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ITC - diversification strategy

Extracts from this document...

Introduction

CONTENTS EXECUTIVE SUMMARY 4 1. INTRODUCTION 6 2. MISSION, VISION & VALUES 7 3. TRIPLE BOTTOM LINE STRATEGY 8 4. ORGANIZATIONAL STRUCTURE 9 5. LEADERSHIP 11 6. SWOT ANALYSIS 12 7. CIGARETTES - CORE BUSINESS? 12 7.1 Challenges in Cigarettes Business 13 1. High incidence of taxes 13 2. Discriminatory taxation 13 3. Reduced Export Attractiveness 13 4. Contraband Cigarettes 13 5. Regulations 13 8. DIVERSIFICATION STRATEGY 14 8.1 Paperboards, Paper and Packaging 14 8.1.1 Introduction 14 8.1.2 Rationale for Diversification 16 8.1.3 Form of Diversification 16 8.1.4 Emphasis on value-added papers 16 8.1.5 Analysis of BIPCO acquisition 17 8.1.6 Analysis of Success - Triple Bottom-line performance 18 1. Financial performance 18 2. Ecological performance 19 3. Social performance 19 8.1.7 Forward Integration into Education & Stationery products 19 8.2 Hotels Business 20 8.2.1 Introduction 20 8.2.2 Rationale for diversification 20 8.2.3 Form of diversification 20 8.2.4 Growth of business 20 8.2.5 Amalgamation of ITC Hotels Ltd. and Ansal Hotels Ltd. with ITC Ltd. 21 8.2.6 Analysis of Success 22 1. Financial Performance 22 2. Ecological & Social Performance 22 8.3 Agro Business division of ITC 22 8.3.1 Introduction 22 8.3.2 Divisions under Agri-Business 23 8.3.3 Rationale for diversification 25 8.3.4 Form of diversification 25 8.3.5 Analysis of success - the Triple Bottom line performance 26 1. Financial performance 26 2. Ecological performance 26 3. Social performance 26 8.4 FMCG Others: Food Business 27 8.4.1 Introduction 27 8.4.2 Rationale for Diversification 28 Market attractiveness: 28 Leveraging synergies from other businesses 28 Changing demographics of Indian Consumers 29 8.4.3 Lifestyle Retailing: 31 8.4.4 Future FMCG: 31 8.4.5 Form of Diversification 31 8.4.6 Analysis of Success - Triple Bottom-line performance 32 1. Financial performance 32 2. Ecological Performance: 32 3. Social Performance: 32 9. ANALYSIS OF ITC THROUGH BCG MATRIX 33 10. CONCLUSION 34 APPENDIX 36 Appendix 1: CHRONOLOGY OF MAJOR BUSINESS ENTRIES/INITIATIVES 36 Appendix 2: ITC Business Statistics 38 Appendix 3: ITC Performance vs. ...read more.

Middle

It has grown to be one of the largest hotel chains in India today. Earlier the hotels business was separate and operated as a subsidiary of ITC, but was later merged in ITC as a separate division. ITC Hotels owns, manages and operates under four distinctive brands: Luxury Collection, WelcomHotels, WelcomHeritage and Fortune Hotels. Luxury Collection is the brand name for a range of exclusive luxury hotels in strategic business and leisure locations. WelcomHotels is brand name for group of hotels that offer five-star hospitality for the discerning business and leisure traveler. WelcomHeritage includes palaces, forts and havelis. Fortune Hotels brand defines accommodation in the midlevel full-service segment for a budget traveler. ITC - Welcomgroup hotels are marketed worldwide by the Sheraton Corporation, which is part of Starwood Hotels and Resorts, the well-known global hospitality chain. The World Travel and Tourism Council pegged the Indian tourism industry at $5.7 billion in 200614. It also states that Indian travel and tourism industry may grow at an annual rate of 8.8 % over the next 10 years to become the third-fastest growing country after China and the Balkan republic of Montenegro. In India the domestic business traveler accounted for 40 percent of total room revenue within India. As per industry sources in 2006, India required a total capacity of 130,000 rooms to meet demand whereas supply is only 103,000 falling short by 27,000 rooms. 8.2.2 Rationale for diversification The decision to move to hotels business was prompted by the macro-economic environment: the government's encouragement to ventures that would earn foreign exchange15. 8.2.3 Form of diversification ITC did not have any relation with the hospitality sector before it started its hotel chain. The businesses were cigarettes and paper products both of which were unrelated to the hotels business. Hence, this was horizontal diversification. 8.2.4 Growth of business The growth of the Hotels businesses was initially inorganic. But later the company grew organically. ...read more.

