Exploring ITC Limited’s Diversified Business Model, Sustainability Initiatives, and Strategic Demerger of ITC Hotels

ITC Limited, originally known as the Imperial Tobacco Company of India Limited, was established in 1910. Over the years, ITC has transformed itself from a tobacco company into one of India’s foremost private sector enterprises with a diversified presence across various industries. Headquartered in Kolkata, ITC operates in sectors such as Fast-Moving Consumer Goods (FMCG), Hotels, Paperboards & Packaging, Agri-Business, and Information Technology. The company is renowned for its extensive portfolio of products and services, including popular brands like Aashirvaad, Sunfeast, Bingo!, and Classmate.

Studying ITC’s business model is crucial for several reasons:

1. Strategic Transformation and Diversification: ITC’s journey from a tobacco-centric company to a diversified conglomerate offers valuable insights into strategic business transformation and diversification. The company’s ability to enter and dominate various sectors demonstrates its strategic acumen and adaptability.

2.  Sustainability and Social Responsibility: ITC’s commitment to sustainability and social responsibility sets a benchmark for corporate governance and ethical business practices. The company’s initiatives in areas such as water conservation, waste management, and renewable energy highlight its dedication to creating a positive environmental and social impact.

3.  Multiple Revenue Streams: Understanding ITC’s business model provides a comprehensive view of how a company can leverage various revenue streams to maintain a competitive edge. ITC’s diversified portfolio ensures that it is not overly reliant on any single sector, thereby reducing risk and enhancing financial stability.

4.  Innovation and Customer Satisfaction: ITC’s focus on innovation and customer satisfaction has been a key driver of its success. The company’s ability to continuously introduce new and improved products that cater to evolving consumer preferences has helped it maintain a strong market presence.

Company Background

History and Evolution of ITC

ITC Limited, originally known as the Imperial Tobacco Company of India Limited, was established on August 24, 1910. The company began as a subsidiary of the British-American Tobacco Company, primarily focusing on the tobacco business, manufacturing cigarettes and tobacco products. Over the years, ITC has undergone significant transformation and diversification, evolving into one of India’s foremost private-sector enterprises.

• 1910: ITC was established as the Imperial Tobacco Company of India Limited.

• 1925: ITC set up its Packaging & Printing Business as a strategic backward integration for its Cigarettes business.

• 1970: The company was renamed India Tobacco Company Limited as its ownership progressively Indianized.

• 1974: The name was further changed to I.T.C. Limited.

• 1975: ITC entered the hospitality sector by acquiring a hotel in Chennai, marking the beginning of its hotel business.

• 2001: The company was rechristened as ITC Limited, reflecting its multi-business portfolio.

Key Milestones and Achievements

ITC has achieved numerous milestones and accolades throughout its history, reflecting its commitment to excellence, innovation, and sustainability. Some of the key milestones and achievements include:

•  Diversification into FMCG: ITC successfully diversified into the FMCG sector, launching popular brands such as Aashirvaad, Sunfeast, and Bingo! This diversification has significantly contributed to the company’s growth and market presence.

•  Sustainability Initiatives: ITC has been a pioneer in sustainability, achieving milestones such as becoming water, carbon, and solid waste recycling positive for several years. The company’s initiatives in areas such as water conservation, waste management, and renewable energy have earned it numerous awards and recognitions.

•  e-Choupal Initiative: ITC’s e-Choupal initiative, launched in 2000, revolutionized the agricultural sector by providing farmers access to information, products, and services. This initiative has empowered millions of farmers and enhanced their livelihoods.

•  Awards and Recognitions: ITC has received several prestigious awards, including the Development Gateway Award for its e-Choupal initiative, the National Water Awards, and the ICSI CSR Excellence Award.

Business Model

Diversification

Overview of ITC’s Diversified Business Segments

• ITC Limited has strategically diversified its business across multiple segments to reduce dependency on any single sector and to leverage growth opportunities in various industries. The key business segments of ITC include:

•  Fast-Moving Consumer Goods (FMCG): ITC is a leading player in the FMCG sector with a wide range of products, including packaged foods, personal care products, education and stationery products, and lifestyle retailing. Popular brands under this segment include Aashirvaad, Sunfeast, Bingo!, and Classmate.

