Conglomerate Diversification

Conglomerate DiversificationPresented by:Neha Kumar (A029)Rashi Kapur (A039)Sonal Rajadhyax (A050)Tarannoom Rahmani (A053)Yuvraj Tandon (A059)

NMIMS, PT-MBA, 2nd Year, 2013Diversification - ConglomerateA growth strategy in which a company seeks to develop by adding totally unrelated products and markets to its existing business

Examples:

About ITC ITC was incorporated on August 24, 1910 under the nameImperial Tobacco Company of India Limited. The Company now stands rechristened ITC Limited Market capitalisation of US $ 45 billion Turnover of US $ 7 billion Operates in: FMCG, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, and Information Technology The only enterprise in the world, of comparable dimensions to be carbon-positive, water-positive, and solid waste recycling positiveVisionSustain 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

MissionTo enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder valueITC Products

PESTCNational and International players interested in same marketsProfits to be made from India, an emerging economy IT sector growth rapid Internet usage access to rural sector Increased mediums to information available on the ITC provided web portal Limited mediums available to promote brand buildingPorters Five Forces ModelITC CigarettesPorters Five Forces ModelITC FMCG SectorPorters Five Forces ModelITC HotelCPM FMCG SectorITCP&GSr. No.FactorsWeightRatingWeighted scoreWeightRatingWeighted score1R&D expn0.1540.60.1530.452Product innovation0.120.20.140.43Revenue0.1530.450.1510.154Brand awareness0.240.80.210.25Attrition rate (top management)0.330.90.310.36Export0.120.20.120.2TOTAL1.03.151.01.7SWOTTOWSStrengthsWeaknessesWeaknessesStrengthsOpportunitiesThreatsOpportunitiesThreats Market Expansion Promotion Awareness Strategic Alliances with international players Emphasize on Personal Care Affordability Diversification

Internal External Matrix

BCG

Ansoffs AnalysisProductsNewExistingNewExistingMarkets

CigarettesPackaging & printingHotelsFMCGIT

ITC Hotels - Luxury Collection5 hotels in DubaiLuxury hotel in ColomboWelcom HotelsFortune HotelsWelcom HeritageITC One', 'Towers' and the 'Executive Club'Welcom Cuisine Over 100 owned and managed properties in 67 destinations ITC Hotels : Luxury collectionWelcomHotelsFortune HotelsWelcomHeritage

Revenues inc by 20% in yr ending march 13

HotelsITCNet Profit up 21.5%

Net revenue growth of 15.2% year on year

Non-cigarette FMCG segment registers a healthy revenue growth of 15.7%their losses are lower by 33%, foods bringing in 60% of those revenues, 15% market share Vs 36% of HUL

Agri Business records a growth of 8.5%

Paperboards, Paper & Packaging Segment Revenue up 11.7%

Hotels Business continues to be impacted by the weak macroeconomic environment and a spurt in room additions in key markets.

Shareholder value creation

*2009 2010 Includes special Centenary dividend of ` 5.50 per shareConclusion ITCs reliance on the cigarette division is still large 40% of revenues and 80% of profit contributor

Increased regulatory clamps and taxes levied on the tobacco industry has led ITC to foray into different markets

Some investments have paid of well, some have provided modest results

ITC can prove to be a major player in the FMCG market in the coming years, because of strong distribution channels and by ensuring a strong product mix

Recommendations Further investment into ITC Infotech to expand its range of operations

Possible collaboration with the Govt. w.r.t agricultural initiatives

Investments in more R&D w.r.t the FMCG market

Expand market base urban and rural

Implement backward integration in the agricultural sector to ensure products pass from farmer to the end consumer reducing prices of its FMCG products

Thank YouKey Internal FactorsWeightRating Weighted score

Strengths

1. Distribution channel0.1230.36

2. R&D0.140.4

3. Attrition rate0.0830.24

4. Quality0.130.3

5. Eco friendly measures0.0620.12

6. Knowledge about the market0.0520.1

7. Oldest player in the industry0.0530.15

8. Product innovation0.130.3

9. Brand awareness0.0920.18

Weakness

1. Dependence of tobacco products0.0840.32

2. Limited product lines0.130.3

3. Less efforts to enter into coconut oil industry0.0720.14

Total12.9

Key External FactorsWeightRatingWeighted score

Opportunities

1. Increase in disposal income0.130.3

2. Government concentration on food sector0.0840.32

3. Government exemption0.140.4

4. Untapped markets in the rural sector0.1230.36

5. Rural people becoming more brand conscious0.0830.24

Threats

1. Rise in inflation0.0750.35

2. Government allowance of FDI0.0940.36

3. Switching cost for suppliers0.0630.18

4. Government supporting small scale industries0.0720.14

5. Emergence of many local players as competitors0.1130.33

6. Number of substitutes is very high0.1220.24

Total13.22