Subject: Strategic Management

Topic: ITC’s Tobacco Business Unit’s Strategy

Submitted By:
B014- Shivani Trivedi
B019- Darshita Gandhi
B028- Ambar Shukla
B033- C. Swati Reddy
B035- Naman Manchanda
B036- Vaidehi Diwedi
B047- Raunak Rai
B050- Manas Pakhar

Submitted To:
Prof. Shrinivas Shikaripurkar
 ACKNOWLEDGMENT

We are highly delighted to work on this report titled “ITC’s Tobacco Business Unit’s Strategy ”.
We would like to thank a number of people who have contributed to the final result in numerous
ways. To begin with, we express our deep sense of gratitude to our esteemed Prof Shrinivas
Shikaripurkar for giving us the opportunity to work in our area of interest and for his support and
guidance as a professor throughout our assignment duration. This work is an outcome of an
unparalleled infrastructural support that we have received from the faculty concerned. His sheer
knowledge and understanding of the subject have created a deep influence on the subject. The
inspiration that we get from him has always helped us produce results which are unprecedented.

We would also like to thank SBM NMIMS for being the stepping stone, as it would not have
been possible without the college providing us with this exceptional opportunity.

Lastly, we would like to acknowledge our family and friends, whose cooperation and
encouragement made this assignment possible.
 1. Introduction
1.1 About the ITC Group

ITC Ltd is an Indian Conglomerate based in Kolkata, West Bengal, India. Originally established
in 1910 under the name Imperial Tobacco Company of India Limited, the company shortened its
name in 1948 to ITC Limited (now Indian Tobacco Company Limited). In 1974, the company
changed its name to ITC Ltd. The company has a major presence in the Indian paper and
packaging industry and is also one of the country's top exporters of agricultural goods. The firm
operates in several different industries, including "Fast Moving Consumer Goods," or FMCG,
hotels, paperboards and packaging, agriculture, and information technology.

Cigarettes, cigars, packaged foods, personal care goods, and stationary are all part of ITC's Fast
Moving Consumer Goods (FMCG) division. The corporation operates five-star hotels, spas, and
resorts all throughout India. Items such as packaging and printing supplies are included in the
Paperboards & Packaging division.

Wheat, soy, coffee, and spices are just some of the agricultural products that ITC's Agribusiness
section trades in. The IT business of ITC serves domestic and international clients with
innovative IT services. The corporation is also committed to a number of CSR (Corporate Social
Responsibility) programs, particularly those that promote healthy lifestyles, access to quality
healthcare, and economic growth in underserved areas.

At the first LinkedIn Talent Awards, ITC placed third in the category of "Best Employer Brand
on LinkedIn" for companies with over 10,000 workers. There were reportedly over sixty
companies who applied for this award, and they were all narrowed down to a final selection of
five. The sole fast-moving consumer goods manufacturer from India to make Forbes's 2000 list.
The Forbes 2000 is a comprehensive list of the largest corporations in the world based on a
variety of financial metrics including revenue, earnings, asset value, and market capitalization.
The list includes companies from 51 different countries and 27 different sectors. Three
ITC-owned brands are in the top five on The Economic Times' Brand Equity list of India's 100
Largest FMCG Brands, demonstrating the company's continued prominence in the Indian
market. In terms of fast-moving consumer goods (FMCG) sales, Gold Flake still dominates in
India. The Navy Cut is the fourth most popular haircut. Scissors, a brand made by ITC, enters the
top 10 at number 5 and is the only newcomer.

Among ITC's many honors and distinctions over the years is the 2019 Indian Green Building
Council Green Factory Building PLATINUM' Certification for the company's outstanding
Medak Unit in the new factories' category. ITC's Kovai Paperboards mill is the only Indian
facility to receive the Alliance for Water Stewardship Platinum-level Accreditation, the highest
certification for water conservation in 2019. In order to guarantee consistent quality, ITC is
spending money on digital transformation. In addition, spending money on the supply chain
guarantees that products are readily available, prominently displayed, and of high quality,
meeting consumer demand.