•  Hotels: ITC operates a chain of luxury hotels under brands such as ITC Hotels, Welcomhotel, Fortune, and WelcomHeritage. The company is known for its ‘Responsible Luxury’ ethos, ensuring sustainability and luxury go hand in hand.

•  Paperboards and Packaging: ITC is a market leader in the paperboard and packaging industry, providing high-quality paperboards, specialty papers, and packaging solutions. The company focuses on sustainable practices and innovation in this segment.

•  Agri-Business: ITC’s agri-business segment is involved in the sourcing and exporting of agricultural commodities. The company has also introduced the e-Choupal initiative to empower farmers with information and market access.

•  Information Technology: ITC Infotech, a wholly-owned subsidiary of ITC Limited, provides IT services and solutions to clients across various industries. The company focuses on digital transformation and innovation.

Importance of Diversification in ITC’s Success

Diversification has played a crucial role in ITC’s success by:

• Risk Mitigation: By diversifying its business portfolio, ITC reduces its dependency on any single sector, thereby mitigating risks associated with market fluctuations and economic downturns.

• Revenue Growth: Diversification allows ITC to tap into multiple revenue streams, enhancing overall revenue growth and financial stability.

• Market Presence: ITC’s presence in various industries strengthens its market position and brand recognition, making it a formidable player in the Indian business landscape.

• Innovation and Adaptability: Diversification encourages innovation and adaptability, enabling ITC to respond effectively to changing consumer preferences and market trends.

Revenue Streams

Primary Revenue Sources

• ITC’s primary revenue sources are derived from its diversified business segments:

• Cigarettes: The cigarette segment remains a significant revenue contributor for ITC, with popular brands such as Classic, Gold Flake, and Wills.

• FMCG: The FMCG segment, excluding cigarettes, includes packaged foods, personal care products, and education and stationery products. This segment has shown substantial growth over the years.

• Hotels: ITC’s hotel segment generates revenue from providing accommodation, food and beverage services, and event management.

• Paperboards, Paper, and Packaging: This segment contributes to ITC’s revenue by selling paperboards, specialty papers, and packaging solutions.

• Agri-Business: ITC’s agri-business segment generates revenue from sourcing and exporting agricultural commodities. Information Technology: ITC Infotech provides IT services and solutions, contributing to its overall revenue.

Contribution of Each Segment to Overall Revenue

The contribution of each segment to ITC’s overall revenue is as follows:

• Cigarettes: Approximately 37.5% of total revenue.

• FMCG (excluding cigarettes): Approximately 25.5% of total revenue.

• Agri-Business: Approximately 20% of total revenue.

• Paperboards, Paper, and Packaging: Approximately 12% of total revenue.

• Hotels: Approximately 5% of total revenue.

• Information Technology: Approximately 5% of total revenue.

Distribution Network

Extensive Distribution Network Across India

ITC has established one of India's most extensive distribution networks, ensuring its products reach a wide and diverse customer base. Key components of ITC’s distribution network include:

Direct Distribution: ITC’s products are available at approximately 4.3 million retail outlets across India, with about 2 million outlets under its direct distribution network.

e-Choupal System: ITC’s e-Choupal initiative is a two-way sourcing and distribution system that connects farmers in remote villages with markets, providing them access to information, products, and services.

 Cigarette and Paan Network: ITC leverages its established cigarette and paan network to distribute FMCG products, ensuring wide reach and availability.

Strategies for Reaching a Diverse Customer Base

ITC employs several strategies to reach its diverse customer base:

•  Multi-Channel Distribution: ITC utilizes a multi-channel distribution approach, including traditional retail, modern trade, and e-commerce platforms, to ensure its products are accessible to consumers across different regions and demographics.

• Rural Penetration: Through initiatives like e-Choupal, ITC has strengthened its presence in rural markets, empowering farmers and enhancing market access.

• Brand Equity: ITC leverages its strong brand equity and reputation to build consumer trust and loyalty, ensuring sustained demand for its products.

