TOPIC 10 :

Project Report on the Strategic Analysis of ITC INCLUDING

SWOT ANALYSIS STUDY OF ITC IN TERMS OF OWNERSHIP,
CAPITAL AND PROFITABILITY

INTRODUCTION
ITC was setup in 1910 by the name of "Imperial Tobacco Company of India Limited". It change its
name in 1974 and the company is now known by the name of Indian Tobacco company Ltd, one of
the most trusted companies in India.ITC has made its mark in the business of Hotels, Information
Technology, Apparel, Cigarettes, Paper boards and speciality papers, Packing, Greeting cards
Safety Matches and other FMCG products. ITC is market leader in Cigarettes, Hotels, Paper boards,
Packing and Agri-Exports and is one of the foremost private sector companies in India with a market
capitalization of nearly US $19 billion and the turnover of US $ 5.1 Billion. It is the highest foreign
exchange earners which makes it very important company for India because it has been very
benefitting in terms of economic upliftment as it is present in FMCG sector, Hospitality sector,
Information Technology sector, and also in Agriculture sector.
In FMCG sector ITC is the market leader in cigarettes in India because of its wide range of
invaluable brands. It has developed a leadership position in every segment of the market.
It entered into the branded & packaged Foods business in August 2001 with the launching of the
Kitchens of India brand and further launched Confectionery items; Staples and; Snack Foods
products in 2002.It also started with Lifestyle Retailing Business and established a brand name of it
by introducing Wills Lifestyle range and presence of exclusive apparel stores. It also introduced
greeting cards, gifting products and other stationery items like the notebooks. Apart from cigarettes
hitch were a part of its business strategy for creating multiple drivers of growth in the FMCG
sector .With diversification in view the Company commenced marketing safety matches and
Agarbattis (incense sticks) sourced from small-scale and cottage units.
HOTELS: ITC Welcome group has become a huge brand and is fast becoming India's fastest
growing hotel chains as it has grown upto a position where there are over 70 hotels across different
destinations all over India and still growing.
PAPERBORDS AND PACKING: ITC packaging & Printing Business is the country's largest
converter of paperboard into packaging which is why making it the most trusted
AGRI BUSINESS:ITC's International Business Division (IBD) is the country's second largest exporter
of agri-products. .
INFORMATION TECHNLOGY:ITC InfoTech India Ltd. Is a global IT services company which has
established itself in the market growing at a cumulative annual growth rate (CAGR) of around 85%.

Indias most Admired and Valuable company - Market Capitalisation: over US$ 45
Billion A USD 8 Billion enterprise by Revenue - ~54% of Net Revenue from non-

Cigarette segments Leading Fast Moving Consumer Goods (FMCG) marketer in

India - Established several world-class brands in the last 10 years 10 year Value
addition ~ Rs. 1.9 lakh crore (US$ 39 billion) with ~75% accruing to the Exchequer Among the top tax payers in the nation (Private sector) - Excise payments represent
~7% of Indias total Excise collection Employs over 30,000 people directly;
supports livelihoods of ~6 million people An global exemplar in sustainable
business practices - Only Company in the world of comparable dimensions to have
achieved the global environmental distinction of being Carbon positive (9 th Year),
Water positive (12th Year) and Solid waste recycling positive (7 th Year)
ENVIRONMENT ANALYSIS
THE MICRO-ENVIRONMENT
MISSION & VISION STATEMENT OF THE COMPANY AND COMPARATIVE
ANALYSIS

VISION: Sustain ITC position as one of the Indias most valuable corporations
through world class performance, creating growing value for the Indian economy
and the companys stakeholders.
MISSION: To enhance the wealth generating capability of enterprises in a
globalizing environment, delivering superior and sustainable stakeholder value.
Market share of ITC is 66% and HULs market share is 56%. This shows it has huge
market share.
ITCs profit is increasing by 15% p.a. but HUL has a constant growth which shows
that ITC has more survival growth rate.
ITC has a good public image because it has a large contribution to the rural area like
e-chaupal and also has a huge market share comparison to HUL

