Description
The doc describes about ITC using the concepts and theories of Organizational Theory and Practice.
Organizational Analysis: A case study of ITC Ltd.
Contents
1 Introduction .......................................................................................................................................... 3 1.1 1.2 1.3 1.4 2 The ITC Profile................................................................................................................................ 3 History & Evolution ....................................................................................................................... 3 ITC Leadership & Hierarchy........................................................................................................... 5 ITC Values & Culture ..................................................................................................................... 7
Growth and Diversification ................................................................................................................... 8 2.1 2.2 2.3 2.4 2.5 Core Challenges faced ................................................................................................................... 8 Corporate Strategies ..................................................................................................................... 8 Growth of ITC in the last 10 years................................................................................................. 9 Analysis of the Indian FMCG sector: ............................................................................................. 9 Diversification ............................................................................................................................. 11
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Analysis of the financial Report for year ending 2009 ........................................................................ 19 Awards and Achievements.................................................................................................................. 21 Corporate Social Responsibility .......................................................................................................... 22 5.1 5.2 5.3 E – Choupal in Agri – Business .................................................................................................... 22 Preserving National Heritage ...................................................................................................... 24 Creating Employment for the Rural Sector ................................................................................. 24
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Conclusion & Learning ........................................................................................................................ 25 References…………………………………………………………………………………………………………………………………….26
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1 Introduction
1.1
ITC is one of India's foremost private sector companies with a market capitalisation of nearly US $ 14 billion and a turnover of over US $ 5 billion. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. 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 brandbuilding 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. ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating. ITC employs over 25,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3,49,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. For the nation. For the Shareholder."
1.2 History & Evolution
ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited' with a leased office on Radha Bazar Lane, Kolkata, as the centre of the Company's existence.The Company's ownership progressively Indianised, and the name of the Company was changed to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited'. The first six decades of the Company's existence were primarily devoted to the growth and consolidation of the Cigarettes and Leaf Tobacco businesses. ? ? ITC's Packaging & Printing Business was set up in 1925 as a strategic backward integration for ITC's Cigarettes business. In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. Page 3
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In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards Limited, which today has become the market leader in India. In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing company and the merged entity was named the Tribeni Tissues Division (TTD). TTD was merged with the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division in November 2002. Also in 1990, leveraging its agri-sourcing competency, ITC set up the Agri Business Division for export of agri-commodities. In 2000, ITC forayed into the Greeting, Gifting and Stationery products business with the launch of Expressions range of greeting cards. A line of premium range of notebooks under brand “Paperkraft” was launched in 2002.The popular range of notebooks was launched under brand “Classmate” in 2003. ITC also entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills Clublife evening wear (2003). ITC also initiated a foray into the popular segment with its men's wear brand, John Players, in 2002. In 2007, the Company introduced 'Miss Players'- a fashion brand in the popular segment for the young woman. In 2000, ITC spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging opportunities in this area. ITC's foray into the Foods business started in 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet dishes. In just seven years, the Foods business has grown to a significant size with over 200 differentiated products under six distinctive brands, with an enviable distribution reach, a rapidly growing market share and a solid market standing. In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the entire value chain found yet another expression in the Safety Matches initiative.ITC's foray into the marketing of Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the cottage sector. ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body care products for men and women in July 2005. The Company launched 'Fiama Di Wills', a premium range of Shampoos, Shower Gels and Soaps in September, October and December 2007 respectively. The Company also launched the 'Superia' range of Soaps and Shampoos in the mass-market segment at select markets in October 2007 and Vivel De Wills & Vivel range of soaps in February and Vivel range of shampoos in June 2008.
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1.3 ITC Leadership & Hierarchy
The leadership within ITC is exercised at three levels. The Board of Directors at the apex, as trustee of shareholders, carries the responsibility for strategic supervision of the Company. The strategic management of the Company rests with the Corporate Management Committee comprising the wholetime Directors and members drawn from senior management. The executive management of each business division is vested with the Divisional Management Committee (DMC), headed by the Chief Executive. 1.3.1 Organizational Chart
Board Of Directors
Audit Committee
Compensation Committee
Nomination Committee
Investor Service Committee
Sustainability Committee
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1.3.2
The Who’s Who of ITC
BOARD OF DIRECTORS
CHAIRMAN Y C Deveshwar
EXECUTIVE DIRECTORS Anup Singh K Vaidyanath
NON-EXECUTIVE DIRECTORS Anil Baijal S B Mathur P B Ramanujam R K Kaul D K Mehrotra Anthony Ruys B Vijayaraghavan S H Khan H G Powell Basudeb Sen
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1.4 ITC Values & Culture
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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2
2.1
Growth and Diversification
Core Challenges faced
Restructuring the company’s business portfolio and investments: ITC was not well positioned to add long term value in areas such as Financial Services and Edible Oil businesses. The decision to exit from these sectors was based on the need to focus on businesses where the company possessed a credible track record, and where it has the relative capacity to strengthen and nurture core capabilities over time to sustain a leadership position in the Indian Global market of tomorrow. Consumer loyalty flows from the speed with which an organization innovates: Competitive advantage is derived from anticipating the future and encouraging strategic thinking possibilities in the organization. The company had put strategies in place for inculcating internationally benchmarked operating standard, marketing orientation and the related processes to exploit the special insight that arises from being close to the customer. Diversification of the businesses: Each of the company’s businesses were in different phases of development requiring distinctive focus and level of investment for the transition from a position of dominance in regulated market to a position of leadership in a competitive market. Whilst possessing a conglomerate profile, the businesses were structured such that executive management can take place in a focused manner appropriate to the dynamics of each industry. Large corporations entering Indian market: Besides the benefit of size, large companies entering India can service their shareholders from their established bases in other markets. But for Indian companies’ strategic moves will require larger investments, gestation period would be longer, staying power and commitment to a business would be severely tested. Domestic illegal volumes very strong. Along with smuggled contraband, emerges as substantive segment. Direct servicing of 1,00,000 markets & 2 million cigarette retail outlets helped ITC to counter this problem
2.2
Corporate Strategies
Sustain multiple drivers of growth, matching internal capabilities with emerging market opportunities Pursue World class competitiveness in all businesses and across the entire value chain Best-in-class in terms of: o Internal Vitality o Market Standing o Profitability Strategy of Organization and Governance processes geared to manage multiple businesses Blend core competencies and leverage ITC umbrella strengths to create new avenues of growth.
