ITC - diversification strategy

Below this level was the Corporate Managing committee consisting of 4 committees - he Audit Committee, the Nominations Committee, the Compensation Committee and the Investor Services Committee. The mandate of this committee is strategic management.

The third level has the executive management team, which consists of the divisional CEOs of each business assisted by their own divisional management committees. This level handles the day to day operations of the company.

The three-tier governance structure ensures that:

• Strategic supervision (on behalf of the shareholders), being free from involvement in the task of strategic management of the Company, can be conducted by the Board with objectivity, thereby sharpening accountability of management;
• Strategic management of the Company, uncluttered by the day-to-day tasks of executive management, remains focused and energized;
• Executive management of a Division or a Business, free from collective strategic responsibilities for ITC as a whole, focuses on enhancing the quality, efficiency and effectiveness of the business.

Mr. Deveshwar believed that the concept of core competency was applicable to firms in the developed countries. In emerging economies like India, the importance was of management competency. This meant that the firms did not have to restrict themselves to a few products. The organizational structure and processes should be designed to provide effective management of various businesses while also focusing on each of them.

5. LEADERSHIP

The last 2 Chairmen of ITC Ltd. have shaped the way the firm is today. Most of the strategy of the firm can be attributed to these people.

Mr. Chugh joined ITC in 1971 after working for 10 years in the Heavy Engineering Corporation, a public sector organization. Mr. Chugh set up the ITC Bhadrachalam Paperboards Limited. He came back to the as the Vice Chairman in 1989 and then took over as the Chairman in 1991 till 1995.  During Mr. Chugh's tenure of four years as Chairman, ITC grew more than two fold in turnover and almost four times in profit. He was one of the first CEO’s to talk about India’s multinational companies. During his times, ITC Ltd. was under considerable influence of its parent company BAT. Towards the end of his career, he sensed that BAT was pursuing its own interest and did not want ITC to grow especially in businesses where BAT would be its competitor in the global market. He then took certain decisions which were not in line with what BAT was expecting. Induction of Mr. Deveshwar as the Chairman-Designate and diversification into power and finance were two such instances. When Mr. Chugh tried to induct Mr. Deveshwar as a Chairman-Designate in ITC he was opposed by BAT. It was due to the stake of financial institutions that this could happen. The decision of diversification into power and finance was opposed by BAT. But Mr. Chugh went ahead with the diversification, though these did not prove to be successful. By the time Mr. Chugh retired as the Chairman, ITC had started taking independent decisions without the consent of BAT. In a way, his leadership skills paved way for Mr. Deveshwar to gain the management control of ITC.

Mr. Deveshwar’s tenure can be equated with the second wave of diversification by ITC. He joined ITC right after completing his education from IIT Delhi in 1968. His big break came in 1984, when he joined the ITC’s Board of Directors. He later took over the ITC Hotels business and was responsible for it. He diligently learnt the functional needs of the business, a rare for any CEO of any business. He was handpicked by the government in 1991 to head the Indian Government owned airline Air India. He tried to push forward the idea of merging Air India with the other government owned airline Indian Airlines. He came back to ITC as the Chairman Designate and then took over as the Chairman in 1996. He successfully managed to stave off BAT’s takeover attempt in 1996. He was responsible for changing the organizational structure the way it is today. He has completed over a decade as the Chairman of ITC. During his tenure the company grew from a Rs. 5,000 crore worth business to over Rs. 16,000 crore worth business, growing at a CAGR of about 14%.

There are some similarities about both these people. Both of them had spent considerable in ITC before becoming the Chairman. They had both worked for considerable parts heading the subsidiaries of ITC.  This probably gave them a sense of ownership and more independence in handling the affairs of the business. But a notable difference was the tenure of the two people. Mr. Chugh retired after 4 as the Chairman whereas Mr. Deveshwar who took over as the Chairman in 1996 is still the Chairman of ITC. Also, the diversification attempt made by Mr. Chugh was not successful. Mr. Deveshwar made a committed and a focused diversification into businesses like Agri business, FMCG, lifestyle retail etc. The success of these businesses is still to be seen.

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6. SWOT ANALYSIS

The key capability of ITC is its management capability. This has helped the firm move into completely new areas like FMCG. The next key capability of the firm would be its Chairman Mr. Deveshwar. He has been instrumental in changing the outlook of the firm and taking it to a new level. In a way, it seems more like a people-driven company than a process-driven company.

As mentioned by Mr. Deveshwar, the concept of core competence is not generally applicable to companies in the emerging countries. It is the capability of its management of handle diverse businesses which results in the success of the firm. This is what Mr. Deveshwar is probably planning to achieve and the change in the organizational structure way back in mid 1990’s was a step towards the same.

7. CIGARETTES - CORE BUSINESS?

Cigarettes have been the core business of ITC till date. ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. It's highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake. It has achieved its leadership through significant investments in product design, innovation, manufacturing technology, quality, marketing and distribution.  However it has been challenged on several fronts.

7.1 Challenges in Cigarettes Business

1. High incidence of taxes

High incidence of taxation continuously has been a deterrent to ITC’s cigarette Business. Taxes amount to over 80% of the value added in the cigarette industry, hence making cigarettes increasingly unaffordable to the Indian tobacco consumer. There are about 200 million tobacco consumers in India, and of them, fewer than 14% can afford cigarettes, although cigarettes contributes 90% of total Central and State revenues generated from tobacco sector. Non-cigarette forms of tobacco consumption, constituting nearly 85% of tobacco consumption in the country, contribute barely 10% of Government revenues because of the difficulty of tax collection and the low tax yields that characterize this largely unorganized sector.        

2. Discriminatory taxation

There has been a prolonged punitive and discriminatory taxation regime at Central and State levels have made cigarettes unaffordable to the majority of tobacco consumers. Also, Non-cigarette forms of tobacco products are largely produced in the unorganized sector characterized by lower rates of tax and ineffective enforcement. As a result, there is a growing migration to lower value forms of tobacco consumption. Just to illustrate, in 2003, the effective excise duty on most tobacco products other than cigarettes is equivalent to about 12% of the net value of the product whereas on cigarettes this component is as high as 140%. Moreover in 2003, VAT was introduced on cigarettes already subject to a plethora of taxes.

