INSTITUTE OF MANAGEMENT,

NIRMA UNIVERSITY

MBA (FT) 2016-18

Strategic Management
A case study on ITC Ltd.

GROUP ASSIGNMENT 1 FOR PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE STM-2 COURSE

Submitted to:

Prof. Shahir Bhatt

Submitted by:

Nikhil Jain (161238)

Piyali Roy (161240)

Sumeet Ahuja (161259)

Supriya Iyer (161260)

Tejal Unadkat (161261)

Group No. 1
A case study on ITC Ltd.

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Introduction

ITC is one of India’s most admired and valuable companies. Its current market capitalization
stands at ₹3 Lakh Crores. And in size, it is a US$ 8 Billion enterprise (by revenue). 57% of its
net revenue comes from non- cigarette segments. It is a leading FMCG marketer in India. It
marked its prints in several world class brands in the last 10 years. It is among the top tax
payers in the country. Its contribution to exchequer represents 75% of value addition (FY16)
(Exhibit 1). It has been able to generate huge employment directly. The journey of the
company hasn’t been smooth. It constantly changed, developed and refined its business
models to tackle the pressure it faced and to remain at the top in the face of the rising
competition and changing social, political and legal environment. Changing business models
helped the company to efficiently manage its diversifying portfolio, which in turn was one of
its strategies to remain at the top.

History

ITC was established in 1910 in India under the name of Imperial Tobacco Company in the
city of Calcutta. ITC Limited’s parent organization is British American Tobacco (BAT)
which amalgamated with four other companies to form American Tobacco Company. To
tackle the competition, this company then gathered all tobacco companies in Britain to form
the Imperial Tobacco Company.

As the Company's ownership progressively Indianized, the name of the Company was
changed from Imperial Tobacco Company of India Limited to India Tobacco Company
Limited in 1970 and then to I.T.C. Limited in 1974.

As the company diversified in multiple businesses from hotels to paperboards and packaging
(see exhibit for the timeline), the full stops (in I.T.C. ltd.) were removed and it was renamed
as ITC Limited on September 18, 2001.

Business philosophy and strategy

Their business was simply to manufacture cigarettes and sell them and earn profits. They
were India’s largest cigarette manufacturers. But as various factors like political, economic,
social and legal came in the way of their growth, ITC refined its strategies to tackle them.

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Challenges faced by the company

The Government of India began to levy excise duty on cigarettes in 1948 and the states as
well levied other kinds of taxes. This led to taxation becoming a major component in the cost
of cigarettes. To maintain its income and profits, Imperial Tobacco Company increased the
prices of their tobacco products. This created a problem, as the company lost its market share
from over 70% to just 35-40% during the period of 1947-1961.

This being a foreign company, it faced trouble in the 1970s when there was much turbulence
with respect to economic, political and regulatory environment, a competitor named Golden
Tobacco launched a campaign against Imperial Tobacco Company calling it a “foreign
enterprise” that was endangering the position of indigenous firms in India.

Also, it was around this time when various anti-tobacco campaigns were being carried out.
This also had a negative impact on the sales of cigarettes.

The tobacco industry was discouraged by the government during the 1980s as it was
considered a “non-priority” sector. Also, foreign companies were not allowed to have stake
holding in such companies. ITC came under the preview of MRTP Act, 1969 (Monopolistic
and Restrictive Trade Practices Act) and the FERA Act, 1973 (Foreign Exchange Regulation
Act). These acts put restrictions on increasing foreign equity in companies, and ITC
predominantly a foreign held company was seen to be a “dominant” company in this regard.