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2.3
Growth of ITC in the last 10 years
PROFIT BEFORE TAX
6000 5000 Rs. In Crores 4000 3000 2000 1000 0 PROFIT BEFORE TAX
Year
GROSS INCOME
25000 Rs. in Crores 20000 15000 10000 5000 0 GROSS INCOME
Year
2.4
Analysis of the Indian FMCG sector:
The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1 billion. Wellestablished distribution networks, as well as intense competition between the organized and unorganized segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value chain. It has been predicted that the FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. Most of the product categories like jams, toothpaste, skin care, shampoos, etc, in India, have low per capita consumption as well as low penetration level, but the potential for growth is huge.
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THE TOP 10 COMPANIES IN FMCG SECTOR S. N O . 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Hindustan Unilever Ltd. ITC Ltd. Nestlé India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India Britannia Industries Procter & Gamble Hygiene and Health Care Marico Industries Companies
The personal care category has the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of the personal care category. Cigarettes account for 17% of the top 100 FMCG sales, and just below the personal care category. ITC alone accounts for 60% volume market share and 70% by value of all filter cigarettes in India.
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The graph tells us the immense potential that India has in the Cigarette industry. Cigarettes account for only 15% of tobacco consumed in India unlike world pattern of 85% due to prolonged punitive taxation.
2.5
Diversification
ITC has transformed itself from a leading cigarette manufacturer to an umbrella group that offers a diversified product mix to enhance its brand image & reduce dependency on tobacco related products. The major areas in which ITC has diversified are: 2.5.1 FMCG Cigarettes Food Lifestyle Retailing Greetings & Stationary Safety Matches Incense Sticks 2.5.2 Hotels 2.5.3 PaperBoards & Packaging 2.5.4 Agri –Business 2.5.5 Information Technology
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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. Strategies : - single minded focus on value creation for the consumer through significant investments in product design, innovation, manufacturing technology, quality, marketing and distribution. - Fortify market standing in the long term. - Design products which are contemporary and relevant to the changing attitudes and evolving socio economic profile of the country.
ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand.. The Foods business carries forward this proud tradition to deliver quality food products to the consumer. All products of ITC's Foods business available in the market today have been crafted based on consumer insights developed through extensive market research. The Foods business is today represented in 4 categories in the market. These are:
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Ready To Eat Foods Staples Confectionery Snack Foods Page 12
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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. The unwavering commitment to internationally benchmarked quality standards enabled ITC to rapidly gain market standing in all its 6 brands:
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Kitchens of India Aashirvaad Sunfeast mint-o Candyman Bingo!
ITC’s Lifestyle Retailing Business Division has established a nationwide retailing presence through its Wills Lifestyle chain of exclusive specialty stores. Wills Lifestyle, the fashion destination, offers a tempting choice of Wills Classic work wear, Wills Sport relaxed wear, Wills Clublife evening wear, fashion accessories and Essenza Di Wills – an exclusive range of fine fragrances and bath & body care products and Fiama Di Wills a range of premium shampoos and shower gels. Wills Lifestyle has also introduced Wills Signature designer wear, designed by the leading designers of the country. With a distinctive presence across segments at the premium end, ITC has also established John Players as a brand that offers a complete fashion wardrobe to the male youth of today. The recent launch of Miss Players with its range of trendy fashion wear for young women has been a successful addition to the youthful offering. With its brands, ITC is committed to build a dominant presence in the apparel market through a robust portfolio of offerings. Features of Wills Lifestyle
'International Shopping Experience' Customer facilitation and Clearly differentiated product presentation.
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In line with ITC's aspiration to be India's premier FMCG company, recognised for its world-class quality and enduring consumer trust, ITC forayed into the Personal Care business in July 2005. In the short period since its entry, ITC has already launched an array of brands, each of which offers a unique and superior value proposition to discerning consumers. Anchored on extensive consumer research and product development, ITC's personal care portfolio brings world-class products with clearly differentiated benefits to qualityseeking consumers.
ITC's state-of-the-art manufacturing facility meets stringent requirements of hygiene and benchmarked manufacturing practices. Contemporary technology and the latest manufacturing processes have combined to produce distinctly superior products which rank high on quality and consumer appeal. Extensive insights gained by ITC through its numerous consumer engagements have provided the platform for its R&D and Product Development teams to develop superior, differentiated products that meet the consumer's stated and innate needs. The product formulations use internationally recognized safe ingredients, subjected to the highest standards of safety and performance.
Today, ITC continues to blend its core capabilities to market a growing range of education and stationery products. These capabilities include, a. Manufacturer of India’s first Ozone treated environment friendly Elemental Chlorine Free (ECF) pulp, paper and paperboard. b. Knowledge of image processing, printing & conversion garnered from its Packaging & Printing Business. c. Brand Building & Trade Marketing & Distribution strengths resident in its FMCG Business. ITC’s stationery Brands are marketed as “Classmate” and “Paperkraft”, with Classmate addressing the needs of students and Paperkraft targeted towards college students and executives.
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As part of its strategic initiative to create multiple drivers of growth in the FMCG sector, ITC commenced marketing safety matches sourced from the small-scale sector. The Matches business leverages the core strengths of ITC in marketing and distribution, brand building, supply chain management and paperboard & packaging to offer Indian consumers high quality safety matches. ITC’s range of Safety matches include popular brands like i Kno, Mangaldeep, Aim, Aim Mega and Aim Metro. With differentiated product features and innovative value additions, these brands effectively address the needs of different consumer segments. The Aim brand is the largest selling brand of Safety Matches in India. ITC also exports regular and premium safety matches brands to markets such as Middle East, Africa and the USA. The successful acquisition of Wimco Ltd. by Russell Credit Ltd., a wholly owned subsidiary of ITC has consolidated the market standing of the Company's Matches business through synergy benefits derived through combined portfolio of offerings, improved servicing of proximal markets and freight optimization. Through its participation, ITC aims to enhance the competitiveness of the small and medium scale sectors through its complementary R&D based product development and marketing strengths, especially the breadth and depth of the Company's trade marketing and distribution. Incense Sticks As part of ITC's business strategy of creating multiple drivers of growth in the FMCG sector, the Company commenced marketing Agarbattis (incense sticks) sourced from small-scale and cottage units in 2003. This business leverages the core strengths of ITC in nation-wide distribution and marketing, brand building, supply chain management, manufacture of high quality paperboards and the creation of innovative
packaging solutions to offer Indian consumers high quality Agarbattis. With its participation in the business, ITC aims to enhance the competitiveness of the small and medium scale sectors through its complementary R&D based product development and strengths in trade marketing and distribution.