3. Reduced Export Attractiveness

The export prospects were affected by the uncertainty and diminished market presence caused by the crop holidays in Andhra Pradesh. As a result, the export attractiveness of Indian tobaccos is caught up in a vicious cycle to the growing detriment of the tobacco farmers. Also, small base of domestic cigarette consumption discourages investment in R&D and quality enhancement of tobacco varieties thereby sub-optimizing the export potential of tobacco.

4. Contraband Cigarettes

There was also threat from contraband trade of cigarettes aided with loopholes in the regulatory framework and lack of effective enforcement.

5. Regulations

In 2004-05, severe restrictions were imposed on the cigarettes industry with respect to advertisement, sale and consumption of tobacco products with the implementation of the “Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade, Commerce, Production, Supply and Distribution) Act, 2003 (COTPA).

All these in totality made cigarette business less profitable and more challenging. As a result, ITC started diversifying into multiple businesses. While exploring new opportunities, for long term growth, ITC depended on its multiple strengths & synergies that it could bring about from its existing businesses. We discuss few of such businesses in detail in the following sections.

8. DIVERSIFICATION STRATEGY

8.1 Paperboards, Paper and Packaging

8.1.1 Introduction

 The Indian paperboard industry has been growing at 9% compared to the global average of 2% with the industry size estimated to be 1.24 MTPA. The industry has very fragmented capacities with over 100 mills catering to the market for paper and boards. ITC is the market leader is this category with over 30% share.

ITC entered the paperboards business in 1975 with the incorporation of Bhadrachalam Paperboards Ltd. The company was setup as an integrated paperboard manufacturing facility and commenced operations at Bhadrachalam in Andhra Pradesh. Currently, there are paper/paperboard/packaging facilities at 4 locations – Bhadrachalam, Tribeni, Coimbatore and Bollarum producing a wide range of paper, paperboards and packaging products. In 2002, ITC Bhadrachalam Paperboards Ltd. was amalgamated with ITC Ltd. and Tribeni Tissues Division to form the Paperboards & Specialty Papers Division. One common theme across all mills has been the unilateral focus on quality, environment-friendly practices and operational efficiency.

There are 3 classes of products which have their own sub-categories.

1. Packaging and Graphic Boards

1. Coated Virgin Boards
2. Coated Recycled Boards

2. Specialty Boards

1. Barrier Poly Coated
2. Cast Coated
3. Graphic
4. Others

3. Specialty Paper

1. Cigarette Tissue and Components
2. Fine Printing
3. Packaging
4. Decor Papers
5. Niche Products

The mill at Bhadrachalam produces 240,000 TPY of papers and boards and has three board machines and two smaller paper machines. The mill produces paperboards for the packaging and graphics segments with a product range that includes Cyber XLPac (folding box boards), Pearl/Saphire Graphik (solid bleached boards) high value boards and the Ecoviron range of recycled boards. It also makes liquid packaging boards for Tetrapak in India. One of the big innovations at this mill has been the commissioning of an Elemental Chlorine Free (ECF) fibre line. This is a state-of-the-art line which meets the effluent norms set by the Ministry of Environment and Forests of the Government of India and thus ties in with the Environment theme in its Triple Bottomline.

The Tribeni Tissues unit was initially part of the Wiggins Teape Company, UK from 1961 to 1988. In 1992, it merged with ITC Ltd. The mill and its paper machines were refurbished with the latest technology. It has a capacity of 33,000 TPY with a product range that includes cigarette tissues, fine papers, packaging papers and specialties. The range from papers produced is quite diverse including Cigarette Tissues and Components, Laminating Base Tissue, Acid-Free and Anti-Rust Tissues, Low Grammage Printing Papers, Décor Papers to Insulation Grade and Medical Grade Papers. The unit is ISO 9001:2000 version and ISO 14001 accredited.

ITC has another paperboard facility at Coimbatore, Tamil Nadu which was acquired from BILT Industrial Packaging Company in 2004. This mill manufactures Coated Duplex boards Greyback and Whiteback made with 100% recycled materials and has a single board machine with 90,000 TPY of capacity. The products are continuously monitored for quality using a Siemens DCS system and Measurex QCS system. Quality as in other ITC units is a big focus and the mill has continuously demonstrated quality having achieved ISO 9001, ISO 14001 and OHSAS 18001 certifications. The delivery of rolls and sheets is ensured by a modern Finishing House with short turnaround times. Eco Naturo and Eco Naturo-HS are the two grades of Coated Duplex Grey Back board made from this unit. For almost the first time in India, a customer has the option to buy a higher bulk and stiffness of Greyback Board (GD2 grade) for his carton requirements.

The unit at Bollarum near Hyderabad produces 5000 TPY of Cast Coated Papers and Boards, 10,000 TPY of Poly Extrusion coated boards and 10000 TPY of C2S art boards and Ivory cards. It is the market leader in South Asia in carton boards and ranks second in turnover within the Indian paper industry. Most leading Fast Moving Consumer Goods Brands in India use paperboard manufactured at this location. Exports constitute about 20% of sales and cater to international markets in Malaysia, Sri Lanka, Bangladesh, Iran, Australia, UAE, Turkey, China, Singapore, UK, Greece, Germany and USA. The unit is ISO 9001:2000 series accredited.

8.1.2 Rationale for Diversification

The diversification into paperboards in 1975 was prompted by the desire to become self-reliant and a strong cash position. Till 1975, it had been sourcing the packaging and paper required for its cigarette business from external vendors. However, it wanted to do away with imports and build its own capacity for making paperboards and packaging.

8.1.3 Form of Diversification

It was backward vertical integration that drove the decision to enter this business. Integrating backwards gave ITC more control on its supply of wood and pulp.

One of the challenges with backward integration is a vulnerability to technological change. However, ITC seems to have managed that process by upgrading its paper mills continuously and innovating new bio-technologically sound plant species to serve the new technology. In hindsight, the decision to move into paperboards and packaging was a very smart one given the rising costs of pulp and paper in the rest of the world. If ITC had to import the pulp, its margins would have been affected in the current scenario.

