STRATEGIC PLAN OF INDIAN TOBACCO COMPANY (ITC)

BY- RAJLAKSHMI PHUKON (A- 28) DEEPAK KUMAR (A- 06) PALLAVI MUDOI (A- 55) HITESH MISHRA (A- 10)

INTRODUCTION: ITC was incorporated on August

24, 1910 under the name Imperial Tobacco Company of India Limited. As the Company's ownership progressively Indianised, 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. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care - the full stops in the Company's name were removed effective September 18, 2001. The company now stands rechristened as “ITC Limited”.

BUSINESS PORTFOLIO: The company concentrated on the Cigarettes and Leaf

Tobacco Businesses during its first six decades of existence.

In 1925 ITC set up its Packaging and Printing Business as a strategic backward integration for ITC’s Cigarette Business and is today considered as one of the most sophisticated packaging house in India.

In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcome group Hotel Chola'.

In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards Limited, which today has become the market leader in India.

In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint venture. Since inception, its shares

VISION, MISSION AND CORE VALUES:VISION: Sustain ITC’S position as one of

India’s most valuable corporations through world class performance creating growing value for the Indian economy and the companies’ stakeholders.

MISSION: To enhance the wealth generating capability of the enterprise in a globalising environment delivering superior and sustainable stakeholder value.

CORE VALUES: ITC's Core Values are aimed at developing a customer-focused, high-performance organisation which creates value for all its stakeholders:

•Trusteeship: “As professional managers, we are conscious that ITC has been given to us in "trust" by all our stakeholders. We will actualise stakeholder value and interest on a long term sustainable basis”.Customer focus: “We are always customer focused and will deliver what the customer needs in terms of value, quality and satisfaction”.•Respect for people: “We are result oriented, setting high performance standards for ourselves as individuals and teams. •Excellence: “We do what is right, do it well and win. We will strive for excellence in whatever we do”.•Nation orientation: “We are aware of our responsibility to generate economic value for the Nation.

OBJECTIVE:

The primary focus of ITC's Social Development Initiatives is to create sustainable sources of farm and off-farm livelihoods .

Web-enable 10 million farmers through 20,000 e-Choupals in 100,000 villages.

Bring at least 50,000 hectares under soil and moisture conservation practices.

Transform at least 1,00,000 hectares of wastelands into productive and revenue-generating assets for the poor.

Create at least 10,000 women entrepreneurs with a sustainable source of supplementary incomes.

Improve the genetic stock of at least 150,000 cattle through artificial insemination practices.

ENVIRONMENTAL APPRAISAL:Porter’s five forces analysis of FMCG

industry:

Bargaining power of suppliers (low): Manufacturing is largely outsourced due to globalisation, the FMCG distributors in the developing countries are struggling to capture and retain their market share from the multinational companies. To attract the retailers, the distributor supply on credit and collect the amount in unequal instalments.

Bargaining power of buyers (moderate): In case of branded products there is little that consumers can influence.

• Rivalry between existing firms (High): Players from organized and unorganized sectors continue to grab each other’s market share. In small towns and rural areas, due to low brand awareness the local players are able to grab the sales of rural market. To meet the competition recently ITC has entered into personal care products. Even Dabur plans to enter into health beverages which would add to the already aggressive environment resulting in high pressure of margins.• Threat of new entry (Low): Companies like HLL, ITC, Colgate, Cadbury, Nestle and Procter & Gamble dominated the FMCG sector.One main barrier for new entrant is the high import duty.• Threat of substitute products (high): Substitutes are found within the sector itself. If the consumer will change the consumption pattern then the effect will be on the company only not on the industry. 

Environmental factors Nature of impact Impact of each sectorPolitical Huge burden of VAT, Excise duty

raised by union budget 5%, 100% FDI allowed, smuggling etc.

Economical Bidee:Cigarette ratio-10:1, Profit margin is high, other form of cheap tobacco intake.

Social Companions mounted by WHO, Changing attitude towards tobacco.

Technical Development of IQMS, cheap labour supply.

Legal Contract enforcement law and consumer protection, international trade regulations and restrictions.

Environmental (UP) Environment friendlyMarket It is an organised sector. High

competition from HUL, P&G, Parle, Procter&Gamble etc.

International up In 1990, leveraging its agri-sourcing competency, ITC set up the Agri Business Division for export of agri-commodities.

Supplier Associated companies in small scale sector for parts and components.

:ETOP FOR ITC:

strategic advantage profile (SAP)of ITCCapability Factor Nature of Impact Competitive Strengths & Weaknesses

Finance Up (+) sales and sales growth are high.(+) reserve n surplus are high.(-) Current ratio is less than the previous year which is not optimum.

Marketing Up (+)Distribution channel is effective which is based on delivery van, computer, warehouse, sales force.(+) Huge investment in advertisement.(-) Negative link of tobacco with health

Operations -- (+) Huge investment in plant & machinery, computers, servers and other IT equipments.(-) there might be a problem in logistic due to large distribution network.