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With over 100 hotels in more than 80 destinations, ITC-Welcomgroup has set new standards of excellence in the hotel industry in Accommodation, Cuisine, Environment and Guest Safety. Branding Strategies used by ITC Branded Accommodation ITC-Welcomgroup pioneered the holistic concept of 'branded accommodation' in the hospitality industry. It was the first to launch the idea of a 'Hotel within a Hotel' by segmenting, customizing and branding hotel services like 'ITC One', 'Towers' and the 'Executive Club'. Each of these caters to specialized needs of the global business traveler with unmatched quality and a range of custom-made services.
Branded Cuisine ITC-Welcomgroup was the first to introduce branded cuisine. Its restaurants Bukhara, Dakshin and DumPukht are today powerful cuisine brands. ITC-Welcomgroup also showcases international cuisine in its specialty restaurants West View and Pan Asian.
ITC’s Paperboards and Specialty Papers Division is India’s largest and most technologically advanced paper and paperboards business. ITC caters to a wide spectrum of packaging, graphic, communication, writing, printing and specialty paper requirements through its four world-class mills in India. Having pioneered many specialty applications like cigarette tissues, packaging boards, aseptic cartons and gypsum liners, ITC’s Paperboards and Specialty papers business enjoys market leadership in the value-added paperboards segment, and also has a significant share of the Indian paperboards market. It is also the largest Indian exporter of coated boards.
The product range includes:
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Virgin Folding Box Boards Solid Bleached Boards Recycled Coated Duplex Whiteback Coated Duplex Greyback White Liner
Liquid packaging Gypsum Liners Cupstock Barrier coated cartonboards Cast coated paper & boards
Woodfree fine papers Coated Cards Ivory Cards MG Kraft papers Opaque papers Decor Surface, Printing & barrier papers – Unbleached Kraft base Cigarette Tissues Electrical insulation papers
Customers are at the core of the business. This is reflected in the diverse range of products, grades and value added services. There is a strong focus on partnering customers to co-create and deliver superior solutions, enhancing their competitive advantage. The Business' quality philosophy is reflected at every stage of production.
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ITC's Packaging & Printing Business is the country's largest convertor of paperboard into packaging. It converts over 50,000 tons of paper and paperboard per annum into a variety of value-added packaging solutions for the food & beverage, personal products, cigarette, liquor, cellular phone and IT packaging industries. It has also entered the Flexibles and Corrugated Cartons business. State-of-the-art technology, world-class quality and a highly skilled and dedicated team have combined to position ITC as the first-choice supplier of high value added packaging. ITC occupies a leadership position in cigarette and liquor packaging in India. It is the largest supplier of liquor mono cartons in the country.
ITC's pre-eminent position as one of India's leading corporate in the agricultural sector is based on strong and enduring farmer partnerships that has revolutionized and transformed the rural agricultural sector. A unique rural digital infrastructure network, coupled with deep understanding of agricultural practices and intensive research, has built a competitive and efficient supply chain that creates and delivers immense value across the agricultural value chain. One of the largest exporters of agri products from the country, ITC sources the finest of Indian Feed Ingredients, Food Grains, Edible Nuts, Marine Products, Processed Fruits, Coffee & Spices. Farmer empowerment through e-Choupals ITC's unique strength in this business is the extensive backward linkages it has established with the farmers. This networking with the farming community has enabled ITC to build a highly cost effective procurement system. ITC has made significant investments in web-enabling the Indian farmer. Christened 'e-Choupal', ITC's empowerment plan for the farmer centers around providing Internet kiosks 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. e-Choupal today is the world's largest rural digital infrastructure.
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3 Analysis of the financial Report for year ending 2009
The net income for the year ending 2009(comprising net sales and other operating income) witnessed a drop of 2.8% to Rs 3927.4 crore. The company's performance was primarily hit by deceleration in company's hotel business due to adverse market conditions and agri business' revenues dropping by half due to lower exports. For the year ended March 2009, the company has registered 5.3% rise in consolidated net profit to Rs 3324.6 crore and 11% increase in its consolidated net income at Rs 16,550 crore. The board of directors recommended a dividend of Rs 3.70 per ordinary share of Re 1 each entailing a total cash outflow of Rs 1634 crore. The decline in hotel revenues consequent to the economic slowdown and the unfortunate terror strikes in Mumbai, the continuing impact of high commodity and store rentals, brand building costs of the new personal care portfolio and the significant investments in augmenting distribution infrastructure and systems to be the major factors exerting intense pressure on profitability during the March quarter. The cigarette business (despite the unprecedented increase in the rates of excise duties on non-filter cigarettes and the ban on smoking in public places) continued to be the highest earnings contributor for the quarter and the fiscal 2009. Among the non-cigarette businesses, ITC's paperboards, specialty papers & packaging business has been a major growth drivers during the quarter. The non-cigarette FMCG business, while still bleeding, has made a double-digit growth of 13.5% for the quarter. Revenues from the company's agri-business were affected due to lower soya volumes and reduced rationalization of the agri commodity portfolio. Despite this, the business registered impressive growth of 43% in profits over the same quarter previous year due to the good performance of the leaf tobacco portfolio. The company has made huge savings on raw material costs during the March quarter. The raw material cost as a percent to net income has dropped from 46% in the March quarter last year to 40% during the same quarter this year. As a result, the operating profit margins have improved by 450 bps to 33%. The net profit margin also gained by over 230 bps to 20% of the total income. For the fiscal 2009, the operating profit margin witnessed a marginal drop of 30 bps to 32% and the net profit margin has dropped by a percent to 20%. The company's paper business witnessed the highest growth of 23% in revenues among all segments. The agri business witnessed doubling of profits during the year, the highest growth registered among all the business segments.