For its pulp requirements, ITC procures bamboo from government owned forests and hardwood from its farm forestry plantations. The prevailing situation in India still does not permit captive industrial plantations for pulpwood – due to statutory ceilings on agricultural land holdings and government policy of not involving industries in reforestation of degraded forest lands. Hence, ITC’s farm forestry programme has a clonal propagation strategy which provides farmers with high-yielding clones and seedlings of the desired pulp wood species for plantation on their marginal wastelands. This means land which was previously lying barren can now be rejuvenated through plantations that sow high-yielding seeds. ITC is conducting research through its collaboration with CSIR to develop high yielding pulpwood species with low lignin content. The quality of these clones and seedlings, products of the biotechnology-based R&D programme of the business, has been tested for its effectiveness in more than 80,000 hectares of plantations. ITC also provides extension services to such farmers to improve productivity and output quality. The quality of these clones and seedlings, products of the biotechnology-based R&D programme of the business, has been tested for its effectiveness. It also provides extension services to such farmers to improve productivity and output quality.

8.1.4 Emphasis on value-added papers

ITC has followed a strategy of focusing on value-added products in this segment for functional and graphical end user applications because of the high margins that these products command. To this end, it has invested in pulp manufacturing, poly-extrusion and super-calendering facilities. Value-added products constitute nearly 50% of the total paperboard sales. The company's Elemental Chlorine Free (ECF) and Ozone bleached pulp mills are the only ones of their kind in the country, conforming to world-class environmental standards. ECF pulp-based board has internationally been the preferred packaging option. However, with increasing awareness of hygiene and safety among Indian consumers, Indian industries are increasingly switching to ECF pulp-based paperboard. These initiatives by ITC reinforce the commitment to the Triple Bottom-line that ITC has promised to deliver on. 

8.1.5 Analysis of BIPCO acquisition

In 2004, ITC acquired the paperboard manufacturing facility BIPCO near Coimbatore which was later renamed to Kovai. Data on this acquisition is hard to find but we try to find out the rationale and feasibility of the acquisition below.

1. Vision: The broad vision that led to the acquisition was ITC’s objective of becoming a leading manufacturer of quality paperboards in the Afro-Asian region.
2. Strategic advantages

• The acquisition gave ITC strategic access to the textile producing belt of Tirupur, the matches and fireworks belt of Sivakasi and the agarbatti manufacturing sector near Bangalore. These industries require printed and finished paperboards. Being close to the customer base, it would reduce lead times for delivery.

• It also increased ITC’s product range and capacity. The acquisition created an additional capacity of 65,000 MTPA to service the increasing demand for high quality paperboards. The nature of the products made at Kovai allows use of recycled and waste papers without environmental or health hazards thus giving it a positive ecological bottom-line.

3. Financial feasibility: ITC had a huge positive net cash flow of Rs. 1893.27 crores from operating activities which allowed it to invest in the purchase of BIPCO for Rs. 233 crores.
4. Was Acquisition the right choice?

From the above table, it is evident that ITC’s decision to go with an acquisition was the right one given the various resources, synergies and market conditions at the time.

8.1.6 Analysis of Success – Triple Bottom-line performance

1. Financial performance

The paperboards business recently has been very successful financially as evident from the ROI and margin figures shown in the Table.

Historically however, the performance has been variable. During the 1990s, management had to attend to some FERA violation cases as well as fend off attempts from British American Tobacco to gain more control of the company. Due to this, management could not devote enough time and there was a lull in the paper industry. Additionally, there were some serious turf battles happening during this period. There was a director in charge of tobacco, one in charge of finance, another in charge of financial services, one for paper and printing, and one for IBD. This led to a lot of power struggles. Cigarettes had the maximum clout when it came to acquiring resources because it generated the most revenue.

Things changed in 1994 when Mr. Deveshwar became Chairman of the company. He restructured the company. A decentralized structure was introduced with distributed leadership. The number of executive directors was reduced from eight to four and it became the strategic management arm of the company and not an executive one. Various divisions could take their own decisions through executive decisions headed by a chief executive led divisional management committee.

These changes seem to have worked. If recent performance is any indicator, the company seems to be well on its way to consolidating its market leadership position in the industry.

2. Ecological performance

As mentioned before, ITC has been supplying seeds to farmers to plant in arid wastelands. This is helping to revitalize some of these lands and prevent soil erosion. Planting trees has helped in conserving ground water and is seen as a way of improving environmental performance. The total cumulative plantations as on March 31, 2008, amounted to over 80,000 hectares and the company had distributed 332 million saplings. Secondly, mobilization of waste paper in India is very low at 14% compared to 60% in developed countries. The business has therefore commenced an initiative for efficient collection and recycling of waste paper and has achieved the objective of zero-waste generation. Around 163,245 tonnes of waste paper were used as raw material in the company’s paperboard mill at Kovai and Bhadrachalam.

3. Social performance

The various initiatives in farm forestry have generated livelihoods for more than 100,000 farmers. ITC has provided them with the support services required to cultivate wood fibre generating plantations that has given them a sustainable source of income. Over 93 per cent of ITC’s Bhadrachalam mill’s wood requirement in 2007-08 came from plantations initiated through ITC’s forestry project undertaken by tribals and marginal farmers.

8.1.7 Forward Integration into Education & Stationery products

Leveraging its investments in paper and paperboard manufacturing, ITC got into stationery products in 2002. It has 2 major brands in this segment – Classmate range for school children and Paperkraft range of premium stationery for the executive. It had also gotten into greeting cards with Expressions in 2000 but has exited this business due to the growth of e-greetings and mobile phones.

ITC’s market share in this segment is around 8% with the industry dominated by unbranded players. With national brands accounting for only 15% of the market, there is a huge opportunity for turning a commodity market into a branded market.  

This is a Rs. 9000 crore market that comprises notebooks, copier and printer paper, writing instruments and ‘scholastic products’ (erasers, geometry boxes, sharpeners and the like). The overall market has been growing at 9-10% per annum while the notebooks business has been very profitable growing at 100% per year for the last three years. Hence ITC’s strategy is to continue to grow this segment and also get into pencils and pens.

