ITC Limited

One of India’s Most Admired and Valuable Companies

INTERNAL ASSIGNMENT PART = 2

NAME = UJJWAL WAHADAR
ROLL NO =35
FINANCE (20-22)

1
▪
One of India’s most Admired and Valuable companies
- Market Capitalisation: ~Rs. 3 lakh crores#
▪
A US$ 10.8 billion enterprise by Gross Sales Value^
- ~60% of net revenue from non-Cigarette segments
▪
Leading Fast Moving Consumer Goods (FMCG) marketer in India
- Established over 25 world-class mother brands within a short span of time
▪
10 year Value Addition ~ Rs. 3.5 lakh crores (US$ 59 billion).
- Among the top tax payers in the country
▪
ITC & its Group Companies employ over 35,500 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 17 years), 'carbon
positive' (for 14 years), and 'solid waste recycling positive' (for 12 years)
2
 ITC’s ranking
Amongst all listed private sector cos.

PBT: No. 5
PAT: No.
Market Capitalisation: No. 9
SG Rankings

ITC Rated AA by MSCI-ESG

Highest amongst Global Tobacco companies & ahead of FMCG peers
ITC’s Vision Statement
ITC’s Vision

▪
Make a significant and growing contribution towards :
• mitigating societal challenges
• enhancing shareholder rewards

By

• creating multiple drivers of growth while sustaining leadership

in tobacco, and

• focusing on ‘Triple Bottom Line’ Performance

✓
Enlarge contribution to the Nation’s
- Financial capital
- Environmental capital
- Social capital
Key Corporate Strategies
▪
Focus on the chosen business portfolio
– FMCG; Hotels; Paperboards, Paper & Packaging; Agri Business; Information
Technology

▪
Blend diverse core competencies residing in various Businesses to enhance the
competitive power of the portfolio

▪
Position each business to attain leadership on the strength of world-class standards
in quality and costs

▪
Craft appropriate ‘Strategy of Organisation’ and governance processes to:
– Enable focus on each business and
– Harness diversity of portfolio to create unique sources of competitive advantage
Strategy of Organisation

3-Tiered Governance Structure

ITC’s Business Portfolio
FMCG
Cigarettes Foods Personal Care

Education & Stationery Safety Matches & Incense Sticks

Paperboards, Paper Information

Hotels Agri Business
& Packaging Technology
ITC’s Cigarettes Business
▪
Market leadership

− Leadership across all segments - geographic & price

▪
State-of-the-art technology and world-class products

▪
Introduce new variants and augment product portfolio catering to
continuously evolving consumer preferences

− Innovative and differentiated offerings such as Gold Flake Indie Mint, Gold
Flake Neo and Classic Rich & Smooth

− Focused offers under the ‘American Club’, ‘Wave’, ‘Player’s Gold Leaf’, ‘Pall
Mall’ and ‘Flake’ trademarks in strategic markets

11
Cigarette Industry in India (1)

▪
Legal cigarettes account for less than 1/10th of tobacco consumed in India due
to a punitive and discriminatory taxation and regulatory regime

▪
India is the 4th largest market for illegal cigarettes in the World; causing a
Revenue loss of over 13,000 cr. p.a. to the Exchequer

▪
42% of adult Indian males consume tobacco. Only 7% of adult Indian males
smoke cigarettes as compared to 14% who smoke bidis and 30% who use
smokeless tobacco (Source: Global Adult Tobacco Survey India 2016-17)

▪
Annual per capita adult cigarette consumption in India is approx. one-ninth of
world average
Cigarette Industry in India (2)

• Legal cigarette industry volumes remain under pressure

− While the legitimate cigarette industry has declined steadily since 2010-11 at a compound
annual rate of over 4% p.a., illegal cigarette volumes in contrast have grown at nearly 5%
p.a. during the same period, making India one of the fastest growing illegal cigarette
markets in the world

− This is also borne out by the fact that there has been a quantum jump in the number of
seizures of smuggled cigarette consignments by enforcement agencies across the country
over the last few years.

• Graphic health warnings covering 85% of the surface area of the packet,
amongst the largest in the world. On the other hand, smuggled illegal cigarettes either do not
bear the mandated pictorial or textual warnings or bear much smaller pictorial warnings as per
the tobacco laws of the countries from where these cigarettes are sourced, creating a
perception that these smuggled cigarettes are relatively ‘safer’.
Legal Cigarettes contribute more than 4/5th of Tax Revenue,
despite constituting less than 1/10th of Tobacco consumption

