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EXECUTIVE SUMMARYITC is a diversified Indian conglomerate with a market capitalization of nearly US $ 19 billion (March 2008)

and a turnover of over US $ 5.1 Billion. Quite unique among Indian companies, it has adopted a Triple bottom

line strategy where the company not only looks at financial performance but also the social & ecologicalperformance.

The company started almost hundred years back as a cigarette & tobacco business company. High incidence of

taxes and discriminatory taxation on cigarette form of tobacco, severe regulations and reducing export

attractiveness made it think of venturing into other businesses such as hotels, paper board & packaging, agri

business, FMCG etc. In sectors like cigarette, paper board the company is the market leader while in other

sectors it is dominant player or is expanding the business.

ITCs foray into Paperboards and Paper was inspired by a strong cash position and the desire to become self-reliant in its sourcing. The Paperboards division underwent a series of changes and acquisitions before taking its

present state as a market leader in the paper and paperboards segment. It has also been active in contributing to

its philosophy of Triple Bottom-line and is helping in enhancing the regions ecological and social balance.

Leveraging its investments in paper and paperboard manufacturing, ITC forward integrated into stationery

products in 2002 and considers this as a platform for growth.

The company has established relationships with farmers for almost hundred years since it started procuring leaf-

tobacco for its own use & export. Leveraging this opportunities it entered processed fruit export business. In

2000 they initiated the e-choupal initiative to procure agri commodity directly from the farmers this created a

win-win situation for both for them & the company. It also established Choupal Sagar, a rural hyper-mart, thus

targeting an untapped potential sector. Recently it entered the agri input business also. So overall they followed

a related diversification strategy & this helped them in other business like FMCG as well. Financial performance

wise this segment is below the group average but it is believed to be holding future potential. In addition, this

segment is important for their triple bottom line strategy.

ITC ventured into the Foods business in 2001 to reduce its dependence on its cigarettes business. Given the

synergies it could bring from other businesses and expertise in agri-procurement, distribution, packaging and

printing, marketing and branding skills, packaged foods was an obvious choice. Additionally, a demographic

shift towards value added products and its last mile reach for the rural areas justified the entry into the FMCG-

Foods business. However, high incubation costs including rentals, marketing expenses and competition from the

incumbents coupled with current downturn has delayed the break-even point. But there is a continuous healthy

revenue increase from the FMCG-Foods segment and future performance will depend a lot on product

innovation, reach and organized retail revolution in India.

An analysis of the various businesses revealed that some of ITCs businesses have been cash cows and have

contributed to the investments in the other segments. While the stock market performance may not be extra-

ordinary, we believe that its triple bottom-line strategy would stand it in good stead in the future.

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1. INTRODUCTIONITC is a diversified Indian conglomerates with a market capitalization of nearly US $ 19 billion (March 2008)

and a turnover of over US $ 5.1 Billion[1]. ITC is rated among the World\'s Best Big Companies, Asia\'s \'Fab

50\' and the World\'s Most Reputable Companies by Forbes magazine, among India\'s Most Respected

Companies by BusinessWorld and among India\'s Most Valuable Companies by Business Today. ITC has

established "a commitment beyond the market" for the companyas per Chairman YC Deveshwar,

"ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain

growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards

international competitiveness but by also consciously contributing to enhancing the competitiveness of the

larger value chain of which it is a part."

It was started as Imperial Tobacco Company of India Limited and incorporated in August 24, 1910.[2]Today

the company commitment with the business segments of Cigarettes, Hotels, Paperboards & Specialty Papers,

Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel,

Personal Care, Stationery, Safety Matches and other FMCG products. Over the time, ownership progressively

indianised and the name of the Company was changed to I.T.C. Limited in 1974. As a strategic backward

integration for ITC\'s Cigarettes business, the Packaging & Printing Business was set up in 1925. It is todayIndia\'s most sophisticated packaging house. Spanning the network the company has 11 Subsidiaries, 3 JV

Companies and 2 Associate Companies.

On their diversification strategy the company says that

ITC \'s diversified status originates from its corporate strategy aimed at creating multiple drivers of growth

anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building

capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the

strategic forays into new businesses are expected to garner a significant share of these emerging high-growth

markets in India.