1.2 Introduction to ITC’s Tobacco Business Unit

ITC Ltd is a one of the biggest conglomerates in India that operates in a variety of
industries, including those related to consumer products, hotels, paperboards, and
packaging as well as agribusiness. The company's expansion over the years has been
significantly aided by the cigarette business, which is one of its most well-known lines of
work and has been a substantial contributor to that growth.

ITC Limited started its cigarette business in 1910, and ever since then it has been a
prominent player in the Indian tobacco industry. The company was once known as Indian
Tobacco Company. The company sells their cigarettes under the upscale brand name
'Gold Flake,' which is well-known throughout the country of India. Wills Navy Cut, Gold
Flake Kings, and Classic are some of the additional cigarette brands that this company
manufactures and sells.

However, in recent years ITC Limited's cigarette industry has been confronted with a
number of issues as a result of shifting customer preferences and increased pressure from
regulatory authorities. In an effort to reduce the number of people who light up, the
government of India has recently instituted a number of new regulations on the purchase
and use of cigarettes. In addition, there has been a decrease in the desire for cigarettes due
to the increased awareness of the dangers to one's health that are linked with smoking.

ITC Limited's Cigarette business has been able to maintain its growth throughout the
years & despite the obstacles, ITC Limited's Cigarette Business has been able to maintain
its position as a competitive player in the market; the company has been putting a strong
emphasis on both innovation and diversity. ITC Limited has been making substantial
investments in research and development in order to broaden its product offering and
enhance the quality of the products it already sells. Also, the corporation has been
broadening its product line by releasing new cigarette brands in order to appeal to a wider
variety of consumer demographics. It has also been working to broaden its consumer base
by increasing its distribution network. The business maintains an extensive distribution
network in India that spans over 4 million different retail establishments. The company
has been making use of its distribution network in order to launch new products as well
as promote the products it already has available.

To lessen the farmers' reliance on tobacco farming as a primary source of income, the
firm has also been encouraging them to pursue other lines of work. ITC Limited has been
offering training and resources to farmers so that they can increase the variety of crops
they grow and participate in other activities that bring in additional revenue.

The cigarette business of ITC Limited continues to face a number of issues, despite the
company's efforts to maintain its growth and address concerns about the company's
 ability to maintain itself sustainably. Because of the increasingly stringent controls that
the Indian government has been imposing on the sale and consumption of cigarettes,
there has been a decrease in the demand for cigarettes. In addition, the number of people
who smoke in India has decreased as a direct result of increased public knowledge
regarding the negative effects smoking has on one's health.

The cigarette business of ITC Limited has been an important factor in the development of
the company over the course of these many years. The corporation has been successful in
maintaining its expansion despite the difficulties brought about by shifting consumer
tastes and increased pressure from regulatory authorities. In order to maintain its position
as a competitive player in the market, ITC Limited has been emphasizing the importance
of innovation, diversification, and sustainability. ITC Limited's cigarette division is
continuing to encounter a number of difficulties; however, the company is in a strong
position to address these issues, which should allow it to maintain its growth over the
long run.

2. Interaction with Mr. Vishwas Aggarwal

2.1 About Mr. Aggarwal

Mr. Aggarwal is an alumnus of the most prestigious institutions in the world i.e.
IIT-K and London Business School. He is a seasoned professional who has
worked 8 years in ITC managing its products and businesses.

2.2 Our Interaction with Mr. Aggarwal

a. What is the impact of Regulations and the new Budget or Law on ITC
Tobacco?

Regulations and budget or law changes can have a significant impact on the ITC
Tobacco industry. The company's standing in the market can be threatened if these
changes become significant enough to impact the business. For example, the
introduction of a new regulation that restricts tobacco advertising or limits the
availability of tobacco products can reduce demand for ITC Tobacco's products.
Similarly, an increase in taxes can make ITC Tobacco's products more expensive,
reducing demand and profits.