Other
Legal Tobacco
Cigarettes Products
Other th
1/10 th
Tobacco Legal 1/5

Products Cigarettes
th th
9/10

4/5

Consumption Share Tax Revenue Share

Note: Consumption Share and Tax Revenue based on 2018/19 data

Cigarettes are least affordable in India

Affordability (% of GDP Per Capita Required to Purchase 2000

Cigarettes of Most Sold Brand) in 2018 13.49

3.87
2.76 2.80 2.98
1.83 2.22
1.56 1.96
1.10

USA GermanyRussia Canada China Australia Pakistan UK Malayasia India

Source : WHO Report on the Global Tobacco Epidemic, 2019

▪
As shown above, in GDP per Capita terms, Cigarettes in India are less affordable than in other countries viz. USA,
Germany, China, Pakistan & Malaysia.
Per Capita Cigarette Consumption – 11% of World average

2043 No. of cigarettes per capita per annum

1583

1017
828
748

363
89

China Japan USA UK UAE Pakistan India

Source: Tobacco Atlas, 6th Edition, American Cancer Society, 2018

• Although India accounts for over 17% of world population, its share of world cigarette consumption is less than 2%
Creating World-class brands for Indian Consumers
 Rapid scale up of FMCG businesses

14000

12505
12000
11329
10512
9731
10000

9038
8122
8000

7012

6000
5545
4482
3642
4000

2511
3014
2000
1704

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Note: Reported Gross Revenue for FY18 & FY19 not comparable a/c GST transition; Comparable FMCG Business
growth for FY19 at 12% as compared to reported growth of 10.4%
Annual Consumer Spends of over 18000 cr. (FY19)

>4500 cr.

>3800 cr.

~2500 cr.

>1400 cr.

>1100 cr.

>500 cr.
Branded Packaged Foods Portfolio

Biscuits, Staples, Snacks, Noodles & Pasta, Confectionery, Ready to Eat,

Juices, Dairy, Chocolates and Coffee
Branded Packaged Foods: Some recent launches

Sunfeast Bounce Loops Sunfeast YiPPee! Quick

Bingo! No Rulz
Choco, Jam & Vanilla Masala and Cheese Curlz Veda Marie Light Mealz Khow Suey

Bingo! Starters Range Aashirvaad Nature’s B Natural Juices with Sunfeast Wonderz Fabelle Dark
Super Foods Range regional flavours Dairy Beverages Gianduja
Addressing the Food Services opportunity

Eggless ITC Master Chef ITC Master Chef

Mayonnaise Tomato Ketchup Green Chilli Sauce

Frozen Snacks Super Safe
Prawns
Refreshed & High Decibel Campaigns across Key Brands

Sunfeast YiPPee! Bingo! Tedhe Medhe Dark Fantasy ChocoFills

Moment Marketing
ated Manufacturing and Logistics facilities

Trichy, Tamil Nadu Kapurthala, Punjab

▪
The manufacturing capability of ICML Trichy was augmented during the year with the commissioning
of state-of-the-art lines for Finger Snacks, Atta and Biscuits.
▪
Capacity Utilisation at Kapurthala, Panchla, Uluberia, Mysuru and Guwahati being progressively
ramped up.
▪
Steady progress is being made towards development of other such facilities which are expected to
be commissioned in the near to medium term.
 Personal Care Products

▪
The Business continues to enhance market
standing in the Fragrance and liquids
(handwash & bodywash) categories.

▪
‘Engage’ range of deodorants continue to
strengthen its market standing.
− Clear No. 2 brand in the category; No. 1
in Women’s segment.
− Pocket Perfumes range augmented with
the launch of unique dual fragrance.
▪
Recent category launches
− Premium skin care range – ‘Dermafique’
− Premium bath care range – ‘Fiama’
− Moisturising skin cream - ‘Charmis’
− Floor cleaner - ‘Nimyle’
− Essential Oils – ‘Fiama’
Personal Care: Some recent launches

Engage On Dual
Dermafique
Engage Deo - Intrigue Fragrance Dermafique
Soleil Defense Gel Creme30, All
and Spirit Pocket Perfume Hydra Tonique Gel
Matte and Kajal Cleanser

Vivel Bodywash
Engage L`amante Fiama Hand Wash Fiama Scents Glycerin + Honey
Refreshed & High Decibel Campaigns across Key Brands

Engage Deodorants Fiama Handwash

Savlon Handwash
Education & Stationery Products Business
▪
Leverage Company’s paper & printing expertise and distribution network
- Classmate, Saathi and Paperkraft brands continue to enhance market standing
▪
Industry growth driven by increasing literacy and enhanced scale of government and public-private
education initiatives
▪
Classmate is the Market leader in Notebooks segment
− Deepening consumer engagement through [Link] & MyClassmate app to deliver
customised notebooks

− A dedicated manufacturing facility for notebooks, equipped with state-of-the-art machinery was
commissioned at Gollapudi, Andhra Pradesh
▪
Increase presence in writing instruments & scholastic products segment leveraging the Classmate brand
MyClassmate APP
Incense sticks (Agarbattis) & Safety Matches
• ‘Mangaldeep’ continues to fortify its market standing
in the Agarbatti and Dhoop segment.