Market Presence

ITC’s Market Share in Various Segments

ITC Limited has established a strong market presence across multiple segments, leveraging its diversified business portfolio to maintain a competitive edge. The company’s market share in various segments is as follows:

• Cigarettes: ITC is the market leader in the cigarettes segment in India, with a dominant market share of approximately 75%. The company’s popular cigarette brands include Classic, Gold Flake, and Wills. FMCG (excluding cigarettes): ITC has made significant strides in the FMCG sector, capturing a substantial market share in categories such as packaged foods, personal care products, and education and stationery products. The company’s brands like Aashirvaad, Sunfeast, Bingo!, and Classmate have become household names.

•  Hotels: ITC operates a chain of luxury hotels under brands such as ITC Hotels, Welcomhotel, Fortune, and WelcomHeritage. The company is known for its ‘Responsible Luxury’ ethos, ensuring sustainability and luxury go hand in hand.

•  Paperboards, Paper, and Packaging: ITC is a market leader in the paperboard and packaging industry, providing high-quality paperboards, specialty papers, and packaging solutions. The company focuses on sustainable practices and innovation in this segment.

•  Agri-Business: ITC’s agri-business segment is involved in the sourcing and exporting of agricultural commodities. The company has also introduced the e-Choupal initiative to empower farmers with information and market access.

•  Information Technology: ITC Infotech, a wholly-owned subsidiary of ITC Limited, provides IT services and solutions to clients across various industries. The company focuses on digital transformation and innovation.

Key Brands and Products Under ITC’s Portfolio

ITC’s diverse portfolio includes a wide range of brands and products that cater to various consumer needs. Some of the key brands and products under ITC’s portfolio are:

•  Foods:

• Aashirvaad: Atta, Vermicelli, Ghee, Salt, Spices, Ready-to-Eat Meals, Instant Mixes

• Sunfeast: Biscuits, Cookies, Cakes, Pasta, Noodles

• Bingo!: Potato Chips, Finger Snacks

• Yippee!: Instant Noodles

• B Natural: Juices and Beverages

• ITC Master Chef: Frozen Foods, Snacks, Kebabs

•  Personal Care:

• Fiama: Bath and Skincare Products

• Vivel: Soaps and Skincare Products

• Savlon: Handwash, Sanitizers, Antiseptic Products Charmis: Skincare Products

•  Education and Stationery:

• Classmate: Notebooks, Pens, Pencils, Art Supplies

• Paperkraft: Premium Stationery Products

•  Lifestyle Retailing:

• Wills Lifestyle: Apparel and Accessories John Players: Men’s Fashion

•  Matches and Agarbatti:

• Mangaldeep: Agarbatti and Dhoop Aim: Safety Matches

•  Luxury Chocolates:

•  Fabelle: Luxury Chocolates and Confections

•  Coffee:

•  Sunbean: Gourmet Coffee

Financial Performance

Overview of Financial Highlights

ITC Limited has consistently demonstrated strong financial performance, reflecting its robust business model and strategic initiatives. Key financial highlights include:

• Revenue: For the financial year 2023, ITC reported gross revenue of ₹69,481 crore, showcasing significant growth across its business segments.

• Profit: The company’s net income for 2023 was ₹20,751 crore, indicating a healthy profit margin and efficient cost management.

• Market Capitalization: ITC’s market capitalization stands at approximately ₹4,60,000 crore, making it one of the largest companies in India by market value.

Recent Financial Performance and Growth Trends

ITC has shown impressive financial growth in recent years, driven by its diversified business portfolio and strategic initiatives. Key trends include:

• Revenue Growth: ITC’s gross revenue increased by nearly 18% in 2023, reflecting strong performance across all business segments.

• EBITDA Growth: The company’s EBITDA grew by over 26% in the same period, highlighting its operational efficiency and profitability.

• Non-Cigarette Segment Performance: ITC’s non-cigarette businesses now account for 67% of its revenue and 28% of its segment EBITDA, demonstrating the success of its diversification strategy. Sustainability Initiatives: ITC continues to invest in sustainability and digital transformation, which are key drivers of its future growth. The company’s commitment to responsible competitiveness and inclusive growth has earned it numerous accolades and recognitions.