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Comparison of the financial data for the year ending 2009 with the year ending 2008
Net Income(Sales + Operating Costs) in crore Net Profit in crore Consolidated Net Income in crore
2008 3820.43 3157.26 14909.91
2009 3927.4 3324.6 16,550
% Growth 2.8 5.3 11
18000.00 16000.00 14000.00 12000.00 10000.00 8000.00 6000.00 4000.00 2000.00 0.00 Net Income(Sales + Operating Costs) in crore Net Profit in crore Consolidated Net Income in crore 2008 2009
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Awards and Achievements
‘ITC received the FICCI Outstanding Vision Corporate Triple Impact Award 2007 for invaluable contribution to the triple bottom line benchmarks of building economic, social and natural capital for the nation. Sustainability Leadership Award 2007 conferred on Chairman Y C Deveshwar by the Sustainability Forum, Zurich and SAM/SPG at the International Sustainability Leadership Symposium Business Today Award for the Best Managed Company – Retail and Consumer Products, has been conferred on ITC in recognition of its outstanding initiatives in the consumer products segment. Ryutaro Hashimoto Incentive Prize 2007 for Environment & Development from the Asia Pacific Forum In the first of its kind S&P Environmental, Social and Corporate Governance (ESG) ratings released recently, ITC ranked second among top Indian companies. The Company has won the Corporate Social Responsibility Crown Award for Water Practices from UNESCO and Water Digest for its distinguished work carried out in the water sector in India. ITC Limited won the top UNIDO award at the International Conference on Sharing Innovative Agribusiness Solutions 2008 at Cairo in recognition for its initiatives in agri business. ITC has been conferred the ICAI Award for Excellence in Financial Reporting with its Annual Report and Accounts, adjudged as a commendable entry under the “Manufacturing and Trading Enterprises” category. The Best Corporate Social Responsibility Practice Award 2008 jointly instituted by the Bombay Stock Exchange, Times Foundation and the NASSCOM Foundation. E-Choupal idea wins global recognition: Stockholm Challenge Award 2006 in the Economic Development category which recognizes initiatives that leverage Information Technology to improve living conditions and foster economic growth in all parts of the world.
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5
5.1
Corporate Social Responsibility
E – Choupal in Agri – Business
ITC’s Agri Business Division, one of India’s largest exporters of agricultural commodities, has conceived eChoupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others.
The Value Chain - Farm to Factory Gate:
Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality and productivity. The E-Choupal Model The Model in Action: ‘e-Choupal’ makes use of the physical transmission capabilities of current intermediaries – aggregation, logistics, counter-party risk and bridge financing –while disintermediating them from the chain of information flow and market signals.
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With a judicious blend of click & mortar capabilities, village internet kiosks managed by farmers – called sanchalaks – themselves, enable the agricultural community access ready information in their local language on the weather & market prices, disseminate knowledge on scientific farm practices & risk management, facilitate the sale of farm inputs (now with embedded knowledge) and purchase farm produce from the farmers’ doorsteps (decision making is now information-based). Real-time information and customized knowledge provided by ‘e-Choupal’ enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality & productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. ‘e-Choupal’ ensures world-class quality in delivering all these goods & services through several product / service specific partnerships with the leaders in the respective fields, in addition to ITC’s own expertise. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value. The Road Ahead As India’s ‘kissan’ Company, ITC has taken care to involve farmers in the designing and management of the entire ‘e-Choupal’ initiative. The active participation of farmers in this rural initiative has created a sense of ownership in the project among the farmers. They see the ‘e-Choupal’ as the new age cooperative for all practical purposes. On the anvil are plans to channelize other services related to micro-credit, health and education through the same 'e-Choupal' infrastructure. Another path-breaking initiative – the ‘Choupal Pradarshan Khet’, brings the benefits of agricultural best practices to small and marginal farmers. Backed by intensive research and knowledge, this initiative provides Agri-extension services which are qualitatively superior and involves pro-active handholding of farmers to ensure productivity gains. The services are customized to meet local conditions, ensure timely availability of farm inputs including insurance and credit, and provides a cluster of farmer schools for capturing indigenous knowledge.
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5.2
ITC established the prestigious ITC Sangeet Research Academy (ITC-SRA) at Kolkata in 1978 with the objective of preserving and promoting Hindustani Classical Music. It was a pioneering and unique corporate initiative aimed at creating an institutional substitute for India's ancient tradition of royal patronage of the arts. It was also a path breaking experiment in reviving India's age-old tradition of `guru-shishya parampara', a knowledge management process in which teachers and students live together to facilitate continuous learning.
5.3
Creating Employment for the Rural Sector
ITC's Triple Bottom Line philosophy of every business contributing to the nation's economic, environmental and social capital is manifested in the manufacture of Mangaldeep agarbattis are by small scale and cottage units, providing livelihood opportunities for more than 8500 people. Mangaldeep ASHA (Assistance in Social Habilitation through Agarbattis) is an ITC initiative to improve the quality of raw agarbatti production and provide better value realization for women rollers. Under the project, ITC has extended support to NGOs in states and like Bihar, Tripura, Tamil Nadu, who are setting up agarbatti units, training village women in rolling agarbattis and employing them in these units.
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6
Conclusion & Learning
The estimates for ’10 show a distinct change in the long term composition of the sector from a home and personal care dominant sector to one with a relatively higher share for foods. No wonder then, companies such as ITC, are positioning themselves to leverage the burgeoning urban demand for food products. Long term urban penetration-led growth categories will outperform other categories and urban spend on new category growth will outpace rural spend. This will occur due to rising urban incomes, increasing urban population and launch of more affordable products as well as the availability of new categories in urban areas. Within the home and personal care category, it’s the skin care, household care and feminine hygiene categories that will keep growing at relatively attractive rates. Within the foods segment, it is estimated that processed foods, bakery, and dairy are long term growth categories. The project proved to be a great opportunity to learn the concepts of OTPR and their practical implementations. The data collection of the progress of ITC, their strategies and culture provided vital information regarding various theories practiced in the corporate world.
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7 References
http://www.itcportal.com/ http://www.wikipedia.com/ http://ibef.org/ http://wrightreports.ecnext.com/
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doc_178802575.docx
The doc describes about ITC using the concepts and theories of Organizational Theory and Practice.
