Editorial
It’s one of those delicious ironies of life. May 31 was `World No Tobacco Day’.
It was also the day reports of cigarette major ITC Ltd’s crossing the milestone of
Rs.1,000 crore net profits hit the newsstands. Clearly, growing awareness of the harmful
effects of cigarette smoking, campaigns being mounted by organisations like the WHO and
legislation placing curbs on cigarette smoking in public places have done little to dent
the company’s bottom line. Net profit is up 27 per cent from last year’s Rs.792
crore, as is EPS while dividend is up 33 per cent. This is indeed remarkable. Cigarettes
are the mainstay of ITC’s business. They account for close to 85 per cent of
earnings, with tobacco and agri-products contributing another 10 per cent and other
businesses like hotels, paper and packaging bringing in the balance 5 per cent. Given
ITC’s overwhelming dependence on cigarettes, one would have expected the
company’s performance to dip. Instead it has surpassed market expectations.
What is remarkable is that it has managed
to do all this in a slowing economy marked by large-scale smuggling of cigarettes.
Smuggled cigarettes are now reported to account for close to 60 per cent of the market in
value. Despite this, volumes are up – conclusive proof, if any were needed, of
ITC’s marketing acumen. Part of the reason for this has been its ability to migrate
brands from its premium segments to a larger spectrum; and then piggyback on the
former’s image to hike prices across the board – witness the repositioning of
its Classic brand as Wills Classic. Successive hikes in excise duty on cigarettes – a
favourite ploy of finance ministers strapped for resource – have been passed on to
consumers; without affecting sales adversely. At the same time, ITC is wise enough to read
the writing on the wall. It may be a while before cigarette smoking goes out of fashion in
India the way it is happening in the west where the number of smokers in on the decline.
But the company is aware that in the long run, its reliance on cigarettes must come down.
Hence its foray into apparel and accessories with its Lifestyle Retailing Business which
launched the Wills Sports brand in April and into the greetings cards business with
`Expressions’. A winning strategy ?
ITC’S
CLARIFICATION
Cigarettes constitute only 16 per cent of
all the tobacco consumed in India. Bidis and chewing tobacco together make up the
remaining 84 per cent.
This is in sharp contrast to the pattern of
tobacco consumption in the rest of the world, where cigarettes account for over 90 per
cent of all the tobacco consumed.
Cigarettes account for only 65 per cent of
the net revenue of the ITC Group.
