ITC Case Study

Mirror,mirror on the wall

Introduction
ITC company started as tobacco company in 1910 and continued the operation for 60 years.

After economical changes in the year 1991 company diversify the product line to FMCG,
hospitality, paper and packaging, agri business.

The company has grown over the years and spread its product line but in few of the sectors the
growth rate decline.

The market capitalisation of US $ 50 billion and Gross Sales Value of US $ 10 billion till 2019
 In the FMCG category, ITC has not been performing on par to other FMCG companies

In fact, due to their large Operating losses, they portray negative numbers on their Operating Margin and Basic
Earning Power Ratios.

Their Debt to asset ratio and TATO are relatively better due large assets held, but since it is not specified in the case,
we could expect that a large portion of these assets may also be debtors and inventories, possibly further indicating
that operationally, in the FMCG sector ITC has not being doing so well.
5 Force Analysis for the Indian FMCG Industry 2010

The overall power of this industry is not conducive for new entrants. ITC may therefore have to rethink their
strategy in this SBU especially as they're sustaining heavy operational losses.
Porter’s 5 Force Analysis of the Hotel Industry from 2008 to2010
Forces Attractive/Unattractive Power

1.Threat of New Entrants: Attractive High

1.Barriers to Entry:
1. Capital Requirement: Huge capital requirement for hotel industry is required. When Medium
compared to its competitors ITC has been gradually increasing its capital expenditure in
hotels.
Capital Expenditure
2000 1812.42

1500
1000 588.64
367.02 417.94
500 302.37 275.78 258.37 208.5 235.32
0
2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 High
ITC EIH Ltd leela indian hotels

2. Switching Cost: 5-star segment hotels create tourism through which the switching cost is High
high since it requires substantial time and cost.

3. Product Differentiation: High product differentiation since there were few Hotel High
industries that were competing in this segment.
B. Retaliation:
Low as existing competition cannot react aggressively by increasing sales promotion due to
high capital and time.

Conclusion:
Overall Threat of New entrants is Low since the power of industry in Hotel segment is high. This makes the Hotel industry attractive for ITC.
Forces Attractive/Unattractive Power
II. Suppliers Power Attractive Low
1.Is supplier dependent on Industry? No .They are the suppliers as
they have agriculture and
FMCG and there is no Low
dependency on suppliers as
there is synergy.
2.Cost of switching suppliers is low? Low
Conclusion: Supplier’s Power is not strong and leads to making the Cost of switching suppliers is
industry attractive to ITC low because they have a
synergy created between
various sectors.
III. Buyer’s Power Attractive/Unattractive Medium
1. Bargaining power of buyers Yes, as there are multitude of Low
competitors .
2. Standardized & Undifferentiated product There is standardization in
service industry but the Medium
3. Integration to produce industry products products are differentiated.
Yes, Buyers can do a backward
Conclusion: Buyer’s Power is medium and leads to making the integration if vendors are High
industry attractive or unattractive. profitable.
IV. Threat Of substitutes Attractive Low
1.threat of substitutes is high or low? Since 5 star hotels only Low
concentrate on certain market
or groups of people ,it
competes on the basis of
modern and luxurious hotel.
Paper,Paperboards & Packaging
ITC Paper & Ballapur Andhra West Coast JK Paper
Paperboard Papers
s

TA/TL 8.72 3.17 2.22 1.80 2.12

Capex (Rs 2461.61 7280.04 3008.41 2275.68 2206.55

crores)

ROCE(%) 10.73 2.5 3.68 6.6 6.85

EBITDA 19.34 25.19 20.09 19.35 17.62

Margin (%)

The paper industry is very attractive since the ROCE,TA/TL and EBITDA are high which tells that they
are using their assets well which increases their profit.(EBITDA margin in the operations).
Porter’s 5 force analysis of the Paper Industry from 2008 to 2010.

Forces Attractiveness/ Power

Unattractivene
ss

1. Threat to New Entrant Attractive Low

Barriers to New Entry Low

Switching Cost: Low switching cost Low
Capital Requirement: High capital required High

Conclusion: Threat of new entrant is low since power in paper industry is low.

2. Suppliers’ Power Unattractive Low

Is supplier dependent on Industry? Yes Low

Cost of switching supplier: Low Low

Conclusion: Supplier power is low due to availability of many suppliers.

Forces Attractiveness/ Power
Unattractivene
ss

3. Buyer’s Power Attractive High

Bargaining power of buyers Yes High

Standardised Products Attractive High

Conclusion: Buyer’s power is high and leads to making industry attractive.

4. Threat of Substitute Attractive High

Threat of substitute is high due to increasing smartphones/laptop sales Yes High

Technology(Laptop, Smartphones High

Conclusion: Threat of substitute is high due to technology advancement.

Industry is attractive
 Attractiveness Test (2008-10)
Business Reasons by Financial attractive/Unattractive

Cigarettes The sales have been rising from 7% Attractive

to 14%.

FMCG In the FMCG category, ITC has not Unattractive

been performing on par to other FMCG
Companies.

Hotels EBITDA,ROCE is rising year on Attractive

year by which they have a good
profitability.

Paper,Paperboards and They have higher market share Attractive

Packaging when compared to its
competitors(ROCE,EBITDA margin
is good when compared to its
competitors)
 ITC is increasing the market share at the
expense of profitability

ITC is increasing the market share at the expense of profitability since it is investing more on assets.
Conclusion
For ITC, both products and market catering to it where new so it was a unrelated diversification
for the company.

Company took this step to change the consumer perception about ITC as a brand and in order to
do this, company introduce new products and new concept in agriculture.

Out all the diversification all business seems to be convincing business model and FMCG seems
to be loss making and reducing the overall profits of ITC.