Organizational Analysis: A case study of ITC Ltd.
Contents
1 Introduction .......................................................................................................................................... 3 1.1 1.2 1.3 1.4 2 The ITC Profile................................................................................................................................ 3 History & Evolution ....................................................................................................................... 3 ITC Leadership & Hierarchy........................................................................................................... 5 ITC Values & Culture ..................................................................................................................... 7
Growth and Diversification ................................................................................................................... 8 2.1 2.2 2.3 2.4 2.5 Core Challenges faced ................................................................................................................... 8 Corporate Strategies ..................................................................................................................... 8 Growth of ITC in the last 10 years................................................................................................. 9 Analysis of the Indian FMCG sector: ............................................................................................. 9 Diversification ............................................................................................................................. 11
3 4 5
Analysis of the financial Report for year ending 2009 ........................................................................ 19 Awards and Achievements.................................................................................................................. 21 Corporate Social Responsibility .......................................................................................................... 22 5.1 5.2 5.3 E – Choupal in Agri – Business .................................................................................................... 22 Preserving National Heritage ...................................................................................................... 24 Creating Employment for the Rural Sector ................................................................................. 24
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Conclusion & Learning ........................................................................................................................ 25 References…………………………………………………………………………………………………………………………………….26
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1 Introduction
1.1
ITC is one of India's foremost private sector companies with a market capitalisation of nearly US $ 14 billion and a turnover of over US $ 5 billion. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. 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 brandbuilding 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. ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating. ITC employs over 25,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3,49,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. For the nation. For the Shareholder."
1.2 History & Evolution
ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited' with a leased office on Radha Bazar Lane, Kolkata, as the centre of the Company's existence.The Company's ownership progressively Indianised, and the name of the Company was changed to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited'. The first six decades of the Company's existence were primarily devoted to the growth and consolidation of the Cigarettes and Leaf Tobacco businesses. ? ? ITC's Packaging & Printing Business was set up in 1925 as a strategic backward integration for ITC's Cigarettes business. In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. Page 3
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In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards Limited, which today has become the market leader in India. In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing company and the merged entity was named the Tribeni Tissues Division (TTD). TTD was merged with the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division in November 2002. Also in 1990, leveraging its agri-sourcing competency, ITC set up the Agri Business Division for export of agri-commodities. In 2000, ITC forayed into the Greeting, Gifting and Stationery products business with the launch of Expressions range of greeting cards. A line of premium range of notebooks under brand “Paperkraft” was launched in 2002.The popular range of notebooks was launched under brand “Classmate” in 2003. ITC also entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills Clublife evening wear (2003). ITC also initiated a foray into the popular segment with its men's wear brand, John Players, in 2002. In 2007, the Company introduced 'Miss Players'- a fashion brand in the popular segment for the young woman. In 2000, ITC spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging opportunities in this area. ITC's foray into the Foods business started in 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet dishes. In just seven years, the Foods business has grown to a significant size with over 200 differentiated products under six distinctive brands, with an enviable distribution reach, a rapidly growing market share and a solid market standing. In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the entire value chain found yet another expression in the Safety Matches initiative.ITC's foray into the marketing of Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the cottage sector. ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body care products for men and women in July 2005. The Company launched 'Fiama Di Wills', a premium range of Shampoos, Shower Gels and Soaps in September, October and December 2007 respectively. The Company also launched the 'Superia' range of Soaps and Shampoos in the mass-market segment at select markets in October 2007 and Vivel De Wills & Vivel range of soaps in February and Vivel range of shampoos in June 2008.
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1.3 ITC Leadership & Hierarchy
The leadership within ITC is exercised at three levels. The Board of Directors at the apex, as trustee of shareholders, carries the responsibility for strategic supervision of the Company. The strategic management of the Company rests with the Corporate Management Committee comprising the wholetime Directors and members drawn from senior management. The executive management of each business division is vested with the Divisional Management Committee (DMC), headed by the Chief Executive. 1.3.1 Organizational Chart
Board Of Directors
Audit Committee
Compensation Committee
Nomination Committee
Investor Service Committee
Sustainability Committee
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1.3.2
The Who’s Who of ITC
BOARD OF DIRECTORS
CHAIRMAN Y C Deveshwar
EXECUTIVE DIRECTORS Anup Singh K Vaidyanath
NON-EXECUTIVE DIRECTORS Anil Baijal S B Mathur P B Ramanujam R K Kaul D K Mehrotra Anthony Ruys B Vijayaraghavan S H Khan H G Powell Basudeb Sen
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1.4 ITC Values & Culture
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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2
2.1
Growth and Diversification
Core Challenges faced
Restructuring the company’s business portfolio and investments: ITC was not well positioned to add long term value in areas such as Financial Services and Edible Oil businesses. The decision to exit from these sectors was based on the need to focus on businesses where the company possessed a credible track record, and where it has the relative capacity to strengthen and nurture core capabilities over time to sustain a leadership position in the Indian Global market of tomorrow. Consumer loyalty flows from the speed with which an organization innovates: Competitive advantage is derived from anticipating the future and encouraging strategic thinking possibilities in the organization. The company had put strategies in place for inculcating internationally benchmarked operating standard, marketing orientation and the related processes to exploit the special insight that arises from being close to the customer. Diversification of the businesses: Each of the company’s businesses were in different phases of development requiring distinctive focus and level of investment for the transition from a position of dominance in regulated market to a position of leadership in a competitive market. Whilst possessing a conglomerate profile, the businesses were structured such that executive management can take place in a focused manner appropriate to the dynamics of each industry. Large corporations entering Indian market: Besides the benefit of size, large companies entering India can service their shareholders from their established bases in other markets. But for Indian companies’ strategic moves will require larger investments, gestation period would be longer, staying power and commitment to a business would be severely tested. Domestic illegal volumes very strong. Along with smuggled contraband, emerges as substantive segment. Direct servicing of 1,00,000 markets & 2 million cigarette retail outlets helped ITC to counter this problem
2.2
Corporate Strategies
Sustain multiple drivers of growth, matching internal capabilities with emerging market opportunities Pursue World class competitiveness in all businesses and across the entire value chain Best-in-class in terms of: o Internal Vitality o Market Standing o Profitability Strategy of Organization and Governance processes geared to manage multiple businesses Blend core competencies and leverage ITC umbrella strengths to create new avenues of growth.