Conclusion

Since April 1, 2001, the BSE Sensex has gone from 3604 to 19401 points on Nov 6, 2007, a gain of 438%. But during the same time, ITC stock has gained 260% from Rs. 48 to Rs. 173. Even when the stock market gained 72% from 11280 to 19401 points, ITC stock underperformed the index by a wide margin. However during the later part of 2008, from July 1, 2008 to Feb 16, 2009 when the index fell from 20827 to 9035, a fall of 130.5%, ITC stocks fell just 24%, from Rs. 222.5 to Rs. 179.7., one possible reason being defensive buying of the FMCG stocks. The performance of ITC stock in future will mostly depend on the new businesses that ITC has invested a lot. 1 http://www.itcportal.com/sets/itc_frameset.htm 2 http://www.capitaline.com/user/framepage.asp?id=1 3 http://www.itcportal.com/sets/values_frameset.htm 4 http://www.itcportal.com/chairman_speaks/chairman_2004.html 5 http://www.itcportal.com/sustainability_report_2006/html/governance-structure.htm 6 http://www.itcportal.com/sets/cigarette_frameset.htm 7 Reference: ITC Annual Reports, 2001-2008: Management Discussion Analysis 8 http://www.itcpspd.com/aboutus/aboutus.html 9 http://www.itcportal.com/newsroom/press_reports_june21_3.htm 10 http://www.itcportal.com/newsroom/press_mar23_04.htm 11 ITC Annual Reports, 2001-2008 12 "ITC plantations help feed Bhadrachalam mill with wood", Business Line, Wednesday, Oct 01, 2008 (http://www.thehindubusinessline.com/2008/10/01/stories/2008100150110500.htm) 13 "ITC exits greeting cards biz", Business Line, Friday, Jun 27, 2008 (http://www.blonnet.com/2008/06/27/stories/2008062750620500.htm) 14 http://www.hotel-online.com/News/PR2006_3rd/Sep06_ITC.html 15 ITC's Big Bang, By Debojyoti Chatterjee, Business Today. Jun 21, 2001 16 http://www.itcportal.com/shareholder_23_1/shareholder-bulletin.html 17 Indian Management, The journal of the All India Management Association, Oct 2008, Vol 47, Issue 10 18 http://www.itcportal.com/sets/agriexp_frameset.htm 19 ITC Agri Business Division (http://www.itcibd.com/pf.asp) 20 http://www.itcportal.com/itc_annualreports04/pg12.htm 21 http://www.itcportal.com/foods/foods_aashirvaad.html 22 "ITC to spice up food portfolio", April 07, 2003 (http://www.rediff.com/money/2003/apr/07itc.htm) 23 "ITC's Choupal Fresh combines retail with wholesale", 30 August 2006 (http://www.domain-b.com/companies/companies_i/itc/20060830_choupal.html) 24 "ITC plans more Choupal Fresh stores", Business Line, Thursday, Jan 18, 2007 (http://www.thehindubusinessline.com/2007/01/18/stories/2007011803330500.htm) 25 http://www.thehindubusinessline.com/2008/09/13/stories/2008091350990700 26 http://www.technituber.com.au/pages/default4.htm 27 ITC Sustainability Report 2005 28 http://www.itcportal.com/sustainability-report-2008/chairmans-page02.htm 29 "We will not enter a segment just to expand our portfolio" - Livemint, march 04, 2008 30 Article by Arnab Mitra, Business Today, Dec2, 2007 31 ITC Annual Report 2004 32 http://www.itcportal.com/newsroom/press-25apr08.htm 33 ITC: FMCG's a drag, Shobhana Subramanian / Mumbai January 20, 2009, 0:28 IST (http://www.business-standard.com/india/storypage.php?autono=346575) ?? ?? ?? ?? ...read more.

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