ITC : Brand Diversification Strategy

Presented by: Navin Nilesh Pratap EkkaFMS – 1, Roll – 22, NIFT, Kolkata

Mentor: Mr. Dibyendu B Dutta

ITC emergence• ITC was incorporated on August 24,

1910 under the name of 'Imperial Tobacco Company of India Limited'.

• Leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence.

• Company's ownership progressively Indianised, and the name of the Company was changed to I.T.C. Limited in 1974.

• The full stops (.) in the Company's name were removed effectively on September 18, 2001. The Company now stands rechristened 'ITC Limited'.

FACTS ABOUT ITC One of the 8 Indian Companies to feature in ‘Forbes A-list’ for 2004

Featuring 400 of the World’s ‘best big companies’ with M-cap. > USD 5 bln. & are

rated as the ‘most attractive companies for investors’ 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 Among top in :

Sustained value creation (BT-Stern Stewart survey) Operating profits Cash Profits

Ranks No. 9 among Indian listed Private Sector Companies by market cap. No. 1 in FMCG Sector

Rated as one of India’s Most Respected Companies (IMRB-Businessworld Survey 2006)

3Source: ITC website

ITC Corporate Strategy Sustain multiple drivers of growth, matching internal capabilities with

emerging market opportunities Pursue World class competitiveness in all businesses and across the entire

value chain Best-in-class in terms of:

Internal Vitality Market Standing Profitability

Strategy of Organisation and Governance processes geared to manage multiple businesses

Blend core competencies and leverage ITC umbrella strengths to create new avenues of growth

4Source: ITC website

ITC timeline

August 24, 1910ITC was incorporated

under the name of 'Imperial Tobacco

Company of India Limited'

1925ITC's Packaging & Printing Business was set up as a

strategic backward integration for ITC's Cigarettes business

August 24, 1926Expansion by purchasing the plot of land situated

at 37, Chowringhee, (now renamed J.L. Nehru Road)

Kolkata

Source: ITC website

ITC timeline1975

ITC launched Hotels business with the

acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup

Hotel Chola'.

1979ITC entered the

Paperboards business by promoting ITC

Bhadrachalam Paperboards Limited, which today has

become the market leader in India.

1985ITC set up Surya Tobacco Co. in

Nepal as an Indo-Nepal and British joint venture. Since

inception, its shares have been held by ITC, British American

Tobacco and various independent shareholders in

Nepal.

Source: ITC website

ITC timeline1990

ITC acquired Tribeni Tissues Limited, a Specialty paper

manufacturing company and a major supplier of tissue paper to

the cigarette industry. The merged entity was named the Tribeni Tissues Division (TTD).

1990,ITC leveraging its agri-sourcing

competency, ITC set up the Agri Business Division for export of

agri-commodities. The Division is today one of India's largest

exporters.

2000ITC launched a line of high

quality greeting cards under the brand name 'Expressions'.

Source: ITC website

ITC timeline2000

ITC also entered the Lifestyle Retailing

business with the Wills Sport range of

international quality relaxed wear for men and

women.

2000ITC spun off its

information technology business into a wholly owned subsidiary, ITC

Infotech India Limited, to more aggressively pursue emerging opportunities in

this area.

August 2001 ITC's foray into the Foods business began with the introduction of 'Kitchens

of India' ready-to-eat Indian gourmet dishes.

Source: ITC website

ITC timeline2002

ITC's philosophy of contributing to enhancing

the competitiveness of the entire value chain

found yet another expression in the Safety

Matches initiative.

2003ITC's foray into the marketing of Agarbattis (incense sticks) in marked the manifestation of its partnership with the

cottage sector.

July 2005ITC introduced Essenza Di Wills, an exclusive

range of fine fragrances and bath & body care products for

men and women

Source: ITC website

ITC PRODUCT PROFILE• Cigarettes: W. D. & H. O. Wills, Insignia, India Kings, Classic, Gold

Flake, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake

• Hotels: ITC Welcomgroup chain of Hotels

• Paperboards & Specialty Papers:ITC Bhadrachalam Paperboards Limited"ITC Tribeni Tissues Division" Now there are four units under one name --> Paper Boards and Specialty Papers Division, Unit - Bhadrachalam, Tribeni, Bollarum and Kovai.

• Agricultural Industry: Agri-Business, Leaf Tobacco, Gold Ribbon, Blue Ribbon, Aqua Kings, Aqua Bay, Aqua Feast and Peninsular, e-choupal.

