Project Report

On
Strategic Analysis of ITC

Submitted by
Group 8

Submitted to
Professor Krishna
Kumar Balodi

TABLE OF CONTENT
S.No

Chapters

Page No
3

Executive Summary
4

Introduction to the company

4

Analysis of Vision, Mission & Core values

6

The External Environment Analysis

10

The Internal Environment Analysis

18

Value Chain activities

19

SWOT Analysis
22
Competition Analysis

Industry Structure (Using Porters

Five forces model)

Competitive Profile Matrix (Based

on Key Success factors)

9

Organizational

Behavior,

CSR

and

Product Categories
2

27
9

Conclusion & Recommendations

28

10

References

EXECUTIVE SUMMARY
This report is all about the ITC limited company. ITC limited is the company
having the following sub categories which includes Food, Personal Care,
Cigarettes and Cigars, Branded Apparel, Education and Stationery Products,
3

Incense Sticks and Safety Matches, Hotels, Paperboards & Specialty Papers,
Packaging, Agri-Business and Information Technology. ITC is the sixth largest
company of FMCG in the world. ITC being the first Indian company and the
second in the world over to win the prestigious Development Gateway
Award. It won the $100,000 Award for the year 2005 for its unique innovation
as ITC e-Choupal initiative which has gained the popularity among the
masses in rural India.
Project:
Contains the strategic analysis of the firm ITC and its nearest rivals.
Contains a study of the important intrinsic and extrinsic variables in
the form of a SWOT analysis as well as a deeper understanding of the
path followed by the ITC.
Important events/initiatives leading to the success of ITC
Industrial analysis of ITC through Porters five forces and its comparison
with its major competitor in FMCG segment HUL.
Analysis done with Internal & external factors of the firm
This projects deals with the various business processes & product categories
identified by the FMCG Company, as well as comparing its unique positioning
with respect to its competitors. Our project is mainly concentrated on the
comparative analysis of ITC and competitor HUL. The source of information is
secondary that is through internet and different newspapers and sites of ITC
and HUL as well as some of the journals.

INTRODUCTION: Incorporated on 24 August 1910 as the Imperial Tobacco

Company of India Limited, the name was rechristened as ITC in 1974. This
company has been rated as amongst the Worlds Best Rated Companies by
the Forbes magazine. ITC ranks third on all major profit parameters between
4

the major MNCs in India. ITC employs over 25.80k people at more than 80
locations across India. ITC is one of India's first private sector companies with
a market capitalization of Rs. 269,890.29 Crs and the annual turnover of
Rs.38050.53 Crs. ITC has ventured into various segments like cigarettes,
hotels,

paperboards

and

specialty

papers,

packaging,

agri-business,

packaged foods and confectionery, branded apparel and greeting cards. ITC's
agri-business is one of India's largest exporters of rural produce. ITC InfoTech
India Limited provided end to end IT solutions for the company.
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.
FACTORS
Products & Services
Market Share
Technology
Survival, Growth & Profitability
Self Concept
Public Image
Customer
Employee
Philosophy

ITC
Yes
Yes
Yes
Yes

Market share of ITC is 30% and HULs market share is 36.4% as evident
from the graphs. Hence, it is evident that the Market share of ITC is
rising in FMCG segment.

 ITCs profit is increasing by 10% p.a. for FY 2014-15 but HUL has a
constant growth which shows that ITC has captured its market share
and is in the growth phase.
ITC has a good public image because it has made a great contribution
to the rural India with its e-Chaupal initiative and also has a huge
market share comparison to HUL.

ENVIRONMENT ANALYSIS
EXTERNAL ENVIRONMENT
THE MICRO-ENVIRONMENT
This environment has direct impact on the company. It includes dealers that
have direct or indirect contact with the consumers & other local distributors
and suppliers. Micro means small but this term doesnt give the exact
meaning.
In this scenario, micro defines the interrelated variables which impact each
other and are the driving forces that control this relationship. It is a local
dependence between the variables and it exercises a degree of influence.
Stakeholders: Every organization needs investment from the shareholders
for its growth and change of ownership from a private limited co. to a public
limited one. Maximizing shareholders value and increasing their needs is the
main objective. The companies have no conflict between the twin goals of
shareholder value enhancement and society value development. The
challenge lies in fashioning a corporate strategy that enables realization of
these goals in a collaborative and synergistic manner.
Supplier:
Raw materials, intermediates and the final product sourcing/distribution are
wide spread across the countries and final product/raw materials can be
sourced by more than one supplier. For e.g. Filter rods can be procured from
Mumbai,

Bangalore

or

M.P.

huge

supply-demand network for cigarette

business which has to function as the most cost reduction method which
maximizes the profits of the few segments which are particular to
the factories e.g. King size.