Company policies:
To Ensure Respect for Human Rights Policy across the Supply Chain- ITC nurtures an
internal working environment which respects human rights without prejudice.
Likewise, it expects its business partners to establish a human rights compliant
business environment at the workplace.
Policy to Prevent Discrimination at Workplace-ITC acknowledges that every
individual brings a different and unique set of perspectives and capabilities to the
team. A discrimination-free workplace for employees provides the environment in
which diverse talents can bloom and be nurtured.

ITC does not engage in or support direct or indirect discrimination in recruitment,

compensation, access to training, promotion, termination or retirement based on
caste, religion, disability, gender, age, race, color, ancestry, marital status or
affiliation with a political, religious, or union organization or minority group.
Policy on Freedom of Association-ITC respects the employees' right to organize
themselves into interest groups as initiatives of the workers, independent from
supervision by the management. In keeping with the spirit of this Policy, employees
are not discriminated against for exercising this right.
Policy Prohibiting Child Labour and Preventing Forced Labour from Workplace-ITC
does not employ any person below the age of eighteen years in the workplace.
ITC prohibits the use of forced or compulsory labour at all its units. No employee is
made to work against his/her will or work as bonded/forced labour, or subject to
corporal punishment or coercion of any type related to work.
Policy on Information and Consultation on Changes-All major changes in operations
involving work processes, manning norms and other productivity linked issues are
carried out after discussions with the employees and the recognized unions at each
location.
Resources:
The physical resources such as the raw material are available in abundance in India.
Their sources of innovation such as the e-choupal initiative are very useful
intangible benefits of the company.

Capabilities:
The state of art factories of ITC are one of the capabilities of the company. The
technological advantages of the company combined with the labor have allowed the
company to develop their resources well into their capabilities.

Core competencies:
ITC knows how to capitalize on its core competencies, which include unmatched
distributionreach, superior brand-building capabilities, effective supply chain manag
ement and acknowledged service skills in hotel ring. This has also helped them to
strategically diversify and enter into the foods division.
Organization structure:
On the basis of portfolio

On the basis of decision making powerEmployeesThe Company is currently headed by Yogesh Chander Deveshwar. It employs over
29,000 people at more than 60 locations across India and is listed on Forbes 2000.
ITC Limited completed 100 years on 24 August 2010.
Financial analysis of ITC

Working capital ratio:

Current asset = 14443.57
Current liabilities = 9101.83
So ratio is: 14443.57/ 9101.83 = 1.6
We can say it is good sign for company and also for the investors.

Debt equity ratio:

Total long term debt: 1072.68
Total equity: 18791.89
So ratio is: 1072.68/ 18791.89 = .057
It is good sign for company but not for investors or shareholders, because most of
the funds are through equity.

Earnings per share given in P&L a/c

Basis: 8.05
Diluted: 7.96
Company provides good returns to their investors.
It provides 796% return to shareholders.
HR Policy of ITC:
Fixed-Term 71%
Permanent 28%

Short-Term 1%
More than 70% of the category permanent professional stafs is on long-term
contracts, indicating that they have been with the ITC for more than five years.
Permanent staff members on short-term contract are those that have not completed
five years service with the organization. ITC provides a supporting working
environment for its generally well qualified, professional and motivated staff. . The
ITC training and development budget is low for an organization with ITCs scale and
much of that budget is spent on Information Technology and language training. No
clear rotation program is found within ITC. No career planning for staff.

ITCs pricing strategy:

The pricing of the company is such that it caters to the need of all income groups of
people but special provision has been kept for Low and middle income group, and
their pricing are competitive with respect to other players like Britannia, Parle and
Brisk farm. The company follows the Going rate pricing that is the price of the
product depends upon the competitors price. The firm chooses pricing more or less
the same as Market leader.

