Strategic Management-Individual Assignment

Company Name:

Submitted by:
Name: Aziz Umrethwala
Roll no: 40405
Batch: MBA Exe 17-29 Lavale Campus

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 Executive Summary

This is the project report made on the company ITC Limited which is second most market
leader in the FMCG throughout the India. It’s a conglomerate and has diversified its business
into Agriculture, Hotel, Packaging, Technology, Health Care Products, Food, Cigarettes etc.
ITC is a well-known brand in the Indian market and is widely famous for its cigarettes and
hotel industry.

In this report, we will see the background of ITC and its profile, its vision and mission
statement and its core objectives. We would have a glance on the corporate strategies that
they have mentioned in their annual report. There are some analysis’s done to take a strategic
decision for its business-like PEST Analysis to determine what all political, economic, social
and technological factors affects ITC business externally, SWOT Analysis to know companies’
strengths, weakness, opportunities and threats, whereas 5 porter forces analysis has been
done for understanding the forces that shapes competition within an industry. It is also useful
for helping us to adjust strategy to suit company’s competitive environment, and to improve
potential profit and BCG matrix has been used to evaluate the strategic position of the
business brand portfolio and its potential. The general purpose of this analysis is to
help understand, which of the brands ITC should invest in and which ones should be divested.
Relative market share.
There is even Financial analysis has been done in this report to know its revenue, sales, EPS
for the current financial year and to know why we should invest in ITC stock.

At the end of the report I have also mentioned some critical success factors of this firm and
have concluded it as per my thoughts and understanding that I have experienced while
making this report.

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 Index

Table of Contents
1. Introduction and Overview ............................................................ 4
2. Vision, Mission & Objectives ......................................................... 5
3. Corporate Strategies...................................................................... 6
4. External Analysis (PEST) ................................................................. 7
5. SWOT Analysis ............................................................................... 9
6. The Industry Environment Analysis (Porter 5 forces) .................. 11
7. BCG Matrix .................................................................................. 12
8. Financial Analysis ......................................................................... 13
9. Critical Success Factors ................................................................ 15
10. Conclusion ................................................................................... 16
11. References ................................................................................... 17

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Introduction (Background)

ITC Limited or ITC is an Indian company located in Kolkata, West Bengal. Its diversified
business includes five segments:
a) Fast-Moving Consumer Goods (FMCG),
b) Hotels,
c) Paperboards & Packaging,
d) Agri-Business
e) Information Technology.
Though, cigarette business contributes more than 80% of the profits of the company, 80% of
the capital is invested in the non-tobacco businesses.

It was established in 1910 as the Imperial Tobacco Company of India Limited, the company
was renamed as the India Tobacco Company Limited in 1970 and later to I.T.C. Limited in
1974. The dots in the name were removed in September 2001 for the company to be renamed
as ITC Limited. The company completed 100 years in 2010 and as of 2012-13, had an annual
turnover of US$8.31 billion and a market capitalization of US$ 50 billion. It employs over
30,000 people at more than 60 locations across India and is part of Forbes 2000 list.

Overview:

 One of India’s most Admired and Valuable companies

 Market Capitalisation: ~Rs. 3.6 lakh crores
 A US$ 10 billion enterprise by Gross Sales Value
 ~59% of Net Revenue from non-Cigarette segments
 Leading Fast Moving Consumer Goods (FMCG) marketer in India
 Established 25 world-class mother brands within a short span of time
 10-year Value Addition ~ Rs. 3.1 lakh crores (US$ 55 billion).
 Among the top tax payers in the country
 ITC & its Group Companies employ over 32,000 people directly
 Sustainable development models and value chains have supported creation of
~6 million sustainable livelihoods
 A global exemplar in sustainable business practices
 Only enterprise in the world of comparable dimensions to have achieved and
sustained the 3 key global indices of environmental sustainability of being
'water positive' (for 16 years), 'carbon positive' (for 13 years), and 'solid waste
recycling positive' (for 11 years)

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Vision of ITC

Sustain ITC's position as one of India's most valuable corporations through world class
performance, creating growing value for the Indian economy and the Company's stakeholders

Mission of ITC

To enhance the wealth generating capability of the enterprise in a globalizing environment,

delivering superior and sustainable stakeholder value.

Objectives of ITC

 Enterprises: Strengthen the international competitiveness of enterprises

 Trade support institutions: Develop the capacity of trade service providers to
support businesses.
 Policymakers: support policy makers in integrating the business sector into the
global economy.

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Corporate Strategies:

ITC is a board-managed professional company, committed to creating enduring value for the
nation and the shareholder. It has a rich organizational culture rooted in its core values of
respect for people and belief in empowerment. Its philosophy of all-round value creation is
backed by strong corporate governance policies and systems.

