari Product Total Growth % Mar-11 4,987.61 166.03 95.01 61.61 5,310.26 23.26 Mar-10 4,061.00 118.38 62.05 66.84 4,308.27 25.02 Mar-09 3,263.59 108.9 61.82 11.74 3,446.05 2.71 Mar-08 3,120.10 112.22 58.35 64.46 3,355.13 14.68
13

Mar-07 2,699.97 88.1 55.09 82.39 2,925.55

Growth in Market Share

Cigarette Company Shares Retail Volume (%)
2007 ITC Group Godfrey Phillips India Ltd VST Industries Ltd 67.5 11.1 8.7 2008 67.8 11.5 8.4 2009 67.9 11.9 8.5 2010 71.8 12.9 8.5 2011 72.9 13.8 8.7

Golden Tobacco Ltd GTC Industries Ltd

Other Total

9.2
3.5 100

9
3.3 100

8.6
3.1 100

3.6
3.2 100

1.5
3.1 100
14

Market Share of Top Ten India Cigarette Brands Retail Volume (%)
Brand Gold Flake Wills Scissors Four Square Capstan Bristol Charminar Red & White Charms Cavenders Company name ITC Group ITC Group ITC Group Godfrey Phillips India Ltd ITC Group ITC Group VST Industries Ltd Godfrey Phillips India Ltd VST Industries Ltd Godfrey Phillips India Ltd 2010 (%) 31.2 18.2 8.4 7.9 7.4 6.9 4 3 3 2.5

15

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.

16

Market Capitalization(in crs)

70 60

50

40

market capitalization(in crs)

30

20

10

0 2007 2008 2009 2010 2011

17

Porters Five Forces Model For Indian Tobacco Industry

Threats of New Entrants=LOW

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 Cant Scale. Government policy high tax, no TV/Radio Ads.
18

use Economies of

Contd
Bargaining Power of Suppliers=LOW
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 dont have much control over smokers.

19

Contd Bargaining Power of Buyers=LOW

Addicted customers
cant leave it. Smoking has lot of symbolic and emotional values attached with it. Product quality not much important to smokers Research

- even after knowing harms people

shows most people cannot differentiate among the brands in a

blind taste. Low switching costs in terms of price.
20

Contd
Threat of Substitutes Product=LOW
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.

Intensity of Competition=HIGH
Less price war.

21

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.
22

 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.

23

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.
Produces 30 million bidis a day. Produces 1.8 billion bidis annually. 18 different societies (companies) Produces 20 billion bidis annually. Claims to produces 30% of the bidis in the organized sector. Produces 100 million bidis a day. Has 10 factories (2004).

Thirty Brand Beedies

Kerala Dinesh Beedi Workers Cooperative

Kerala

Kerala Dinesh Beedi

Mangalore Ganesh Beedi Works

Tamil Nadu Karnataka

501

Pataka Biri Manufacturing Co Ltd

Delhi

502 Pataka Biri

24

The Smokeless Industry

Type of Smokeless Tobacco Khaini/ Kharra Gutka (Gutkha) Description Mixture of sun-dried tobacco and lime. 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 Zarda

A paste made of tobacco and molasses. Raw tobacco that is scented using spices such as

saffron.

25

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

26

Contd

Leading Companies and Popular Brands

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.
27

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.

28

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.

29

 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.

30

Smokeless Tobacco Company Shares Retail Volume (%)

Company Name Dhariwal Industries Ltd (Manikchand Group) Dharampal Satyapal Ltd (DS Group) Som Sugandh Ind Ltd Shree Meenakshi Food Products Pvt Ltd Kothari Products Ltd Others 2004
12

2005
12

2006
12.3

2007
12.3

2008
12.5

2009
12.5

9.3 4.2
2.8 4.3 67.4

9.5 4
2.8 4.3 67.4

8.8 4.7
3 4 67.2

7.8 5
3 3.5 68.4

7 5.5
3.2 2.8 69

7.2 6
3.5 2 68.8

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Market Share of Top India Smokeless Brands Retail Volume (%)

Brand Company name Market Share

RMD Gutkha Dhariwal Industries

Dilbagh Tulsi Baba Goa Som Sugandh Industries Dharampal Satyapal Dharampal Satyapal Shree Meenakshi Food Products Pan Parag Kothari Products

12.5
6 3.7 3.5

3.5 2

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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

33

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.
34

 ITCs cigarette industry contributed to 65% of the companys

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.