8.2 Hotels Business

8.2.1 Introduction

ITC entered into the hotels business through acquisition of a hotel in 1975. 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 2006. 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 exchange.

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.  It made alliance with the Sheraton Corporation, which is part of Starwood Hotels and Resorts, the well-known global hospitality chain, to market its hotels worldwide. In 2004-05, ITC Hotels took over Ansal Hotels. This resulted in significant growth in the revenues for the hotels division. The division has high growth plans and wants to become the largest hotel chain in the country (currently it is ranked second). The growth of this division is based on the fact that India as a tourist destination is slowly realizing its position. The government is spending a lot in the tourism sector. The heavy influx of foreign tourists can become a significant growth driver for this division.

In the initial years till about 2000 ITC had been leveraging the names of big players in the hospitality sector like Marriott, Sheraton etc. Its business model was based on partnerships and joint ventures. But later it merged the ITC Hotels as well as the Ansal Hotels in 2004. After this the strategy of ITC seems to be of growing alone in India. For its growth outside India, it looked at its alliance with the Sheraton Group. In 2008, there was some news about ITC moving into medical tourism by setting up a hotel near a hospital in Thane.

Following was the structure of ITC hotels business just after the amalgamation in 2004.

ITC hotels business grew through opportunities present at various points of time through several legal entities. The opportunities were business environment, joint venture opportunities, access to capital etc.  

8.2.5 Amalgamation of ITC Hotels Ltd. and Ansal Hotels Ltd. with ITC Ltd.

The rationale for the amalgamation was that 80% of the capital employed in hotels business was on ITC’s balance sheet. But the dispersed ownership did not provide clear visibility to the shareholders. The merger would give the company better grasp on the hotels business. The timing of the merger was also appropriate since India was looking at a growth in the tourism industry.  Also the shareholder benefit was seen from the fact that they would be insulated from the cyclical nature of the tourism industry because they would have ownership of a financially stronger company (ITC Ltd.).

8.2.6 Analysis of Success

1. Financial Performance

The hotels business has seen a very positive growth in the ITC group. After the amalgamation of ITC Hotels Ltd. and Ansal Hotels Ltd. with ITC, ITC has been investing in this business for growth and the results can be seen from the outputs in terms of the revenues and profits.

2. Ecological & Social Performance

The disposed foods from the hotel are given to the piggeries for animal consumption and the rest converted as manure; the linen goes to orphanage; leftover ghee and oil from the kitchen goes to a soap factory to be used as raw material.

8.3 Agro Business division of ITC

8.3.1 Introduction

The agri business division originally started as a backward vertical integration for procuring tobacco for the cigarette business. Over the years it has spawned into various sectors. The agri business has two broad divisions –

• Leaf Tobacco, Spices & Agri Inputs
• Agri commodity & Rural Services – e-choupal & associated initiatives, agri sourcing comes under this division

Many of these businesses are export oriented. Big customers for ITC include Cargill, Marubeni, Toepfer, among others, who source agriculture commodities and food products from India. ITC's Agri Business Division is the country's second largest exporter of agri-products with exports of over Rs. 1000 Crores (Rs. 10 billion). Its domestic sales of agri-products are in excess of Rs. 1500 Crores (Rs. 15 billion). Within the agri business division, the chronology for different businesses is as follows:

Leaf tobacco (100 yr old) -> marine product (1971) -> processed fruit (1989) -> e-choupal (2000) -> food & spices (2002) -> choupal fresh (2006) -> agri input (2006)

Here we follow the chronological order in describing the various divisions.

8.3.2 Divisions under Agri-Business

• Leaf tobacco

The Leaf Tobacco business' partnership with the farmer is also almost 100 years old. Presently ITC is the largest buyer, processor and exporter of leaf tobaccos in India and present at every stage of the leaf tobacco value chain. It serves customers in 50 countries across more than 70 destinations thus works as a major foreign exchange earning business.

• Marine products

This business is there since 1971. It exports frozen as well as cooked shrimps and other seafood products to Japan, USA and Europe.

• Processed fruits

ITC entered processed fruit business since 1989.  These include frozen foods, IQF (individually quick frozen) fruits, niche products like baby-food quality purees and high brix pulp and organic purees. In Processed Fruits category, ITC exports from HACCP certified plants to Western Europe, North Africa, West Asia, Japan and North America, a wide range of Processed Fruit products made from Mango (Alphonso, Kesar & Totapuri), Guava, Papaya and Pomegranate.

• e-choupal

The e-choupal initiative started in 2000 in Madhya Pradesh & later in Karnataka. This initiative now comprises about 6500 installations covering nearly 40,000 villages and serving over 4 million farmers. Currently, the 'e-Choupal' website provides information to farmers across the 10 States of Madhya Pradesh, Haryana, Uttarakhand, Uttar Pradesh, Rajasthan, Karnataka, Maharashtra, Andhra Pradesh, Kerala and Tamil Nadu. Over the next 5 years it is ITC's Vision to create a network of 20,000 e-Choupals, thereby extending coverage to 100,000 villages representing one sixth of rural India.

This initiative creates a win-win situation for both the company and the farmer community. It involves direct sourcing from farmers avoiding middle-men. It ensures secured sourcing of quality inputs at stable prices for ITC and better price, facilities & respects for the farmers. Under this initiative, Internet kiosks have been provided in villages. Farmers use this technology infrastructure to access on-line information from ITC's farmer-friendly website www.echoupal.com. Data accessed by the farmers relate to the weather, crop conditions, best practices in farming, ruling international prices and a host of other relevant information.

• Choupal Sagar

This can be taken as extension from their success of e-choupal. Basically it is a physical infrastructure hub that comprises collection and storage facilities and a unique rural hypermarket that offers multiple services under one roof. This initiative, which has set new benchmarks for rural consumers also incorporates farmer facilitation centres with services such as sourcing, training, soil testing, health clinic, cafeteria, banking, investment services, fuel station etc. 24 'Choupal Saagars' have commenced operations in the states of Madhya Pradesh, Maharashtra and Uttar Pradesh. Also ITC is engaged in scaling up the rural retailing initiative to establish a chain of 100 Choupal Saagars in the near future.