ITCs Promotional activities

A particular budget is allocated for the promotion of the products. The local
promotion scheme is decided by the Area Sales Managers.

ITCs Distribution
Buoyed by a strong distribution network ITC is likely to retain its market share in the
cigarettes business; the ban on advertisements is likely to work in favor of ITC. The
company's reliable distribution network also ensures superior inventory
turnover than its peers

EXTERNAL ENVIRONMENT
This environment influences the organization directly. It includes suppliers that
deal directly or indirectly, consumers and customers, and other local
stakeholders. Micro tends to suggest small, but this can be misleading.
In this context, micro describes the
relationship between firms and the driving forces that control this relationship. It is a
more local relationship, and the firm may exercise a degree of influence.

Stakeholders:
As organization requires greater inward investment for growth,
increasing pressure to move from private ownership to public. Satisfying
shareholder needs may result in a change in tactics employed by an organization.
The companies have no conflict between the twin goals of shareholder value
enhancement and societal value creation. The challenge lies in fashioning a
corporate strategy that enables realization of these goals in a mutually reinforcing
and synergistic manner.
244,65,39,845 ordinary shares of the company, representing 64.79% of the
company's paid up capital, as on 11th September, 2009 are in dematerialized form.
The paid-up share capital of the company is Rs. 377, 62, 86,590(rs.377.63 crores)
divided into 377, 62, 86,590 ordinary shares of the face value of re 1/- each.
Supplier:
Raw materials, intermediates and the final product sourcing/distribution in wide
spread across the country few items have more than 1 supplier for the raw material
e.g. Filter rods can be sourced from Mumbai, Bangalore or M.P. huge supplydemand network for cigarette business which must operate in the cost optimal way
to maximize the profits few segments are particular to factories e.g. King size.
Consumer:
Organizations survive on the basis of meeting the needs, wants and providing bene
fits for their customers.
Failure to do so will result in a failed business strategy. Its businesses and brands
are focused almost entirely on the Indian markets, and despite being most wellknown for its tobacco brands such as gold flake, the business is now diversifying
into new FMCG (fast moving consumer goods) brands in a number of market
sectors.

THE MACRO ENVIRONMENT (PESTLE)

Political factors/Legal factors:

. ITC through its Experience, Goodwill and Brand Image created a good networking in market which
helped it to bargain with government to modify their regulations.The political environment is
quite favorable for ITC and has a positive impact on FMCG and Hotel business. For
example, the removal of the expenditure tax from2007-08 and the exemption of
service tax in budget 2008-09 which helps in increasing the buying power of the
customers. The increase in the tax policies such as increase in excise duty and the
vat from 12.5% to20% in three major cigarettes consumption states of Maharashtra,

Rajasthan and Delhi have resulted in the increase in the overall selling price of the
cigarettes which deters the potential customers and results in lower sales Ban on ITC
limited cigarettes, FDI in Cigarettes and no smoking at public places has reduced the purchasing of
Cigarettes which affected the manufacturing and sales of ITC Cigarettes business.
In September 2004, Government of India put a ban on tobacco advertising. This has increased the
sales of foreign brands as they were free to advertise their brands in India. It has compelled ITC not
to associate "Wills" by the brand name of Cigarettes anymore, to save it from being charged for it
advertising.
In February, 2010 Indian government has taken step to ban foreign direct investment in Tobacco,
which shattered the plans of BAT (British American Tobacco's), Japan Tobacco and Altria Group.
This has closed the doors for Japan's Tobacco Industry to make investments in Indian markets. ITC
did not react on the matter because it owes 3/4th of the market share and ban on Tobacco ultimately
benefited to its Sales.

