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TOBACCO IN INDIA
AN INTRODUCTORY NOTE
Crop
Next
Giving Differences
Best Returns
Returns (I)
Andhra
Net
Between
Pradesh
(Northern
Soils)
Andhra
in
4405
Pradesh
(Southern
Soils)
Karnataka
Gujarat
Bihar
West Bengal
Tamil Nadu
Black Chilies
Cotton
Pearl millet
Maize+ Potato
Potato
Groundnut
875
4500
2306
2729
5134
2825
over the country where as Nicotine rustic is confined to North and North
Eastern States i.e. Uttar Pradesh, Bihar, West Bengal and Assam.
About 5 to 6 per cent of the total area under Tobacco is amounted for
Nicotine rustic varieties. The cultivation of Nicotine tobacco has countrywise spread and this type also amounts for more than 80% of the exchange
earnings.
Specific types and varieties of Tobacco have been developed for use in
cigarette, bids, cigar, cheroot, hookah, chewing, snuff and hookah paste.
Rustic types are used in chewing and snuff whereas tobacco types are used
for all purposes.
Even though the cultivation of Tobacco is spread all over the country, the
commercial cultivation of Tobacco is concentrated in States like Andhra Pradesh,
Karnataka, Gujarat, Maharashtra, Bihar, Thamilnadu and West Bengal etc.
Cigarette Tobacco is mostly cultivated in Andhra and Karnataka, whereas bids
Tobacco is grown in Gujarat, Karnataka and Maharashtra. Cigar and Cheroot
Tobacco are also grown in Tamilnadu, Andhra Pradesh and West Bengal and
Chewing Tobacco is grown in Tamilnadu, Gujarat, Bihar, West Bengal and U.P.
Hookah Tobacco is grown in UP, and West Bengal.
The total area and production of Tobacco in India for the year 2007-08 were
463.5 thousand ha. And 646 million kgs, respectively.
The Indian tobacco industry
India is the second largest producer of tobacco in the world after China. It
produced 572 m kgs of tobacco in FY03. However, India holds a meager 0.7%
share of the US$ 30 bn global trade in tobacco, with cigarettes accounting for 85%
of the country's total tobacco exports.
Despite being the second largest producer, India is only the ninth largest
exporter of tobacco and tobacco products in the world. Out of the total tobacco
produced in India, only one-third is flue-cured tobacco suitable for cigarette
manufacturing. Most of the tobacco produce is suitable for the manufacture of
chewing tobacco, bidis and other cheap tobacco products, which have no demand
outside the country. In India, three major cigarette players dominate the market,
primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with
8% share of the market.
recreationally
hallucinogenic
shamans
or
entheogen
medicine men
Eastern North American tribes would carry large amounts of tobacco in pouches as
a readily accepted trade item and would often smoke it in
, either in defined
pipes
ceremonies that were considered sacred, or to seal a bargain, and they would
smoke it at such occasions in all stages of life, even in childhood. It was believed
that tobacco was a gift from the Creator and that the exhaled tobacco smoke was
capable of carrying one's thoughts and prayers to heaven.
Apart from smoking, tobacco had a number of uses as medicine. As a pain
killer it was used for earache and toothache and occasionally as a poultice.
Smoking was said by the desert Indians to be a cure for colds, especially if the
tobacco was mixed with the leaves of the small Desert Sage, Salvia Dorrii, or the
root of Indian Balsam or Cough Root, Leptotaenia multifida, the addition of which
was thought to be particularly good for asthma and tuberculosis.
Origin of tobacco:
India is the third largest producer of tobacco in the world after China and USA.
Though it occupies a mere 0.25 per cent of the cropped area in the country, it
contributed Rs. 507 crores to the foreign exchange earnings and Rs. 3200 crores to
the exchequer by way of central excise during 1992-93. Further, it provides
employment to millions of people both directly and indirectly. Despite playing
such a vital role in the economy the industry faces many constraints for its
development. Increasing productivity, improving the quality, better marketing
practices of non Virginia tobacco and a more rational excise policy on cigarettes
would help the growth of the industry as well as meet the challenges of the future
.