Today the company employs more than 25,000 people at more than 60 locations across India. There are more

than 3.7 lakhs of shareholders. While the first six decades of the company was focused on Cigarettes and Leaf

Tobacco businesses, subsequently it diversified into a number of ventures. Please refer to the chronology of the

major business initiatives in the appendix.
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2. MISSION, VISION & VALUES[3]

The mission, vision and core values of the company are given below -

Mission:

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

and sustainable stakeholder value

Vision:

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

Core Values:

ITC\'s Core Values

ITC\'s Core Values are aimed at developing a customer-focused, high-performance organization which creates

value for all its stakeholders:

Trusteeship

As professional managers, we are conscious that ITC has been given to us in "trust" by all our

stakeholders. We will actualize stakeholder value and interest on a long term sustainable basis.

Customer Focus

We are always customer focused and will deliver what the customer needs in terms of value, quality

and satisfaction.

Respect For People

We are result oriented, setting high performance standards for ourselves as individuals and teams. We

will simultaneously respect and value people and uphold humanness and human dignity. We

acknowledge that every individual brings different perspectives and capabilities to the team and that a

strong team is founded on a variety of perspectives. We want individuals to dream, value differences,

create and experiment in pursuit of opportunities and achieve leadership through teamwork.

Excellence

We do what is right, do it well and win. We will strive for excellence in whatever we do.

Innovation

We will constantly pursue newer and better processes, products, services and management practices.

Nation Orientation

We are aware of our responsibility to generate economic value for the Nation. In pursuit of our goals,we will make no compromise in complying with applicable laws and regulations at all levels.
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3. TRIPLE BOTTOM LINE STRATEGY

While ITC has been generating sound financial returns from its various businesses, it believes in the concept ofBeyond Financial Performance. As outlined by Mr. Y. C. Deveshwar in an AGM in 2004, companies are

organs of society consuming significant societal resources.[4] Thus, the value created by them cannot be

evaluated purely on the basis of financial measures alone. Instead, they should be measured on the basis of

contribution to ameliorating the quality of life. ITC is a firm believer in this philosophy and has instituted a

Triple Bottom Line Strategy to ensure that the larger societal goal is integrated into the DNA of the organization

as it goes about its various activities.

The Triple Bottom Line strategy calls for an evaluation of an organizations perfo rmance along three

dimensions:

Economic

Ecological

Social

Industrial progress has taken a heavy toll on the Earths natural resources and left many in poverty. This pattern

of growth is not sustainable and ITC recognizes this as well as anyone. It believes that a premium should beplaced on companies that achieve economic progress with minimal adverse impact on ecology and society and

that contribute to development of sustainable livelihoods. A company which works towards replenishment of

natural resources and poverty eradication should be encouraged so that growth is truly sustainable.

In light of this philosophy, ITC has internalized this concept in all aspects of its functioning. We now describe

briefly some of the initiatives that ITC has undertaken to achieve a positive triple bottom line.

1. Rural Partnerships C.K. Prahalad talked about the potential arising from co-creation of value at the

bottom of the pyramid. ITCs e-choupal initiative seeks to develop deep linkages with rural India, empower

the small farmer and address last-mile connectivity issues using Information Technology. It connects

farmers directly with the market and gives access to better prices. In turn, ITC sells goods and services

through its rural malls or Choupal Saagar. The reason this initiative has done so well is because of the fact

that middlemen have been integrated into the system in various ways and have been provided steady

sources of income. If they had not been integrated into the system, these middlemen could have sabotaged

the initiative through their political clout as they have done in other cases. ITC seems to have designed this

very well.

2. Promotion of forest and wood-based industry ITCs farm-forestry programme is an example of

generating business value with sustainable livelihoods and environment. Seasonality is one of the reasons

for poverty and lack of sustainable livelihoods. Sustainable livelihoods are also compromised by depletion
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of natural resources. Soil erosion leads to reduction in fertility and productivity. Forest cover plays a critical

role in maintaining the soil and water base for food production in arid and semi-arid lands and containing

soil erosion. Trees also ameliorate the effects of drought and desertification and play a crucial role in

cushioning the effect of seasonality. ITCs farm forestry programme helps NGOs and farmers through

support and extension services such as loans, land development, planting of saplings, plantationmaintenance, marketing and funds management. The trees planted by local farmers serve as a captive

source ofwood fibre for ITCs paperboards business. Trees also help in moisture conservation, groundwater

recharge and significant reduction in topsoil losses due to wind and water erosion. Thus its a win -win

situation for both farmers and ITC.