• Food & Spices

ITC entered the branded Atta market with the launch of Aashirvaad Atta in Jaipur and Chandigarh on 26th May 2002. Aashirvaad atta has become the leader in its category with a 54% market share. Salt & spices were launched in 2003 & 2005 respectively. Now in addition it has instant mixes, pickles under this brand. The time when this business was launched there were few organized players although the market potential for quality branded products were huge. For example, in the spices segment, the market for spices in India is believed to be around Rs 10,000 crore (Rs 100 billion), of which the branded segment is only Rs 600 crore (Rs 6 billion). Currently, the major players in this market are: Badshah, Everest, MDH, and Hindustan Lever. To move into the branded-packaged foods segment, the company leveraged the agricultural products division for sourcing, ITC Welcomgroup for specialist cuisine, and the packaging division.

• Choupal fresh:

This is ITC’s retail venture in the fresh food wholesale & retailing & started in 2006. There are already few major players like Reliance Fresh, Spar which focuses on this segment. Unlike other major players, the ITC format consists of both the wholesale and retail formats. The stores are open between 4-7 a.m. for wholesale sales and then for retail sales.

It leverages its extensive backward linkages with farmers and supply chain efficiencies. It focuses on stocking fresh horticulture produce like fresh fruits and vegetables. Three Choupal Fresh Cash & Carry Stores and Six Choupal Fresh retail stores are currently operational at Hyderabad, Pune and Chandigarh. The company has also set up a complete cold chain for ensuring the availability of fresh products in the market, besides directly sourcing farm fresh produce from the farmers.

• Agri Input businesses:

This form of diversification started on 2006. The initiative is overseen by the company’s Indian Leaf Tobacco Development Division & focuses on eco-friendly agri inputs across the growing cycle of different crops, under three different brands of ‘Wellgro’, ‘Wellpro and ‘Wellsto’. This is also expected to obviate the risks associated with the stern mandate by the Union Health Ministry to switch to an alternative crop, or to gradually decrease the area under tobacco and help farmers switch to other viable commercial crops in a phased manner. The total organic inputs market is estimated to be around Rs 1400 crore in size & most of the products are imported. ILTD’s new initiative, backed by strong R&D, was aimed at indigenously developing differentiated, new products suitable for Indian agro-climatic conditions and cropping pattern. ITC’s Agri Inputs business focuses on the entire crop cycle with a wide range of products under the following three brands: - Wellgro: organic manure & bio products; Wellpro: bio-pesticides & metabolites; Wellsto: address problem of storage pests.  The business concentrates in: Restoring soil fertility and improving input use efficiency through prudent use of eco-friendly agri inputs; educating the farmers on use of eco-friendly inputs through demonstrations, direct contact and mass campaigns; extending the benefits of Integrated Nutrient and Pest Management practices to multitude of farmers; offering a platter of nutritive and quality agricultural produce free from harmful chemicals.

8.3.3 Rationale for diversification

We can see that the company has mostly diversified mostly organically by vertical integration in related business where there are competitively valuable relationships among the activities in the value chain. It entered leaf tobacco business as a backward integration for the cigarette business. As it was procuring the inputs, it saw value in exporting the same also. Through these businesses the company gained competencies in the procurement and processing of agricultural products, storage, supply chain and sales management. As their connection with the farmer community increased, they ventured into processed fruit business seeing significant export opportunities there also. In the late nineties due to more regulatory pressures on cigarette & tobacco business, the need for more diversification was felt. As by that time they have already made some inroads in agri procurement, they understood the socio-economic scenario of the farmers & could come up with the e-choupal initiatives. From e-choupal, the Choupal Sagar & Choupal Fresh naturally followed. Having established procurement, packaging, marketing & distribution arm, entering into packaged foods & spices business was relatively easy. As the Indian economy specially the middle class was growing, there was a demand for good quality packaged food items. Their FMCG business further benefited from the agri business. On the other hand, having established a relationship with the farming community & sensing a demand in future, they entered into the agri input business.

Their cost of entry into this business was less as they made a gradual progress. Also in terms of core competencies, they have tried to utilize their distribution reach, supply chain management & brand building capabilities.

8.3.4 Form of diversification

As discussed, mostly it is organic related growth. It made only few acquisitions – one in the agri business division worth mentioning is that of Technico, an Australian company with technology leadership in the production of early generation seed potatoes. This helped the business access a ready pipeline of new high-yielding varieties of chipstock potato seeds. It is to be noticed that ITC's Agri business is progressively aligning its commodity portfolio with the sourcing needs of the Company's Foods business. Example: potato – for Bingo chips.

8.3.5 Analysis of success – the Triple Bottom line performance

1. Financial performance

The following table summarizes financial results in agri business:

So overall the agri business is growing although the profit margin is almost half of the average company profit margin. It is to be noted that cigarette is the most profitable business for the company and lifts up the average margin. ROI has recently shown some decreasing trend – this may be due to the fact that as they are building the business they have to commit significant amount of resources and it may take time to show improvement on the ROI.

So financially it is making money but not much so far.

2. Ecological performance

In the course of action, many of the steps taken by ITC are meaningful ecologically. For example, they have used solar power in the e-choupal internet kiosks. They have helped farmers in better agriculture techniques, soil & water conservation. Their agri input business is also in alignment with this principle.

3. Social performance

The agri business has directly and indirectly made huge positive impact especially for the farming community. Their e-choupal business empowered the farmers by providing them information they require and helping them in getting proper value for their products. These initiatives were recognized by national & international awards. ITC's agri-sourcing has not only enhanced the competitiveness of the entire agri value chain but has also led to efficient sourcing for its businesses. Linking the Indian farmer to world markets, ITC's Agri exports constituted nearly 60% of the foreign exchange earnings of $3.2 billion. 