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2.3
Growth of ITC in the last 10 years
PROFIT BEFORE TAX
6000 5000 Rs. In Crores 4000 3000 2000 1000 0 PROFIT BEFORE TAX
Year
GROSS INCOME
25000 Rs. in Crores 20000 15000 10000 5000 0 GROSS INCOME
Year
2.4
Analysis of the Indian FMCG sector:
The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1 billion. Wellestablished distribution networks, as well as intense competition between the organized and unorganized segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value chain. It has been predicted that the FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. Most of the product categories like jams, toothpaste, skin care, shampoos, etc, in India, have low per capita consumption as well as low penetration level, but the potential for growth is huge.
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THE TOP 10 COMPANIES IN FMCG SECTOR S. N O . 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Hindustan Unilever Ltd. ITC Ltd. Nestlé India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India Britannia Industries Procter & Gamble Hygiene and Health Care Marico Industries Companies
The personal care category has the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of the personal care category. Cigarettes account for 17% of the top 100 FMCG sales, and just below the personal care category. ITC alone accounts for 60% volume market share and 70% by value of all filter cigarettes in India.
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The graph tells us the immense potential that India has in the Cigarette industry. Cigarettes account for only 15% of tobacco consumed in India unlike world pattern of 85% due to prolonged punitive taxation.
2.5
Diversification
ITC has transformed itself from a leading cigarette manufacturer to an umbrella group that offers a diversified product mix to enhance its brand image & reduce dependency on tobacco related products. The major areas in which ITC has diversified are: 2.5.1 FMCG Cigarettes Food Lifestyle Retailing Greetings & Stationary Safety Matches Incense Sticks 2.5.2 Hotels 2.5.3 PaperBoards & Packaging 2.5.4 Agri –Business 2.5.5 Information Technology
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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. Strategies : - single minded focus on value creation for the consumer through significant investments in product design, innovation, manufacturing technology, quality, marketing and distribution. - Fortify market standing in the long term. - Design products which are contemporary and relevant to the changing attitudes and evolving socio economic profile of the country.
ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand.. The Foods business carries forward this proud tradition to deliver quality food products to the consumer. All products of ITC's Foods business available in the market today have been crafted based on consumer insights developed through extensive market research. The Foods business is today represented in 4 categories in the market. These are:
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Ready To Eat Foods Staples Confectionery Snack Foods Page 12
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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. The unwavering commitment to internationally benchmarked quality standards enabled ITC to rapidly gain market standing in all its 6 brands:
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Kitchens of India Aashirvaad Sunfeast mint-o Candyman Bingo!
ITC’s Lifestyle Retailing Business Division has established a nationwide retailing presence through its Wills Lifestyle chain of exclusive specialty stores. Wills Lifestyle, the fashion destination, offers a tempting choice of Wills Classic work wear, Wills Sport relaxed wear, Wills Clublife evening wear, fashion accessories and Essenza Di Wills – an exclusive range of fine fragrances and bath & body care products and Fiama Di Wills a range of premium shampoos and shower gels. Wills Lifestyle has also introduced Wills Signature designer wear, designed by the leading designers of the country. With a distinctive presence across segments at the premium end, ITC has also established John Players as a brand that offers a complete fashion wardrobe to the male youth of today. The recent launch of Miss Players with its range of trendy fashion wear for young women has been a successful addition to the youthful offering. With its brands, ITC is committed to build a dominant presence in the apparel market through a robust portfolio of offerings. Features of Wills Lifestyle
'International Shopping Experience' Customer facilitation and Clearly differentiated product presentation.
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In line with ITC's aspiration to be India's premier FMCG company, recognised for its world-class quality and enduring consumer trust, ITC forayed into the Personal Care business in July 2005. In the short period since its entry, ITC has already launched an array of brands, each of which offers a unique and superior value proposition to discerning consumers. Anchored on extensive consumer research and product development, ITC's personal care portfolio brings world-class products with clearly differentiated benefits to qualityseeking consumers.
ITC's state-of-the-art manufacturing facility meets stringent requirements of hygiene and benchmarked manufacturing practices. Contemporary technology and the latest manufacturing processes have combined to produce distinctly superior products which rank high on quality and consumer appeal. Extensive insights gained by ITC through its numerous consumer engagements have provided the platform for its R&D and Product Development teams to develop superior, differentiated products that meet the consumer's stated and innate needs. The product formulations use internationally recognized safe ingredients, subjected to the highest standards of safety and performance.
Today, ITC continues to blend its core capabilities to market a growing range of education and stationery products. These capabilities include, a. Manufacturer of India’s first Ozone treated environment friendly Elemental Chlorine Free (ECF) pulp, paper and paperboard. b. Knowledge of image processing, printing & conversion garnered from its Packaging & Printing Business. c. Brand Building & Trade Marketing & Distribution strengths resident in its FMCG Business. ITC’s stationery Brands are marketed as “Classmate” and “Paperkraft”, with Classmate addressing the needs of students and Paperkraft targeted towards college students and executives.
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As part of its strategic initiative to create multiple drivers of growth in the FMCG sector, ITC commenced marketing safety matches sourced from the small-scale sector. The Matches business leverages the core strengths of ITC in marketing and distribution, brand building, supply chain management and paperboard & packaging to offer Indian consumers high quality safety matches. ITC’s range of Safety matches include popular brands like i Kno, Mangaldeep, Aim, Aim Mega and Aim Metro. With differentiated product features and innovative value additions, these brands effectively address the needs of different consumer segments. The Aim brand is the largest selling brand of Safety Matches in India. ITC also exports regular and premium safety matches brands to markets such as Middle East, Africa and the USA. The successful acquisition of Wimco Ltd. by Russell Credit Ltd., a wholly owned subsidiary of ITC has consolidated the market standing of the Company's Matches business through synergy benefits derived through combined portfolio of offerings, improved servicing of proximal markets and freight optimization. Through its participation, ITC aims to enhance the competitiveness of the small and medium scale sectors through its complementary R&D based product development and marketing strengths, especially the breadth and depth of the Company's trade marketing and distribution. Incense Sticks As part of ITC's business strategy of creating multiple drivers of growth in the FMCG sector, the Company commenced marketing Agarbattis (incense sticks) sourced from small-scale and cottage units in 2003. This business leverages the core strengths of ITC in nation-wide distribution and marketing, brand building, supply chain management, manufacture of high quality paperboards and the creation of innovative
packaging solutions to offer Indian consumers high quality Agarbattis. With its participation in the business, ITC aims to enhance the competitiveness of the small and medium scale sectors through its complementary R&D based product development and strengths in trade marketing and distribution.