3. Livestock Development In order to increase milk yield and generate income for rural people, ITC\'s

Livestock Development programme reaches out every year to 12,000 farmers in 600 villages, inseminating

15,000 cattle through 30 Insemination Centres.

4. Women EmpowermentITC believes that women can be harbingers of social change. Additional income

in the hands of rural women means improved health care, nutrition and education for their children. It

provides micro-credit and skills training to generate alternate employment opportunities.

5. Integrated Watershed DevelopmentThis programme looks at the issues of conservation of water and

enrichment of soil. The aim is to support moisture and soil conservation by harvesting rain water in tanks,

check dams and farm ponds

6. Primary Education ITC intends to support and enhance the existing primary school infrastructure

through provision of books and uniforms, upgradation of school facilities and establishment of

supplemental learning centres. As a result, 9000 children have benefited and dropouts have reduced

7. Environment, Health and SafetyITC has invested a lot in environment, occupational health and safety

and wants to become a carbon positive company by optimizing resource usage. It wants to be water-

efficient and achieve complete recycling of waste. It has been fairly successful in maintaining a zero lost

time accident record which is a testament to the high standard of safety procedures that the company

employs.

4. ORGANIZATIONAL STRUCTURE

ITC changed its organizational structure in mid 90s after the current Chairman Mr. Y C Deveshwar took over

the Chairmanship of the company. The change was largely driven by the problems the firms faced due to its old

organizational structure. Earlier all the directors were heading the various business divisions of ITC. Since the

tobacco division was primary earner for the group, it wielded a lot of power and in turn its director also had a lot

of say in the decisions of the entire company. Second factor was that the director in charge of the business was

close to BAT (which had around 30% stake in the company). BAT had its own interests which were many a

times not same as that of ITC.

BAT tried to take over the company in mid 90s. Deveshwar managed to prevent the takeover. Also, he changed

the structure to its current form. The number of executive directors was reduced from 8 to 4. These directors

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were not directly responsible for the divisions but were in charge of the strategic supervision of the company.

There were also 8 independent directors which formed the board of directors. The main idea behind the

restructuring was to separate the conflicts of interests of the directors who were earlier also the business heads.

The chairman and the board of directors are not involved in the day to day management of the company.

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[5]:

Strategic supervision (on behalf of the shareholders), being free from involvement in the task ofstrategic 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 forITC 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. LEADERSHIPThe 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 CEOs to talk about Indias 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

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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 notprove 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. Deveshwars 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 ITCs

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 BATs 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.

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 1990s was a step towards the same.

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7. CIGARETTES - CORE BUSINESS?

Cigarettes have been the core business of ITC till date.[6]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]

7.1 Challenges in Cigarettes Business

1. High incidence of taxes

High incidence of taxation continuously has been a deterrent to ITCs 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
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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. [8]

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

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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.[9]

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

1. Packaging and Graphic Boards

a. Coated Virgin Boards

b. Coated Recycled Boards

2. Specialty Boards

a. Barrier Poly Coated

b. Cast Coatedc. Graphic

d. Others

3. Specialty Paper

a. Cigarette Tissue and Components

b. Fine Printing

c. Packaging

d. Decor Papers

e. 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, Dcor 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

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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 GreyBack 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, ITCs 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

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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.[10]

1. Vision: The broad vision that led to the acquisition was ITCs 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 ITCs 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?

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Comments

Choice of alliance/

acquisition

Type of Synergy Its not very clear from the availableinformation whether there would be closecooperation between plants under ITC andBIPCO

Unclear

Nature of Resources They were trying to scale up capacity by

combining hard resources. Employees

typically dont have to interact with those of

ITCs other plants

Acquisition

Extent of Redundant

ResourcesIt was believed that the two companies could

reduce some redundancies in the distribution

system if they came together

Acquisition/ EquityAlliance

Degree of Market

UncertaintyGiven that the demand for high quality

paperboards was rising, the market uncertainty

was low to medium. ITCs existing mills were

already at full capacity and they needed the

additional 65000 MT capacity that the Kovai

mill brought to the table.