• ‘AIM’ continues to be the largest selling safety matches

brand in India.

• Mangaldeep App caters to the everyday devotional

needs of consumers.

• The Business launched several innovative offerings incl.

‘Mangaldeep Less Smoke Agarbattis’ (80% lesser
smoke) and Mangaldeep Temple range of dual
6 lakh+ downloads; 37,000+ active users
fragranced agarbattis.
Hotels

• One of the fastest growing hospitality chains in India

•Trailblazer in Green Hoteliering

• Leader in Profitability
Hotels & Tourism industry

▪
Foreign Tourist Arrivals (FTA) growth has been steady with significant headroom for growth.

– FTA into India at 10.5 million but remains far behind China (~60 million)
[Source: Ministry of Tourism, UNWTO Tourism Highlights 2018 edition]

– Going forward, as economic conditions and infrastructure improve, leisure tourism and
business related travel is also projected to grow faster

▪
Industry: Current Room inventory ~290,000 rooms, of which ~69,000 rooms are in the Luxury and
Upper-Upscale segments
Hotels Business
▪
The Chain: 110 properties over 70 locations
− 4 Brands: ‘ITC Hotels’ in the Luxury segment, ‘Welcomhotels’
in the Upper-Upscale segment, ‘Fortune’ in the Mid-market
to Upscale segment and ‘WelcomHeritage’ in the Leisure &
Heritage segment
• 30 Five-Star Deluxe/ Five-Star Properties with nearly 6200
rooms
• 45 Fortune Hotels with nearly 3300 rooms
• 35 WelcomHeritage Properties with nearly 900 rooms

▪
Enhancing Business scale by adopting ‘asset-right’ strategy -
Managed properties now account for more than 50% of room
inventory of ITC hotels group.

▪
WelcomHotel Amritsar – 101-room hotel launched on November
1, 2019.
▪
Projects underway:
⁻ ITC Hotel at Ahmedabad
⁻ Welcomhotels at Bhubaneswar & Guntur
Recently commissioned properties continued to receive
excellent response from discerning guests
ITC Kohenur

ITC Grand Goa

ITC Royal Bengal

455 Keys, ~60,000 [Link] banquets
5 Signature F&B restaurants
ITC Hotels: Industry Recognition + Leisure Awards 2019)

ITC Hotels - ‘Best Luxury Hotel Chain’ ITC Grand Goa – ‘Best Wedding Venue (Domestic)’

ITC Royal Bengal – ‘Best New Hotel (Domestic)’ Club ITC – ‘Best Hotel Loyalty Programme’
ITC Hotels: Trailblazer in Green Hoteliering

All ITC Luxury Hotels LEED Platinum certified

“Responsible Luxury” ethos woven into the Brand Identity

Paperboards & Packaging Business

• No. 1 in Size

• Best-in-class Profitability

• World-class Environmental Performance

Indian Paperboard market

▪
Annual paperboard demand nearly 4 million tonnes

▪
Low per capita usage of paper at around 13 kgs p.a. (world average – over 57 kgs p.a.)
▪
Indian paperboard market growing at 8% p.a.
▪
Value-added Paperboards - the fastest growing segment in India driven by :
▪
Increasing demand for branded packaged products
▪
Growth in organised retail
▪
Use of packaging as a key differentiator, especially in the FMCG sector
ITC’s Paperboards, Paper & Packaging businesses
▪
Market leader in Value-Added Paperboards (VAP) segment
▪
World-class technology & quality

– Fully integrated Ozone bleached Pulp Mill (3.5 lakh TPA) – one of its kind in Asia meeting world-
class environmental standards.
– India’s first Bleached Chemical Thermo Mechanical Pulp (BCTMP) mill, reduced dependence on
imported pulp and source of competitive advantage. VAP Machine

– The diverse product range of the recently

commissioned Décor machine well accepted by
discerning customers.
– Rebuilt Value Added Paperboard (1.5 lakh TPA) line
commissioned in Aug’18; operating at near-full
capacity.
▪
ITC’s packaging SBU - India’s largest converter of Paperboard into high quality packaging
– Provides superior packaging solutions to cigarettes and other FMCG businesses
– Leading supplier to Indian FMCG industry
– One-stop-shop for packaging solutions

TPA: Tonnes per annum

Sustainable Packaging Solutions – Plastic Substitution

Bio-degradable boards Recyclable boards

Completely Biodegradable Completely recyclable in existing

under composting conditions standard recycling conditions

Barrier against liquids/grease etc. at par Excellent oil and grease

with traditional plastic coated boards resistant properties

Filo Serve : Food

Omega Bev : Exclusively for serving applications
paper cups

Filo Pack : Food delivery application

Omega Barr : Deep freeze applications
Agri Business

• Leading Agri Business player in India

• Pioneer in rural transformation

• No. 1 in Leaf Tobacco

ITC’s Agri Commodity Business
▪
Distinctive sourcing capability for ITC’s Branded Packaged Foods Businesses
− Identity-preserved superior quality wheat for ‘Aashirvaad’ atta
− Superior quality Indian fruit pulp for ‘B Natural’ range of juices
− Sourcing support for ‘Aashirvaad’ and ‘ITC Master Chef’ spices
− Scale up in milk procurement for ‘Aashirvaad Svasti’ range dairy products
▪
Farm linkages in 17 States covering Wheat, Oilseeds, Coffee, Spices, Milk etc.