Tobacco has a long history from its usages in the early Americas. It became
increasingly popular with the arrival of the Europeans in which it was heavily
traded. Following the industrial revolution, cigarettes became popularized, which
fostered yet another unparalleled increase in growth. This remained so until the
scientific revelations in the mid-1990s.
India is the second largest producer of tobacco in the world after China. It
produced 572 m kegs of tobacco in FY03. However, India holds a meager 0.7%
share of the US$ 30 ban global trade in tobacco, with cigarettes accounting for
85% of the country's total tobacco exports.
Despite being the second largest producer, India is only the ninth largest
exporter of tobacco and tobacco products in the world. Out of the total tobacco
produced in India, only one-third is flue-cured tobacco suitable for cigarette
manufacturing. Most of the tobacco produce is suitable for the manufacture of
chewing tobacco, bidis and other cheap tobacco products, which have no demand
outside the country. In India, three major cigarette players dominate the market,
primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with
8% share of the market
African
labor.
The Spanish introduced tobacco to Europeans in about 1518, and by 1523,
Diego Columbus
quickly the traffic had sprung up. Nicot, French ambassador in Lisbon, sent
samples to Paris in 1559. The French, Spanish, and Portuguese initially referred to
the plant as the "sacred herb" because of its valuable medicinal properties.
In 1571, A Spanish doctor named
Nicolas Monardes
history of medicinal plants of the new world. In this he claimed that tobacco could
cure 36 health problems.
Stuart
King
James I
wrote a famous
polemic
titled A
statute
Stigian
smoke of the
tariff
on every
pound
of
currency
Bermuda
with his wife, Pocahontas a daughter of Chief Powhatan, he had become wealthy.
Jamestown
Virginia
1620 Throughout the 17th and 18th centuries, tobacco continued to be the
cash crop
of the Virginia Colony, as well as The Carolinas. Large tobacco warehouses filled the areas
near the wharves of new, thriving towns such as
Manchester
Dumfries
at the fall line (head of navigation) on the James, and Petersburg on the Appomattox.
A historian of the American South in the late 1860s reported on typical usage in the
region where it was grown:
The chewing of tobacco was well-nigh universal. This habit had been
widespread among the agricultural population of America both North and South
before the war. Soldiers had found the quid a solace in the field and continued to
revolve it in their mouths upon returning to their homes. Out of doors where his
life was principally led the chewer spat upon his lands without offence to other
men, and his homes and public buildings were supplied with spittoons. Brown and
yellow parabolas were projected to right and left toward these receivers, but very
often without the careful aim which made for clean living. Even the pews of
fashionable churches were likely to contain these familiar conveniences. The large
numbers of Southern men, and these were of the better class (officers in the
Confederate army and planters, worth $20,000 or more, and barred from general
amnesty) who presented themselves for the pardon of President Johnson, while
they sat awaiting his pleasure in the ante-room at the White House, covered its
floor with pools and rivulets of their spittle. An observant traveller in the South in
1865 said that in his belief seven-tenths of all persons above the age of twelve
years, both male and female, used tobacco in some form. Women could be seen at
the doors of their cabins in their bare feet, in their dirty one-piece cotton garments,
their chairs tipped back, smoking pipes made of corn cobs into which were fitted
reed stems or goose quills. Boys of eight or nine years of age and
public health policies, including the national health policies and also the
Framework Convention on Tobacco Control (FCTC) the first global corporate
accountability and public health treaty. India, along with more than 150 countries,
has ratified the global tobacco treaty (FCTC). The WHO estimates that broad
implementation of the treaty could save 200 million lives by 2050.
In July 2007, at the second implementation and enforcement meeting on the
FCTC, parties took the courageous step of initiating the development of guidelines
on the implementation of Article 5.3 of the FCTC. These guidelines will help
governments anticipate and thwart attempts by the vested commercial interests of
the tobacco industry to undermine the implementation of the tobacco control
policies.
Tobacco kills 5.4 million people around the world each year. Tobacco is a
risk factor in six of the eight leading causes of death worldwide. The death toll is
projected to rise to eight million a year by 2030, with 80 percent of those deaths
occurring in developing countries. If current trends are not reversed, tobacco will
claim one billion lives this century.