8.4 FMCG Others: Food Business

8.4.1 Introduction

ITC entered the branded packaged food business with its Dal Bukhara offering under the Kitchens of India brand in August 2001. Thereafter, every year, ITC has introduced products almost in every category to expand its product portfolio.  There are primarily 4 categories in which ITC competes in this segment viz. Staples, Ready-to-Eat, Snacks and Confectionary.

1. Staples: ITC entered the staple segment the ‘Aashirvaad’ brand of packaged Atta in two variants i.e. ‘Aashirvaad Select’ at the premium end and ‘Aashirvaad Whole Wheat Atta’ in the popular segment.  The business line is doing extremely well. Ashirvaad atta has been No. 1 for the last two years. ITC a market share of 53% in the branded atta segment. ITC salt has a market share of 15% with it. Currently, ITC offers only spice powders and cumin seeds but planning to enter into blended spices segment.
2. Ready-to-eat category: The product portfolio has been expanded with the introduction of several offerings in the popular range under the “Ashirvaad ReadyMeals” banner. However, internationally, business of ready-to-eat meals category is growing faster than domestic. The market is about Rs80-100 crore in India, but it is not growing at a fabulous rate. Indian consumers have mental blocks that hinder the growth. Consumers do not accept that food can be stored for months without using any preservatives. ITC Foods has a market share of 40-45% in this category.
3. Snacks: Entry into the Snack foods market was marked with the launch of baked snacks under the brand name ‘I Bischips’. ITC made its position in the big league with the introduction of ‘Sunfeast’ brand of biscuits in 2003. Products under this brand are available in over 150 markets. ITC is No. 3 after Britannia and Parle in this segment and has a market share of 11-12%. In 2007, it entered the Salty Snacks market with the launch of the Bingo! range of potato chips and finger snacks.
4. Confectionery: ITC entered confectionery segment with the acquisition of the “mint-o” trademark. The segment is doing well with a business of more than Rs100 crores.

In 2007, ITC, ventured into four new segments across the above mentioned categories:

• Salty snacks through Bingo,
• Organic spices through Aashirvaad organic spices,
• Healthy foods through Sunfeast Sachin Fit Kit range and
• Personal care segment with the introduction of the ‘Essenza Di Wills’ (Fragrance) and ‘Fiama Di Wills’ (range of shampoos, soaps, shower gels and conditioners) range of personal care products.

ITC has a state-of-the-art Food Technology Centre at Bangalore, which helps the Foods Business in developing a range of differentiated products, thereby enabling a higher order of value capture. Quality and product innovation are key focus areas for ITC Foods. In order to assure consumers of the highest standards of food safety and hygiene, ITC is engaged in assisting outsourced manufacturers in implementing world-class hygiene standards through HACCP certification. ITC has  6 key brands in the Foods brands:

• Kitchens of India
• Aashirvaad
• Sunfeast
• mint-o
• Candyman
• Bingo!

8.4.2 Rationale for Diversification

The diversification was prompted by the desire to reduce dependence on its cigarettes business and capture the unattended and emerging markets in India. The reasons were as follows:

Market attractiveness:

• Indian consumers spend about $130-150bn annually on food. In developed countries packaged branded comprised of 80-85% of its consumption whereas in India, in 2001, it is just 5.5-6%. Hence huge domestic demand, booming economy and low penetration level makes this segment quite attractive. Similarly, the gourmet foods category within branded foods is currently miniscule but carries a substantial growth potential over time. The Rs 4,000-crore Indian biscuits market has grown at 12-14 per cent year-on-year.
• Rural markets alone have estimated 3.6 million retail outlets, roughly 1 per 200 people. But there is no organized marketing and distribution in 87% of India’s villages, which are home to 50% of the rural population because of the last mile challenges and costs of customer acquisition. ITC has this last mile reach through its e-choupals.
• In the packaged foods snacks segment, there was only Frito Lays and a growing market pie. In biscuits, Britannia and Parle held, between them over 82 per cent of the market in value terms. The biscuits industry had not witnessed any major product innovation in many years and the consumers were just waiting for something new, something fresh.

Leveraging synergies from other businesses

• FMCG-Cigarettes:

• Extensive distribution network to deliver FMCG products into remote parts of the country.
• Manufacturing, Marketing and branding capabilities
• Blending skills (helped to  create blends for Aashirvaad Atta) and other R&D capabilities

• Agri-Business

• Sourcing of raw materials for Atta, biscuits etc.
• Agri-sourcing capability assures the finest product quality to consumers and support Branded packaged Foods business. E.g. high quality wheat for the ‘Aashirvaad’ brand of atta.
• Rural distribution leveraging e-choupal network driving down logistics costs and reaching to consumers where other channels don’t exist
• Social outreach programmes generates goodwill, creates a loyal customer base, thus creating a dedicated and efficient supply chain

• Hotels Business

• Leverage Indian culinary knowledge and analyze consumer tastes by region – helps in product innovation through introduction of new variants
• Provides insights into tastes and habits of high-end consumers
• Can cash brand equity of Dal Bukhara restaurant (for KOI range)
• Bring in Service Industry Skills
• Trade mark knowledge

• Paperboard and Packaging Business

• Packaging and printing skills for packaged product. Increasingly packaging is becoming an important part of marketing communication and quantity vs. piece trade-offs

Changing demographics of Indian Consumers 

• The composition of India’s private final consumption expenditure (PFCE) reflects a secular shift away from basic items of expenditure towards value added products and services. To illustrate, within the foods basket, the share of basic cereals and pulses is declining and the share of non-staple foods are growing, accounting for about 72% of total food consumption. Total expenditure on foods was growing at a real annual increase of 3.9% since 2000. Rapid growth in the packaged foods segment in recent years further proves the trend towards value added products.
• Changing demographics indicate an increasingly young consuming class. Six out of ten households have a post-liberalization child and nearly 60% of the population is in the age group 15-59. This age group has an inclination towards value added offers and aspirations for lifestyle and consumption. In addition to this, the compound annual growth of 3.2% over the last five years in per capita income is unevenly spread across income segments.