▪
Unique Customer Relationship Management programme for commodity customers in both domestic and
international markets
▪
Leveraging Information Technology for the transformational ‘e-Choupal’ initiative
– Rural India’s largest Internet-based intervention with over 35000 villages linked through
around 6100 e-Choupals servicing about 4 million farmers
– Cost-effective sourcing for exports/domestic external business
ITC’s Agri Commodity Business- Value-Added Segment

• Value-Added segment scaled up

‒ Frozen Snacks continues to receive encouraging consumer response, and being scaled up.
‒ Launched attribute based Staples (Maida, Suji, Besan & Dal) in the Food Service channel.

ITC Master Chef Frozen Snacks Maida, Suji, Besan & Dal for B2B Channel

Farmland Apples Farmland Potatoes ITC Master Chef ITC Master Chef Super ITC Master Chef
prawns Safe Smart Onions Mango Puree
ITC’s Leaf Tobacco Business
▪
India is the second largest tobacco grower in the World.
▪
However, India’s share is only at 9% of world tobacco trade
– Leaf tobacco exports declined to a decade low of ~180 million kgs.

▪
ITC – India’s largest buyer, processor, consumer & exporter of cigarette tobaccos
− 5th largest leaf tobacco exporter in the world
▪
Pioneering cultivation of Flue-cured and superior Burley tobaccos in India

▪
Subdued demand for leaf tobacco in international
markets, relatively steeper depreciation in
currencies of competing origins and adverse
business mix weighed on profitability.
ITC - Key Financials – Q3 19/20
` Cr.
Q3 Q3
GOLY %
19/20 18/19
Gross Revenue 11,912 11,340 5.0

EBITDA 4,613 4,326 6.6

PBT (bei) 5,168 4,821 7.2

PAT (bei) 4,241 3,209 32.1

Exceptional items (132)

PBT 5,036 4,821 4.4

PAT 4,142 3,209 29.1

Other Comprehensive Income
(364) 428
(net of tax)
Total Comprehensive Income 3,778 3,637 3.9
: before exception
Gross Segment Revenue – Q3 19/20
(` crs)
Q2 Q3
2019-20 2019-20 2018-19 GOLY %
Segment Revenue (Gross)
5327 a) FMCG - Cigarettes 5311 5073 4.7
3288 - Others 3312 3201 3.5 Comparable
8615 Total FMCG 8623 8274 4.2 growth 6.1%
427 b) Hotels 552 452 22.2
2648 c) Agri Business 2095 1925 8.8
1565 d) Paperboards, Paper & Packaging 1555 1543 0.8
13255 Total 12826 12193 5.2
1505 Less : Inter segment revenue 914 853 7.1
Gross Revenue from sale of products &
11750 11912 11340 5.0
services

• FMCG Others: Comparable Revenue up 6.1% amidst further slowdown in demand

- Atta, Premium Confectionery and Liquids performed well; Dairy scaled up

• Hotels: RevPar improvement and addition of new world-class properties

• Agri Business: Trading opportunities in oilseeds & pulses and scaling up of value added segments offset by
subdued demand for leaf tobacco exports

• Paperboards, Paper & Packaging: Subdued FMCG/Liquor demand and softening global pulp prices impacted
realisation
Segment Results – Q3 19/20
• FMCG Others: Segment EBITDA up 48% to 256 cr. despite stepped up marketing investments, uptick in input
costs and gestation & start-up cost of new categories/facilities

• Hotels: Segment EBITDA up 40% to 157cr. driven by higher ARRs and operating leverage

• Agri Business: Margins impacted by adverse business mix

• Paperboards, Paper & Packaging: Subdued demand in FMCG/Liquor segment, lower realisation and adverse
business mix

Segment sales Revenue

1 1 Cigarettes
2
2%
4%
20% 7% 3 2 Others
9%
4 3 Total FMCG
18% 11% 5
4 Hotels
13% 6
16%
7

8 5 Agri Business
9
6 Paperboards, Paper & Packaging

4
7 Total 6

Segment Capital Employed 8 Inter segment revenue

9 GROSS REVENUE FROM SALES