• Packaged Foods & Confectionery: Kitchens of India, Aashirvaad, Sunfeast, Mint-O, Candyman, Bingo Snacks

Source: ITC website

ITC PRODUCT PROFILE• Branded Apparel: Wills Lifestyle, John Players, Miss Players

• Personal Care: Essenza Di Wills, Fiama Di Wills, Superia, Vivel Di Wills, Vivel

• Greeting Card: Expressions

• Information Technology: ITC Infotech

• Safety Matches: iKno, Mangal Deep(Discontinued), VaxLit(Discontinued), Delite(Discontinued) and Aim Brands acquired from Wimco (Swedish Matches)

• Incense Sticks: Mangaldeep, Spriha

• Stationery: Classmate, Paperkraft, Saathi

Source: ITC website

Some sub-brands of ITC

ITC SWOT Analysis : Strengths

ITC leveraged it traditional businesses to develop new brands for new segments. For example, ITC used its experience of transporting and distributing tobacco products to remote and distant parts of India to the advantage of its FMCG products. ITC master chefs from its hotel chain are often asked to develop new food concepts for its FMCG business.

ITC is a diversified company trading in a number of business sectors including cigarettes, hotels, paper, agriculture, packaged foods and confectionary, branded apparel, personal care, greetings cards, Information Technology, safety matches, incense sticks and stationery.

ITC SWOT Analysis : Weaknesses The company's original business was traded in tobacco. ITC stands

for Imperial Tobacco Company of India Limited. It is interesting that a business that is now so involved in branding continues to use its original name, despite the negative connection of tobacco with poor health and premature death.

To fund its cash guzzling FMCG start-up, the company is still dependant upon its tobacco revenues. Cigarettes account for 47 per cent of the company's turnover, and that in itself is responsible for 80% of its profits. So there is an argument that ITC's move into FMCG (Fast Moving Consumer Goods) is being subsidized by its tobacco operations. Its Gold Flake tobacco brand is the largest FMCG brand in India - and this single brand alone holds 70% of the tobacco market.

ITC SWOT Analysis : Opportunities• Core brands such as Aashirvaad, Mint-o, Bingo! And Sun Feast (and others) can be developed using

strategies of market development, product development and marketing penetration.

• ITC is moving into new and emerging sectors including Information Technology, supporting business solutions.

• e-Choupal is a community of practice that links rural Indian farmers using the Internet. This is an original and well thought of initiative that could be used in other sectors in many other parts of the world. It is also an ambitious project that has a goal of reaching 10 million farmers in 100,000 villages.

• ITC leverages e-Choupal in a novel way. The company researched the tastes of consumers in the North, West and East of India of atta (a popular type of wheat flour), then used the network to source and create the raw materials from farmers and then blend them for consumers under purposeful brand names such as Aashirvaad Select in the Northern market, Aashirvaad MP Chakki in the Western market and Aashirvaad in the Eastern market. This concept is tremendously difficult for competitors to emulate.

• Chairman Yogi Deveshwar's strategic vision is to turn his Indian conglomerate into the country's premier FMCG business.

• Per capita consumption of personal care products in India is the lowest in the world offering an opportunity for ITC's soaps, shampoos and fragrances under their Wills brand.

ITC SWOT Analysis : ThreatsThe obvious threat is from competition, both

domestic and international. The laws of economics dictate that if competitors see that there is a solid profit to be made in an emerging consumer society that ultimately new products and services will be made available. Western companies will see India as an exciting opportunity for themselves to find new market segments for their own offerings.

ITC CASE STUDYBRAND DIVERSIFICATION STRATEGY

ITC Financial analysis• In the quarter ended June, 07, ITC’s net profit grew 20% to

Rs.782.87 million and net sales rose up 17% to Rs.3325.23 million.

• Profit growth driven by its cigarette business because of high margin and agribusiness,

• Top line growth mainly comes from non tobacco business and agro business.

• Decline in the profitability of FMCG business r paper and paper board business.

• Higher advertising expanses, which grew 35% in FY07 and freight cost, which were up 31% last year

COMPARISON OF THE COMPANY IN FINANCIAL YEAR-05 AND FINANCIAL YEAR-07

ITC FINANCIALS

0510152025303540

YE

AR FY05

FY07

Comparision with two other companies

ITC HUL GODFREY PHILLIPSNET SALES GROWTH 23.3 4.7 7.7

RAW MATERIAL COST GROWTH 28.8 4.6 8.4

OPERATING COST GROWTH 19.5 -8.8 30.3

PAT GROWTH 19.2 1.6 19.1

INTREST COVER RATIO 151.1 89.8 29.9

DEBT-TO-EQUITY RATIO 0 0.4 0.2

ROCE 38.4 56.8 25.8

Shareholder Information

Source: ITC Annual Report 2008

Thank you