SWOT Analysis

Strengths

• Diversified Portfolio: ITC’s diversified portfolio includes FMCG, Hotels, Packaging, Paperboards & Specialty Papers, and Agri-Business. This diversification reduces dependency on any single sector and enhances revenue stability.

• Strong Brand Presence: ITC has built strong brand equity with popular brands like Aashirvaad, Sunfeast, Bingo!, and Classmate. These brands enjoy high consumer trust and loyalty.

• Extensive Distribution Network: ITC boasts an extensive distribution network covering over 7 million retail outlets across various trade channels. This vast reach ensures that ITC’s products are widely available to consumers.

Weaknesses

•  Dependence on Cigarette Sales: Despite diversification, ITC still relies heavily on its cigarette business for a significant portion of its revenue. This dependence exposes the company to regulatory and health-related risks.

•  Regulatory Challenges: ITC operates in a highly regulated environment, particularly in the tobacco sector. Stringent regulations and increasing taxes on tobacco products can impact the company’s profitability.

Opportunities

• Expansion in FMCG: ITC has significant growth opportunities in the FMCG sector, particularly in packaged foods, personal care, and health and wellness products. The company can leverage its strong brand presence to capture a larger market share.

• Digital Transformation: Embracing digital technologies can enhance ITC’s operational efficiency, customer engagement, and supply chain management. Digital transformation initiatives can drive innovation and growth.

•  Sustainability Initiatives: ITC’s commitment to sustainability presents opportunities for growth in eco-friendly products and practices. The company’s focus on responsible competitiveness can enhance its brand reputation and attract environmentally conscious consumers.

Threats

• Competition: ITC faces intense competition from both domestic and international players in various segments. Competitors like HUL, Nestle, and Procter & Gamble pose challenges to ITC’s market share. Regulatory Changes: Regulation changes, particularly in the tobacco sector, can impact ITC’s business operations and profitability. The company needs to stay agile and adapt to evolving regulatory landscapes.

• Economic Fluctuations: Economic downturns and fluctuations can affect consumer spending and demand for ITC’s products. The company needs to be resilient and responsive to economic changes.

Sustainability Initiatives

ITC’s Commitment to Sustainability

ITC Limited has long been committed to sustainability, integrating environmental and social considerations into its business strategies. The company’s sustainability vision is driven by the credo of “Putting India First,” which emphasizes the importance of creating economic, environmental, and social capital. ITC’s approach to sustainability is holistic, focusing on decarbonization, water stewardship, waste management, and community empowerment. The company’s efforts are aimed at achieving a positive impact on the environment and society while ensuring long-term business growth.

Key Sustainability Initiatives and Achievements

ITC has implemented several key sustainability initiatives and achieved significant milestones in its journey towards a greener and more sustainable future. Some of the notable initiatives and achievements include:

 Carbon Positive:

 ITC has been carbon-positive for over 18 years, meaning it sequesters more carbon dioxide than it emits. The company has achieved this through extensive afforestation programs, energy efficiency measures, and investments in renewable energy sources.

 ITC’s renewable energy initiatives include solar and wind energy projects that power its factories, hotels, and office buildings. The company aims to meet 100% of its grid electricity requirements from renewable sources by 2030.

 Water Positive:

 ITC has been water-positive for over 21 years, indicating that it creates more water resources than it consumes. The company’s water stewardship initiatives include rainwater harvesting, watershed development, and efficient water management practices.

 ITC’s watershed development programs have covered over 1.2 million acres, benefiting thousands of farmers and rural communities by improving water availability and agricultural productivity.

 Solid Waste Recycling Positive:

 ITC has been solid waste recycling positive for over 16 years, meaning it recycles more waste than it generates. The company’s waste management initiatives focus on reducing, reusing, and recycling waste materials.

 ITC’s “Well-being Out of Waste” (WOW) program promotes waste segregation and recycling at the source, creating awareness and encouraging responsible waste management practices among communities.

 Sustainable Agriculture:

 ITC’s sustainable agriculture initiatives aim to enhance farm productivity, improve soil health, and promote climate-smart farming practices. The company’s e-Choupal initiative provides farmers with access to information, products, and services, empowering them to make informed decisions and improve their livelihoods.