However, the impact of regulations and budget or law changes on ITC Tobacco
depends on the scale of the change. Not every new regulation or budget change
will pose a threat. It is important to evaluate the potential impact of the change
before reacting to it.

In the case of the recent budget or law changes, the impact on ITC Tobacco seems
to be minimal. The stock prices have gone up, indicating that the tax increase was
likely small. Furthermore, cigarette demand has continued to grow over the past
ten years, indicating that the industry is resilient to small tax increases. However,
this was not always the case. In the early 2000s, tax increases led to a drop in
demand for cigarettes. Consumers turned to cheaper, untaxed cigarettes, which
posed a health risk due to the lack of quality control.

If the tax increase in 2023 is significant, it may impact the price of ITC Tobacco's
products. The company may have to pass on the increased costs to consumers,
which could reduce demand for their products. Alternatively, ITC Tobacco may
absorb the increased costs, reducing their profits. Regulations and budget or law
changes can pose a threat to ITC Tobacco's standing in the market. However, the
impact of these changes depends on their scale and potential impact on the
business. In the case of the recent budget or law changes, the impact on ITC
Tobacco seems to be minimal, but if the tax increase is significant, it could impact
the price and demand for their products.

b. What was your strategy in Covid Times and why ITC is not present on
Zomato or swiggy?

During the Covid times, the primary strategy of ITC was to focus on maintaining
the health and safety of its employees, customers, and other stakeholders. ITC
implemented several measures such as providing personal protective equipment to
its employees, sanitizing its facilities regularly, implementing social distancing
measures, and shifting to remote working wherever possible.

ITC's decision to not be present on food delivery platforms like Zomato or

Swiggy can be attributed to several factors. Firstly, ITC is primarily a tobacco
company and its products, including cigarettes, are age-restricted. The sale of
cigarettes to minors is strictly prohibited by law, and online platforms do not have
an effective way of verifying the age of the user.

Moreover, ITC's products are not impulse purchases like food or snacks that one
might order online for home delivery. The primary mode of sale for tobacco
products is through physical retail outlets, where the customers can see the
products and make a purchase decision.
Another factor could be the regulatory environment. The sale of tobacco products
is heavily regulated, and there are several restrictions on advertising, marketing,
and promotion of these products. Being present on food delivery platforms could
be seen as a form of advertising or promotion, which could attract scrutiny from
regulatory authorities.

ITC's decision to not be present on food delivery platforms during the Covid
times can be seen as a strategic decision to focus on its core business and comply
with regulatory requirements. The company prioritized the health and safety of its
employees and customers and adapted to the challenging circumstances posed by
the pandemic.

c. Does ITC have a global presence?

ITC Limited has a global presence, but it is not as extensive as some of the other
major tobacco companies in the world. The company exports cigarettes to various
countries, particularly in the Middle East. In addition, ITC has a joint venture with
Surya Nepal Private Limited (SNPL) in Nepal. SNPL is a leading cigarette
manufacturer in Nepal and produces several well-known cigarette brands.

Although ITC has a limited global presence compared to other tobacco

companies, it has been expanding its international operations in recent years. In
2019, the company announced that it was looking to expand its presence in the
Middle East and Africa, particularly in markets such as Saudi Arabia and the
United Arab Emirates. ITC has also been exploring opportunities to enter the
African market through acquisitions or partnerships with local companies.

However, it is worth noting that the global tobacco industry is facing significant
challenges in many countries due to increasing regulations and declining smoking
rates. This has led many tobacco companies to diversify their portfolios and invest
in alternative products such as e-cigarettes and vaping devices. It remains to be
seen how ITC will navigate these challenges and continue to grow its
international presence in the coming years.

d. Does ITC tobacco invest in new initiatives?

ITC is known for its diversified business portfolio, and the company invests in
various initiatives and divisions to explore new opportunities. One of the notable
divisions of ITC is its leaf tobacco division, which sources tobacco from farmers
and supplies it to the tobacco division of ITC and other countries. This division
plays a crucial role in backward integration, which helps ITC to ensure the quality
of its tobacco and maintain its supply chain.
Apart from the tobacco division, ITC also invests in various consumer insights
initiatives to understand new opportunities in the market. The company evaluates
the market size, margins, value addition, and differentiation potential of new
categories before investing in them. This approach helps ITC to explore profitable
categories and expand its business while maintaining the interests of its
shareholders.