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8.4.3 Lifestyle Retailing:

ITC entered the Lifestyle retailing business in 2000. The Lifestyle Retailing business is engaged in rapidly scaling up operations catering to high-end customers with international quality shopping experience and world-class product range through its exclusive “Wills Lifestyle” branded stores. Wills Lifestyle is gradually gaining acceptance as a preferred fashion destination. In order to enhance accessibility to the consumers, brand availability is being extended during the year to chosen high profile Large Format Retailers and Multi-Brand outlets in the country. ITC also has entered the mid-price popular segment through its John Players and Miss Players branded products. In 2006, “Wills Lifestyle Fashion Week” was launched and billed as country’s most premier fashion event. The business has also tied up with leading fashion designers     to create high-end fashion products to be retailed from “Wills Lifestyle” stores. Over time, it is the objective to gain a position of leadership in the growing domestic lifestyle market before taking the Wills Lifestyle brand overseas into the more developed international markets.

The FMCG others also have stationary, Agarbattis and match sticks.

8.4.4 Future FMCG:

ITC Foods has plans to foray into the nascent frozen foods category in the domestic market within the next six-eight months. The frozen foods market is still nascent in India, estimated at only about Rs 25-30 crores. The company will extend its Kitchen of India brand to frozen foods, which would include meals packaged in trays and snacks. ITC also recently began exporting frozen vegetarian foods to markets such as the US and Canada, since exporting non-vegetarian foods out of India is restricted. ITC will also aggressively scale up the portfolio of Home and Personal Care market. The synergies from different businesses combined with its state-of-the-art information technology transaction backbone and the e-Choupal rural distribution network, will help to fulfill capability for consumer products.

8.4.5 Form of Diversification

The diversification took help of various competencies from different businesses. ITC’s foray into food business is a case of related diversification. As rightly pointed out by Mr. Ravi Naware, ITC Foods Chief Executive:

“….That was the easy part. Our bukhara restaurant brand was (and is) arguably the best known restaurant brand in the country and its dal bukhara was (and remains) famous among connoisseurs of Indian food. We simply leveraged the expertise of our master chefs to create a product and then rode ITC’s brand building strengths and distribution muscle to take the product to market.“

“Over the years, we had built diverse set of skills that could be used in several other businesses. It only needed someone to think it through.” – Mr. Deveshwar, Chairman and Managing Director, ITC.

8.4.6 Analysis of Success – Triple Bottom-line performance

1. Financial performance

The ROI from the FMCG-Others business have been negative reason being its incubation costs. The segments have high growth figures due to base effect. It continued to expand rapidly with sales growing more than 50% over the previous years. However, it has been not so easy to take away share from the incumbents in the industry. ITC recorded 11.5% growth in FMCG revenues in the December 2008 quarter — way below the 30% seen in the first half of the year. Moreover, high marketing and brand-building spends are pushing up losses — up 95% to Rs 127 crores in the December 2008 quarter. Given the current market scenario, the projected break-even period will get delayed.

But over the medium to long term, the company expects these businesses to provide the basis for sustainable growth in shareholder value as a leading FMCG player in the country.

2. Ecological Performance:

Most of the quality certified. The plant’s energy requirements are panned out internally with more than 24% of energy generated from renewable resources. In 2007-08, ITC also compassed the 100 per cent benchmark in recycling solid waste in several of its operations.

3. Social Performance:

ITC uses its rural distribution network through e-choupal to reach to the people with their goods and services. In these areas, there are no other channels available. The FMCG-Others business model has retained critical elements of each value chain in-house while manufacturing is outsourced largely to small and medium enterprises (SMEs). Such a model enables ITC to participate effectively in strengthening the capability of these SMEs, thereby enhancing the competitiveness of the entire value chain.

9. ANALYSIS OF ITC THROUGH BCG MATRIX

Business Growth Rate        High

        Low
        High                                      Low

                   Relative share

It is the market leader in the cigarette business but the business faces several regulatory hurdles which may affect its future growth rate. So this is basically the cash cow for ITC. Hotels, Paper board & packaging and Agri business – here the future potential is bright & also among the organized players, ITC is among the top few. So these belong to the Star category. In the FMCG Others, the business growth rate is high but there are tough competitions from other big established players. So we have put that in the ‘?’category. ITC Infotech is not discussed at length in this report – it is a small group company in the IT service sector. Considering its relative low position & comparatively narrow focus which limits the future business growth potential, may be it belongs to the Dog category.

10. CONCLUSION

ITC, the name itself has undergone so much change that it makes the analysis of the company interesting. From ‘Imperial Tobacco Company’ to ‘Indian Tobacco Company’ to ‘ITC’, it gives the impression that the company has over a period of time tried to become completely Indian and later tried to shed its image of being a tobacco manufacturer.

ITC is among the few companies which believe in the Triple Bottom Line Strategy (even many NGO’s follow the double bottom line strategy). This has helped the company look at various aspects that help society and the nation in general. The core values of the company also stress on the fact of nation building.

ITC changed its organizational structure after its Chairman Mr. Y. C. Deveshwar took over. The change has positively impacted the business and thus the company has been able to make focused and committed diversification based on organizational strengths along with the opportunities present.

Broadly, ITC diversified in 2 phases. The first phase was in around 70’s when it moved into packaging and hotels industry. The second phase was very recent when ITC moved into businesses like lifestyle retailing, FMCG (shampoos, soaps) etc. with the central idea being to move into as much of non-cigarette businesses as possible to counter the growing challenges in the cigarette business.

During 70’s the company took the opportunity presented to it by the macro economic factors and its strong cash position to move into Hotels business and Paperboards, Paper and Packaging business. The first was a totally unrelated business but today it offers ITC a big opportunity with the rise of India as a tourist destination. The second diversification was backward integration which helped the company become the largest in this segment. Recently the company has forward integrated into making stationary products.

In 90’s the company has made diversification which were either related or made use of the capabilities of the firm. Starting from moving into Agri business to FMCG, the firm has made decisions which had the right alignment with the business strategy of the firm.  

Stock markets have been lukewarm to ITC stocks. 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. However, we believe that ITC’s diversification strategy is geared for the longer term. The apparent lack of response in the stock market in the short term should not deter it from its strategy which we think can help it survive in challenging times.