ITC’s corporate strategies are as follows:

 Create multiple drivers of growth by developing a portfolio of world class businesses

that best matches organizational capability with opportunities in domestic and export
markets.
 Continue to focus on the chosen portfolio of FMCG, Hotels, Paper, Paperboards &
Packaging, Agri-Business and Information Technology.
 Benchmark the health of each business comprehensively across the criteria of Market
Standing, Profitability and Internal Vitality.
 Ensure that each of its businesses is world class and internationally competitive.
 Enhance the competitive power of the portfolio through synergies derived by blending
the diverse skills and capabilities residing in ITC’s various businesses.
 Create distributed leadership within the organization by nurturing talented and
focused top management teams for each of the businesses.
 Continuously strengthen and refine Corporate Governance processes and systems to
catalyze the entrepreneurial energies of management by striking the golden balance
between executive freedom and the need for effective control and accountability.

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 PEST Analysis of ITC

Political Factors

• Huge burden of VAT – increase in prices may affect the sales.

• Excise duty raised by union budget by 5 %.
• Ban on communication.
• Luxury tax in 10 states – making it difficult for ITC to maintain the consistency level in prices
for different places.
• Smuggling - regarding Tobacco products.
• 100% FDI allowed - as it will allow several Foreign Brands to enter the Indian Markets, and
thus, may affect the share of ITC in the Indian Markets.

Economic Factors

• Bidee: cigarette ratio = 10:1 – which means they are the producers of a very less level of
tobacco products as compared to overall consumed.
• Profit margin is high – and thus, it will yield higher level of returns over
comparatively lesser inputs.
• Other forms of cheap tobacco intake – the economy of India is not as strong which leads to
people consuming cheap tobacco products. This means they can have higher returns as
production of cheap tobacco products is comparatively cheaper.
• India’s top producer of cigarettes. – and it can be concluded that since ITC is the leading
producer of tobacco products in India, they earn a higher proportion of them income by
selling these tobacco products

Social Factors

• Becoming status symbol – for many, intake of tobacco is a status symbol. They feel that the
usage of Cigars and high-branded Cigarettes gives an increase to their status in the society.
ITC banks on it and makes highly-prices tobacco products as well in addition to the cheaper
ones.
• Companions mounted by W.H.O.
• Changing attitudes towards tobacco – Many people are becoming aware about the ill-
effects of intake of Tobacco. This may lead to the industry suffering some amount of loss in
the years to come.
• Restrictions by government – Several restrictions on tobacco and it advertising has made
the promotion of tobacco brands almost impossible, thus leading to a decline in their sales.

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Technological Factors

• State-of-the-art factories.
• Cheap labour supply – It has often been noticed that labour is very cheap and in abundance
in India. Thus, ITC gets large number of labour supplies from under- developed areas for a
comparatively cheaper cost and thus, their margin on the product increases significantly.
• Development of IQMS i.e. Innovative Quality Products and Systems. The basic principle of
ITC is to produce quality products and thus, systems are set-up in order to obtain them.
• Adapting other concepts like QC and TQM – Various techniques such as QC (Quality Control)
and TQM (Total Quality Management have regularly been adopted by ITC so as to ensure the
Quality is maintained and managed regularly.
• Hardware investment – High amount of investment is done in hardware such as large
Storehouses, high shelves, etc.
• Software investment – such as GPS monitoring circuits, long-distance clients landing
enquiries, GIS circuit optimization, and online method of electronic clearing, etc.
• Miscellaneous – along with good Hardware and Software investment, ITC also possesses a
great Logistic as well as Inventory support.

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 SWOT Analysis of ITC

Strengths:

1. Brand image– ITC is the most valuable brand of India with net income of Rs. 10,471 crore
in 2017.
2. Competence– ITC has a track record of 100 years of presence, quality, consistency and
continuous progress, expansion and diversification.
3. Market position– ITC is dominating Indian tobacco market by selling 81% of the cigarettes
and cigar such as Gold Flake, Gold Flake Super Star, Wills Navy Cut, Premium Lights, Classic
(Regular, Verve, Menthol, Menthol Rush, Citric Twist, Ice Burst, Mild & Ultra Mild) etc.
4. Core competency– ITC is India’s largest seller of branded foods with sales of over Rs. 4600
crore in 2012-13. Its most famous food brands are Aashirwaad, B Natural, Sunfeast, Yippee,
Bingo! And Candyman.
5. Leader of other sectors– ITC has India’s largest hotel chain with over 90 hotels throughout
India. ITC is exclusive franchise holder of two brands owned by Sheraton International Inc.

