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Beating the odds !
The Economic Times - 01 Jun 2001

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.