Economic factors:
ITC focus on the purchasing power of the consumer and the market condition created by the
Competitor in terms of price, therefore it has maintained a great pricing strategy with an economical
pricing range of products. This has created a tough competition in the market. The major competitors
of ITC in the FMCG sector are Procter & Gamble (P&G) and HUL. To remain connected with lower
and regular income earning people it sells products in small size packaged with the lower price like
Minto fresh, Sunfeast Biscuits. There was continuous reduction in the sales of Cigarettes, because
of the following reasons: Rise in excise duties, Increasing anti-tobacco campaigns and Ban on
Advertising.Moreover, ITC had a tough competition with many international brands in the overseas
markets. To give them a tough competition it generated high quality, value-priced cigarettes. :
Turnover of over $5 Billion and increasing market capitalization, generate the value for the
shareholders with growing portfolio of the business. Its Gold Flake tobacco brand is the largest
FMCG brand in India - and this single brand alone holds 70% of the tobacco market.

Social factors:
The aspirations of the tobacco consumers to upgrade the consumption can multiply
the shares of cigarettes. However, growing public concern with regard to the
consumption of tobacco has led the government to ban all sorts of advertisements
like the commercials, print media and pamphlets. This may act as a setback for the
company. For the hospitality business, the society is now turning more towards an
individual oriented culture which means that people spend only for themselves. The
rise in the per capita income and the working population in the country is also a

good sign for the company because the number of people willing to spend more on
leisure increases with per capita income.
Technological factors:
ITC came a long way on the technological front. With state of the art factories and
cheap labor supply from the second largest tobacco producing country in the world,
India, the supply chain management of the ITC follows the latest trend. ITC also has
the great inventory control and logistics support. They have also been adapting
other quality concepts such as quality control, total quality management and 6sigma concepts. QC (Quality control technology), TQM (Total Quality Management) ,KSS (Kaizen
suggestion Scheme), 5 S ,Six Sigma

Environmental factors:
ITC is one of the kinds of organizations which continuously keep a check of its effect on nature. In
order to study the extent of climate change it has formed a carbon committee which would suggest
the measures so that ITC could become zero carbon emitting company. The company has adopted 4
goals towards the environmental welfare:Zero solid waste.Zero water discharge.Carbon Free
State.Beyond compliance performance.
Besides these it has rain harvesting system to preserve the rain water. Also it uses the practices
which are energy efficient.
Foe water saving and zero water discharge ITC is following various tricks to continue its eco
friendliness For instance, the water was recently disconnected in the urinals in the men's toilets, and
replaced by a "bio block," a device that basically looks like Odonil and is made out of microbes that
absorbs liquid and odours. Also, you don't need to use A-category water for a C-category function,
Once the bio-block is installed in the entire Welcome group chain.

Legal factors:
The legal environment in India has affected the tobacco industry to a large extent but at the same
time adjusted itself according to the legal conditions and they have done so through diversifications
and by venturing out into other industries for example ITC group diversified from their core business
into the hospitality industry through ITC group of hotels and into the premium sports accessories
recently sector like ITC golf range
The ITC group they have also diversified into various other sectors like FMCG sector and all their
diversifications are permissible under the law. they have also taken care of all the legal implications
in their core business that is of tobacco.

INTERNAL ENVIRONMENT

Leadership of company:
Under his leadership, ITCs Sustainability initiatives were given shape by fashioning
corporate strategies that not Only enhance shareholder value but add significantly
to the development of natural and social capital. ITC is today acknowledged as a
global exemplar in sustainable business practices and is the only Company in the
world, of comparable dimensions to be carbon positive, water positive and solid
waste recycling positive. The Companys businesses generate livelihoods for over
5million people, many of whom represent the poorest in Rural India.
The pioneering farmer empowerment initiative, ITC e-Choupal, is today the world's
largest rural digital infrastructure and is a case study at the Harvard Business
School besides receiving several global awards including the inaugural World
Business Award instituted by the United Nations Development Programme,
International Chamber of Commerce and the HRH Prince of Wales International
Business Leaders Forum.
In 2011, Deveshwar was conferred the Padma Bhushan, one of the highest civilian
awards in the country, by the Government of India in recognition of his
distinguished International Business Leaders Forum.
Leveraging the significant learning of sustainable excellence within ITC, he
pioneered the concept of Responsible Luxury in the hospitality industry that led to
the LEED Platinum certification of all ITC super premium luxury hotels, making it the
Greenest Luxury Hotel Chain in the world. Anand is widely recognized for excellent
people management and team-building abilities. He has formulated value-based
strategies to create a unique quality control model. His dynamic leadership and
passion for the business is recognized and acknowledged by his peers. He is
presently the President of the Hotel Association of India. (Report and accounts 2012)