Weaknesses:

1. Declining industry trend– Legal cigarette business has witnessed a 25% decline in volumes
from 2012-13 which has affected the profits of ITC Limited.
2. Tax reforms in India– Under the newly enforced Goods and Services Tax Act, 2017 tax is
charged at a higher rate than before GST which is exacerbating the business especially
cigarette business of ITC.
3. Multiple brands– ITC Limited has way too many brands and its business is expanded to
various different industries which is causing brand dilution.
4. Debt– ITC has total debt of 3.38 billion this is much higher than that of the sector and
significantly higher than that of the Total Debt Industry.
5. Dependence on tobacco products– ITC Limited is largely depending upon tobacco products
which may become detrimental to its progress in future.

Opportunities:

1. Growth rate of the economy– Growth rate of Indian economy is expected to be 7% that
means new opportunities will arise in future in different sectors and industries of the
economy.
2. Change in customer habits– Living standard of Indians is rising causing the increase in their
purchasing power because of which now customers are choosing to buy branded products
over unbranded cheap products for better quality, have started to dine out in restaurants and
hotels which is opening doors of new opportunities for ITC.
3. Unchanged interest rate– In the meeting of the Monetary Policy Committee of the Reserve
Bank of India held in October, 2017 RBI left the repo rate unchanged (6%) consequently, banks
will not increase interest rate on the amount of loan that they will advance to borrowers
hence raising debt funds will not be expensive for further expansion or diversification of the
business.

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4. Growing demand in FMCG sector– Increasing urbanization and a growing middle class are
resulting in an ever-growing demand for processed food in the FMCG sector consequently a
total investment of Rs. 68,000 crore has been proposed from various global and domestic
companies in the World Food India, 2017 out of which ITC is planning to invest Rs. 10,000
crore in food processing over the next five to seven years which will ultimately reduce the
over dependence of ITC on tobacco business.

Threat:

1. Competition– ITC Limited is facing and will face in future, intense competition from
domestic and foreign companies in various industries.
2. Compliance– GST has imposed stricter and heavier compliance regulation and filings which
will ultimately increase the cost of compliance of ITC.
3. Inflation effect– In September, 2018 fuel prices increased enormously and consequently
freight and transportation charges will also increase.
4. Political disturbance– Disruption caused by demonetization has affected Indian economy
adversely in many ways, causing its growth forecast to be reduced from 7.4% to 7% by the
World Bank. It may affect all the sectors and companies operating within the economy.

This was the detailed SWOT analysis of ITC Limited in accordance with the current situation
and economic atmosphere of the Indian economy.

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 Porter 5 forces Analysis on ITC Ltd

Buyer Power

Consumer faces low buying power because of fragmented and have little influence on product
price. Comparing the buyer power retailers, it is very high since they are needed to negotiate
the price with their competitors.

Supplier power

ITC Consumer product faces few quantity of supplier power simply due to the cost they
effected when switching supplier. Suppliers are doing high volume of business with these
companies are also positive value to their customers.

Threat of new entrants

The amount of capital investment required to enter in certain house hold consumer products
needs more, so the threat of new entries may result fairly low.

Threat of substitutes

Within the business sector, brand name proceeds to get success with building a competitive
advantage, but even though the pricing power of the products can be eroded.

Intensity of Rivalry among Competitors

It does not price anything for a consumer to buy one brand of shampoo instead of another,
preparing the industry quite competitive. Consumer in this class enjoys variable choices.

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 BCG Matrix of ITC Ltd

BCG MATRIX OF ITC LTD

STAR: QUESTION MARK
1. AGRI-BUSINESS 1. FMCG FOODS
G 2. HOTELS
R 3. PAPERBOARDS & PACKAGING
O
W
T CASH COWS DOGS
H 1. FMCG CIGARETTES 1. ITC INFOTECH

MARKET SHARE

Stars:
ITC Ltd has a very strong market position in the sectors such as Hotels, Paperboard/packaging
and agricultural business. They are very famous for Hotels and Agri business. ITC is very strong
in these positions as these sectors are considered as stars in BCG matrix which means these
sectors generates a huge amount of profit because of the market shares.

Question marks:
ITC Ltd FMCG sectors such as automotive companies, furniture companies, financial
companies, tobacco companies, food companies are in the stage of ‘question mark’ in the
BCG matrix which means these sectors growing rapidly fast and consumes a large sum of cash
because of low market shares. But there is a chance that these sectors may become ‘stars’.

Dogs:
ITC InfoTech are now the ‘Dogs’ in the BCG matrix as they have very low market share
and doesn’t produce lot sum amount of cash which indicates the weakest sector of ITC Ltd.

Cash cows:
ITC Ltd FMCG-Cigarettes are now in the position of ‘Cash Cows’ in the market as they
produce a stable cash flow which makes a good growth rate in the market shares. As there is
a good profit, it is a hope that this sector may move to the position of ‘Stars’ or ‘Question
marks’ soon.