However, it is crucial to ensure that the categories in which ITC invests are
profitable, and the environment is favorable for expansion. This approach helps
ITC to mitigate the risks associated with new initiatives and make informed
decisions.

ITC tobacco invests in new initiatives and divisions to explore new opportunities
and maintain its leadership position in the industry. The company's approach to
evaluating new categories based on market size, margins, value addition, and
differentiation potential helps it to make informed decisions and ensure
profitability.

e. Is ITC moving towards DIGITAL?

ITC has been exploring the potential of digital technologies and data-driven
solutions in various areas of its business. They have recognized the importance of
incorporating digital transformation in their operations to stay ahead of the
competition and keep up with the changing consumer demands. One of the ways
they are moving towards digital is through the use of consumer listening cells.
These cells monitor social media platforms and other digital channels to track
consumer trends and behavior, providing valuable insights to the company.

Apart from this, ITC has also implemented Machine Learning algorithms to
analyze data from their agricultural division. This has helped them understand the
correlations between different parameters in the crop and make data-driven
decisions to improve crop yield and quality. The company has also established a
Center of Excellence for Industry 4.0, which has been staffed with data scientists
and engineers to explore and develop data-driven solutions to optimize their
manufacturing and supply chain processes. One of the successful use cases of
digital technology in ITC is the optimization of steam utilization in the
manufacturing process. By analyzing data and implementing data-driven
solutions, the company has been able to reduce their energy costs and improve the
efficiency of their operations. Another project they are working on is dynamic
trade promotions based on supply and demand in different markets. They are
using data-driven algorithms to estimate demand, forecast market trends, and
optimize their promotions to increase profitability.

Overall, it is clear that ITC is moving towards digital transformation in various

aspects of their business. They have recognized the potential of digital
technologies and data-driven solutions to drive growth and profitability, and are
investing in them accordingly. By leveraging the power of digital technologies,
ITC is positioning themselves to stay ahead of the competition and meet the
changing demands of their consumers.

f. How long does it take for some techniques to return on their

investment?

Investing in certain techniques can be a strategic decision for any business, but it
is essential to consider the time and resources required for implementation and the
expected return on investment (ROI). For example, investing in workshops or
projects with consulting firms like McKinsey may require a significant financial
investment and time commitment from the organization.

The ROI of such techniques can vary depending on the type of technique and the
organization's specific needs and goals. It may take several months or even years
for some techniques to yield a significant return on investment. However, it is
important to note that the benefits of these techniques, such as increased
efficiency or better decision-making, can have long-term impacts on the success
of a business.

In contrast, other techniques, such as implementing new software or automation

tools, may have a quicker ROI. These tools can streamline processes, reduce
errors, and increase productivity, resulting in a faster return on investment.
However, it is crucial to consider the cost of the software or tools and the time and
resources required for implementation and training. The decision to invest in a
particular technique should be based on the organization's specific needs, goals,
and available resources. It is essential to carefully evaluate the potential ROI and
consider both short-term and long-term impacts before making any significant
investment.
 g. Does ITC have a marketing department or a strategy department at the
corporate level?

While ITC does have a strategy department at the corporate level, it does not have
a separate marketing department. Instead, the company relies on its various
business divisions to manage their own marketing initiatives.

h. Is there a specific strategy for selling products in China, given ethical

concerns and lack of control over end-users?

Selling products in China can be challenging due to ethical concerns, lack of

control over end-users, and the presence of counterfeit products. While there may
not be a specific strategy for selling products in China, it is important for
companies to communicate the negative effects of unethical practices to
consumers and work to improve the quality and safety of their products. To
address the sale of single cigarettes in China, packs of 5 cigarettes have been
launched.

i. How do different product clusters, such as food, snacks and chocolates,

compare to the tobacco industry in terms of pressure and regulations?