History of Tobacco Regulation IN AP:
The big question is how the Federal government plans to proceed. Six tobacco bills
are now pending in Congress. One of these bills would give the Federal Trade
Commission authority to set maximum permissible limits on tar and nicotine.
Another would establish a graduated cigarette tax based on tar content.
The FTC is presently carrying on negotiations with the industry to come up
with a "clear and conspicuous" health warning for its print advertising. It is
expected that the industry, " which has been working closely with the FTC 'will'
take some 'voluntary' labeling action" (Where Cigarette Makers Spend, 1971: 57).
The industry feels the pressure; one member explains: "We are resigned to it.
Over-all.... the industry mood is much more relaxed-now that we have this first big
year behind us" (Where Cigarette Makers Spend, 1971: 57).
The public is clamoring for government action; a 1970 College Poll'.
Surveying-youths 18 and older on more than 100 campuses reveal that 96%
believe that smoking is dangerous to one's health (College Poll, 1971).
Further, a 1969 study on teenage (13- to 18-yearolds) smoking attitudes,
motivation and habits indicates "deep teenage dissatisfaction with cigarette
smoking, considerable knowledge of its ill effects, but a very exaggerated estimate
of the acceptance of smoking by the adult world" (Lieberman Research, 1969: 120). And, a 1970 nationwide survey of teenagers revealed: "72% of non-smokers
identified physicians as the one group that could persuade them not to start
smoking and 42% of those who smoked said their physician's advice would
influence them to stop" (Doctors, 1970: 24).
Critics of the industry claim: "The controversy about smoking and health
continues largely because of the energy, time and money spent by the tobacco
industry in keeping this controversy alive" (College Poll, 1971).
Origin:
The Tobacco Board, Ministry of Commerce & Industry, Government of
India in collaboration with Gitam Institute of Foreign Trade (GIFT),
Visakhapatnam is organizing a two-day Seminar on "Export Promotion Strategies
for Tobacco" on 3rd and 4th September, 2001 at Guntur. The objectives of the
Seminar are: to make a product-wise and market-wise review of the world trade in
manufactured and unmanufactured tobacco; to evolve region-wise export
promotion strategies in the post-WTO regime; to examine the technological
developments that help improve the quality of tobacco in the country; to assess the
consumer preferences for tobacco and tobacco products and to study the trends in
processing and packaging; to study the potential for product and market
development by identifying new uses for tobacco and new products for export to
the new markets; and to draw an action plan for doubling the exports of tobacco by
the end of 2005.
Progressive and experienced farmers from Andhra Pradesh and Karnataka
domestic manufacturers, international merchants, leading exporters, eminent
scientists from CTRI and ILTD Research Department, officials from the Ministry
of Commerce, State governments of Andhra Pradesh and Karnataka, prominent
persons associated with tobacco, officials from Tobacco Board and senior faculty
from GIFT will be participating in this Seminar. About 100 participants will be
taking part in the Seminar, which is to be inaugurated by Shri R. Gopalan, Joint
Secretary, Ministry of Commerce and Industry. The Indian tobacco industry is
passing through a critical phase. Although cultivation of tobacco has shifted from
black soils to light soils during mid 60s the productivity levels have not reached
the international standards. Wherever the hectare production was the highest as in
the case of 2500 kgs. per hectare in NLS region, this achievement remains
confined only to a select few progressive farmers. This situation calls for an urgent
need to spread the culture with a view to achieving the higher yields in all the soil
regions. Improvement of quality will result in better demand and resultant better
prices for the farmers. Most of Indias tobacco is grown in Andhra Pradesh and
Karnataka for domestic consumption besides exports. Andhra Pradesh having
45,000 FCV (Fine Cured Virginia) tobacco farmers is the largest producer of
tobacco in the country, contributing more than eighty per cent of the total FCV
tobacco production.
GROWTH:
Virginia Tobacco auctions that concluded this week fetched a record Rs 1,401 crore for
farmers in Andhra Pradesh and for the first time in the history of the crop the average
price crossed the $2 a kg barrier.