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With over 100 hotels in more than 80 destinations, ITC-Welcomgroup has set new standards of excellence in the hotel industry in Accommodation, Cuisine, Environment and Guest Safety. Branding Strategies used by ITC Branded Accommodation ITC-Welcomgroup pioneered the holistic concept of 'branded accommodation' in the hospitality industry. It was the first to launch the idea of a 'Hotel within a Hotel' by segmenting, customizing and branding hotel services like 'ITC One', 'Towers' and the 'Executive Club'. Each of these caters to specialized needs of the global business traveler with unmatched quality and a range of custom-made services.
Branded Cuisine ITC-Welcomgroup was the first to introduce branded cuisine. Its restaurants Bukhara, Dakshin and DumPukht are today powerful cuisine brands. ITC-Welcomgroup also showcases international cuisine in its specialty restaurants West View and Pan Asian.
ITC’s Paperboards and Specialty Papers Division is India’s largest and most technologically advanced paper and paperboards business. ITC caters to a wide spectrum of packaging, graphic, communication, writing, printing and specialty paper requirements through its four world-class mills in India. Having pioneered many specialty applications like cigarette tissues, packaging boards, aseptic cartons and gypsum liners, ITC’s Paperboards and Specialty papers business enjoys market leadership in the value-added paperboards segment, and also has a significant share of the Indian paperboards market. It is also the largest Indian exporter of coated boards.
The product range includes:
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Virgin Folding Box Boards Solid Bleached Boards Recycled Coated Duplex Whiteback Coated Duplex Greyback White Liner
Liquid packaging Gypsum Liners Cupstock Barrier coated cartonboards Cast coated paper & boards
Woodfree fine papers Coated Cards Ivory Cards MG Kraft papers Opaque papers Decor Surface, Printing & barrier papers – Unbleached Kraft base Cigarette Tissues Electrical insulation papers
Customers are at the core of the business. This is reflected in the diverse range of products, grades and value added services. There is a strong focus on partnering customers to co-create and deliver superior solutions, enhancing their competitive advantage. The Business' quality philosophy is reflected at every stage of production.
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ITC's Packaging & Printing Business is the country's largest convertor of paperboard into packaging. It converts over 50,000 tons of paper and paperboard per annum into a variety of value-added packaging solutions for the food & beverage, personal products, cigarette, liquor, cellular phone and IT packaging industries. It has also entered the Flexibles and Corrugated Cartons business. State-of-the-art technology, world-class quality and a highly skilled and dedicated team have combined to position ITC as the first-choice supplier of high value added packaging. ITC occupies a leadership position in cigarette and liquor packaging in India. It is the largest supplier of liquor mono cartons in the country.
ITC's pre-eminent position as one of India's leading corporate in the agricultural sector is based on strong and enduring farmer partnerships that has revolutionized and transformed the rural agricultural sector. A unique rural digital infrastructure network, coupled with deep understanding of agricultural practices and intensive research, has built a competitive and efficient supply chain that creates and delivers immense value across the agricultural value chain. One of the largest exporters of agri products from the country, ITC sources the finest of Indian Feed Ingredients, Food Grains, Edible Nuts, Marine Products, Processed Fruits, Coffee & Spices. Farmer empowerment through e-Choupals ITC's unique strength in this business is the extensive backward linkages it has established with the farmers. This networking with the farming community has enabled ITC to build a highly cost effective procurement system. ITC has made significant investments in web-enabling the Indian farmer. Christened 'e-Choupal', ITC's empowerment plan for the farmer centers around providing Internet kiosks 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. e-Choupal today is the world's largest rural digital infrastructure.
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3 Analysis of the financial Report for year ending 2009
The net income for the year ending 2009(comprising net sales and other operating income) witnessed a drop of 2.8% to Rs 3927.4 crore. The company's performance was primarily hit by deceleration in company's hotel business due to adverse market conditions and agri business' revenues dropping by half due to lower exports. For the year ended March 2009, the company has registered 5.3% rise in consolidated net profit to Rs 3324.6 crore and 11% increase in its consolidated net income at Rs 16,550 crore. The board of directors recommended a dividend of Rs 3.70 per ordinary share of Re 1 each entailing a total cash outflow of Rs 1634 crore. The decline in hotel revenues consequent to the economic slowdown and the unfortunate terror strikes in Mumbai, the continuing impact of high commodity and store rentals, brand building costs of the new personal care portfolio and the significant investments in augmenting distribution infrastructure and systems to be the major factors exerting intense pressure on profitability during the March quarter. The cigarette business (despite the unprecedented increase in the rates of excise duties on non-filter cigarettes and the ban on smoking in public places) continued to be the highest earnings contributor for the quarter and the fiscal 2009. Among the non-cigarette businesses, ITC's paperboards, specialty papers & packaging business has been a major growth drivers during the quarter. The non-cigarette FMCG business, while still bleeding, has made a double-digit growth of 13.5% for the quarter. Revenues from the company's agri-business were affected due to lower soya volumes and reduced rationalization of the agri commodity portfolio. Despite this, the business registered impressive growth of 43% in profits over the same quarter previous year due to the good performance of the leaf tobacco portfolio. The company has made huge savings on raw material costs during the March quarter. The raw material cost as a percent to net income has dropped from 46% in the March quarter last year to 40% during the same quarter this year. As a result, the operating profit margins have improved by 450 bps to 33%. The net profit margin also gained by over 230 bps to 20% of the total income. For the fiscal 2009, the operating profit margin witnessed a marginal drop of 30 bps to 32% and the net profit margin has dropped by a percent to 20%. The company's paper business witnessed the highest growth of 23% in revenues among all segments. The agri business witnessed doubling of profits during the year, the highest growth registered among all the business segments.