The food industry faces more pressure and regulations compared to the tobacco
industry, particularly when it comes to health and safety concerns. This is because
food items are considered to be a faster moving category compared to tobacco,
and any changes in regulations or consumer preferences can have a significant
impact on the success of food businesses. In contrast, the tobacco industry has a
higher number of approvals and regulations in place due to the health risks
associated with tobacco use.

j. How do brands compete for shelf space in crowded markets, such as the
beverage industry?

In crowded markets like the beverage industry, brands can compete for shelf
space by building strong brand value and providing better value to consumers
than their competitors. This may involve developing unique product offerings or
improving the quality of existing products, as well as investing in effective
marketing and advertising campaigns.
 k. How do the sustainability initiatives of ITC differ from those of other
tobacco companies?

While many tobacco companies have made efforts to improve their sustainability
practices, the initiatives of ITC stand out in several ways. First, ITC has made
sustainability a key pillar of its business strategy, rather than just a secondary
concern. This means that the company has integrated sustainability into all aspects
of its operations, from sourcing raw materials to reducing waste. Additionally,
ITC has set ambitious targets for reducing its environmental impact and has taken
concrete steps to achieve these targets. For example, the company has
implemented water conservation measures that have led to a 38% reduction in
water usage since 2010. Finally, ITC has been transparent about its sustainability
initiatives and progress, publishing regular sustainability reports that provide
detailed information on its efforts and impact.

3. Suggestions for further improvements

1. Diversify product offering: With many varieties of electronic cigarettes becoming more
and more popular in many markets, ITC can add them to their product line. This would help
increase revenue and reach a new customer base in this way.

2. Pay attention to quality: Invest in R&D to raise the caliber of tobacco products. This will
help both draw in new customers and keep the ones they already have.

3. Increase their market: Look for chances to enter new domestic and international markets.
For assistance in establishing a presence in these markets, think about collaborating with regional
distributors and retailers.

4. Create a marketing plan: Create a plan that targets both current and potential customers.
To reach a larger audience, combine traditional and digital marketing strategies.

5. Provide incentives: To keep current customers and draw in new ones, provide incentives
like discounts or loyalty programs.

6. Adopt technology: Use technology to streamline operations and cut costs in your company.
Use automated production lines, for instance, to boost output and cut labor expenses.

7. Invest in sustainability: As consumer concern for the environment grows, make an

investment in environmentally friendly procedures and packaging to lessen your company's
impact on the environment and win over environmentally aware customers.
3.1 Strength and weaknesses of strategies used -

For sustainable strategy -

Strengths:

● ITC's tobacco division has received favorable ESG ratings and is listed in the
Dow Jones Sustainability Emerging Markets Index, demonstrating a long-term
dedication to ESG standards and socially responsible investments.
● The business has incorporated sustainability into all facets of its operations and
made it a core pillar of its business strategy.
● ITC's biggest sustainability initiative is towards watershed development projects,
and the company has been water positive for the last 20 years. This is especially
important for a water-intensive crop like tobacco.
● The company has made significant efforts towards developing climate-tolerant
varieties of major crops like leaf tobacco and promoting climate-resilient
practices.
● ITC has established challenging goals for decreasing its environmental footprint
and has implemented practical measures to meet these goals. For instance, since
2010, the business has reduced water usage by 38% thanks to the implementation
of water saving measures.