SWOT ANALYSIS
Strengths:
1. Managing diverse business. ITC has 105 subsidiaries connected with its
various operations.
2. Wealth of local knowledge & international expertise helps it to be globally
competitive.
3. High quality standard products & services
4. Excellent export earnings.
5. Highly professional management.
6. Excellent distribution network.
7. Excellent brand making capability helping it to diversify it into Retailing, IT &
Hotel segments
8. Agro-export segment showing excellent growth of 28 % & earning Rs. 4 billion
foreign exchange.
9. A lasting impression by catchy ads.

10.ITC ltd is one of the most liquid scripts in the capital market. With domestic
institutions having a considerable stake this is likely to improve liquidity in
De-mat trading.
11.Good returns by way of dividend per share every year. In 31.3.2002 the
dividend declared is 13.50 Rs per share
12.The lifestyle retailing segment has won acclaim & moving towards higher
sales.
13.The expression greeting card is widening its base all over India & it is
available at most retail shops.
14.Steady increase in the return on capital employed.
15.Sophisticated research & development facilities.

Weakness:
1. Diversification into various lines in which it does not have much knowledge
would be very risky proposition.
2. High competition from established brands which has resulted in reduction in
profit margins.
3. Steep increase in cigarette taxes has adversely affected the revenue earned.
4. Due to high price of cigarette, consumers are switching to other cheaper
forms of tobacco.
5. Its hotel industry has still not created a big share in the market size.
Opportunities:
1. Big untapped market available. For cigarettes, hotels, it, retail garment,
packaging & agricultural products.
2. High growth potential could be achieved.
3. Good source of revenue & foreign exchange available by way of exports of
agricultural products, hotels & cigarettes.
4. Its competitors dont have the financial banking like it so it can take
advantage of this.
5. Proper publicity of the hotels would increase its brand image & revenue.
6. ITC personal care products, per capita consumption is the lowest in the world which is
offering an opportunity for ITC's Shampoos, Soaps and Fragrances under its brand "Wills".
7. ITC is aggressively pursuing opportunities in providing IT solutions like business process
outsourcing and e-enabled services in its owned subsidiary company named, "ITC InfoTech
India Limited".
Threats:
1. Negative publicity for smoking could affect its cigarette segment.
2. Government is under huge pressure from public organizations for banning
tobacco products which could affect it adversely.
3. High competition from established brands.
4. Competition from unbranded products.

5. Due to terrorist attacks the tourism industry has taken a back seat which
would affect the hotel segment.
6. Poor monsoon leads to poor agricultural growth which would affect the agroexports.
INDUSTRY ANALYSIS

Porters Five Forces

Threat of new entrants

Degree
Low

Remark
Favorable

Threat of substitute products

High

Unfavorable

Bargaining power of customers

High

Unfavorable

Bargaining power of suppliers

High

Unfavorable

Competitive rivalry within an industry

High

Unfavorable

INDUSTRY & COMPETITION

ANALYSIS
Porters five force model
Interpretation: [FMCG SECTOR]
1. Threat of new entrants:
Economies of Scale
Product Differentiation
Capital Requirements
Access to Distribution
Channels
Cost Disadvantages

Not Easy to Achieve

Requires huge R&D
High
Not Easy

Positive
Positive
Positive
Positive

More

Positive

Government Policy
Switching Costs

More
Low

Positive
Negative

2. Threat of substitute products:

Products with improving price/performance tradeoffs relative to present industry
products

