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ITC Spreads Incense Stick Ops
The Financial Express - 03 Jun 2004


ITC Ltd is ramping up its incense stick (agarbathi) operations to establish a retail network of 5 lakh outlets in next five months. The company is hoping to capture 5 per cent of the estimated Rs 1,000 crore a year domestic agarbathi market in the next 12-15 months.

Agarbathi represents one of the new growth opportunities ITC has identified in last few years. ITC's revenues from new FMCG businesses grew three-fold during the fiscal 2003-04 to Rs 304 crore. ITC's gross turnover in 2003-04 was Rs 11,815 crore, which represented a growth of 7.2 per cent.

Agarbathi is a part of ITC's packaging and printing (PP) unit, which accounted for sales of around Rs 375 crore in 2003-04. PP businesses are: greeting cards, packaging, safety matchsticks and agarbathi.

CEO (Agarbathi Business) VM Rajasekharan said, "Agarbathi is largely a grocery purchase item and it will exploit synergies offered by the ITC's grocery distribution infrastructure (which pushes Ashirvaad atta, salt, and ready-to-eat snacks and Sunfeast biscuits). Utilising ITC channel will keep our distribution costs to the minimal." He added that ITC's target will be to develop a network of 5 lakh outlets in next five months - up from 2 lakh outlets developed in last four months. The overall agarbathi retail universe is estimated at around 30 lakh outlets.

A labour-intensive operation, Agarbathi manufacturing is reserved for small scale industries (SSI). ITC's strategy is to emerge as a leading national marketer in an industry which has hundreds of manufacturers with strengths in local markets.

Launched in fiscal 2003-04 with three agarbathi brands Ashageet, Nivedan and Spriha, ITC is now looking at countrywide presence with the launch of its fourth brand Mangaldeep four months ago in Andhra Pradesh.

With a strategy to procure close to the market, ITC will be looking at three new agarbathi vendors. ITC has currently a vendor each in Bangalore and Pondicherry.

Mr Rajasekhran said that the company was still in the process of finalising its operating margin targets. He added, "All our SBUs (strategic business units) are lean including the agarbathi business which has only 15 people."

As for the trade, agarbathi margins will be around 20-25 per cent versus 2-3 per cent for local atta stockists.

ITC plans to allocate a promotion budget which will be disproportionately higher than the returns in the launch phase.