Weakness:

● Despite its sustainability efforts, the core business of ITC's tobacco unit is still the
production of cigarettes, which are known to have adverse health effects and
contribute to air pollution through smoking.
● While ITC has worked to manage trash and create a circular ecology, there is still
a big problem with cigarette butt litter, with an estimated 4.5 trillion butts being
dumped annually worldwide.
● The tobacco industry as a whole has faced criticism for its impact on the
environment, particularly in relation to deforestation for tobacco cultivation and
the use of pesticides and fertilizers that can harm soil and water quality. While
ITC has made efforts towards sustainable agriculture practices, the tobacco
industry as a whole remains a challenging sector from a sustainability perspective.
For Diversification Strategy -

Strengths:

● Diversification: To meet the growing demand for oral and vaping products in the
US and EU markets, ITC is diversifying its tobacco business by manufacturing
and exporting nicotine and nicotine-derivative products. This will assist the
company in reducing its reliance on the tobacco industry and expanding into new
markets.
● Institutional capabilities: ITC will use its century-old leaf tobacco business's
institutional capabilities to manufacture nicotine and nicotine salts. This will
assist the company in reducing capital expenditure and time to market.
● Conformity with regulatory standards: The facility, which will manufacture
nicotine and nicotine salts, will adhere to stringent US and EU pharmacopeia
standards, which define purity levels for nicotine intended for pharmaceutical
products at 99.2 percent. This will assist the company in meeting the quality
standards of the target markets.
● New growth levers: As people increasingly prefer leisure travel, ITC has
introduced "The Storii," a collection of boutique lifestyle properties. This will
allow the company to enter the expanding hospitality industry.
● E-commerce platform leverage: During the pandemic, the company leveraged
e-commerce the platform, and sales through the e-channel more than doubled to
more than 5% of segment revenue. This will allow the company to enter the
expanding e-commerce market.

Weaknesses:

● Dependency on the tobacco industry: The Covid-19 pandemic caused problems

throughout the whole value chain in ITC's cigarette business. According to the
company's annual report, the business gradually recovered over the course of the
year to achieve levels that were practically pre-Covid towards the end of the year
with the easing of restrictions and improvements in mobility beginning in
September 2020. Long-term growth of the company may be hampered by its
reliance on the tobacco industry.
● Effect of pandemic: The epidemic had an effect on ITC's hotel industry. The
second wave prompted a new round of limitations, and the company believes that
the near-term picture for the hospitality industry would be largely dependent on
 the revival of business and leisure travel confidence. This may restrict the
company's short-term growth potential.
● The non-cigarette FMCG market is highly competitive, and the company will
have to compete with established players to grow in this segment. To gain market
share, the company will need to invest heavily in branding and marketing.

3.2 Proposed changes to the strategy and their assessment -

For Sustainable strategy -

● Increase research and development investments: The ITC could increase research
and development investments to develop alternative tobacco products that are less
harmful to health and have a lower environmental impact. This could include
investigating new tobacco varieties, developing new processing methods, or
researching the use of alternative materials.
● Implement stronger sustainability standards for tobacco cultivation: To address
concerns around deforestation, pesticide use, and soil and water quality, ITC
could implement stronger sustainability standards for tobacco cultivation. These
standards could include measures such as minimizing the use of pesticides and
fertilizers, reducing water consumption, and promoting reforestation.
● Support tobacco farmers' sustainable livelihoods: The ITC could help tobacco
farmers' sustainable livelihoods by providing training and resources to help them
transition to more sustainable farming practices, diversify their crops, or access
alternative sources of income. This could help to reduce tobacco farmers'
economic reliance on the tobacco industry while also supporting broader
sustainable development goals.

Assessment -

● Increase R&D investments: Increasing R&D investments could have a significant

impact on ITC's tobacco unit by enabling the development of alternative tobacco
products that are less harmful to health and the environment. This could help to
address concerns about tobacco production's negative impact on health and the
environment, as well as potentially open up new business opportunities for ITC.
● Implement stronger sustainability standards for tobacco cultivation: Implementing
stronger sustainability standards for tobacco cultivation could help to address
 concerns around deforestation, pesticide use, and soil and water quality, and could
also help to improve the social and economic well-being of tobacco farmers. This
could have a positive impact on the environment and on the livelihoods of
tobacco farmers.
● Support sustainable livelihoods for tobacco farmers: Supporting sustainable
livelihoods for tobacco farmers could help to reduce the economic dependence of
tobacco farmers on the tobacco industry and support broader sustainable
development goals. This could have a positive impact on the social and economic
well-being of tobacco farmers and on the broader community.