3. Bargaining power of customers:

Low switching cost
Buyers are numerous and fragmented
Considering buyer power retailers , they are able to negotiate the price with the
company
4. Bargaining power of suppliers:
Supplier industry is dominated by a few firms
Suppliers products have few substitutes
Buyer is not an important customer to supplier
Suppliers product is an important input to buyers product
Suppliers products are differentiated
Suppliers products have high switching costs
Supplier poses credible threat of forward integration
5. Competitive rivalry within an industry:
Using price competition
Staging advertising battles
Making new product introductions
Increasing consumer warranties or service
Advertising battles may increase total industry demand, but may be costly to
smaller competitors
COMPETITION ANALYSIS
Near competitors of ITC (FMCG):

From the charts drawn below, it becomes obvious that following are the competitors
of ITC:
HUL
P&G
Key success factors of ITC:
There could be number of factors that contribute to the success of the company, but
the key factors for the success of ITC include:
Quality
Innovation
Distribution channel
Brand image
Variety of products
Promotion
CONCLUSION
From the above comparison it could be inferred that besides ITC is new in the FMCG
sector but still it has managed to reach a level at which the other strong companies
are. A score of 3.5 is a very good score at a point when the old competitors
(leaders) are at a score of 3.8. ITC is paying heavy competition to the old
competitors and this growth will help the company to boom in future. The
innovation, R&D (e-chaupal ,Aashirwad Aata) and the Brand Image (100 years old)
of the company is making a strong base for the company to develop its potential
and market in FMCG. ITC has evolved to a multi-business corporate enterprise from a single
product company. Through its innovative strategies it synergizes long term shareholder value
growth, which is also enhancing the capital of the society. For example E-Choupal through its
sustainable agricultural practices has raised the income of rural areas and enhanced the farm
productivity.
The company believes in integrating larger societal goals in their business sectors, which will ensure
societal benefits are more impacted and scalable. Moreover in future it will build stronger
foundations for the sustainability of the company.
Due to its sustainable business practices which will likely to lend additional source of
competitiveness to ITC in society. Also it invested in training of human resources , intensive skilled
development and inculcating a spirit of responsible citizenship among the people. This all will
support the company to built a corporation for tomorrow.

ITC has been a leader in the tobacco business, but it realize from the upcoming
trends that remaining with a single business is not a noble thought, moreover the
company was threatened of the anti-tobacco campaign. Therefore the company
decided to venture into InfoTech with ITC InfoTech, foods via Kitchens of India,
greeting cards through Expressions and lifestyle retailing through Wills Sport. The
revenue generation also is very high from each of these products. .ITC was a cash
rich company with a liquidity of Rs.8816 million in the cigarette business, even
though the company understood the need and usefulness of diversification.ITC by
spreading its wings in the lifestyle segments has opened forty-five stores in 34 cities
in just under a year, selling an expensive fashion brand of relaxed-wear. This way it
has gained a victory lap through its Wills Sport Brand.
The company has started its retail stores not only in Indian metros but also in the
small towns like Ranchi, Jabalpur, Gwalior, Belguam, Ernakulam etc. thus the
company adopted strong market campaign, and used its brand image to attract the
Indian youth. The strategies adopted by the company has helped it to differentiate
itself in this segment, like the company is outsourcing its designs to The American
Design Intelligence Group (ADIG), a San Francisco, US-based garment and retail
consultancy. Now it has its own six-member team, even as it continues a tie-up with
Science & Designs, an Italian fashion design house through which it keeps a watch
on hot western labels such as Banana Republic and Armani Exchange. Thus by
adopting these strategies ITC will surely maintain its success and add many more
new sub-brands to its corporate group-ITC.
Since, ITC Limited was established in 1910, it has adapted the external environment and has proved
to be the most profitable company in the India. Still today after its completion of 100 years it has very
good brand image in the market.