 Green Buildings:

1.  ITC has made significant investments in green infrastructure, with 39 of its properties being

2. Platinum-rated green buildings by USGBC-LEED/IGBC. ITC Windsor in Bengaluru became the

3. first hotel in the world to be LEED® Zero Carbon certified.

 Community Empowerment:

 ITC’s social investment initiatives focus on economic empowerment, education, health, and sanitation. The company’s programs aim to create sustainable livelihoods and improve the quality of life for disadvantaged communities, particularly in rural areas.

ITC’s commitment to sustainability has earned it numerous accolades and recognitions, including high ratings in Environmental, Social, and Governance (ESG) indices and inclusion in the Dow Jones Sustainability Emerging Markets Index.

Awards and Recognitions

Major Awards and Recognitions Received by ITC

ITC Limited has received numerous prestigious awards and recognitions over the years, reflecting its commitment to excellence, sustainability, and innovation. Some of the major awards and recognitions include:

• Best CEO Award by Business Today: ITC Chairman, Mr. Sanjiv Puri, was conferred the Best CEO Award in the ‘Large Companies’ category by Business Today.

• Transformational Leader Award: Mr. Sanjiv Puri was awarded the Transformational Leader Award 2022-23 by the Asian Centre for Corporate Governance and Sustainability.

• Best Hotel Brand of the Year: ITC Hotels was honored as the ‘Best Hotel Brand of the Year’ at the ZeeZest Unlimit Awards 2024.

• Company of the Year Award: ITC Limited was conferred the ‘Company of the Year’ Award at the Economic Times Bengal Corporate Awards.

• Astitva Samman Award: ITC received the ‘Astitva Samman’ 2023 from the PHD Family Welfare Foundation for promoting women's empowerment.

• PAC Global Award of Distinction: ITC’s Matches Legacy Pack won the Award of Distinction at the PAC Global Awards 2023.

• BCC&I Corporate Governance Recognition: ITC Limited was adjudged Winner in the Listed Segment: Large Category at the BCC&I Corporate Governance Recognition 2022.

• India Star Awards: ITC’s Packaging and Printing Business won 17 top prizes at the India Star Awards 2023 for excellence in packaging design.

• National Water Awards: ITC won the First Prize at the National Water Awards 2022 for its water stewardship initiatives.

• Porter Prize: ITC received the Porter Prize 2017 for ‘Excellence in Corporate Governance and Integration’.

• Cannes Lions Grand Prix: ITC’s Savlon brand won the Grand Prix for ‘Creative Effectiveness’ at the Cannes Lions 2018.

Impact of These Recognitions on ITC’s Brand Image

• The numerous awards and recognitions received by ITC have had a significant positive impact on the company’s brand image. Some of the key impacts include:

•  Enhanced Reputation: The awards and recognitions have bolstered ITC’s reputation as a leader in various industries, including FMCG, hospitality, and sustainability. This enhanced reputation helps the company attract and retain customers, investors, and partners.

•  Credibility and Trust: The accolades serve as a testament to ITC’s commitment to excellence, innovation, and ethical business practices. This credibility and trust are crucial for building long-term relationships with stakeholders.

•  Employee Morale and Engagement: Recognition of ITC’s achievements boosts employee morale and engagement, fostering a sense of pride and motivation among the workforce. This positive work environment contributes to higher productivity and employee retention.

•  Competitive Advantage: The awards and recognitions differentiate ITC from its competitors, providing a competitive edge in the market. The company’s strong brand image helps it attract top talent, secure business opportunities, and expand its market presence.

•  Sustainability Leadership: ITC’s sustainability awards highlight its leadership in environmental and social responsibility. This leadership enhances the company’s brand image as a responsible corporate citizen, attracting environmentally conscious consumers and investors.

 Demerger of ITC Hotels

Background and Rationale

Overview of the Demerger Decision

ITC Limited, one of India’s leading conglomerates, decided to demerge its hotel business into a separate entity, ITC Hotels Limited. This strategic move was approved by the ITC Board in August 2023 and subsequently received shareholder approval in June 2024. The demerger aims to unlock value for shareholders and allow ITC Hotels to operate as an independent entity with a focused strategy.