For Diversification strategy -

● Diversify the portfolio of tobacco goods While ITC is broadening its tobacco
business by manufacturing nicotine and nicotine-derivative products, the
company may also wish to consider diversifying its existing tobacco product
range. This may involve the introduction of new tobacco products that appeal to
evolving customer preferences or the expansion of the company's position in
emerging tobacco markets.
● Invest in research and development: ITC could invest more heavily in research
and development to create innovative tobacco products that appeal to
health-conscious consumers. For example, the company could explore ways to
reduce the harmful effects of tobacco or develop products that are less addictive.
● Explore new markets for tobacco products: While tobacco consumption is
declining in many developed markets, there are still opportunities to expand the
company's presence in emerging markets. ITC could explore new markets for its
tobacco products, particularly in regions where tobacco use is still growing.
● Expand into alternative tobacco products: ITC could also consider expanding its
presence in the growing market for alternative tobacco products such as snus,
snuff, or chewing tobacco. These products are often seen as less harmful than
traditional cigarettes, and could appeal to health-conscious consumers.
 Assessment -

● Diversify the tobacco product portfolio: Diversifying ITC's tobacco product

portfolio could help the company appeal to changing consumer preferences and
maintain revenue from the tobacco business. However, there may be regulatory
and legal challenges associated with introducing new tobacco products, and it
may be difficult to compete with established players in the market.
● Explore new markets for e-commerce: Expanding ITC's e-commerce presence
could help the company tap into growing markets for online shopping. However,
there may be significant competition in these markets, and ITC would need to
invest in building a strong online presence to gain market share.

3.3 ITC’s Strategy Reset

The share price of ITC initially dropped in response to the government's increase in National
Calamity Contingent Duty (NCCD) on cigarettes by 16% in the Budget for FY24. However,
analysts expect the impact of the duty hike on ITC's overall volumes to be limited, and the
company's shares subsequently recouped intraday losses. Although cigarettes make up over 80%
of ITC's net profit and around 45% of its topline, ICICI Direct estimates that the net tax on
cigarettes would only increase by 0.07-0.12% per stick, requiring a price hike of just 1-3% across
different categories to offset the additional costs.

Meanwhile, ITC has launched an "extensive strategy reset" to power its next phase of growth,
with a strong focus on digital and sustainability. The reset encompasses multiple sectors,
including agriculture, consumer goods, paper and packaging, and hospitality. ITC is investing in
increasing digital capabilities, deploying a smart ecosystem with an Integrated Real-Time
Operations Platform, creating next-generation supply chains and smart manufacturing, and
building a 'FutureTech' enterprise by investing in digital technologies and innovative business
models.

ITC is also exploring "value accretive inorganic opportunities" to expand its fast-moving
consumer goods business, which has grown to over ₹22,000 crores in annual consumer spending
and reaches 150 million households. The company's FMCG portfolio has been revitalized to
address emerging trends and develop categories of the future. In addition, ITC has reorganized
its food division and formed "empowered and integrated teams" to focus on specific product
markets. The company plans to pull back from businesses that are not in sync with its future
growth ambition, such as the Lifestyle Retailing Business.
ITC is aiming to turn its fast-moving consumer goods (FMCG) brands into a Rs1 lakh crore
industry over the next decade. The company offers 25 different brands targeted at consumers,
competing with other FMCG companies such as Hindustan Unilever Limited. ITC has reported
significant increases in the value of acquired trademarks, such as Savlon and Nimyle, since their
acquisition. The company's Aashirvaad brand offers value-added adjacencies such as organic atta
and pulses, gluten-free and sugar-release control atta, vermicelli, and fast meals.

Sunfeast and Aashirvaad are two of ITC's megabrands that have reported high customer
spending in recent years. The company plans to continue investing in these and other brands to
maintain growth and market dominance. Additionally, ITC has been increasing its expenditures
on integrated consumer products manufacturing facilities (ICMLs), with the establishment of 5
new ICMLs bringing the total number to 9. This allows ITC to take advantage of economies of
scale and scope and streamline expenses while guaranteeing superior market service and
freshness.