This has been a watershed year in farm prices, export volumes, and foreign exchange
earnings in the Indian Tobacco industry, said Mr J. Suresh Babu, Chairman of the
Tobacco Board. He said the total earnings on the auction floors in the State rose to Rs
1,401 crore this season, with average price shooting up from Rs 47.47 a kg last season to
Rs 84.73 and the highest bid touching Rs 140 a kg. There was a marginal decrease in the
total quantum auctioned on the platforms from 171.9 million kg last year to 165 million
kg this year. However, Indian tobacco, which is internationally seen as an inferior quality
filer tobacco, could establish that it was not so; the export volumes grew by 12 per cent
and in terms of value there was a growth of 42 per cent.
Electronic auctioning
The introduction of electronic auctioning system at Jangareddyguem auction platform
was yet another milestone this season, he added. Dr Y. Sivaji, President of the AP
Tobacco Growers Association, expressed happiness over the record prices. He, however,
cautioned farmers that enthused by the prices they should not plant excess crop next
season. In fact, there is a huge demand for Indian tobacco in the international market
and next season the average price should go up to $3 a kg as in Brazil. It has been proved
conclusively that Indian tobacco is not inferior to any other tobacco in the world, he
said
20.61
8.28
3,862.67
1
16.94
1:2
350
28.76
21/11/08
Mar, 08
Sep, 08
Mar, 99
17/06/05
23/05/08
Mar, 99
Strengths of VST:
The company has strong competitive advantage due to the nature of the
product for which users have a very high brand preference. Competition is limited
to ITC and the unorganized sector at the low end. As a result the company has a
strong
free
cash
flow
and
high
return
on
capital.
on
the
need
for
an
effective
enforcement.
The tobacco major is of the view that loopholes in the existing regulatory
framework and lack of effective enforcement have led to a flourishing trade in
smuggled
cigarettes.
The contraband trade was estimated to be causing a national loss of over Rs.1,000
crore per annum on a conservative basis.
ITC cautioned the Government that the contraband trade was estimated to be
growing at a rate of more than 20 per cent per year. It has also submitted to the
Government that one-third of the total world trade in cigarettes was contraband in
nature.
The tobacco major is of the view that the smuggling of cigarettes, which
appears to be highly organized, is being provided an opportunity through lifting of
quantitative restrictions on the import of cigarettes into the country.
According to ITC officials, "the regulatory framework in respect of tobacco
products needs to be pragmatic and equitable, such that the regulation of tobacco
consumption is orderly and progressive, securing maximization of economic
contribution even in a shrinking basket of tobacco consumption."
The Cigarettes & Other Tobacco Products Bill - 2001, the intent of which
was to regulate promotion of all tobacco products, in its current form would result
in more stringent regulations on cigarettes as compared to any other tobacco
product, the company opined.
Month
May
May
May
May
May
May
May
Apr
May
Dividend (%)
350
310
265
310
200
150
135
100
75
As on( Months )
31-Mar-08(12)
Profit / Loss A/C
Rs mn
Net Sales
139207.60
Operating
Income
142804.50
(OI)
OPBDIT
45351.00
OPBDT
45275.10
OPBT
40890.50
Non-Operating
4827.20
Income
Extraordinary/Prior
-722.20
Period
Tax
13794.50
Profit after tax(PAT) 31201.00
Cash Profit
35585.60
Dividend-Equity
13190.10
Share Statistics
As on
EPS (Rs.)
CFPS (Rs.)
31-Mar-08
8.28
9.44
%OI
97.48
31-Mar-07(12)
Rs mn
%OI
122988.90
99.16
31-MarRs mn
97863.4
100.00 124027.40
100.00
99109.3
31.76
31.70
28.63
40801.50
40730.20
37101.00
32.90
32.84
29.91
34491.8
34337.5
31014.1
3.38
2166.00
1.75
1677.80
-0.51
-1481.70
-1.19
63.10
9.66
21.85
24.92
9.24
10785.60
26999.70
30628.90
11662.90
8.70
21.77
24.70
9.40
10401.5
22353.5
25676.9
9951.2
31-Mar-07
7.18
8.14
31-Mar-06
5.95
6.84
31.57
3.50
27.34
3.10
23.84
2.65
ITC Holds Corp announced cash Dividend is $0.29 per share paid on march 17 ,
2008
cigarette
brand in
India
and
Pakistan
. It is sold in various
varieties, including Gold Flake Kings (84mm), Gold Flake Lights, Gold Flake
Filter (filter tipped) and Gold Flake (plain). It is a well-positioned brand in India.