Personnel -- (+)experience and qualified employee.

Research and development

-- (+)ITC research and development facilities Rajahmundry in Andhra Pradesh cover all aspects of tobacco crop cultivation

Swot Analysis

THREATCompetition in domestic and International.Increased tax rates charged on cigarettes.Health hazard in tobacco.

STREGENTH Brand Image

Distribution Network

Management

WEAKNESS

Dependent on tobacco revenueNegative association of tobacco

OPPORTUNITIESRural marketE- choupalIncreased spending power of rural sector.

Business level strategiesProduct differentiation:

The company has been launching new products and brand extension with investment being made towards brand building and increasing its market share.Cost Leadership:

ITC is focusing on delivering value at competitive prices. They believe in customer friendly products with major emphasis on low cost overall without compromising on the quality of the product.

Corporate Level Strategies :

Expansion strategies: Integration strategies: They have adopted both forward and backward integration.

The products in which the forward integration is done are Classmates, e- choupal, Sunfeast.

The products in which the backward integration was done are ITC printing and packaging in 1925., ITC InfoTech.

Diversifaction strategies:They have adopted conglomerate diversification strategies. ITC’s diverse strengths were being leveraged across three product groups- lifestyle retailing, greeting cards and gifts and branded packaged foods.

Cooperation strategies:

Cooperation strategies: ITC has adopted for joint venture which

come under the co-operation strategies. In 1985, ITC 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. In August 2002, Surya Tobacco became a subsidiary of ITC Limited and its name was changed to Surya Nepal Private Limited (Surya Nepal).

Functional Strategies:

Core Competancy:ITC has defined its core competency as its distribution reach and has used it to expand into

other FMCG like mints, salty snacks. The cigarette business is its core competency. ITC has the highest market share from its cigarette business that is 70%.

Marketing strategy: Promotioal Strategy:

Push strategy: In popular category with innovative scheme to distributors.

Pull strategy: Luxury products like Wills Signature, Essensa and strong brands like Pasta, MTR and Bingo.

Pricing strategy:

Competitive reference pricing in mass products or popular category.

Value pricing for luxury products.

Other marketing strategiesTie up with leading portals to promote snack range.

Online advertising and cam order snack on toll free number.

E-commerce activities for ready to eat snack brand KOI.

Proposed Organization structure and the system:

Research and development strategies:

ITC research and development facilities Rajahmundry in Andhra Pradesh cover all aspects of tobacco crop cultivation its collaboration with the Central Tobacco Board Research Institute and tobacco board. ITC pioneered FCV tobacco cultivation in India and introduced burley and HDBRG varieties.

ITC's diversified portfolio comprises:

Group Companies

Balance Sheet Analysis

Cont……

Sales & sales growth:   The sales of the company was Rs. 19135.87 Cr for the 31st

March 2010 as against sales level of Rs. 16556.14 Cr. giving a growth rate of 15.58%.

Profits & profitability: The profit before tax was Rs. 6245.71 Cr. for the 31st March

2010 compared with the profits level of Rs. 4984.76Cr. achieved by the company during 31st March 2005.

Gross profit ratio= Gross profit/ net sale *100 In 2010: 70.59% In 2009: 12083.26/16556.14*100 = 72.98%.   Net profit margin: Net profit/net sales*100 In 2010: 4168.18/19135.87*100 = 21.78% In 2009: 3329.59/16556.14*100= 20.08%

Cash flow margin: Cash flow from operating cash flows/net sale *100 In 2010: 6245.71/19135.87*100= 32.63% In 2009: 4984.76/16556.14*100=30.10% Liquidity analysis: Current ratio: current assets/ current liabilities In 2010: 7756.37/3737.14 =2.07 In 2009: 7147.49/3234.68 =2.20 Net working capital: current assets-current liabilities In 2010: 7756.37-3737.14= 4019.23 In 2009: 7147.49-3234.68 =3912.81 The liquidity position is reflected by the level of current ratio

and net working capital .The current ratio is optimum as required.

Net worth: share capital + reserve & surplus In 2010: 14458.31 In 2009: 14028.16 Debt equity ratio: total debt / total equity In 2010: 0.95/14458*100= 0.0065:1 In 2009: 18.86/14028.16*100= 0.13:1

The optimum debt equity ratio is always 1:2, here also debt equity ratio is very good because equity is very high in compare to debt.

Stock turnover ratio: cost of goods sold/average stock*100

In 2010:( 4794.33+1944.55-5092.02)/(4794.33+5092.02/2)

=33.31 Return on equity: Net profit/ net worth*100 In 2010: 4168.18/14458.31*100= 28.82% In 2009: 3324.59/14028.16*100= 23.69% It is clear that the ROE has increased from 2009 to

2010, which means that the shareholders are getting reasonable return on the funds invested by them.

Thank you