Consumer:
Organizations excel

on

the

objectives of meeting the needs, wants and providing benefits for

their customers. Failure will result in a failed business venture. Its businesses
& brands are focused all its resources in capturing the Indian markets, and
despite being famous for its tobacco brands such as gold flake, the business
is now spreading its wings into new FMCG (fast moving consumer goods)
brands in a number of market sectors.
THE MACRO ENVIRONMENT (PESTLE)
Political factors/Legal factors:
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
taxes from 2007-08 and the exemption of service tax in budget of 2008-09
which helps in increasing the buying power of the customers. The increase in
the tax bracket by increasing the excise duty and the vat from 12.5% to 20%
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.
Economic factors:
With non filter cigarettes being charged the same tax rate as compared to
the filter cigarettes, there was a sharp decline in the volume of the non filter
cigarettes for FY 14. ITCs volume declined by only 3% even though it
reduced its production of non-filter cigarettes.
ITCs volume was increased by the filter segment which grew by almost 15%
in FY 14 despite the price hike. This depicts that the firm is increasing its
market share at the expense of its rivals.
Social factors:
The intent of the tobacco consumers to increase its consumption can
increase the volume of cigarettes. However, increase in the concern of the
8

public with regards to the increase in the consumption of the tobacco has led
the government to ban all sorts of advertisements like the commercials, print
media and pamphlets. This will result in an major roadblock for the company.
For the hospitality business, the society is now turning more towards and
personal segment culture which means that people spend only for
themselves. The growth in the per capita income and the working consumers
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 has come a long way in its technological development. With state of the
art industries and cheap labor supply from the 2 nd largest tobacco producing
country among the worldwide production the supply chain management of
the ITC follows the latest trend. ITC also has the great inventory control and
logistics support. They have been able to adapt to the quality concepts such
as Quality Control, TQM and the six sigma concepts.
Environmental factors:
The main raw material source for tobacco is found mainly in the states of
Andhra Pradesh and Karnataka in India. The environment is favorable for the
company because of the huge raw material availability and inexpensive and
large availability of cheap labor.
Legal factors:
The developments on the macro environment and consumer regulations and
protection such as the ban on smoking and the ban on smoking in public
places & selling cigarettes to minors have resulted in setbacks for the
company in terms of the number of sales of their product which contributes
the maximum revenues. The legal issues related to the hospitality industry
affect

the

international

customers

because

of

the

visa

and

other administrative issues involved.

9

INTERNAL ENVIRONMENT
Leadership of company:
Under the leadership, ITCs sustainability initiatives were strategies that not
only enhance the shareholder value but added major share to the
development of natural and social capital. ITC is today regarded 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 7 million people, who represent the poorest in Rural India.
The pioneering farmer empowerment initiative, ITC e-Choupal, is today the
world's biggest rural digital infrastructure and is in a case study at the HBR
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 GOI in recognition for his distinguished
International Business Leaders Forum.
Leveraging the aspect of sustained excellence within ITC, he pioneered the
concept of Responsible Luxury in the hospitality industry that gave 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 team management and cohesion activities as a group. He has
designed value-based strategies to create a unique quality control model. His
dynamic leadership and enthusiasm for the business is regarded and
respected by his peers. He is presently the President of the Hotel Association
of India.
Company policies:
10

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 associates to establish a
human rights business compliant environment.
Policy to Prevent Discrimination at Workplace-ITC respects that every
individual brings a different and unique set of abilities and learnings to the
team.

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 supervisor. 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:

11

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 in terms of creating the goodwill for 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
excellent distribution reach, superior brandbuilding capabilities, effective supply chain management 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

12

On the basis of decision making powerBoard of

directors

13

Managing
directors

Business
development
department

Group internal
audit
Management
service department

Human
resource
development

Property development

Financial accounting

Industry

Management accounting

Agribusiness & services

Group company secretary

Workout

Risk management

Research & public relation

Information technology

Employees-

The

Company

is

currently

headed

by Yogesh

Chander

Deveshwar. It employs over 25.80k people at more than 80 locations across

14

India and is listed on Forbes 2000. ITC Limited completed 100 years on 24
August 2010.

No. of employees across various divisions:-

Source: www.macroaxis.com/invest/compare/ITC.NS

Financial Highlights 1996-2015

1996

2015

5,188

51,932

1,363

23,553

PBIT

536

14,055

Profit After Tax

261

9,608

Assets Employed

2,584

44,196

Market Capitalisation

5,571

2,60,865*

Gross Income
Net
Segment
(other than Cigarettes)

Revenue

CAGR in Total Shareholder Returns in the period 1996-2015 : 24.3%

Source: www.itcportal.com

15

Financial

analysis

of

ITC

(FY

2014-15)

(Rs. In Crs)
Working capital ratio:
Current asset = 23955.03
Current liabilities = 11681.91
So ratio is: 23955.03/11681.91 = 2.05
We can say it is good sign for company and also for the investors.

Debt equity ratio:

Total long term debt: 38.71
Total equity: 30735.69
So ratio is: 38.71/30735.69 = 0.001
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: 12.05
Diluted: 11.93
Company provides good returns to their investors.
It provides 1193% return to shareholders.

