Analysis of Cigarette Industry in India

ANALYSIS OF CIGARETTE INDUSTRY IN INDIA

Submitted By : Prithwiraj DebSection: HRMRoll No 38

Batch : SS -08-10

VS

INDIAN CIGARETTE INDUSTRY

•India is the second largest producer of tobacco in the world.•Tobacco occupies a prime place in the Indian economy on account of its considerable contribution to the agricultural, industrial and export sectors.•India is one of the leading Tobacco exporting countries in the world

Evolution

• The oldest cigarette manufacturing firm was established around 1887

• by 1930 the industry had spread across the country

• Initially under British East India Company and there after British Raj

• First private company to set up was Imperial Tobacco now Indian Tobacco Company(ITC).

Market share

Sales

Strength1. one the largest manufacturers of tobacco in terms of

production2. traditional item of India's foreign trade3. leading Tobacco exporting countries in the world

Weakness4. burden of Tobacco tax5. Prohibition of Direct advertising

SWOT on the INDUSTRY

Opportunities1. significant opportunity for cigarette industry to extent and

consolidate its position in intentional market due to some recent trend like withdrawal/reduction of agricultural subsidy and escalating cost in the traditional cigarette exporting countries.

Threats2. Various N.G.O’s and Forums against the use and

consumption of tobacco3. Smuggled foreign cigarettes

SWOT (CONTD…)

one of India's biggest and best-known private sector companies

incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited‘

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

Its Gold Flake tobacco brand is the largest FMCG brand in India - and this single brand alone holds 70% of the tobacco market.

One of the 8 Indian Companies to feature in ‘Forbes A-list’ for 2004

ITC Limited

Vision and Mission Vision Sustain ITC's position

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

Mission To enhance the wealth

generating capability of the enterprise in a globalizing environment, delivering superior and sustainable stakeholder value.

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ITC - Business Portfolio

ITC

FMCG: CigarettesOther FMCG

HotelsAgri BusinessLeaf TobaccoAgri Commodities

PaperboardPaper &Packaging

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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: Internal Vitality Market Standing Profitability

Strategy of Organisation and Governance processes geared to manage multiple businesses

Blend core competencies and leverage ITC umbrella strengths to create new avenues of growth

Corporate Strategies

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Headline Financials: 2007/08

Rs. Crs.

GTO 21356 á 10.7

NTO 13948 á 14.7

PBT 4572 á 16.4

PAT 3120 á 15.6

Balance Sheet Size 12817 á 15.4

Non Cigarettes Business 52.4% of NTO

(51.5% LY)

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ITC’s Cigarettes Business

Market leadership Powerful brands across segments Leadership in all segments - geographic & price Extensive FMCG distribution network

Direct servicing of 1,00,000 markets & 2 million retail outlets

World-class state-of-the-art technology and products Investment - Rs.10 billion in six years

Exciting long term growth potential

SWOT Analysis Strength1. Biggest and the largest

player in the Indian tobacco market with a market share of 80%.

2. Its Gold Flake tobacco brand is the largest FMCG brand in India - and this single brand alone holds 70% of the tobacco market.

Weakness1. It still has to consolidate

its foot in the cigar market largely dominated by Godfrey Philips.

Opportunities1. ITC is moving into new

and emerging markets like developing countries of Eastern Europe, Africa etc.

Threats1. The obvious threat is

from competition, both domestic and international.

2. ITC's opportunities are likely to be opportunities for other companies as well

FIVE FORCES ANALYSISEntry Barriers

Supplier Bargaining Power

Buyer's Bargaining Power

Industry Rivalry

Substitutes

GODFREY PHILIPS

the second largest player in the Indian cigarette industry

annual turnover exceeds INR 1800 crores (approx. US $369.6 million)

has two major stakeholders, one of India's leading industrial houses - the K. K. Modi Group and one of the world's largest tobacco companies, Philip Morris.

Vision To become a leading tobacco player in India and

beyond.

Mission empowers all its people to think and act radically,

stretch relentlessly and generate path breaking ideas and strategies to propel the Company. This helps to create and build powerful brands with unmatched service and world class processes.

FINANCIALS

MAJOR Brands

SWOT Analysis

Strength1. The second biggest

tobacco company in India2. the first and only tobacco

company to organize the fragmented cigar market in India and secure its position as the market leader in the cigar distribution.

3. partnering with some of the top most players in the international tobacco industry

Weakness1. low popularity of most of

its products2. No sole authority

Contd…. Opportunities1. Already present in the

Middle East, West Africa, South East Africa and South East Asia, Godfrey Phillips India can strengthen its position as an international player by entering new markets

2. Even expanding market share in the Indian tobacco market is an opportunity

Threats1. ITC getting into the cigar

market2. it has a mere 12% in

market share

Five Forces

Entry Of New Competitors in Market

Suppliers as an Integral Part

Competition

Demand of Buyers

Available Substitutes

Per Capita Adult C igarette Consumption (Sticks)

16621753

561 488

141

1190

USA China Pakistan Nepal India W orld Avg.

Cigarettes: Growth potential

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Cigarettes: Growth potential

Cigarettes account for only 15% of tobacco

consumed in India unlike world pattern of 85% due

to prolonged punitive taxation

Cigarettes (15% of tobacco consumption) contribute

nearly 85% of Revenue to the Exchequer from tobacco

sector

Of the 58% of adult Indian males who consume

tobacco, barely 15% can afford cigarettes

Biri : Cigarettes ratio = 10 : 1

Annual per capita adult cigarette consumption in

India is appx. one tenth world average : 141

Future growth depends on relative rates of growth

of per capita income and moderation in taxes