An Opportunity Seized

ITC was facing rough times with all these restrictions, but in February 1987, The Union
Government replaced the ad-valorem excise duty structure. In this new structure, the excise
duty was levied on the printed prices of cigarettes as a function of the cigarette length. This
was a very welcome move and ITC capitalized on this by building a strong portfolio of its
brands that were high priced and gained profits from the same. During this time period, under
the leadership of Mr. A.N Haskar, the first Indian Chairman for ITC, the company began to
think actively about what strategic alternatives they could use to tackle the ongoing issues.
They had kept in mind that any decision that they would take would not only have to meet
economic and legal issues but also social and political factors too. They then implemented a
“corporate rebounding process”- which meant, going through the lines of business of the
company. They had to come out of the zone of the ‘foreign- tobacco’ and do something

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through which they can garner support of the Indian Government. And, the answer they
found was to diversify into core areas that were considered high- priority by the GOI.

Diversification

ITC ltd. diversified in other businesses in 2001. Its strategy was to connect in a much better
way to the people and enhance or modify its image as the seller of cancer products. So it
entered into a foray of businesses.

The diversification of ITC began with paper- manufacturing and hospitality sector.
Bhadrachalam Paperboards Ltd was the first paper mill established by ITC which ran
successfully. The Cholas in Madras, Mughal in Agra, and Maurya in Delhi were some of the
hospitality (hotels) ventures that helped ITC build its image as an Indian Brand. The
company tried to combine its corporate objectives with social responsibility by venturing into
carpet export business supporting the carpet weavers in Shahjahanapur. They provided the
weavers with high quality wool and they even gave them access to training and then the
carpets were sold abroad. It has also entered in the agri-food business like edible oils.

However, so far ITC hasn't been able to earn significant profits through any of its non-
tobacco businesses. ITC's core business, cigarettes, contributes almost 85 per cent to its
revenues, while almost all the other diversified businesses put together contribute only 15
percent. Analysts feel that ITC's ability to grab a sizable share of the markets it has entered
and progressively make profits is doubtful, because it has diversified into areas where there is
intense competition.

ITC Now

Looking at the current scenario, ITC has transformed itself into India’s largest multi-
corporate business from a single product focus company. It is also known predominantly as
an FMCG brand that is very much at the growth stage. The diversification in the product mix
has helped ITC successfully change its tobacco related image to completely different and
positively viewed brand. ITC has also made large investments in the IT sector taking the help
of technology and the most significant initiative taken by ITC using technology was ‘e-
choupal’ which is an IT based kiosk network where they are able to directly source
agricultural commodities. This internet based model aimed at removing intermediaries
eventually went on to generate social capital for the country.

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The company also took myriad social initiatives by taking active interest in adding value to
society and step to revamp its brand image. It involved in the sectors of Social and farm
forestry, watershed development, livestock development and primary education in rural areas.
It adopted Environmental/ Ecology related initiatives like “water positive” in 2002 and
“carbon positive” in 2007. ITC Women empowerment program – was another impactful
difference in the lives of 50000 women.

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Exhibits

Exhibit 1: Value added by ITC and contribution to exchequer

Exhibit 2: Timeline

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Exhibit 3: Businesses of ITC Ltd.

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References:

1. ITC Ltd. - one of the India's most valuable companies. (n.d.). Retrieved from
http://www.itcportal.com/about-itc/shareholder-value/ITC-Corporate-P
2. (n.d.). Retrieved from http://www.itcportal.com/default.aspx
3. Agarwal, S. (2015, June 25). ITC: Limited impact of regulatory clamp.
Retrieved February 15, 2017, from http://www.business-
standard.com/article/companies/itc-limited-impact-of-regulatory-clamp-
115060500990_1.html
4. Padampriya, J. (2006, July 7). Clicking on: farmer connect made easier thru e-choupal
Read more at:
http://economictimes.indiatimes.com/articleshow/1712188.cms?utm_source=contentofin
terest&utm_medium=text&utm_campaign=cppst. Retrieved February 10, 2017, from
http://economictimes.indiatimes.com/news/economy/agriculture/clicking-on-farmer-
connect-made-easier-thru-e-choupal/articleshow/1712188.cms
5. ITC Ltd. Annual Report. (2016). Retrieved from http://www.itcportal.com/about-
itc/shareholder-value/annual-reports/itc-annual-report-2016/pdf/ITC-Report-and-
Accounts-2016.pdf

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