16

HR Policy of ITC:
Fixed-Term 71%
Permanent 28%
Short-Term 1%
More than 70% of the category permanent professional staffs are on longterm 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.
Marketing Policy of ITC:
Segmentation:

Source: www.itc.portal.com

17

Source: www.itc.portal.com
Targeting: All sets of customers including rural people, farmers, cigarette
smoking people, students, etc.
Positioning:

18

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 the 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.

19

SWOT ANALYSIS
Strengths:

Managing diverse business. ITC has 105 subsidiaries connected with its
various business operations.

Wealth of local knowledge & international expertise helps it to be

globally competitive.

High quality standard products & services

Excellent export earnings.

Highly professional management.

Excellent distribution network.

Excellent brand making capability helping it to diversify it into

Retailing, IT & Hotel segments

Agro-export segment showing excellent growth of 28 % & earning Rs. 4

billion foreign exchange.

A lasting impression by catchy ads.

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.

Good returns by way of dividend per share every year. In 31.3.2002 the
dividend declared is 13.50 Rs per share

The lifestyle retailing segment has won acclaim & moving towards
higher sales.

The expression greeting card is widening its base all over India & it is
available at most retail shops.

Steady increase in the return on capital employed.

20

Sophisticated research & development facilities.

Weakness:

Diversification into various lines in which it does not have much

knowledge would be very risky proposition.

High competition from established brands which has resulted in

reduction in profit margins.

Steep increase in cigarette taxes has adversely affected the revenue

earned.
Due to high price of cigarette, consumers are switching to other

cheaper forms of tobacco.

Its hotel industry has still not created a big share in the market size.

Opportunities:

Big untapped market available. For cigarettes, hotels, it, retail

garment, packaging & agricultural products.

High growth potential could be achieved.
Good source of revenue & foreign exchange available by way of

exports of agricultural products, hotels & cigarettes.

Its competitors dont have the financial banking like it so it can take

advantage of this.
Proper publicity of the hotels would increase its brand image &
revenue.

Threats:

Negative publicity for smoking could affect its cigarette segment.

Government is under huge pressure from public organizations for

banning tobacco products which could affect it adversely.

High competition from established brands.
Competition from unbranded products.
Due to terrorist attacks the tourism industry has taken a back seat

which would affect the hotel segment.

Poor monsoon leads to poor agricultural growth which would affect the
agro-exports.

21

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]

22

1. Threat of new entrants:

Economies of Scale
Product Differentiation
Capital Requirements
Access
to
Distribution

Not Easy to Achieve

Requires huge R&D
High
Not Easy

Positive
Positive
Positive
Positive

Channels
Cost Disadvantages
Government Policy
Switching Costs

More
More
Low

Positive
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:

23

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
H
DISTRIBUTION
CHANNEL

P&G
HUL
ITC

M
L
H

BRAND IMAGE
H
QUALITY

ITC
P&G,HUL

M
L
H
M
INNOVATION

Key success factors of ITC:

24

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
Comparison on the basis of key success parameters:
Wt.

Paramet

allotted

ers

ITC

HUL

P&G

Ratin

WAS

Rating

WAS

Ratin

WAS

20%
20%

Quality
Innovati

g
4
4

.8
.8

4
3

.8
.6

g
4
3

.8
.6

20%

on
Distribut

.6

.8

.8

20%

ion
Brand

.6

.8

.8

10%
10%

Image
Variety
Promoti

3
4

.6
.3

4
4

.4
.4

4
4

.4
.4

on
Total

3.5

3.

3.8

CONCLUSION
25

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 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 relaxedwear. 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.
26

Thus by adopting these strategies ITC will surely maintain its success and
add many more new sub-brands to its corporate group-ITC.
RECOMMENDATIONS
1. The company has to come with an idea of Retail stores of food products all
over India following the strategy of Umbrella branding. The inauguration of
such stores should be accompanied with the food products being sold at a
discounted rate and all the products should be brought under this initiative
with products like food processing.
2. The company can come up with new initiatives to tie up with the Retails
food joints Like Mc Donald, Pizza Hut, Dominos, Smoking Joes etc and other
food joints so that they use Aashirvaad atta at a discounted rate or discount
coupon can be given to the outlets if they are using this product of ITC.
3. The company can launch a new idea where they can export branded Atta
to other exporting countries where they are already exporting wheat.
Aashirvaad brand Atta was exported to New Zealand, Australia, US and
Canada but the government has imposed certain restrictions on such exports
for ensuring food security on wheat based products. The company can
suggest that value added food products should not be banned from
exporting but some certain restrictions can be imposed on the company to
import an equivalent amount of wheat in the country.
4. ITCs growing presence in agriculture, food and personal care products is
enabling a synergy of R & D capabilities to venture into future products
which can be aimed at nutrition, health and well-being. This special attention
can be used to take care of the various health disorders in the country and
several long term arenas can be created for these unique propositions. These
R & D centre can be used to address the areas of heart related and diabetes
related problems. The company is already moving in this direction by setting

27

up R&D centre at Bangalore which will provide the requisite platforms to

deliver such future products.
5. The company can approach the government or distribute their food
products & other categories in Military canteens and can sell them to NGOs
that gives the evening meals to the children as part of mid-day meal
scheme.

28