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 Financial Analysis of ITC Ltd:

ITC: Financial Highlights 1996-2018

1996 2018

Net Revenue 2536 39,255

PBIT 536 16,525

Profit After Tax 261 11,223

Capital Employed 1,886 53,336

Market Capitalisation 5,571 3,12,308*

CAGR in Total Shareholder Returns in the period 1996-2018: 22.4%

FINANCIAL RATIOS 2018 2017 2016

DEBT-EQUITY RATIO 0.00 0.00 0.00
CURRENT RATIO 1.47 1.79 1.59
ASSET TURNOVER RATIO 2.49 3.48 2.83
INVENTORY TURNOVER RATIO 5.87 6.77 6.35
DEBTORS TURNOVER RATIO 19.42 28.48 30.48
INTEREST COVERAGE RATIO 154.76 343.00 201.67
OPERATING MARGIN (%) 40.85 29.91 29.85
NET PROFIT MARGIN (%) 25.32 18.40 17.96
RETURN ON CAPITAL EMPLOYED (%) 34.92 35.60 39.92
RETURN ON NET WORTH (%) 23.20 23.45 25.79

 The company is generating a good amount of revenue every year, there is a substantial
increase every quarter.
 Since the debt equity ratio is consistent to be zero since last 3 consecutive years, it
means that the company hold very strong equity position in the market.
 The current ratio of the company is 1.47 means business has Rs. 1.47of current asset
for every Rs. 1 of current Liabilities.
 The net profit margin is increasing every year, which is a good sign that company is
making progress in its business and strategy that they are forming.

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Some Stats. for the record and observation made.

 The gross sales and profit before depreciation, interest and tax is increasing in good
terms every year.

 The profit that the company is earning after taxation in India and Britain is also
showing a rise which is a good sign that the company is reliable, and nations are also
benefited.

 The net worth of the shareholder and earning per share, dividend per share is also
rising as the years are passing on. So, for the investor it’s a good sign to invest in
such a stock where they can generate revenue out of it.

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 Critical Success Factors of ITC

Critical factors in the apparent success of the venture are as follows:

1. ITCs extensive knowledge of agriculture

2. The effort ITC has made to retain many aspects of the existing production system
3. Including retaining the integral importance of local partners
4. The company's commitment to transparency, and the respect and fairness with which
both farmers and local partners are treated.

There are more success factors of ITC:

 Site and Location
 Positioning and guest Profile
 Financial strengths
 Brand Recognition
 Yield Management
 Differential Pricing

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Conclusion

As per the report made and various analyses done on India Tobacco Company, it is clear fact
that so far ITC Ltd holds a good reputation in the market and a well slandered position. Even
though there is an un-related diversification of ITC, the powerful and the good management
help the smooth flow of business which is a successful key factor to survive in the market.
Though ITC Ltd has some weak industrial sector, it keeps an overall slandered position in the
market even in the recession period where lots of organizations are thrown out of the market.
With the level of present status, there is a bright fortune for ITC Ltd after this dark recession
which is very near and crystal clear.

ITC is a strong brand and has diversified into many streams of business. It holds the second
largest hotel chain in the country and despite of handful of weakness, ITC has lot of
opportunities to overcome it as mentioned in SWOT Analysis. Through PEST analysis, ITC can
discover which factors are impacting its organization business. The result of which is used to
identify threats and weaknesses which is used in a SWOT analysis. ITC is financially a good
and trust worthy company, where we can rely to invest in ITC stocks depending on its future
strategies. ITC is widely generating its busing through FMCG and Hotel industry and it holds a
second position after HUL in FMCG sector.

Through out the report it is very well cleared that ITC has very good strategies and top
management to run this conglomerate and since 10 decades it was never a part of scam or
fraudulent activity. It has shown tremendous increase in profits, sales, taxation and EPS in last
3 consecutive years.

The learning from this project was to do various analysis like PEST, SWOT, Porters 5 forces
and forming a BCG matrix by understanding it conceptually perfectly and applying on various
aspect of ITC businesses. It really helped me to undergo a depth learning about strategies that
are used by such large conglomerate to run its business in a country like India which is the
second largest populated country on the globe.

Thank you.

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References:

https://www.ukessays.com/essays/international-studies/strategic-analysis-
techniques-of-itc-limited.php
https://www.itcportal.com/about-itc/shareholder-value/key-financials.aspx
https://www.itcportal.com/about-itc
https://docslide.net/documents/a-study-on-critical-success-factors-of-itc-
ltd.html
https://www.ukessays.com/essays/marketing/itc-limited-porters-five-forces-
marketing-essay.php
https://www.slideshare.net/VinniKaur/strategic-analysis-of-itc

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