35

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.
36

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.
37

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.
38

Exports & Imports

Unit of measurement Cigarette imports Cigarette exports Tobacco leaf imports Tobacco leaf Metric tons 47905 71146 69965 7767 97363
39

1970

1980

1990

1995

2000

Sticks in millions Sticks in millions Metric tons

68

169

44

27

2187

6363

1220

3655

32

88

38

409

1423

exports

Tobacco Requirements & Regulations

Tobacco Requirements & Regulations Advertising health warnings/messages Manufacturing licensure Package health warning/message Label design on packaging Required Regulated

Yes Yes Yes Yes

40

Demand Drivers
Population increase.

Purchasing power.
Government Regulations. Media & Promotions.

41

Analysis of top 3-5 players (Market Share)

42

Godfrey Philip(Financials)
Income Statement Balance Sheet
(Mar '11) (In Rs Cr)

(Sep '11) (In Rs Cr) Quarterly Net Sales Other Income PBDIT Net Profit 180.8 2399.79 1514.31

(Mar11) Yearly

Total Share Capital Net Worth 773.81 15953.27 99.2 8345.07 5554.66

6085.22 21167.58

518.17 9051.41 4987.61

Total Debt Net Block Investments Net Current Assets Total Assets

819.34 16052.47
43

VST Industries(Financials)
Income Statement
(Sep '11) (Mar '11)

Balance Sheet
(Mar '11) (In Rs Cr)

(In Rs Cr) Quarterly Net Sales Other Income PBDIT Net Profit 164.76 180.8 2399.79 1514.31 Yearly 584.57 518.17 9051.41

Total Share Capital Net Worth Total Debt Net Block Investments Net Current Assets

15.44 264.44 0 152.42 170.99 -65.87

4987.61

Total Assets

264.44

44

ITC(Financials)
Income Statement
(Sep '11) (In Rs Cr) Quarterly Net Sales Other Income PBDIT Net Profit 6085.22 180.8 2399.79 1514.31 Yearly 21167.58 518.17 9051.41 Investments 4987.61 Net Current Assets Total Assets 819.34 16052.47
45

Balance Sheet
(Mar '11) (Mar '11) (In Rs Cr)

Total Share Capital Net Worth

773.81 15953.27

Total Debt Net Block

99.2 8345.07
5554.06

Golden Tobacco(Financials)
Income Statement
(Sep '11) (Mar '11)

Balance Sheet
(Mar '11) (In Rs Cr)

(In Rs Cr)
Quarterly Yearly Total Share Capital Net Worth 773.81 15953.27

Net Sales Other Income

PBDIT Net Profit

6085.22
180.8 2399.79 1514.31

21167.58
518.17 9051.41 4987.61

Total Debt
Net Block Investments

99.2
8345.07 5554.06

Net Current Assets Total Assets

819.34 16052.47
46

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

47

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.

48

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.

49

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.

50

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
individuallyInsignia Higher SES area Wills Classic/Mild/Regular Higher SES area Wills Navy Cut Higher SES area Wills Silk Cut Higher SES area Gold Flake/Lights Filter Higher and lower SES area

ITCs Supply Chain:

Farm to warehouse warehouse to ITC. Manufacturing of cigarettes PMD Processing of tobacco leaf to tobacco blend.

SMD Making and Packing.

53

Supply Chain Model:

PMD: Primary Manufacturing Division. SMD: Secondary Manufacturing Division. ILTD: Indian Leaf Tobacco Division. RCTI:-Reliable Cigarette and Tobacco Industries Private Ltd ATC: Asian Tobacco Company HDC: Hyderabad Deccan Cigarette Industries MS: Rest of the raw material

54

Marketing Channel for Cigarettes & Bidis

Distribution Channel of ITC Ltd

Cost Structure
Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expense Selling & Admin Expense Miscellaneous Expense 2011 8601.13 421.68 1178.46 560.57 2010 7140.69 387.34 1014.87 413.79 2009 6864.96 394.12 903.37 402.88 2008 6307.79 309.90 745 73.52 2007 5807.48 253 630.15 65.32

2408.03 1120.89

2093.87 1008.91

1684.41 516.90

1609.33 682.72

1299.17 601.28

Preoperative Expense Capitalised

Total Expense

-60.54

-71.88

-72.55

-112.75

-42.52

14230.22

11987.59

10694.09

9615.51

8613.88
57

Cost Structure
Expenditure (2011) Raw Materials ITC 8601.13 Godfrey Phillips 626.18 VST 293.22 Kothari Product 1323.72 Golden Tobacco 49.90

Power & Fuel Cost

Employee Cost Other Manufacturing Expense Selling & Admin Expense Miscellaneous Expense Preoperative Expense Capitalised Total Expense