This brand is owned, manufactured and marketed by ITC Limited, the leading cigarette
maker in India
Co- brands
The cigarette market in India has 4 players: ITC, a British American Tobacco
(BAT) affiliate, the largest cigarette manufacturer with 66% of the market share,
Godfrey Phillips India
(GPI), a
Phillip Morris
affiliate, and
(VST), a
BAT
(GTC)
with 8% of the market share. There are lots of popular brands in the Indian market.
They are divided into 3 segments which are super premium, premium, and bingo
segments. Few of the brands in these categories are:- Super premium - Wills
Insignia Premium- Wills Classic/Milds Wills Navy Cut, Wills Silk Cut, Gold
Flake/Lights, four square Bingo - Bristol, Red and White
Sub brands
Goldflake is widely sold brand in India and is marketed in three varieties.
Goldflake Filter King Size (84mm) Goldflake kings is the largest selling brand of
cigarettes in India in above 80 mm category, but lags behind wills navy cut across
categories. It has a mild flavour . A pack of 10 costs about INR 40. Goldflake Filter
King Size Lights (84mm) Goldflake lights are milder than goldflake and contains
comparatively less nicotine. Goldflake Filter (small) Goldflake Filter (small) has
the strongest flavour amongst the three brands. It also contains considerably larger
amounts of tar and nicotine. A pack of 10 costs about 28 Indian rupees. Goldflake
Plain (fetterless) The very original Goldflake is simply known as Gold Plain or
Plain in southern markets. It is the strongest of all.
Origin of the name
red pack. The almost 50-year-old brand of Panama exists both as a filter and plain
variant and is a market leader in the small bingo segment pegged at Rs 4 for a pack
of 10 sticks, on par with bidis, a category which is almost 10-12 times larger than
the cigarettes market.
According to the company, the Panama filter brand is a market leader in
Jammu & Kashmir with a share of almost 90 per cent and has a significant volume
share in States such as UP, Kerala and Madhya Pradesh. But in the small plain
bingo segment, Panama overtakes ITC, which has brands such as Hero and
Scissors in the same segment.
Highlighting certain facts about the category, an industry observer says,
"Cigarette brands are region-specific and have a loyal base of consumers compared
to other categories
GTC, with its bingo Panama brand, is now entering new territories such as
Maharashtra and Bihar, where the company has still not made inroads. GTC has a
host of region-specific cigarette brands such as Chancellor, Style, Flair and
Esquire. In the past, it also tried to launch a woman-specific brand, Ms, but the
product was premature for the Indian market.
Mudra Advertising, which has been appointed to revive Panama, has already
devised a new baseline (Live on your own strength) and initiated certain belowthe-line activities in its biggest market, Kerala, in an attempt to build imagery
around its new positioning and baseline. For instance, an arm wrestling
competition branded `Panama Dum Champion' in Kerala to build the image of
power and strength. Besides, mobile vans were circulated to hold events for onthe-spot arm wrestling matches across the State.
Report card
PE ratio
EPS (Rs)
Sales (Rs crore)
Face Value (Rs)
Net profit margin (%)
Last bonus
Last dividend (%)
Return on average equity
8.80
107.90
271.33
10
9.43
1:1
250
29.53
14/11/08
Mar, 08
Sep, 08
Mar, 99
30/09/93
30/06/08
Mar, 99
Godfrey Phillips India Ltd has informed that the Board of Directors of the
Company at its meeting held on June 28, 2008, inter alia, has recommended
payment of dividend of 250% i.e. Rs 25/- per share for the financial year ended
March 31, 2008, subject to declaration thereof by the shareholders at the
forthcoming Annual General Meeting.
Dividend
Year
2008
2007
2006
2005
2004
2003
Month
Jun
Jun
Jun
Jul
Aug
Aug
Dividend (%)
250
250
225
220
190
170
2002
2001
2000
1999
1998
Aug
Aug
Apr
Aug
Oct
160
120
10