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Comparison of the financial data for the year ending 2009 with the year ending 2008
Net Income(Sales + Operating Costs) in crore Net Profit in crore Consolidated Net Income in crore
2008 3820.43 3157.26 14909.91
2009 3927.4 3324.6 16,550
% Growth 2.8 5.3 11
18000.00 16000.00 14000.00 12000.00 10000.00 8000.00 6000.00 4000.00 2000.00 0.00 Net Income(Sales + Operating Costs) in crore Net Profit in crore Consolidated Net Income in crore 2008 2009
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4
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Awards and Achievements
‘ITC received the FICCI Outstanding Vision Corporate Triple Impact Award 2007 for invaluable contribution to the triple bottom line benchmarks of building economic, social and natural capital for the nation. Sustainability Leadership Award 2007 conferred on Chairman Y C Deveshwar by the Sustainability Forum, Zurich and SAM/SPG at the International Sustainability Leadership Symposium Business Today Award for the Best Managed Company – Retail and Consumer Products, has been conferred on ITC in recognition of its outstanding initiatives in the consumer products segment. Ryutaro Hashimoto Incentive Prize 2007 for Environment & Development from the Asia Pacific Forum In the first of its kind S&P Environmental, Social and Corporate Governance (ESG) ratings released recently, ITC ranked second among top Indian companies. The Company has won the Corporate Social Responsibility Crown Award for Water Practices from UNESCO and Water Digest for its distinguished work carried out in the water sector in India. ITC Limited won the top UNIDO award at the International Conference on Sharing Innovative Agribusiness Solutions 2008 at Cairo in recognition for its initiatives in agri business. ITC has been conferred the ICAI Award for Excellence in Financial Reporting with its Annual Report and Accounts, adjudged as a commendable entry under the “Manufacturing and Trading Enterprises” category. The Best Corporate Social Responsibility Practice Award 2008 jointly instituted by the Bombay Stock Exchange, Times Foundation and the NASSCOM Foundation. E-Choupal idea wins global recognition: Stockholm Challenge Award 2006 in the Economic Development category which recognizes initiatives that leverage Information Technology to improve living conditions and foster economic growth in all parts of the world.
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5
5.1
Corporate Social Responsibility
E – Choupal in Agri – Business
ITC’s Agri Business Division, one of India’s largest exporters of agricultural commodities, has conceived eChoupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others.
The Value Chain - Farm to Factory Gate:
Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality and productivity. The E-Choupal Model The Model in Action: ‘e-Choupal’ makes use of the physical transmission capabilities of current intermediaries – aggregation, logistics, counter-party risk and bridge financing –while disintermediating them from the chain of information flow and market signals.
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With a judicious blend of click & mortar capabilities, village internet kiosks managed by farmers – called sanchalaks – themselves, enable the agricultural community access ready information in their local language on the weather & market prices, disseminate knowledge on scientific farm practices & risk management, facilitate the sale of farm inputs (now with embedded knowledge) and purchase farm produce from the farmers’ doorsteps (decision making is now information-based). Real-time information and customized knowledge provided by ‘e-Choupal’ enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality & productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. ‘e-Choupal’ ensures world-class quality in delivering all these goods & services through several product / service specific partnerships with the leaders in the respective fields, in addition to ITC’s own expertise. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value. The Road Ahead As India’s ‘kissan’ Company, ITC has taken care to involve farmers in the designing and management of the entire ‘e-Choupal’ initiative. The active participation of farmers in this rural initiative has created a sense of ownership in the project among the farmers. They see the ‘e-Choupal’ as the new age cooperative for all practical purposes. On the anvil are plans to channelize other services related to micro-credit, health and education through the same 'e-Choupal' infrastructure. Another path-breaking initiative – the ‘Choupal Pradarshan Khet’, brings the benefits of agricultural best practices to small and marginal farmers. Backed by intensive research and knowledge, this initiative provides Agri-extension services which are qualitatively superior and involves pro-active handholding of farmers to ensure productivity gains. The services are customized to meet local conditions, ensure timely availability of farm inputs including insurance and credit, and provides a cluster of farmer schools for capturing indigenous knowledge.
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5.2
ITC established the prestigious ITC Sangeet Research Academy (ITC-SRA) at Kolkata in 1978 with the objective of preserving and promoting Hindustani Classical Music. It was a pioneering and unique corporate initiative aimed at creating an institutional substitute for India's ancient tradition of royal patronage of the arts. It was also a path breaking experiment in reviving India's age-old tradition of `guru-shishya parampara', a knowledge management process in which teachers and students live together to facilitate continuous learning.
5.3
Creating Employment for the Rural Sector
ITC's Triple Bottom Line philosophy of every business contributing to the nation's economic, environmental and social capital is manifested in the manufacture of Mangaldeep agarbattis are by small scale and cottage units, providing livelihood opportunities for more than 8500 people. Mangaldeep ASHA (Assistance in Social Habilitation through Agarbattis) is an ITC initiative to improve the quality of raw agarbatti production and provide better value realization for women rollers. Under the project, ITC has extended support to NGOs in states and like Bihar, Tripura, Tamil Nadu, who are setting up agarbatti units, training village women in rolling agarbattis and employing them in these units.
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6
Conclusion & Learning
The estimates for ’10 show a distinct change in the long term composition of the sector from a home and personal care dominant sector to one with a relatively higher share for foods. No wonder then, companies such as ITC, are positioning themselves to leverage the burgeoning urban demand for food products. Long term urban penetration-led growth categories will outperform other categories and urban spend on new category growth will outpace rural spend. This will occur due to rising urban incomes, increasing urban population and launch of more affordable products as well as the availability of new categories in urban areas. Within the home and personal care category, it’s the skin care, household care and feminine hygiene categories that will keep growing at relatively attractive rates. Within the foods segment, it is estimated that processed foods, bakery, and dairy are long term growth categories. The project proved to be a great opportunity to learn the concepts of OTPR and their practical implementations. The data collection of the progress of ITC, their strategies and culture provided vital information regarding various theories practiced in the corporate world.
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7 References
http://www.itcportal.com/ http://www.wikipedia.com/ http://ibef.org/ http://wrightreports.ecnext.com/
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doc_178802575.docx