Reasons Behind the Demerger

•  Strategic Focus: The demerger allows ITC to concentrate on its core businesses, including Fast-Moving Consumer Goods (FMCG), Agriculture, and Paperboards & Packaging. By separating the hotel business, ITC can direct resources and capital towards these segments, facilitating improved growth and profitability.

•  Growth Opportunities: The hotel business, as a standalone entity, can pursue its growth path with a sharper focus on the hospitality industry. This separation enables ITC Hotels to attract investors specifically interested in the hospitality sector and leverage growth opportunities in the fast-growing Indian travel and tourism industry.

•  Operational Efficiency: The demerger allows ITC Hotels to operate with an optimal capital structure, efficiently balancing debt and equity. This autonomy enables the new entity to access equity and debt markets for funding growth requirements, attracting strategic partners and collaborations.

 Demerger Process

Steps Involved in the Demerger Process

The demerger process involves several key steps:

1.  Board Approval: The ITC Board approved the demerger scheme in August 2023.

2.  Shareholder Approval: ITC shareholders approved the demerger with an overwhelming majority of 99.6% in June 2024.

3.  Regulatory Clearances: The demerger required approvals from various regulatory authorities, including the National Company Law Tribunal (NCLT), the Securities and Exchange Board of India (SEBI), and the Competition Commission of India (CCI).

4. Scheme of Arrangement: Under the scheme, ITC shareholders will receive one share in ITC Hotels for every 10 shares held in ITC

5. Listing of ITC Hotels: Once all approvals are obtained, ITC Hotels will be listed as a separate entity on stock exchanges.

Shareholder Approval and Regulatory Clearances

• Shareholder Approval: The resolution for the demerger was passed with a 99.6% majority at a meeting convened by the NCLT.

• Regulatory Clearances: The demerger received necessary clearances from SEBI, CCI, and other regulatory authorities. The process is expected to be completed within 6-8 months.

Impact on ITC and ITC Hotels

Changes in Ownership Structure

• ITC Shareholders: Post-demerger, ITC shareholders will directly hold 60% of ITC Hotels in proportion to their stake in the parent company.

• ITC Limited: ITC will retain a 40% stake in ITC Hotels, ensuring continued alignment and synergy between the two entities.

Financial and Operational Impact on Both Entities

 ITC Limited: The demerger will improve ITC’s financial return ratios and allow the conglomerate to focus on its core businesses. ITC will continue to benefit from synergies with ITC Hotels, particularly in areas such as FMCG and hospitality.

 ITC Hotels: As a separate entity, ITC Hotels will have a strong debt-free balance sheet with a net worth of nearly ₹10,000 crore. This financial strength will enable ITC Hotels to raise capital for growth and expansion.

Future Growth Prospects for ITC Hotels as a Separate Entity

•  Focused Growth Strategy: ITC Hotels will have the autonomy to pursue a focused growth strategy in the hospitality industry. The entity will leverage ITC’s institutional strengths, brand equity, and goodwill to drive growth.

•  Expansion and Innovation: With access to capital markets, ITC Hotels can invest in new properties, enhance existing ones, and explore innovative hospitality solutions. The entity’s asset-right strategy will balance owned and managed properties to optimize growth.

•  Market Leadership: ITC Hotels aims to strengthen its position as a leading player in the Indian hospitality sector, capitalizing on the growing demand for luxury and premium accommodations.

Future Outlook for ITC and ITC Hotels

 ITC Limited: With the demerger, ITC can concentrate on its core businesses, leveraging its strengths in FMCG, agriculture, and packaging. The company is well-positioned to capitalize on growth opportunities in these sectors, driven by innovation, sustainability, and digital transformation. ITC’s diversified portfolio and strong financial foundation will continue to support its long-term growth and resilience.

 ITC Hotels: As a standalone entity, ITC Hotels will have the autonomy to pursue a focused growth strategy in the hospitality industry. The entity’s strong financial position, brand equity, and commitment to sustainability will enable it to expand its market presence and enhance its offerings. ITC Hotels aims to strengthen its leadership in the luxury and premium hospitality segments, capitalizing on the growing demand for high-quality accommodations and experiences.

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