ITC is also set to release a new app in the agriculture sector called Metamarket for Advanced
Agricultural and Rural Services (ITC-MAARS). This online marketplace will offer a variety of
agricultural solutions, including hyperlocal services and artificial intelligence-based customized
advice. The CEO of ITC has stated that ITC-MAARS will create a robust "phygital" ecosystem
to deliver seamless customized solutions to farmers, anchored by FPOs, while also generating
new revenue, enhancing sourcing efficiencies, and fueling ITC's Indian brands.

4. Future outlook for the business unit and the Conglomerate

As people are becoming more conscious of the ill-effects of smoking, the tobacco business is
suffering due to its decreasing consumer base. This change in lifestyle is not only prominent in
western part of the world but also in developing countries like India. Those who haven’t stopped
smoking entirely have shifted to somewhat better alternatives and therefore the traditional
tobacco business is threatened.

In an effort to change with times, ITC’s Tobacco Business Unit also released flavored cigarettes
with less tobacco mix. By leveraging its strong distribution network, it was able to sustain itself
however it isn’t viable as a long-term strategy. Thanks to ITC’s diverse portfolio of products and
services, it won’t have to rely much on its Tobacco division.

Based on our group’s interaction with the delegate of ITC Group who manages strategy for ITC
foods, ITC has expressed its keenness in entering the sports bar segment in India. It makes sense
to do so since the segment is experiencing a compound annual growth rate (CAGR) of 6.15%
and is globally estimated to be valued at USD 7.66 Billion Dollars by 2030.

However, entering this segment would also mean jumping in the red ocean with as many brands
(example – HealthXP, RiteBite & MuscleBlaze etc). One advantage that ITC has over other
brands is its long experience in the FMCG sector that it can use to create a consumer base for
itself. It can also place its products easily in the ITC chain of hotels to promote the product just
like it did with Fabelle chocolates.

The FMCG sector in India offers a lot in terms of opportunities that ITC is already leveraging
(ex-cold foods, chocolates etc) and should continue looking forward to.

5. Recap of the key points discussed in the report

One of India's largest conglomerates, ITC Ltd., sells cigarettes under the upscale brand name
"Gold Flake," which is well-known across the entire nation. Additionally, they produce and
market products like Wills Navy Cut, Gold Flake Kings, and Classic. With significant
investments in R&D, the company emphasizes both innovation and diversity while expanding its
product line and improving the products' quality. The business has been utilizing its distribution
network to both introduce new products and market existing ones.

For farmers to grow a wider variety of crops and engage in other activities, ITC Limited has been
providing training and resources. The demand for ITC Tobacco's products may decline if a new
regulation restricting tobacco advertising or limiting the accessibility of tobacco products is
introduced. Similar to this, higher taxes may make ITC Tobacco's products more expensive,
which would decrease demand and revenue. The price of ITC Tobacco's products could change if
the tax increase in 2023 is significant.

The company might have to charge customers more, which might result in less interest in their
products. ITC put in place a number of measures, including supplying personal protective
equipment to its staff, regularly sanitizing its facilities, enacting social distancing policies, and
switching to remote working whenever feasible. ITC Limited has a presence throughout the
world, but it is not as widespread as some of the other major tobacco companies. The business
exports cigarettes to a number of nations, primarily the Middle East.Despite having a smaller
global footprint than other tobacco companies, ITC has been growing its international operations
recently.

Backward integration is essential to ITC's ability to maintain its supply chain and guarantee the
quality of its leaf tobacco. In a number of its business areas, ITC has been investigating the
potential of digital technologies and data-driven solutions. To analyze data from their agricultural
division, ITC has also implemented machine learning algorithms. They can now make
data-driven decisions because they have a better understanding of the relationships between the
crop's various parameters.

From sourcing raw materials to cutting waste, the company has incorporated sustainability into
every aspect of its operations. If new technologies and data analytics are used effectively, the
ITC tobacco business can grow even more.