Acquisition

Level of Competition The industry is fragmented with over 100

players which implies competition is quite

high. Although ITC was the market leader, it

needed to consolidate its position given the

threat from South Asian and local competition

Acquisition

From the above table, it is evident that ITCs 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-lineperformance

1. Financial performance

The paperboards business recently has been very successful financially as evident from the ROI and margin

figures shown in the Table.[11]

Year ROI Revenues Profits Margin %

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2002 669.51 162.17 24.22%

2003 687.37 226.27 32.92%

2004 32.59% 740.96 229.85 31.02%

2005 26.72% 991.17 279.99 28.25%

2006 16.45% 1150.25 351.42 30.55%

2007 16.44% 1271.62 416.78 32.78%

2008 13.80% 1425.58 453.14 31.79%

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

companys 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

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them a sustainable source of income. Over 93 per cent of ITCs Bhadrachalam mills wood requirement in

2007-08 came from plantations initiated through ITCs forestry project undertaken by tribals and marginal

farmers.[12]

8.1.7 Forward Integration into Education & Stationeryproducts

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.

ITCs 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.[13]

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 ITCs 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[14]. 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
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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 diversificationThe decision to move to hotels business was prompted by the macro-economic environment: the government\'s

encouragement to ventures that would earn foreign exchange[15].

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[16].

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.

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The rationale for the amalgamation was that 80% of the capital employed in hotels business was on ITCs

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 ofa financially stronger company (ITC Ltd.).

8.2.6 Analysis of Success

1. Financial Performance

Year ROI Revenues Profits Margin %

2002 160.28 -50 NA

2003 192.09 10.09 5.25%

2004 3.12% 254.49 32.51 12.77%

2005 10.79% 573.02 140.94 24.60%

2006 16.42% 777.85 258.09 33.18%

2007 21.89% 978.71 350.78 35.84%

2008 22.36% 1093.48 410.77 37.57%

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.[17]

8.3 Agro Business division of ITC

8.3.1 Introduction

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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 Servicese-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 )[18]. 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

o 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.

o 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.

o Processed fruits

ITC entered processed fruit business since 1989[19]. 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.

o e-choupal

The e-choupal initiative started in 2000 in Madhya Pradesh & later in Karnataka [20]. 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
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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 kioskshave 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.

o 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.

o Food & Spices

ITC entered the branded Atta market with the launch ofAashirvaad Atta in Jaipur and Chandigarh on 26th

May 2002.[21] 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 marketpotential 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[22]. 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.

o Choupal fresh:

This is ITCs retail venture in the fresh food wholesale & retailing & started in 2006[23]. 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.[24]

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.

o Agri Input businesses:
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This form of diversification started on 2006[25]. The initiative is overseen by the companys 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. ILTDs new initiative, backed by strong R&D, was aimed at indigenously

developing differentiated, new products suitable for Indian agro-climatic conditions and cropping pattern.

ITCs 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
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production of early generation seed potatoes. This helped the business access a ready pipeline of new high-

yielding varieties of chipstock potato seeds[26]. 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:

Year 2002 2003 2004 2005 2006 2007 2008

Sales - Agribusiness 967.75 1272.95 1285.74 1220.7 1954.67 2719.57 2503.03

Profit - Agribusiness 10.97 84.05 89.8 96.41 90.86 123.55 129.19

Profit Margin 1.13% 6.60% 6.98% 7.90% 4.65% 4.54% 5.16%

y-o-y sales growth 31.54% 1.00% -5.06% 60.13% 39.13% -7.96%

Segment asset 523.36 636.05 874.16 1299.22 1718.35 1771.14

Average segment

asset 579.705 755.105 1086.69 1508.785 1744.745

ROI 15.49% 12.77% 8.36% 8.19% 7.40%

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 trendthis 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[27]. 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 themin getting proper value for their products. These initiatives were recognized by national & international awards.

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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.[28]

8.4 FMCG Others: Food Business

8.4.1 IntroductionITC 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.[29]

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,

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- Organic spices through Aashirvaad organic spices,

- Healthy foods through Sunfeast Sachin Fit Kit range and

- Personal caresegment 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:

o 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%.[30]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.

o 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 Indias 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.

o 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.

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Leveraging synergies from other businesses

o 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

o 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 dont exist

Social outreach programmes generates goodwill, creates a loyal customer base, thus creating

a dedicated and efficient supply chain

o 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

o 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[31]

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o The composition of Indias 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.

o 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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Fig 1: Rationale for diversification into FMCG Foods
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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 countrys 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:[32]

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-

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