421.68
1178.46 560.57

9.45
138.79 59.50

2.88
60.85 0.59

0.27
1.24 0

1.44
40.74 0.56

2408.03 1120.89 -60.54

457.37 60.72 0

73.31 15.51 0

23.44 2.90 0

0 25.77 0

14230.22

1352.01

446.36

1351.57

118.41
58

35000 30000

25000
20000 15000 10000 5000 0 2007 25000 20000 2008 2009 2010 2011 Sales Turnover Total Expense

15000
10000 5000 0 -5000 ITC Godfrey Phillips VST Kothari Product Golden Tobacco

Sales Turnover Total Expense

PAT

59

Profitability Ratio
(%) Operating Profit Margin PBIT Margin 2011 34.08 2010 33.02 2009 32.84 2008 31.57 2007 32.51

30.05

28.97

28.37

27.50

28.86

Gross Profit Margin

Cash Profit Margin Net Profit Margin Return On Capital Employed

30.97
25.17 22.91 44.94

29.74
23.99 21.30 42.64

29.17
24.22 21.18 34.60

28. 44
23.45 21.50 36.60

34.05
24.28 21.40 37.24

Return On Net Worth

Return On Long Term Asset

31.36
44.95

28.98
42.64

23.85
34.75

25.99
36.88

26.01
37.51
60

Profitability Ratio
(%) Operating Profit Margin PBIT Margin ITC 34.08 Godfrey Phillips 15.11 VST 24.42 Kothari Products 2.13 Golden Tobacco -40.19

30.05

12.20

19.64

2.02

-33.90

Gross Profit Margin

Cash Profit Margin Net Profit Margin Return On Capital Employed

30.97
25.17 22.91 44.94

12.59
12.55 10.23 24.74

20.05
18.66 16.66 47.47

2.07
2.17 4.43 8.17

-41.84
-28.31 -29.64 -9.87

Return On Net Worth

Return On Long Term Asset

31.36
44.95

21.01
23.68

36.46
47.47

10.32
11.04

-171.11
-9.87
61

50

40
30 20 10 0 2007 60 40 20 0 Net Profit Margin -20 -40
62

Net Profit Margin

Return On Capital Employed

2008

2009

2010

2011

ITC

Godfrey Phillips
VST Return On Capital Employed Kothari Product Golden Tobacco

Against NIFTY

63

Competitor Analysis of each

Segment

64

Historic India Cigarette Market Size (Retail)

Retail Volume (Billion Sticks)
102 100 98 96

94
92 90 88 86 84 82 19992000200120022003200420052006200720082009
SOURCE: Euro-Monitor International

Retail Volume (Billion Sticks)

Market Share of Competitors

Cavenders Others Red & White 9% Charms 4% 3% 3% Charminar 4% Bristol 7%

Sales

Gold Flake 31%

Capstan 7% Four Square 8%

Scissors 8%

Wills 18%

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 cigarettes.

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 Philips.

PMI Started Manufacturing its International Brand Marlboro independently.

SWOT ANALYSIS-ITC Tobbaco

SWOT Analysis.

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 ITCs 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.

Biri : Cigarettes ratio = 8 : 1

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

77

SWOT Analysis.

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.Os 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-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 its 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.

Godfrey Phillips India Ltd

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

Godfrey Phillips India Ltd

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

Godfrey Phillips India Ltd

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.

Godfrey Phillips India Ltd

North Pole
An innovative brand from the stable of Godfrey Phillips India, it is the largest
selling menthol cigarette in India.

Stellar
Indias 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.

Godfrey Phillips India Ltd

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.

Godfrey Phillips India Ltd

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 brands ethos of passionate indulgence It has been launched in the four key markets of India in early 2010.

Godfrey Phillips India Ltd

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

the worlds 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.

Godfrey Phillips India Ltd

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 lter bidi under the umbrella brand and presently has both lter and non-lter variant.

The lter 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 Indias best scientists,

cigarette designers, blenders and flavourists, and has the distinction of getting an
ISO 17025 certification. GPIs 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--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 Americas 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. GPIs 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 tobaccousing 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 GPIs 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 Guyanas 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.

Expanding to New Markets

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.

Expanding to New Markets

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.

GPIs senior vice-president Sandeep Kumar told FE, We cannot rule out extension of cigarette brands into other lines, though I dont 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.

Marketing Strategies
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.

Marketing Strategies
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 nave 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 GPIs 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 ITCs 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 IndoNepal 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 countrys poor. Indias 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:

ITCs 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.

THANK YOU

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