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REFERENCE

• ITC Portal (http://www.itcportal.com/)
• Capitaline (http://www.capitaline.com)
• ITC Sustainability Report 2005-2008
• ITC Annual Reports 2001-2008
• ITC Paperboards and Specialty Papers Division (http://www.itcpspd.com/)
• “ITC plantations help feed Bhadrachalam mill with wood”, Business Line, Wednesday, Oct 01, 2008 (http://www.thehindubusinessline.com/2008/10/01/stories/2008100150110500.htm)
• "ITC exits greeting cards biz", Business Line, Friday, Jun 27, 2008 (http://www.blonnet.com/2008/06/27/stories/2008062750620500.htm)
• http://www.hotel-online.com/News/PR2006_3rd/Sep06_ITC.html
• ITC's Big Bang, By Debojyoti Chatterjee, Business Today. Jun 21, 2001
• Indian Management, The journal of the All India Management Association, Oct 2008, Vol 47, Issue 10
• ITC Agri Business Division (http://www.itcibd.com/pf.asp)
• "ITC to spice up food portfolio", April 07, 2003 (http://www.rediff.com/money/2003/apr/07itc.htm)
• "ITC's Choupal Fresh combines retail with wholesale", 30 August 2006 (http://www.domain-b.com/companies/companies_i/itc/20060830_choupal.html)
• "ITC plans more Choupal Fresh stores", Business Line, Thursday, Jan 18, 2007 (http://www.thehindubusinessline.com/2007/01/18/stories/2007011803330500.htm)
• http://www.technituber.com.au/pages/default4.htm
• “We will not enter a segment just to expand our portfolio” - Livemint, march 04, 2008
• Article by Arnab Mitra, Business Today, Dec2, 2007
• ITC: FMCG's a drag, Shobhana Subramanian / Mumbai January 20, 2009, 0:28 IST (http://www.business-standard.com/india/storypage.php?autono=346575)

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APPENDIX

Appendix 1: Chronology of Major Business Entries/Initiatives

We now look at the chronological sequence of various diversifications and mergers that the company undertook during its 99 year history. In a subsequent section, we would analyze each of these diversifications.

• 1910 – The company was set up as the Imperial Tobacco Company to manufacture cigarettes.
• 1925 – They decided to backward integrate into Packaging and Printing which would serve the needs of the cigarette business.
• 1975 – The hotels business was launched with the acquisition of a hotel in Chennai which was rechristened “ITC-Welcomgroup Hotel Chola”. The objective of ITC's entry into the hotels business was rooted in the concept of creating value for the nation. ITC chose the hotels business for its potential to earn high levels of foreign exchange, create tourism infrastructure and generate large scale direct and indirect employment.
• 1979 – ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards Ltd. which is now a market leader in India.
• 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).
• 1990 - ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing company and a major supplier of tissue paper to the cigarette industry. The merged entity was named the Tribeni Tissues Division (TTD).
• 1990 – To facilitate exports of agri commodities, the Agri Business Division was set up. It is now one of India’s largest exporters.
• 2000 – ITC started the e-choupal initiative for soya farmers in Madhya Pradesh as part of its commitment towards ensuring a positive triple bottom-line. This innovative initiative now covers 10 states and 4 million farmers.
• 2000 – ITC spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging opportunities
• 2000 – ITC launched the Expressions line of high quality greeting cards. In 2002, ITC also launched 'Expressions Matrubhasha', a vernacular range of greeting cards in eight languages and 'Expressions Paperkraft', a range of premium stationery products. It rolled out 'Classmate', a range of notebooks in the school stationery segment in 2003.
• 2000 – ITC entered the Lifestyle Retailing business. The Wills Sport range of international quality relaxed wear for men and women was launched. Wills Classic formal wear was introduced to expand the current lifestyle offering in 2002. It also forayed into the mass market with the men’s wear brand John Players. In 2003, Wills Club evening wear was launched. In 2007, ITC launched Miss Players fashion range for women. In 2006, ITC became a partner for the Wills Lifestyle Fashion Week.
• 2001 – ITC forayed into the Foods business with the launch of Kitchens of India ready-to-eat Indian gourmet dishes. In 2002, ITC entered the confectionery and staples segments with the launch of the brands Mint-o and Candyman confectionery and Aashirvaad atta (wheat flour). 2003 witnessed the introduction of Sunfeast as the Company entered the biscuits segment. ITC's entered the fast growing branded snacks category with Bingo! in 2007
• 2002 - Tribeni Tissues Division was merged with the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division in November 2002. The objective was to take advantage of various operational synergies in the two merged entities.
• 2002 – ITC's philosophy of contributing to enhancing the competitiveness of the entire value chain found yet another expression in the Safety Matches initiative. ITC now markets popular safety matches brands like iKno, Mangaldeep, Aim, Aim Mega and Aim Metro.
• 2003 – ITC started partnering with the cottage sector for marketing of incense sticks. ITC's popular agarbattis brands include Spriha and Mangaldeep across a range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa.
• 2004 – ITC’s first rural mall Choupal Saagar was inaugurated at Sehore. There are 24 malls in operation today in Madhya Pradesh, Maharashtra and Uttar Pradesh.
• 2004 – ITC acquired the paperboard manufacturing facility of BILT Industrial Packaging Co. Ltd (BIPCO), near Coimbatore, Tamil Nadu. The Kovai Unit allows ITC to improve customer service with reduced lead time and a wider product range.
• 2005 – ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body care products for men and women thus making an entry into the Personal Care business. It has also launched a premium range called Fiama Di Wills in 2007. The Company also launched the 'Superia' range of Soaps and Shampoos in the mass-market segment at select markets in October 2007 and Vivel De Wills & Vivel range of soaps in February and Vivel range of shampoos in June 2008.

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Appendix 2: ITC Business Statistics

(Source: ITC Annual Reports)

Revenue from different major businesses:

2000 Revenues

2008 Revenues

ITC Ltd.

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Appendix 3: ITC Performance vs. Sensex

Stock markets have been lukewarm to ITC stocks. 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.

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